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Ankit Patel

India

Economic Development

Introduction Throughout Indias ancient history there have been many social, economic and religious transformations. Even though it is one of the worlds oldest civilizations, its modern economy is a little more than fifty years old. When India gained independence from the British on August 15, 1947, it had started its journey of economic development. Today India is a powerhouse of technology, education, and innovation. Though it is still in the process of creating a modern economy, through the last 100 years, many positives changes have turned India from a poverty stricken society to a world leading economy.

Economy under British Rule In May 1858, the British exiled Emperor Bahadur Shah II (rain 1837-57) to Burma, thus formally liquidating the Mughal Empire (Heitzman and Warden, page 36). Under the British Empire, India had lost many decades of growth especially in the agriculture and industrial areas. Before the coming of the British, each village was self-sufficient, there were cultivators, artisans, barbers, priests, etc. Also, in medieval India towns grew around the palace of a king or great nobleman and existed solely to satisfy the needs of the court (Griffiths, page 78). This closed economy worked well for centuries, but the growth needed to be an economic powerhouse was

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not happening. Everything in this economical system was stagnant, and fluctuation depended upon the agriculture harvests. The only outside involvement in this system was to barter with other villages (Griffiths, page 75). The British being world class traders were determined to exchange their commodities for the produce of the villages. Also as great builders of roads and bridges, they made extensive internal trade possible (Griffiths, page 75). In spite of theories of economists in England, in the eighteenth century very few Asian countries wanted British goods. However in the nineteenth century when England became able to provide cheap textiles and a great variety of consumer goods, trading completely changed (Griffiths, page 75). These trades greatly benefited the people of India, especially the poor, who used England mill-made products to extend the use of cloth in India. Now through Indian exports and imports, the economy became open, and the switch from a static to a dynamic society increased amenities of life for the community as a whole (Griffiths, page 75).

Certain Economics of Early India Estimates of the annual growth rate of national income over the period 1914 to 1946 vary from 1.22 percent to 0.73 percent (Parikh, page 60). In this period the industrial sector was very low, employment in factories was 1.5 million people with a population of 389 million in 1941. Unlike agriculture, Indian industries had some vitality. During World War II, Indian industries saw a boost, but still employment in modern industries was only 2.3 percent of the labor force (Parikh, page 60). However the world wars also provided an opportunity for modern industry to grow. The war reduced supply of foreign goods and so India had to become selfsufficient in consumer goods. This self-sufficiency is only one dimensional because all the machinery and tools for capital goods are all imported from other countries. In 1950, almost 90

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percent of capital goods were imported (Parikh, page 61). In 1950-51 Agriculture contributed for 55.4 of GDP, this was the start of a change for agriculture and modern industry, as shown in 1990-91 GDP, agriculture accounts for only 30.9 percent (Parikh, page 61). This change is due to the development strategy implemented just after India become independent.

In the sense of the industrial sector being controlled by a small group is hard to say. Most Indians during British rule and beyond were poor and through the progress of development, few Indian entrepreneurs became industry owners. Indians played a little part in the early developments, the development of railways, indigo plantations, or tea gardens were a direct result of British energy and British Capital with only labor participation coming from Indians (Griffiths, page 76). Indians were weary of investing to further develop the economy. Griffith states that in 1868, of the 49,688 shareholders in Indian railways, only 817 were living in India and less than half of those were Indians. Because of not having Indians with managerial expertise to meet the needs of an expanding economy, lead to industry being controlled by few people and most foreign in India.

Caste System

Starting from 1858 British rule was the first power to organize the Indian subcontinent. In the centuries before, kings ruled parts of Indian and many different empires claimed the lands of India.

