A History of Rise and Fall of Indian Economy From 9 % Growth Rate to 23 % Contraction : Do We Have Guts and Wisdom To Revive It .

R.K.Upadhyay

It is a sad spectacle to see Indian Economy turning from a roaring tiger with  its peak growth rate of 9 % in 2007 (?) to a shrunken mouse with 23 % contraction in the post Covid era in April  – Jun 2020 , the worst fall  in the world . A close perusal of the economic history reveals that our economy  was sick for a long time and Covid only performed the last rites .There are as many heroes as well as villains in this story of the rise and fall of our economy which is no less interesting than a bollywood movie and the story needs to be told in an objective and unbiased fashion .

Why the nation did not know about this  sickness ?

Because we took great care to hide it and presented a false picture of every thing being rosy and  hunky dory ! Covid made it impossible to hide its collapse and the old masters like Ex. Chief Economic Advisor Arvind Subramanium  and ex Reserve Bank Governor Raghuram Rajan are painting the town red by their detailed inside stories about the real state of our economy . In spite of making the Indian government losing its credibility temporarily due to having publicised  its allegedly false and manipulated growth stories in past , it will ultimately help in waking up the nation from its stupor and force the government to be truthful and hopefully do some thing courageous  to turn the economy back to high growth trajectory as was done in Narsimha Rao era.

However a  questions greatly bothering the nation is that we were always inept , slow , bureaucratic  and corrupt so how  could we rise so much in the same national ambience and fell so hard now when the ambience seems much better with strong government , greater honesty , greater FDI , good monsoon and greater resources at our command ? No one is telling the full story of our rise and fall  but each side is revealing only  a carefully chosen small part of the plot which is not convincing and satisfying the curious youth of India due to inadequacy. The whole story needs to be truthfully told !

The story starts from January 1991 when 47 tons of Indian gold was to be  loaded in an aircraft from Mumbai airport for UK as mortgage , as per ex RBI governor Y.B.Reddy. A country like UK , which took so much from us , could not trust India with 405 million  dollar loan with out physically pledging our gold  . It is also a great tragedy that we needed a crisis of this magnitude before taking the bold steps required to avert it . India under Prime Minister Narsimha Rao and Manmohan Singh as Finance minister started dismantling the old license permit raj in 1991 . It took two years for the world to realise the new potential of liberalised India .By 1994 FDI started pouring in and new companies started coming to India . We got 4.2 billion dollar in FDI in 1994 compared to 2 billion dollar  in 1993. It rose to 10 billion dollar by 1996. Indian growth rate jumped to 7.5 % in 1994   . Manmohan Singh to his great credit did not stop there and kept liberalising the economy . The Asian financial crisis of 1997-99 laid India low, yet it proved far more resilient than other Asian nations. Soon after came two droughts (in 2000 and 2002), the dot-com collapse and global recession of 2001, and the huge global uncertainty created in  and GDP  growth rate in 1997- 2003 was only 5.7  percent .

Atal Behari Vajpayee inherited an economy with 4.1 % gdp growth rate ( 2000 ) and a peak  inflation rate of 13.2 %  in 1998-99 . He left an economy with an inflation rate of 4 % and GDP growth rate of 8 % inspite of global sanctions imposed on India following our Pokharan test . Manmohan Singh as PM carried on with this good work and achieved a  growth rate of 9.0 % for three years  2005-8. Though the high growth rate continued for some more years it was in this period that the coalition politics had sown the seeds of destruction of Indian economy with the unlimited greed and corruption of our ruling elite .

