Will India Become the Next Global Economic Powerhouse?
India’s Growth Journey: From Historical Roots to Future Prospects
In a time when the United Kingdom and Japan were in a recession and other major economies like the US, France, China, and Germany were witnessing slow growth rates, the world economy grew by just 2.7%.[i] In this challenging time, the Indian economy saw a massive growth rate of 8.2% in the financial year 2022–23.[ii] However, this growth has not always been consistent. India has faced many challenges in the past, from the Indus Valley Civilisation to the present. Several invaders have come and destroyed its flourishing economy, especially after independence. India has come a long way since then, and there is a massive difference from what the British left. This article explores India’s flourishing economic history, where it started, where it is now, and where it can be in the future.
The Economic Legacy and Colonial Exploitation
To understand India’s economy, we must go back to the Indus Valley Civilisation, which existed from about 3500 BC to 1800 BC. During this time, India had a considerable share of the world’s economy, and Indian goods like pottery, beads, and gemstones were exported all over the world.[iii] Around 600 BC, they started using silver coins, which boosted trade. By 300 BC, the Maurya Empire brought political unity to the country, improving trade and agriculture with better roads. From the 1st to the 17th centuries AD, India had one of the largest economies in the world, especially during the prosperous Mughal period. In the 16th century, India’s GDP was about 25.1% of the world economy.[iv] By the 1700s, under Emperor Aurangzeb, India’s annual revenue was over £100 million, making up about 24.3% of the world’s GDP. After the advent of the British Empire in India in 1757, India’s economy was severely hurt. The British East India Company extracted wealth through heavy taxes and forced agriculture changes, drastically dropping India’s share of the global economy[v]. India’s share of the global GDP, which was 27% in 1700 AD, fell to 3% by 1950 due to British exploitative policies, significantly harming the Indian economy and showing the severe economic decline under colonial rule.[vi]
Post-Independence Economic Policies and Challenges
After Indian independence in 1947, India, following the Nehruvian socialism model, laid the foundation for a mixed economy with a strong emphasis on state-led industrialisation.[vii] The government adopted socialist policies, focusing on developing heavy industries, infrastructure, and public sector enterprises. The projected GDP during independence was 2.7 lakh crore rupees, approximately £30 billion, and approximately 3% of the global GDP.[viii] To review the economic growth, India adopted the Soviet Five-Year Plans model; it became a tool for development. The first plan was implemented in 1952, focusing on irrigation, infrastructure, modern industries, scientific institutes, and space and nuclear programmes.[ix]
Due to a lack of capital formation, Cold War politics, defence expenditure, population rise, and insufficient infrastructure development became significant obstacles to growth. From 1951 to 1979, the economy grew at an average rate of about 3.1% annually, with industry growing at 4.5% and agriculture at 3.0%. However, after 1980, the growth rate improved, with the economy growing at 5.5% annually from FY 1980 to FY 1989. Industry grew at 6.6%, and agriculture at 3.6%. Increased investment, reaching nearly 25% of GDP in the early 1980s, significantly stabilised India. However, the problem is still there. India is still an agricultural economy where approximately 80% of the population is still in the farming sector, so India is heavily dependent on foreign borrowing, which, in the 1990s, led to a balance of payments crisis.[x]
Economic Reforms of 1991: A Turning Point
In response to this balance of payments crisis, in 1991, the Indian government decided to implement historic reforms led by Prime Minister P.V. Narasimha Rao and Finance Minister Dr Manmohan Singh.[xi] This marked a new era from a closed, centrally planned economy to a more open, liberal, market-oriented economy. These reforms included three significant changes:
Liberalisation: The government made rules easier for industries, lowered taxes on imported goods, and removed the need for many business licenses. This helped create more competition in the market and attracted foreign investors.
Privatisation: The government sold shares in state-owned companies to make them more efficient and reduce the financial burden on the government.
Globalisation: India opened its economy to the world, encouraging foreign companies to invest and focusing on selling more goods abroad.
The economic reforms of 1991 started a new period in the Indian economy with rapid growth and development. Information technology, telecommunications, and pharmaceuticals experienced significant expansion, making India a global hub for IT services and outsourcing.[xii] An additional advantage to the country was its vast and youthful population, which significantly enhanced its economic growth. The service sector, especially IT and software services, proved to be the primary engine of economic development, making significant contributions to GDP and employment.[xiii]
The Economic Boom of the Early 21st Century
Dr Manmohan Singh introduced economic reforms, famously quoting Victor Hugo: “No power on earth can stop an idea whose time has come.”[xiv] Since then, the GDP has grown at 6–8% per annum. The nominal GDP of India, which in 1992 was US$267.52 billion, increased with a growth rate of 6 to 8% per year and reached US$1.85 trillion in 2012.iii India emerged as the third-largest economy and a preferred FDI destination. Now, in 2024, after more than 75 years of India’s independence, the economy has marked significant achievements, which will mark a historic US$4 trillion economy by the end of this year. Not only this, in the past ten years, India has marked a considerable growth rate of 8% four times.[xv] In 2023–24, India’s GDP has again grown to 8.2%.ii This is not a small feat when the whole world is growing at an average growth rate of 2.7%, significant economies like Japan and the United Kingdom are in recession, and the US economy is growing at 2.5%. In this challenging time, India is showing a remarkable growth rate of 8.2%, demonstrating the potential of India’s economy.[xvi]
Future Prospects for the Indian Economy
The journey is far from over. As Prime Minister Narendra Modi mentioned, this is just a trailer; the whole movie is yet to come. India is moving toward the next target of becoming the third-largest economy, surpassing Japan and Germany, aiming for a robust economy of US$7.3 trillion by 2030. [xvii] As the Goldman Sachs report projected, India will surpass the US economy and become the second-largest economy in the world by 2075.[xviii]
So, as Prime Minister Narendra Modi stated, this is just the beginning of India’s growth story; the best is yet to come.[xix] So it could be seen now that the ancient giant that the invaders demolished is now reviving and moving toward becoming a global superpower again
[i] International Monetary Fund. “World Economic Outlook Report.” April 2024. https://www.imf.org/en/Publications/WEO/Issues/2024/04/16/world-economic-outlook-april-2024?cid=bl-com-SM2024-WEOEA2024001.