{There has, indeed, been a tendency to give undue credit to Britain for the restoration of law and order - a task which must be regarded by any stable government as elementary

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and to overlook certain by-products of that process which distinguished British rule from earlier government systems in India (Griffiths, page 51)} Education in India has been historically elitist. Traditional Education was tailored to the needs of Brahman (Heitzman and Worden, page 110). A Brahman is a class of people in the traditional Varna. Varna refers to the four casts of Hindu society. Brahman is the highest caste, and includes, priests, scholars, teachers, and sages. The term varna came from the Rig Veda which are sacred texts that date back to 3000 years ago. {The four varna groups sprang up from various parts of the body of the primordial man. Each group had a function in sustaining the life of society. Brahmans, or priests, were created from the mouth. They were to provide for intellectual and spiritual needs of the community. Kshartiyas, warriors and rulers, were derived from the arms. Their role was to rule and protect others. Viashyas- landowners and merchants- sprang from the thighs, and were entrusted with the care of commerce and agriculture. Shudras- artisans and servants- came from the feet. Their task was to perform all manual labor (Heitzman and Worden, page 267)

The caste system in India has undergone significant change from the time of emperors but still a majority of Indians are involved in a caste system of some type. Many castes are traditionally associated with an occupation, such as high-ranking Brahmins; middle-ranking farmer and artisan groups, such as potters, barbers, and carpenters; and very low-ranking Untouchable leatherworkers, butchers, launderers, and latrine cleaners( Heitzman and Warden, page 267). In modern India Untouchable caste is a new fifth class; they carry out very

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menial and polluting work related to bodily decay and dirt. The new Untouchable caste came about in the early twentieth century.

Under British rule, there were official education policies to reinforce the persisting elitist tendencies. The British did this because they wanted education to serve as a gatekeeper only permitting upward mobility to those who has sufficient resources. Due to this type of hierarchy in the society until the early 1900s, many Indians were uneducated and the focus of most Indians was on agricultural trade and being in a closed economy from British tendencies. There are some arguments that because the British did bring in many educated persons and help develop industries in India, there remains an argument that these changed has been the emergence of an educated and influential middle class (Griffiths, page 78).

{There was in them no class comparable to the men of commerce, the industrialists, the bankers, the lawyers, the doctors and the other professional men who count for so much in Bombay and Calcutta today. These are the men who have made modern India and the rise of the upper middle class may be regarded as one of the most important results of British influence in India (Griffiths, page 78).}

Independence (1947)

Before 1945 India did have experience with democracy. The British in India established many rules and laws of governance that were adopted by the State of Indias constitution in 1947. While limits of powers from class to class were relative, the elite did have their way for centuries before and throughout most of the British rule. The elite could operate businesses and build industries with the help of the British. The lower class mainly lived the traditional life.

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Little to no education was taught in villages and most villagers were agriculturists. Despite many problems, the caste system has operated successfully for centuries, providing goods and services to Indias many millions of citizens. Indias constitution guarantees basic rights to all its citizens, including the right to equality and equal protection before the law (Heitzman and Worden, page 274). The planning of economic development only started in the 1930s with most of it taking place after independence.

When India became independent it was the turning point for the economy. In 1950, The Planning Commission was established; it drafted plans for national development including the economy. There were many different plans that India implemented such as the Five-Year Plan to the Fifteen Year Plan. From the beginning these plans were focused on correcting imbalances caused by World War II and the partition (Heitzman and Worden, page 309). Most plans focused on industrialization and emphasizing industries in the public sector along with a plan of social goals and making infrastructure.

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Living Standards and Growth to 1950

Figure 1 Historical Statistics of the World Economy: 1-2008 AD, By Angus Maddison.2007

Year
1700 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2008

India 550 584.141 599.1775 696.5872 634.9836 725.6153 686.2849 619.0028 753.2488 867.9926 938.4418 1308.82 1891.725 2974.908

India's Growth 0.03 0.3 1.5 -0.9 1.3 -0.6 -1.0 2.0 1.4 0.8 3.3 3.7 5.7

USA
527 3,392 4,091 4,964 5,552 6,213 7,010 9,561 11,328 15,030 18,577 23,201 28,467 31,178

USA'sGrowth India GDP/ USA GDP 1.0436 1.0 0.1722 1.9 0.1465 1.9 0.1403 1.1 0.1144 1.1 0.1168 1.2 0.0979 3.1 0.0647 1.7 0.0665 2.8 0.0578 2.1 0.0505 2.2 0.0564 2.0 0.0665 1.1 0.0954

Figure one shows data of India and USAs economic growth of select years from 1700 to 2008. While USAs growth rate has stay consistent with several decades of high growth, it is only after 1950 that Indias growth rate starts to increase over decades than decrease as it did before 1950. Before the Second World War there was a slow growth of certain newer industries in India, largely in the fields protected from foreign competition, to meet long-term domestic demand (Rosen, page 3). At independence in 1947 most of the economy was predominantly agrarian. The population was employed in agriculture, and most of the people were poor. Because of this situation in the first half of the 20th century, we can see that even though modern industries started to grow in India the vast majority of the population was employed by an industry that had not changed its technology for hundreds of years. Economic growth according to Heitzman and Worden did not start until after 1950.

