Structure of the Economy
Independence to 1979
At independence the economy was predominantly agrarian. Most of the population was employed in agriculture, and most of those people were very poor, existing by cropping their own small plots or supplying labor to other farms. Landownership, land rental, and sharecropping rights were complex, involving layers of intermediaries (see Land Use, ch. 7). Moreover, the structural economic problems inherited at independence were exacerbated by the costs associated with the partition of British India, which had resulted in about 12 million to 14 million refugees fleeing past each other across the new borders between India and Pakistan (see National Integration, ch. 1). The settlement of refugees was a considerable financial strain. Partition also divided complementary economic zones. Under the British, jute and cotton were grown in the eastern part of Bengal, the area that became East Pakistan (after 1971, Bangladesh), but processing took place mostly in the western part of Bengal, which became the Indian state of West Bengal in 1947. As a result, after independence India had to employ land previously used for food production to cultivate cotton and jute for its mills.
India's leaders--especially the first prime minister, Jawaharlal Nehru, who introduced the five-year plans--agreed that strong economic growth and measures to increase incomes and consumption among the poorest groups were necessary goals for the new nation. Government was assigned an important role in this process, and since 1951 a series of plans have guided the country's economic development. Although there was considerable growth in the 1950s, the long-term rates of growth were less positive than India's politicians desired and less than those of many other Asian countries. From FY 1951 to FY 1979, the economy grew at an average rate of about 3.1 percent a year in constant prices, or at an annual rate of 1.0 percent per capita (see table 16, Appendix). During this period, industry grew at an average rate of 4.5 percent a year, compared with an annual average of 3.0 percent for agriculture. Many factors contributed to the slowdown of the economy after the mid-1960s, but economists differ over the relative importance of those factors. Structural deficiencies, such as the need for institutional changes in agriculture and the inefficiency of much of the industrial sector, also contributed to economic stagnation. Wars with China in 1962 and with Pakistan in 1965 and 1971; a flood of refugees from East Pakistan in 1971; droughts in 1965, 1966, 1971, and 1972; currency devaluation in 1966; and the first world oil crisis, in 1973-74, all jolted the economy.
Data as of September 1995