Model Answer
0 min readIntroduction
Gross National Product (GNP) represents the total value of goods and services produced by a country's residents, regardless of their location. Prior to the economic reforms of 1991, India’s GNP was heavily reliant on the agricultural sector. However, over the decades following independence, a gradual shift in the sectoral composition of GNP began to occur, with the relative contribution of agriculture declining and that of industry and, particularly, services increasing. This transformation was driven by a complex interplay of policy choices, technological advancements, and global economic conditions. Understanding these factors is crucial to comprehending the trajectory of India’s economic development.
Agricultural Sector and its Declining Share
Initially, agriculture dominated the Indian economy. However, several factors contributed to its declining share in GNP:
- Land Reforms (1950s-60s): While intended to improve agricultural productivity, land reforms were implemented unevenly and often faced resistance from landlords, limiting their impact.
- Green Revolution (mid-1960s): The Green Revolution, focused on high-yielding varieties of wheat and rice, increased production in certain regions (Punjab, Haryana, Western Uttar Pradesh). However, it was geographically limited and led to regional disparities. It also increased dependence on chemical fertilizers and irrigation.
- Lack of Infrastructure: Inadequate irrigation facilities, storage infrastructure, and transportation networks hampered agricultural growth and led to post-harvest losses.
- Tenancy Issues: A large proportion of farmers were tenants with insecure land tenure, discouraging investment in land improvement.
Industrial Sector: A Controlled Growth
The industrial sector experienced a more controlled growth trajectory due to the prevailing economic policies:
- Industrial Policy Resolution (1948): This resolution established a mixed economy with a dominant role for the public sector. The state controlled key industries like steel, power, and transportation.
- Five-Year Plans (1951 onwards): The Five-Year Plans prioritized heavy industries, leading to capital-intensive investments. While this built a basic industrial base, it neglected small-scale industries and consumer goods.
- Licensing Raj: A complex system of licenses and permits (the “License Raj”) restricted industrial expansion, stifled competition, and encouraged rent-seeking behavior.
- Import Substitution Industrialization (ISI): India adopted an ISI strategy, aiming to produce goods domestically to reduce reliance on imports. This led to protectionism and reduced efficiency.
- Public Sector Inefficiency: Many public sector enterprises (PSUs) suffered from inefficiency, overstaffing, and political interference.
The Rise of the Service Sector
Despite the focus on agriculture and heavy industry, the service sector began to grow, albeit slowly, during the pre-reform period:
- Financial Sector Development: The nationalization of banks in 1969 aimed to expand access to credit, particularly in rural areas. This contributed to the growth of the financial sector.
- Growth of Public Administration: A large public administration sector, driven by the welfare state model, contributed significantly to the service sector.
- Emergence of IT Sector (late 1980s): The seeds of the IT revolution were sown in the late 1980s, with the establishment of software technology parks and the emergence of a skilled workforce. However, this sector remained relatively small until the 1990s.
- Trade and Transport Services: Growth in domestic trade and transport services also contributed to the expansion of the service sector.
Statistical Trends in Sectoral Contribution to GNP
| Sector | 1950-51 (%) | 1970-71 (%) | 1980-81 (%) | 1990-91 (%) |
|---|---|---|---|---|
| Agriculture | 59.6 | 43.7 | 35.8 | 30.7 |
| Industry | 13.8 | 22.8 | 23.6 | 24.3 |
| Services | 26.6 | 33.5 | 40.6 | 45.0 |
(Source: National Accounts Statistics, CSO, Government of India - data based on knowledge cutoff)
Limitations of the Pre-Reform Model
The pre-reform economic model, while achieving some progress in building a basic industrial base and reducing poverty, faced several limitations:
- Slow Growth: The average annual GDP growth rate remained relatively low (around 3.5% – the “Hindu rate of growth”).
- Fiscal Deficit: Persistent fiscal deficits and high levels of public debt constrained economic growth.
- Balance of Payments Crisis: A severe balance of payments crisis in 1991 forced India to undertake economic reforms.
- Inefficiency and Corruption: The License Raj and the dominance of the public sector led to inefficiency and corruption.
Conclusion
The shift in sectoral composition of India’s GNP during the pre-economic reform period was a gradual process shaped by a complex interplay of agricultural policies, industrial strategies, and the nascent growth of the service sector. While the Green Revolution and industrialization efforts laid the foundation for future growth, the restrictive policies and inefficiencies of the pre-1991 model ultimately constrained India’s economic potential. The increasing share of the service sector, though modest, foreshadowed the significant transformation that would occur after the economic reforms of 1991.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.