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Table one shows that through the years listed, USAs unit per capita GDP is beyond Indias. In 1700 Indias per capita GDP was 550 and USAs was 527 and in 1950 Indias per capita GDP is 619 while USAs is 9,561. Two things have happened in between these two time periods. Historical Statistics of the World Economy: 1-2008 AD by Angus Maddison shows that in 1700 USAs population was 1,000 and Indias population was 165,000 and in 1950 the population was 153,271 and 359,000 respectively. Given the data, Indias economy was superior to USAs in 1700 and in 1950 when USA has already begun the industrial revolution and is innovating and coming up with far reaching technologies and ideas, India has just gained independence and with more population to GDP than USA it has been inconsistent in growth. Each persons standard of living in India in 1950 is behind USA. Poverty had not increased. In fact, it had been reduced even though the population had increased. Yet more than 200 million people remained below the poverty line (Parikh, page 60). From 1900 to 1950 life expectancy in India had increased from thirty-two to fifty-five, although still below that of other countries. The war provided a major demand in stimulus. New firms, which had entered industry amidst threats of overproduction, found a ready market for their products, older firms expanded their sales, and almost all industry operated at capacity (Rosen, page 4). The table above shows that economic grown in the decades of 1930 and 1940 were negative, even though most industries in India during that time expanded and were running at capacity. Rosen says the non-growth of the two decades is because of the lack of expansion of industrial capacity, and, in fact, decline in output, lays primarily in the uncertain political situation first, the 1947 budget with its heavy rates of taxation; and then the achievement of independence, combined with the separation of India and Pakistan.

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Development and Growth Before 1950

The first industries to arise in India were cement, paper, iron and steel, cotton, and sugar, with the oldest and largest being cotton and the newest but growing rapidly, sugar.

Figure 2 Source: Rosen, page 221

Table two shows the value of these five industries from 1937-1954. During the Second World War the table shows us that cement, paper, and iron and steel industries grew while cotton and sugar industries were stagnant.

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Rosen studied these five industries from 1937-1955, in this time period larger firms starts subcontracting their production to smaller firms usually started by employees. Rosen studies these small firms and concluded this about its owners:

{All the firms studies were started by a single person, usually with one or two secondhand machines in a small room or shed, which the founder either purchased or leased, and with a very few workers. The founder was usually a skilled mechanic, frequently uneducated in the regular school system but well trained in larger machines shop often foreign owned- and with a knack for using machinery (Rosen, page 187).}

The study done by Rosen shows that the many firms were started by normal people who had a skill in machinery. There were a lot of firms owned by larger firms that competed with each other. There was not much innovation going on with this type of industrial method in the time period, although it was a change from how things were done before with the elite ruling. At Independence, industrialization was viewed as the engine of growth for the rest of the economy and the supplier of jobs to reduce poverty (Heitzman and Worden, page 328). To make progress toward this goal, many industries popped up in Indias economy. Textiles, fertilizer and petrochemicals, electronics and motor vehicles, construction, and steel industries formed after independence. Great emphasis was placed on the development of the steel industry in particular. Indias Steel Industry Indias economic growth is contingent upon the growth of the Indian steel industry. Consumption of steel is taken to be an indicator of economic development (Bhandari et al.).

