DEVELOPMENT STRATEGIES BEFORE & AFTER 1991
Before 1991
I. Agriculture
At the time of independence, Indian agriculture was both backward and stagnant. It was backward due to
low output and productivity, minimal investment, small fragmented holdings, and a subsistence mindset
among farmers. Stagnation was evident from the exploitative land revenue systems, forced
commercialization of crops like indigo, and the widening gap between landowners and tillers. Farmers
lacked surplus resources for investment, while landowners used their surplus for lavish consumption. To
address these issues, India introduced two major types of reforms: land (institutional) reforms and
technical reforms to modernize and improve agriculture.
➢ Land Reforms (Institutional Reforms)
Land reforms in India aimed to reduce inequality in agriculture by abolishing intermediaries like zamindars
and giving ownership rights to actual tillers. Key measures included the abolition of intermediaries,
imposing land ceilings to limit the maximum land a family could own, and redistributing surplus land to
smallholders and landless laborers. Reforms also prioritized consolidation of fragmented holdings to lower
cultivation costs and regulated rent to protect cultivators from exploitation.
➢ Technical Reforms: HYV Technology & Green Revolution
The issue of low agricultural productivity in India was addressed through technical reforms centered
around the introduction of High Yielding Variety (HYV) seeds. The use of HYV seeds, along with chemical
fertilizers, insecticides, and pesticides, led to a significant rise in agricultural output, known as the Green
Revolution. This revolution, which began in 1967-68, saw a dramatic increase in crop production, with
food grain output rising by 25% in the first year alone.
II. Industry
Sustained GDP growth relies on industrial development, as industries provide stable employment
compared to agriculture. After colonial rule, India's handicraft industry had decayed, and large-scale
industries were limited. Planners prioritized industrial development in the Five-Year Plans, recognizing
that it required strong infrastructure and large investments, which could only be achieved through
significant public sector participation.
➢ Public & Private Sector in Indian Industrial Development
The direct participation of the state in industrial development was deemed essential for several reasons.
First, there was a lack of capital, as private industrial houses like Tata and Birla couldn't meet the massive
investment needed for industrial growth. Second, low demand and limited market size discouraged
private investment, requiring public investment to initiate industrialization. Finally, the goal of growth
with social justice, aligned with a socialist framework, aimed to reduce wealth concentration and prioritize
employment generation over profit, making public investment a crucial tool for achieving these
objectives.
➢ IPR, 1956 (Industrial Policy Resolution, 1956) – A Declaration on Leading Role of the State
The Industrial Policy Resolution (IPR) of 1956 emphasized the government's leading role in
industrialization, forming the basis of the Second Five Year Plan. The IPR classified industries into three
categories: (i) those exclusively developed by the public sector (e.g., atomic energy, defense), (ii)
industries where both public and private sectors could participate, but the public sector would lead (e.g.,
fertilizer, mining), and (iii) all other industries left to the private sector. It introduced industrial licensing
to regulate resource allocation and promote regional equality, and provided industrial concessions like
tax holidays and subsidized power to encourage industry in backward regions.
➢ Small Scale Industry
The process of industrialization in India had two key aspects: the growth of large-scale industries to
provide infrastructure and the growth of small-scale industries to create employment and promote social
equity. Small-scale industries are currently defined as units with a fixed investment of less than Rs 10 crore
and a turnover of less than Rs 50 crore, though earlier definitions set lower investment limits. The Karve
Committee in 1955 highlighted the importance of small-scale industries in fostering rural development.
III. Trade: Strategy of Import Substitution
India's trade strategy from 1950-1990 focused on import substitution, known as the Inward-Looking Trade
Strategy. This policy aimed to protect domestic industries by restricting imports through duties and import
controls, while encouraging the domestic production of goods previously imported. The goal was to
conserve scarce foreign exchange for essential developmental imports, such as machinery needed for
growth. Instead of promoting exports to generate foreign exchange, the strategy prioritized minimizing
imports and shielding local industries from international competition.