[ii] Government of India. “India’s Economic Growth.” Press Information Bureau. February 20, 2024. https://pib.gov.in/PressReleseDetailm.aspx?PRID=2022323.
[iii] Consulate General of India, Jeddah. “History of the Indian Economy.” https://cgijeddah.gov.in/web_files/267622636-History-of-Indian-Economy.pdf.
[iv] Basu, Kaushik. “A Short History of India’s Economy: A Chapter in the Asian Drama.” WIDER Working Paper 2018/124. October 2018. https://www.wider.unu.edu/sites/default/files/Publications/Working-paper/PDF/wp2018-124.pdf.
[v] Bagchi, Aniruddha. “Why did the Indian economy stagnate under colonial rule?” Ideas for India. 2013.
[vi] “The History of Economic Development in India Since Independence.” Asian Studies. https://www.asianstudies.org/publications/eaa/archives/the-history-of-economic-development-in-india-since-independence/#:~:text=The%20country%20has%20experienced%20an,country%20experienced%20during%20British%20rule.
[vii] Consulate General of India, Jeddah. “Indian Economic History.” https://cgijeddah.gov.in/web_files/267622636-History-of-Indian-Economy.pdf.
[viii] “India in Numbers.” Times Now News. https://www.timesnownews.com/business-economy/economy/article/1947-india-in-numbers-what-was-the-country-s-gdp-population-per-capita-income/636908#:~:text=under%20British%20rule.-,When%20India%20declared%20its%20independence%20in%201947%2C%20its%20GDP%20was,China%2C%20Japan%2C%20and%20Germany.
[ix] Government of India. “Agricultural Production.” Economic Survey 1980–81. https://www.indiabudget.gov.in/budget_archive/es1980-81/2%20Agricultural%20Production.pdf.
[x] Shankar Acharya, “India: Crisis, Reforms and Growth in the Nineties,” Working Paper №139, King Center on Global Development, Stanford University, July 2002. Available at: https://kingcenter.stanford.edu/sites/g/files/sbiybj16611/files/media/file/139wp_0.pdf
[xi] Economic Reforms of 1991.” Ministry of Finance, Government of India.
[xii] Cato Institute. ‘Twenty-Five Years of Indian Economic Reform.’ https://www.cato.org/policy-analysis/twenty-five-years-indian-economic-reform."
[xiii] Chandrasekhar, C. P., Jayati Ghosh, and Anamitra Roychowdhury. “The ‘Demographic Dividend’ and Young India’s Economic Future.” Economic and Political Weekly 41, no. 49 (December 9–15, 2006): 5055–5064.
[xiv] Ministry of Finance, Government of India, “Budget Speech 1991–92,” presented by Dr. Manmohan Singh, July 24, 1991. Available at: https://www.indiabudget.gov.in/doc/bspeech/bs199192.pdf
[xv] World Bank. Global Economic Prospects, January 2024. The World Bank, 2024. https://thedocs.worldbank.org/en/doc/661f109500bf58fa36a4a46eeace6786-0050012024/original/GEP-Jan-2024.pdf.
[xvi] Smith, Molly, and Vince Golle. “Charting the Global Economy: UK, Japan Fell into Recession at the End of 2023.” The Economic Times, February 18, 2024. https://economictimes.indiatimes.com/small-biz/trade/exports/insights/charting-the-global-economy-uk-japan-fell-into-recession-at-the-end-of-2023/articleshow/107789836.cms?from=mdr
[xvii] Hard Work Needed for India to Be 3rd Largest Economy: FM.” Financial Express. https://www.financialexpress.com/policy/economy-hard-work-needed-for-india-to-be-3rd-largest-economy-fm-3471864/.
[xviii] How India Could Rise to the World’s Second-Biggest Economy.” Goldman Sachs. https://www.goldmansachs.com/intelligence/pages/how-india-could-rise-to-the-worlds-second-biggest-economy.html.
[xix] Modi, Narendra (@narendramodi). “India will continue to grow and reach new heights in the future. #IndiaGrowthStory.” Twitter, June 24, 2024. https://x.com/narendramodi/status/1796548475389403299?lang=en.