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The earliest roots of the iron industry in India can be traced back to 1874, when James Erskine a foreigner to India founded the Bengal Iron Works. This company would later be known as Steel Authority of India Limited (SAIL), and is the second largest steel producer in India. The Indian iron and steel industry is more than a century old, with Tata Iron & Steel Co (Tata Steel) as the first integrated steel plant to be set up in 1907 (Iron and Steel.). Jamsetji Tata, the founder of Tata Steel was born in Gujarat, India and became known as the father of industry in India. Jamsetji Tata was a business man who not only planted the seed for modern steel industry in India but also became a visionary in other industries including: communications, chemicals, tea, and other various industries (Indian Steel Industry History). Tata was a smart business man and let someone who has experience in the steel industry take over as general manager. R.G. Wells, an American came to India in 1909 to work with Tata Steel and contributed significantly in the developing years of the company(Indian Steel Industry History). At the turn of the nineteenth century, Jamsetji Tata went to Pittsburgh and asked geologist Charles Perin to help him find the site to build his dream - Indias first steel plant (Rakesh). The India steel industry although started locally, had crucial help from the rest of the world on how to produce steel. Even in Indias hierarchical society, Jamsetji Tata was not elite in this society. His family lineage included priests and no businessmen before Tata. {In spite of Jamshedjis drive and initiative, actual production could only start in 1912, three years after his death. The plant, with a small production of 100,000 tons of finished steel, steadily grew to become the largest integrated steel plant in India by the end of the World War II. This was no mean achievement under the conditions prevailing in the country in those days. Jamshedji became the man who helped the nation to believe in

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itself and the man who lighted the path for many entrepreneurs in India to follow his example. (Indian Steel Industry History)} After Independence from the British, the Indian government debated over nationalization and the extent of private versus government expansion in steel (Rosen). In the 1948 Industrial Policy Statement, Rosen describes that the iron and steel industry were among those fields in which the State will be exclusively responsible for the establishment of new undertakings, except where, in the national interest, the State itself find it necessary to secure the cooperation of private enterprise subject to such control and regulations as the Central Government may prescribe. This policy took its toll on the private sector of Indian steel. During the Korean War the government implements a price control system because the war was discouraging expansion by private firms. Also during the period of 1948-1955, Indias policy about the steel industry favored a nationalist view which in turn was disadvantageous to the private steel industry.

The Indian government in 1956 implemented a new way of governing the steel industry. The new Industrial Policy Statement includes:

{ The New Industrial policy adopted by the Government of India has opened up the iron and steel sector for private investment by removing it from the list of industries reserved for public sector and exempting it from compulsory licensing. Imports of foreign technology as well as foreign direct investment are freely permitted up to certain limits under an automatic route. This, along with the other initiatives taken by the Government has given a definite impetus for entry, participation and growth of the private sector in the steel industry (Iron and Steel).}

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Today the steel industry is a soaring demand by sectors like infrastructure, real estate and automobiles, at home and abroad, has put India's steel industry on the world map (Iron and Steel). Today exports are higher than imports of steel, and Domestic consumption of finished (carbon) steel is on the rise, driven by a boom in the automobile sector and a nation-wide thrust on infrastructure and real estate.

The figure below shows the export and import rates of steel products from 1975-2005.

Figure 5. Exports and imports of semi-finished and finished steel products (1975-2005, 1000 tonnes)
7000

6000

5000

4000

3000

2000

1000

Source: IISI, Steel Statistical Yearbook, various issues

Indias steel industry is the seventh largest in the world. It is booming with almost all other parts of its economy. The average growth rate of the Indian iron and steel industry is 11.36%, the

19 75 19 76 19 77 19 78 19 79 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05
Export Import

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domestic consumption of steel has grown by12.5% in the past three years, and it is expected that India would become the second biggest producer of steel within the year 2016 and the production per year would be 137 million tones (Rosen). Steel is one of the building blocks for a modern developed economy. This industry has helped transform Indias transportation, infrastructure and almost all other industries by producing this building block.

Agriculture Growth and Development From 1891 to 1946, output of all crops grew at 0.4 percent a year; the rate for food grains was only 0.1 percent per year (Heitzman and Wordon, page 391). Starting from the British rule the agriculture industry had no active policy or regulation, and there were no improvements in research or education until independence. Farmers had no incentive to invest in their crops even though foreign technology had taken great strides. There were few improvements in seeds, agricultural implements, machines, or chemical fertilizers (Heitzman and Wordon, page 392). After independence there had to be improvements in farming as 70 percent of the population were employed in agriculture and it provided 50 percent of the gross national product. Agricultural development was a key to a number of national goals, such as reducing rural poverty, providing an adequate diet for all citizens, supplying agricultural raw materials for the textile/cotton industry and expanding exports (Heitzman and Wordon, page 392). These goals would not be met until after 1950 mainly there were phases in the 70s and 80s that aimed for self-sufficiency in food production, and included plans for surplus of some agricultural commodities for export.

