India celebrates its 78th Independence Day, a moment of pride and honour for each one of us, on August 15, 2024. Our freedom fighters laid down their lives for the motherland to see the day we do today, full of comfort and freedom. Their sacrifices stood vindicated as India emerged stronger as years went by despite the economic turbulences in between.
Today, India is a US$ 3.54 trillion economy, showing remarkable growth owing to increased domestic consumption and the government’s emphasis on driving capital investments in the country.
In this blog, we will share the resilience of the Indian economy over the years.
Here’s How India Tackled Economic Crisis Since the Independence Day of 1947
India is a diverse group of people with different cultures and backgrounds. What’s more, there has always been a massive disparity in income distribution among Indian households. As per the World Inequality Report 2022, India’s top 10% and top 1% rich hold 57% and 22% of the country’s national income respectively. Whereas, the share of the bottom 50% is reduced to a meagre 13%. However, as the country’s GDP grew 8.2% during FY24 compared to 7% in FY23, there are possibilities of income disparity ratio narrowing down. And the fact that India has encountered several economic challenges hands down over the years, there is sheer optimism of a balance in income distribution among the Indians in the times to come.
Swadeshi Movement Initiated by the Jawaharlal Nehru-led Government from India’s First Independence Day
Fresh from gaining independence from the British reign, India had to make its domestic market strong to generate more income for its natives. The Jawaharlal Nehru government initiated an economic model under 5-year plans to improve the country’s industrial growth by boosting local production and reducing the reliance on foreign imports. This move worked wonders till India faced a major economic crisis in the early 1990s. Catch more of it below.
The Economic Scars of 1991 and the Masterstroke of the Then FM Manmohan Singh
It was one hell of a time that India went through in 1991. The inflation was going skywards, foreign reserves were dwindling at a rapid pace, and the fiscal deficit was widening like no other. India had just two-three weeks of imports to fulfil its needs. Factors that pushed India to the brink of an economic collapse included heavy borrowing, oil price spike due to the Gulf War, negligible foreign investments, etc.
The government headed by PV Narasimha Rao and the then Finance Minister Manmohan Singh introduced a series of measures to rein in the effect of the economic crisis. These included pledging a significant proportion of the country’s gold reserves with the Bank of England and Union Bank of Switzerland to procure the much-needed capital to stay afloat. But more importantly, the masterstroke of the LPG (Liberalisation, Privatisation and Globalisation) concept introduced by the government attracted investments from both domestic and foreign players, lifting the country’s economy from the shambles over time.
The government abolished Licence Raj, which used to have a complex cycle of licence regulations and red tape, drowning the country’s economy since India’s first Independence Day. Further, the introduction of the new trade policy made India’s domestic industries competitive globally. By opening the economy to foreign players by easing investment norms for them, India attracted an infusion of capital, management and technology.
The LPG concept made India one of the fastest-growing economies in the world, created increased employment opportunities across sectors and pulled millions out of poverty.
How India Bounced Back from the Subprime Crisis That Engulfed the Entire World
The subprime crisis resulting from severe mortgage defaults in the United States in 2007-08 started affecting the entire world. The housing boom during the early 2000s resulted in lenders extending home loans to borrowers even with a poor credit history. As the housing market crashed in the US, the value of homes went way lower compared to the loan availed against them. As many accessed loans without having income and a good credit history, they started defaulting on payments, resulting in a massive crisis.
Since it was the US and the close linkages it has with all the major economies of the world, it affected India too. Jobs got slashed, the value of goods and services declined severely, resulting in a horrible economic situation for the country. Foreign institutional investors (FIIs) sold billions of dollars in the foreign exchange market, threatening the downward spiral of the rupee.
The RBI Eased the Monetary Policy During India’s 61st Independence Day
The Reserve Bank of India (RBI) slashed the Cash Reserve Ratio (CRR) by 400 basis points (100 basis points =1%) from October 2008 to January 2009, resulting in a liquidity boost of INR 1,60,000 crores into the country’s banking system. Additionally, the central bank cut the Statutory Liquidity Ratio (SLR) from 25% to 24%, arming banks with a capital of INR 20,000 against the government securities to lend to mutual funds. If that was not enough, the RBI released INR 25,000 crores to banks concerning the central government’s farm waiver scheme.
The Manmohan Singh-led Government Took Initiatives to Boost Investment
While easing the monetary policy proved effective, the fiscal stimulus measures helped in India’s successful fight against the global recession emanating from the subprime crisis. The fiscal package involving a hike in government expenditure by INR 30,700 crore in December 2008 was aimed at boosting the growth of textiles, infrastructure, housing, automobiles, small and medium enterprises, etc. The government also slashed indirect tax rates to boost private investment and domestic consumption. At the end of 2009, India recovered from the economic recession.
India’s Recovery from the COVID Pandemic After 75th Independence Day in 2021
The COVID pandemic, which emerged in China first in late 2019, started wreaking havoc all over the world, killing people and infecting many for days. To curb the spread of Coronavirus, the Modi-led government brought in perhaps the harshest lockdown, stalling manufacturing activities and scaling down the country’s economic growth. India’s GDP contracted by an astonishing 24.4% in the first three months of FY 2020-21. The GDP contracted even in the next three months, albeit at a slower rate of 7.3%. Besides the loss of life, there was a loss of jobs, causing chaos all over. Sensex, which crashed to around 25,000 in March 2020, breached the 50,000 mark in just 10 months in January 2021. A month after India celebrated its 75th Independence Day, Sensex crossed the 60,000 mark for the first time, showcasing India’s resilience to fight the menace.
What Did the Narendra Modi-led Government Do to Counter the Adverse Effects of COVID Pandemic?
The Narendra Modi-led government introduced calibrated fiscal support measures amounting to INR 29.87 lakh crore, accounting for 15% of the country’s GDP. Further, the government announced stimulus packages to lift the marginalised section of society. These included an INR 1,92,800-crore Pradhan Mantri Garib Kalyan Yojana, an 82,911-crore Pradhan Mantri Garib Kalyan Package – Anna Yojana, and a 14,40,730-crore Atmanirbhar Bharat Yojana which was rolled out in three phases to boost industrial growth and development.
India’s Purchasing Managers’ Index, an indicator of the buoyancy in manufacturing activities, which fell to 27.4 in April 2020, surged to 57.5 in February 2021, showcasing the sharp movement in factory orders largely due to the structural reforms announced through Atmanirbhar Bharat Yojana.
Conclusion
15th August 2024 marks India’s 78th Independence Day, a moment to celebrate and feel proud of. However, the government should continue focusing on lifting India to the elite club of Developed Nations by 2047. To boost consumption, the government should hike tax exemptions for middle-class Indian households. Maybe increasing the tax exemption amount for home loan borrowers and curbing the indirect tax levies on essential goods.
The Union Budget 2024-25, however, didn’t come as expected as the government hiked taxes on capital gains, leading to capital market shrinks for a couple of trading sessions. All eyes are on the Union Budget 2025-26. Fresh economic challenges can still haunt India’s march to glory, however, it will recover owing to the fiscal stimulus package and importantly, the belief of 140 crore Indians.
We wrap up by saying Jai Hind, Jai Bharat!