The coalition partners in the government became Satraps which often started challenging the PM and it led to  unrestrained competitive corruption . In a unique shameful incident the government stopped procurement of wheat by FCI suddenly in the peak procurement period of May 2006 . This created havoc in the grain mandis of Punjab and Haryana . Farmers were forced to sell wheat to private traders at much lower price than MSP . FCI was allowed to start procurement after —– days but by that time farmers had sold their wheat . Since FCI was not able to procure adequate wheat an additional incentive of Rs 50/quintal was announced . Ultimately a higher MSP of —-/ quintal was announced and traders made huge profit by selling their remaining wheat to FCI . Wheat sowing reduced next year and India had to import — million tonnes of wheat in — for the first time in —- years .The wheat and atta price increased by — in retail . It lead to all food items price increase to match the increase in  atta price . The food items inflation touched — % and general inflation increased to — %  . The powerful agriculture minister was in position to make congress lead coalition government in Maharashtra fall . So no action could be taken against the concerned minister in spite of concerted  demand by opposition. Big traders to learnt this art for future use. This methodology was used again in 2015 to create pulse crisis particularly of Tur or Arhar dal . An import tender was discharged due to the  alleged high price in spite of the full knowledge about low stock and production of dal in the country . The crisis likely to be caused due to delay by this retendering  was known yet an avoidable crisis was allowed to be created . The dal prices increased from Rs. 65/kg to 180 / kg . This lead to all round inflation and hardship to public  but no action was taken against any one just as in wheat procurement scam in 2006.

PM Manmohan Singh was unable to rectify the real cause of inflation ie this manipulated price increase but tried to tackle it  by restricting the money supply . This caused great hardship to industry . By 2008 the global economic crisis came due to US housing scam . It would not have affected India so much otherwise . But we were in midst of our inflationary crisis as 3.7 % inflation of 2004 had increased to 8.35% in 2008 and 11.9 %in 2010 .We could have grown at a much higher rate but for this treachery in handling of agriculture . This scam culture kept refining and growing with other scams like Oil for Food scam of 2004, Scorpene submarine scam of 2007 and  2 G scam of 2008 amongst many others. But the liberalisation benefits were so much that inspite of these scams , the nation kept growing throughout UPA 1 period till 2009 elections except for a slow down in 2008 . After 2009 both the economy  and mega corruption continued to grow . We had 7.8 % , 8.5% , gdp  growth in 2009, 2010  . The FDI in this period was $25 BILLION IN 2008, $40 billion in  2009 and $ 34 billion in 2010 .But we also had common wealth game scandal in 2010, coal block allotment scandal in 2012, and 2 G scandal in 2011 apart from host of minor scandals of a just a few thousand crores ! In April 2011 CBI arrested Suresh Kalmadi for his role in awarding Rs140 crore contract to swiss Omega for time recording . Ashok Chavan , former chief minister of Maharashtra was booked in Adarsh colony scam . A.Raja , former telecom minister was arrested in October 2010 for 2 G scam .In March 2012 Coal Block Allotment Scandal broke with CAG report and CVC directed CBI to file an FIR . The economic governance was made much more difficult by rise in crude oil price from $ 54 / barrel in 2004 to $ 100 in 2013 .

It is important to know that the real down fall of economy happened not by these corruption scandals but by the bad economic but populist steps taken by government to win the 2013 elections . These included Rs.55000 crore farmer loan waiver in 2008 , MNREGA was extended to all districts in 2008 , paddy MSP was increased from Rs 1000 / quintal in 2010  to Rs. 1259 in 2012 . It caused rampant inflation which became 10 percent in 2012 .The bigger damage was done by changing land laws raising the land procurement price so much that India became an unwanted FDI destination for setting up new companies .   Mercifully the ultimate disaster i.e. the right to food act was not passed but many state governments invented new subsidies by giving highly subsidised food like Rs2/kg rice of Chhatisgarh or free lap top of UP , or free colour  TV promise in Tamilnadu  ,free mid day meal in school etc.  By 2013  economic discipline had totally broken down by these freebies which became the new normal exploited so much by political parties .  AAP party won the election by giving  free electricity and water later bus travel to all women which they did not even need !

As a result of all these , India became the most Industry unfriendly country with a disastrous economic collapse !

But worse was yet to come !