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Education After Independence, education for everyone improved drastically. Education became the responsibility of the states. The Central Governments only obligation was to coordinate in technical and high education and specify standards. This continued until 1976, when the education became a joint responsibility of the state and Central Government (Heitzman and Worden, page 104). Before 1976 there are varying policies and acts that states in acted for the education of children, but it was only after 1976 that the government standardized education. One article set forth the goal that free education for all children through age fourteen. The government increased spending on education from 3 percent of GNP in 1950s to 7 percent in the 1970s. National literacy rates increased from 43.7 percent in 1981 to 52.2 percent in 1991, passing the 50 percent mark for the first time. The government has launched many campaigns for educated its citizens like the wide-reaching literacy campaign in 1993. But more significant is the Operation Blackboard campaign. This campaign allocated one billion rupees to pay for basic amenities for village schools, such as toys and games, classroom materials, blackboards, and maps. This allotment averages 2,200 rupees for each government-run primary school. Additional goals of Operation Blackboard included construction of classrooms that would be usable in all weather, and additional teacher, preferably a women, in all single-teacher schools (Heitzman and Worden, page 112).

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Growth and GDP Components 1950-2008

country year GDP Per Capita Growth Rate Cons (kc) India 1950 591.8569 85.2872 India 1955 648.5453 1.8293 81.1984 India 1960 711.4340 1.8510 80.1868 India 1965 775.0685 1.7134 74.1550 India 1970 886.2361 2.6806 73.4630 India 1975 924.4808 0.8450 70.6519 India 1980 1018.2593 1.9324 72.0232 India 1985 1174.4059 2.8534 70.7793 India 1990 1407.7235 3.6242 67.4222 India 1995 1566.3628 2.1356 67.9841 India 2000 1858.8652 3.4242 67.8223 India 2005 2556.2613 6.3716 61.3638 India 2008 3078.7812 6.1996 61.9839 Gov (kg) Invest (ki) openk 4.7942 10.0475 19.2205 5.7761 14.2322 17.2294 6.4030 17.7676 16.9007 9.6683 19.9843 15.7580 9.8331 17.8448 11.4248 9.7370 19.1901 12.3468 10.6555 18.3589 16.2898 12.0440 20.1083 15.4252 12.5484 21.7314 16.7327 12.2904 24.8902 29.0925 14.0814 22.3901 34.6643 11.3710 29.8994 39.6394 11.9869 31.1873 50.1376 Exports -39.9542 -41.4886 -43.2283 -43.5248 -44.3581 -43.1161 -41.8739 -43.2532 -41.9847 -37.5361 -34.3147 -30.9974 -27.0103 Imports 59.1747 58.7180 60.1291 59.2828 55.7829 55.4629 58.1637 58.6784 58.7174 66.6286 68.9790 70.6368 77.1479

Figure 3 Penn World Data

Figure 4 World Bank

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Indias GDP growth rate from 1950 to 2008 has been steadily increasing. According to the Penn World Data table in Figure One, there are some decades with little growth sometimes little than one percent. From 1965-1970, India has the first growth of more than two percent. Figure Three gives more information as to why the reason for this growth, in 1965 and 1966 there is a dip in the growth rate and then in 1967 it shoots back up and stays steady until 1970. Indias GDP fell in 1965 because of a war it had with Pakistan which lasted April to September, 1965. The war was fought over the disputed region Kashmir in Northern India. The next major hit in Indias growth rate happens in 1979. In this year, many things happen, on August 11, 1979, a Dam busted in the state of Gujarat which was the worst flood disaster in independent India. This flood killed an estimated 15,000 people and put a major strain on the economy of India. The growth rate has been anywhere from one to two percent until 1985, when the growth rate shoots up and in 2005 and 2008 is more than six percent. From 1980 to 1989, the economy grew at a rate of 5.5 percent (Parikh, page 299). This high growth can be the result of new investment, which went from nineteen percent in the 1970s to 25 percent in the 1980s. Investment in India is getting higher and higher in recent decades. Even though investment is high, the growth rate has been unstable for the past years due bad economy in all parts of the world. An article in the Business Insider says that Indias GDP growth rate has come close to ten percent, but that three factors will hinder the growth of India GDP.

