Posted in Finance Articles, Total Reads: 848
, Published on 14 August 2015
From golden bird to sad economic time during independence, from that stage to present scenario economy, India has seen it all. This article here is a brief discussion on how did India manage to go through various phases of economy and during this period how the rest of the world react and what changes occur.
The total GDP (Gross Domestic Product) of India during the times of Mughals around 1600 was estimated to be about 24.3% of total world economy, and around 1700 the total revenue of India was £100 million, highest in the world. After Aurangzeb’s rein the Indian economy fell due to quarrel among the successors and taking advantage of all the confusion, East India Company gained access to trade in India and collect revenue in Bengal, because of which they traded Indian products to Britain and used the money for warfare in rest of India, this made Bengal’s condition miserable and lead to Britain’s control all over India.
From total GDP share of 27% of the world in 1700 (Mughal period), the GDP of India fell to 3% in 1950(post-independence),this shows in what condition East India Company left us.
Rupee exchange rate (in pence)
At the time of independence value of
Re 1= $1 and
This was maintained till 1966 and then divergence of Indian currency started with all other currencies of the world. Soon after 1966 these figures changed and economy of India along with that and that too not for a good reason.
The dipping of Indian economy started when in 1951 Indian Govt. first introduced 5 year plan and took foreign borrowing which lead to devaluation of rupee. Later in 1962 and 1965, the wars against China and Pakistan resulted in huge deficit in Indian budget causing still devaluation of rupee to 7.57 against dollar.
And gradually year after year the value of rupee declined and reaching to just double value of 31.37 in year 1993 and then fluctuated between 40-50 during 2000-2010 . Liberalising the currency regime led to a change in foreign investment inflows and boosted the economic growth.
Gross Domestic Product
US Dollar Exchange
Per Capita Income (as % of USA)
4.79 Indian Rupees
4.79 Indian Rupees
4.77 Indian Rupees
4.78 Indian Rupees
7.56 Indian Rupees
8.39 Indian Rupees
Fig-Initial change of rupee and per capita income of India w.r.t. USA
Though country constantly progressed but our currency still devalued and per capita income also dropped, the main reason for this was population burst. We can see from above figure that our GDP increased at regular rate but our currency and per capita still dropped at regular basis, the reason was sudden increase in our population from 400 million in 1947 to around 600 million in 1971.
The govt. of India was not able to cope with this sudden changing population thus various schemes and policies of govt. could not be implemented properly and the borrowing done earlier was not repaid and debt increased through years and our economy fell, and still population of ours is increasing at an alarming rate and is expected to cross that of China till 2030 if it continues to increase in the same way.
To present date rupee value is still decreasing, this is because India is still importing many goods which have high value in international markets.
Now one reason for devaluation is that value for currency is decided by imports and exports of a country. When exports materials of high cost in international market its value increases, whereas when imports of one country are way larger than exports in terms of value in international market ,then the value of currency drops .The example of latter is India, India imports very heavily.
Fig- Devaluation of rupee against dollar past 5years.
Understanding this situation of India, the present central govt. is trying to concentrate on manufacturing majority of products used in India to be produced in India itself so that it doesn’t have to import such heavily as it has been doing for past decades. Also it is concentrating to promote Indian based products so the above condition can be resolved and Indian economy can be strengthened. This could be seen through make in India campaign which is being promoted heavily throughout the country these days.
This article has been authored by Shikhar Gautam from IIM Kashipur
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