After 1991
I. New Economic Policy
Economic reforms refer to a set of economic policies directed to accelerate the pace of 'growth and
development'. It was in the year 1991 that the Government of India launched NEP (New Economic Policy),
unfolding a series of economic reforms to pull the economy out of the crises of 90's. Three broad
components of NEP are:
i. The policy of liberalization (L) in place of licensing (L) for the industries and trade.
ii. The policy of privatization (P) in place of quotas (Q) for the industrialists,
iii. The policy of globalization (G) in place of permits (P) for exports and imports.
Thus, LPG was set to replace LQP in 1991.
➢ Liberalization
Liberalization refers to the reduction of government controls over economic activities, allowing greater
freedom for producers. Although some liberalization measures were introduced in the 1980s,
comprehensive reforms began in 1991. Before these reforms, the government imposed various controls
on private enterprises, including industrial licensing, price controls, and restrictions on foreign exchange
and investments. These controls led to inefficiencies, corruption, and a significant decline in GDP growth,
resulting in a high-cost economic system. To address these issues, liberalization became a key aspect of
the New Economic Policy (NEP), emphasizing reliance on market forces instead of government
regulations, inspired by the rapid growth seen in countries like Korea, Thailand, and Singapore.
➢ Privatization
Privatization is the process of involving the private sector in the ownership or operation of a state-owned
enterprise. It implies gradual withdrawal of government ownership/management from the public sector
enterprises. It may happen in two ways:
i.
Outright sale of the government enterprises to the private entrepreneurs or
ii.
Withdrawal of the government ownership and management from the mixed enterprises (the
enterprises jointly owned and managed by the government and the private entrepreneurs).
➢ Globalization
Globalization refers to integrating a country's economy with others, characterized by increased openness
and economic interdependence. In India, key policy strategies facilitating this process include raising
equity limits for foreign investment from 40% to between 51% and 100%, allowing full foreign direct
investment in 47 high-priority industries while ensuring compliance with the Foreign Exchange
Management Act (FEMA). Additionally, the rupee has become partially convertible for specific
transactions, while a liberal long-term trade policy has eliminated most restrictions, encouraging open
competition. Furthermore, tariff barriers have been reduced to boost competitiveness, and since 2001,
quantitative restrictions on imports have been completely withdrawn to comply with India's World Trade
Organization (WTO) commitments.
II. Impact of LPG Policy
1. Due to the Liberalization of the economy, the market got opened up to more foreign investments and
import and export of goods. The Liberalization Policy helped in reducing the dependence on foreign
loans and expand the banking sectors and capital markets.
2. Privatization Policy helped in opening up the industries, that were reserved for the public sector, to
the private sector. Privatization Policy helped in reducing the monopolies of the government by
increasing competition.
3. Privatization of PSUs resulted in the promotion of efficient and improved quality of goods and services
for the consumers.
4. The Globalization Policy helped in opening the local market to the global market which helped India
in connecting with the global financial markets. It helped in opening up the economy to foreign direct
investment and reducing international trade restrictions.
Conclusion
The development strategies in India have undergone a significant transformation before and after 1991,
reflecting a shift from state-led initiatives to market-oriented policies. Before 1991, the focus was on
addressing the challenges of backward agriculture, industrial stagnation, and trade restrictions through
land and technical reforms, public sector-led industrial growth, and an inward-looking trade strategy
based on import substitution. However, the economic crises of the 1990s prompted the adoption of the
New Economic Policy (NEP), which introduced liberalization, privatization, and globalization—collectively
known as the LPG policy. This transition has facilitated greater foreign investment, reduced government
control, and integrated the Indian economy with global markets. The impact of these reforms has been
substantial, promoting competition, enhancing efficiency, and improving the quality of goods and
services. Overall, the shift to a more open and competitive economic framework has positioned India for
sustained growth and development in a rapidly changing global landscape.