1. Rise in oil prices 2. Tightening Reserve Bank of India regulations 3. Strong Exchange rate (Badkar)

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Development after 1950 Indias true development starts after 1947, when it achieved Independence from the British. India now has periods of trial and error through reforms and five-ten year plans to get its economy on track to be the dominant power it is today. One of the first policies the business world awaited for was the Industrial Policy Resolution of April 6, 1948. The resolution recognized that a mere redistribution of wealth would not serve Indias purpose and that the fundamental need was for the expansion of production (Griffiths, page 228). Industries were divided into three categories, in the first category there would be a government monopoly. This included armaments and railway transport and certain other industries (Griffiths, page 228). The second category was divided as all the industries where the state was exclusively responsible for new undertakings. Coal, iron and steel, shipbuilding and mineral ores were the industries in this category. The third category covered the rest of the industrial field and was left to private enterprises. The first category could be said to be protected by the government as they were the ones to run it. In the second category, there is one difference from the first. The companies that were already established before 1948 were able to continue business, these included companies like Tata Steel. The Resolution structured the early economy of India.

The Indian government also passed policies for rural villages and underdeveloped areas. Most of the populations in the last fifty years have lived in these areas, and a policy passed 1977 gave freedoms to the majority of the population. The thrust of the Industrial Policy Statement of December 1977 was on effective promotion of cottage and small industries widely dispersed in rural areas and small towns (Patnaik, page 149). The summary of this policy was that whatever can be produced by small and cottage industries must only be so produced.

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Foreign Direct Investment 1991-

Figure 6, Google Public Data Explorer beta

Foreign Direct Investment (FDI) in India only starts to pick up around 1991. This is Indias transition from an average post World War Two economy to a top five economy of the world. Before 1991, Indias government left much of the country in the hands of the private sector which hindered important economy growth.

{If you look at the growth performance of India before 1992 in the context of the general cross-country pattern, India does not appear to be an exceptional country. Its rate of economic growth appears average. Moreover, its values of the proximate determinants of growth appear average as well. Simplistic growth theory tells us that the proximate determinants of growth are (a) the share of investment in GDP (to capture the effort being made to build up the capital stock), (b) the rate of population growth (to capture how much of investment effort has to be devoted to simply equipping a larger population with

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the infrastructure and other capital needed to maintain the current level of productivity, and (c) the gap between output per worker and the world's best practice (to capture the gap between the country's current status and its steady-state growth path, and also to capture the magnitude of the productivity gains possible through acquisition of the world's best-practice technologies). Neither India's investment share nor its rate of population growth is in any sense unusually poor for an economy in India's relative position as of independence. (DeLong, page 3-4)}

As DeLong explains before high inputs of FDI into India, it was just a normal economy for its size, population, and social/political infrastructure.

Figure 7, Indian Real GDP per Capita Level and 1962-1980 Trend, IMF

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After 1991, figure six shows how FDI affected Indian industries, in 1991 FDI was $73 million and in 2000 it was $3.5 billion. India has rapidly grown in the past two decades because of the increase in FDI. Figure six clearly shows the importance of FDI. The trend that India would be leading without FDI starting in 1991 would be just of an average economy of its size, but because of a combination of reforms, policies, and FDI, India has proven to be an extraordinary economy.

There are also many other types of FDI than just money. Because India is a developing country with a high amount of human capital and scarce resources, labor is cheap. Many foreign countries have built plants in India, from automobile companies to clothing companies. Kia, Hyundai, Nike, The Gap, and many major electronic manufactures have plants in India to make its products for consumers around the world.

Transportation

With a population of more than a billion people, transportation demand has come to the forefront of the economy in India. More availability of vehicles increases in household income, and higher industrial activities have further added to transportation demand. The government planned to devote 19 percent of the Eighth Five-Year Plan (1992-96) budget to transportation and communications, up from 16 percent devoted to the sector during the seventh plan (Parikh, page 342). Even though some of the most successful automobile and other motorized companies are Indian, the government plays a large regulatory and developmental role. The central government has ministries to handle civil aviation, railroads, and surface transportation (Parikh, page 342). In the past two-three decades India has been progressive with transportation and communication policies and updating their internal infrastructure. With the help of the private-

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sector India is starting to modernize its big cities equivalent to major cities around the world. The key for India is to continue and make improvements in the villages and rural areas, which will benefit future populations with accessibility to move around and communicate.

Corruption

Fighting corruption has become a key development issue in India. Since 1991, the economic liberalism of India has reduced bureaucracy, and supported the transition towards a market economy. Even though it has become a dominant powerhouse in the world economy, its growth has been uneven across social and economic groups, with sections of society experiencing some of the highest levels of poverty in the world (Chne, page 2). Chne notes some corruptions which include:

September 2000: Former President Rao was convicted of criminal conspiracy and corruption in the 1993 vote buying scandal and became the first Indian Prime Minister to be convicted in a criminal case. He was acquitted on appeal.

September 2005: Railway Minister Laloo Prasad Yadav was charged with misappropriating state funds in the long running fodder scam. Was charged with embezzling over $40 million in state funds intended for the purchase of animal fodder.

January 2009: Satyam Computer Services Ltd was barred by the World Bank from bidding for contracts for eight years and top officials were arrested after a major financial fraud over several years was disclosed.

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Corruption has found an acceptance in the social psyche and behavior. Bribery, nepotism and favoritism have come to be accepted in the society. Corruption is opposed to democracy and social order, being not only anti-people, but also aimed and targeted at them. It affects the economy and destroys the cultural heritage (Chne, page 14).

{If corruption levels in India were reduces to that in the Scandinavian countries, investment rates could increase annually by some 12 percent and the GDP growth rate by almost 1.5 percent each year. (Chne, page 15)} Indias corruption problem affects all parts of its economy, society, and culture. There have been multiple measures put in place to combat corruption including, administrative accountability, political commitment, procedural simplification, and most importantly civil society participation. The people have to realize that it is a problem that if not solves soon will ruin the country they live in which is the largest democracy in the world. There has to be solutions that are practical for the people of India. The government can offer services by using technology to make the people accountable for their purchases and income. Also encouraging people to vote is the best thing a democracy can to, to avoid corrupt political leaders. Indias identity is at stake, it will disintegrate as a country over time.

American Dream, Indian Reality

Conclusion

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Indias economic development is very unique and cannot be compared to the outcome of any other country. India has grown from emperors and kingdoms to grow from English roots. With major economic development starting in 1858 when the British threw out the last emperor to rule the land that is India. Starting as a British Colony has given India advantages and disadvantages when considering economic development. The Britain was the strongest economy when they ruled India; they gave India advanced technology of the time, laws, education systems and trading systems. Originally India has been a closed economy, where it was designed as a middleages feudal system, and interaction with other villages and far lands was not common. British rule changed this system, and trading which benefited the economy of India. The British rule also was disadvantageous to some principles that India held true. The economy was stagnant for the majority of its colony time, there was not an incentives for most Indian people to try and be better are producing, they felt controlled by the British. British used its colonies as raw material manufacturers; India was no different, because the British imported key technologies from England to be used to gather raw materials that were sent to England to be processed into consumer goods. Overall this time period of India history made the society from static to dynamic and improved the economy system to being able to trade and import/export goods. Indias modern development started in the late nineteenth century and the first half of the twentieth century. The people of India started to become more relevant when it came to economical issues. The caste system had been in use for centuries, nevertheless average Indians started business that evolved into leaders of industries. At the turn of the century, factory jobs start to rise as the steel, railroads, mining, and other rising industries start to be established.

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On August 15, 1947, India gained independence from the British. India became the largest democracy, so did it a top economy that had a long way to go to catch up with the leaders. After independence the Indian government drafted many policies for developing the economy. Basically there were three categories of the plan. The first of which were industries that were monopolized by the government, the second which were controlled by the government but certain enterprises could still be run by the people and the third which were all run by the private-sector.

The exponential growth of GDP after 1991 is due to many circumstances. DeLong, wrote a narrative of Indias GDP growth history, and points out a turning point in 1991. India started to liberalize its economy, which started high growth. In the governments first year of (liberalization) it eliminated quantitative controls on imports of industrial machinery, and cut tariffs on imports of capital goods by sixty percent. Taxes on profits from exports were halved as well (DeLong, page 23). India passed many plans and reforms to make it easier for the privatesector to grow and gave it opportunity to become world leaders in certain industries. Foreign direct investment grew the same time as the GDP growth rate started to become extraordinary. Indias economy is an example of an economy that started out with unfavorable conditions but sustained rapid economic growth over two decades. It is possible for India to have a per capital income of $30,000 by the year 2047 (Parikh, page 88). Parikh gives some statistics of similar growth, Japan grew 9.1 percent from 1950-1971 and China grew 8.3 percent over 1980-93. This (estimate) would bring its per capita income from $320 in 1997 for 970 million people to about $10,000 for 1.4 billion people in 2047 (Parikh, page 88). The purchasing power parity between India and the United States is 4.0. What this means is that while the exchange rate is 38 rupees

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to the dollar, 38 rupees can purchase goods and services in India that would cost $4 to purchase in the United States (Parikh, page 88). This fact is very important because the purchasing power parity is a good way to judge the development of a country as it becomes rich in purchasing power.

I believe India has the ability to gain a growth rate exceeding eight percent over the next fifty years, which will allow poverty to be nearly eliminated, developed infrastructure, and most importantly allow education be a right for the majority of the population.

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Works Cited Badkar, Mamta. "Credit Suisse: India's Blazing GDP Growth Rate Won't Last Through 2011 Business Insider." Featured Articles From The Business Insider. 22 Dec. 2010. Web. 04 Dec. 2011 Bhandari, Laveesh, Payal Malik, and Ramrao Mundhe. Indian Steel Industry. Rep. New Delhi: INDICUS, 2009. Competition Commission of India. Web. 24 Oct. 2011. Chne, Marie. "Overview of Corruption and AntiCorruption Efforts in India." Anticorruption Resource Center. 21 Jan. 2009. Web. 5 Dec. 2011. <http://www.u4.no/helpdesk/helpdesk/query.cfm?id=188>. DeLong, J. Bradford. India Since Independence: An Analytic Growth Narrative. Rep. 2001. Print. Griffiths, Percival. Modern India. 4th ed. New York: F.A. Praeger, 1965. Print. Heitzman, James, and Robert L. Worden. India a Country Study. Washington: Library of Congress, Federal Research Division, 1995. Print. "Indian Steel Industry History, First Steel Plant in India." Tata Steel. Web. 24 Oct. 2011. <http://www.tatasteel100.com/story-of-steel/index.asp>. Iron and Steel Industry in India. Rep. Survey and Reports. Corporate Catalyst India, Jan. 2011. Web. 24 Oct. 2011. Maddison, Angus, Historical Satistics of the World Economy: 1-2008 AD, 2007. Web

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Parikh, Kirit. "Economy." Ed. Marshall M. Bouton and Philip Oldenburg. India Briefing: a Transformative Fifty Years. Armonk, NY: M.E. Sharpe, 1999. 39+. Print. Patnaik, Prabhat. "Industrial Development in India since Independence." Social Scientist June 1979. Web. < http://labour.nic.in/lcomm2/2nlc-pdfs/Chap3.pdf> Rakesh, MK. "History of Tata Steel." Scribd. Web. 24 Oct. 2011. <http://www.scribd.com/doc/21865346/History-of-Tata-Steel>. Rosen, George. Industrial Change in India; Industrial Growth, Capital Requirements, and Technological Change, 1937-1955. Glencoe, IL: Free, 1958. Print. Singh, Sanjay. "Journal of Public Transportation Vol. 8 No. 1 (2005)." National Center for Transit Research. National Center of Transit Research, 20 Apr. 2005. Web. 04 Dec. 2011. <http://www.nctr.usf.edu/2005/04/journal-of-public-transportation-vol-8-no-12005/>