Incumbent  government was thrown out largely on the corruption issue in the April 2013 general election . The new government took over an inflation rate of 11 % and growth rate having dipped to 4.5 percent . Coal shortage was huge and electricity generation growth rate had dropped from 9% to 4.4 % in year 2012-13 .Banks and industry was reeling under huge bad debts.

The new government came with an absolute majority riding on the honesty and development promise and amidst very high hopes and nationalistic ambience . But except controlling inflation with in a year, the high growth rates of Vajpayee or Manmohan era remained illusive although the FDI has increased to an average of —- compared to — in UPA 2 era .  By September 2020 Indian economy hit the ultimate rock bottom with 23 % contraction of GDP largely due to lockdown due to Corona / Covid . But no other country had such a disastrous collapse including USA ,UK and Italy which had many more deaths . China registered a GDP growth of about 3.5 % in spite of the American squeeze.

Government first tried window dressing of growth rate by new base , including tax and profit in GDP which were earlier not included  in the GDP growth figuresgrowth figures . This artificially raised growth rate by 1.5 %. It also made PSUs take huge loans like $ —– loan of FCI or —- loan of NHAI  to keep the budget deficite low . But ultimately all this backfired as real growth kept going down touching twenty years low of  —- in —– . The main reason was that real incomes were not increasing . So there was no increase in demand . Private sector was already in huge debt . Private investment went down from — in — to — in 2019 . The individual savings went down from — % of GDP in —- to —- % in 2019 . Commercial credit by banks to industry went down from — to — . Indian Railway for the first time had negative freight growth in — . Index of Industrial production fell down from — in — to — in 2019 .The list of decline is endless and well known . Export were stagnant at about 300 billion dollars in last seven years .

Important question is why it happened in spite of sincere and honest government effort , stable government high FDI .

Every one knows the cause i.e. the lack of demand because of which private sector is not investing . Other cause is high bad debts .

Why did the demand increased so much in 2000 – 2010 ?

As India opened up foreign companies in India increased from —-in —–  to —- in —-. Also MNCs were paying around  percent higher wages to  staff and even upto 100% extra to senior staff . They employed —- people in year —- . Similarly the first BPO started in Gurgaon. in —- . By —- , —- young people off college were working in BPOs. Similarly in —- TCS got first contract from USA in software . By 2010 —- people were employed in sotware and our exports zoomed to —- billion dollars . Today software exports are more than 150 billion dollars . Similarly auto sector out put increased from —- in — to —- in — . It employed —- people in 2010 and —- today . Moble revolution started n — and by 2010 it was employing directly and indirectly — people and contributing to —- to GDP . TV and its services including serials programmes etc. industry boomed from channel boom of — and employed — people in 2010 . Airway travel boomed and it employed — people in 2010 . — Shopping Malls opened by 2010 . Realty sector grew from —- per year in 1990 to — per year in 2010 .Exports increased from —- in 2000 to — in 2010 . —- kms of roads including — kms of highways were made compared to — in the previous decade.

In contrast the only  new sector in last six years has been retail particularly on line sector like Amazon . The other three sectors are health ,food and air travel which have continued to boom .In the government road sector is doing well .

So the real problem is that all the low hanging fruits have been picked up . Like our stagnant green revolution new mega economic growth was not forthcoming as no one had a clue where it will come from  !

Like our stagnant green revolution, it could signal end of rapid growth story for India but we had seen China growing exponentially for twenty years continuously . So the nation wanted to grow like China . India needed  a bold but well thought out strategy to resume our high growth or ‘Vikas Yatra’ . But unfortunately PM Mody had no Man Mohan Singh who could deliver it . He depended on worthless, pompous but ignorant Babus surrounding him who were as clue less any other ordinary citizen of the country . Babus  launched a fear regime which boom ranged . Capable but self respecting Industrialists left the country in hordes thus further reducing the private investment .PM tried some reforms like GST and Demonetisation but they boom ranged . Then came Covid destroying economy completely.

There is no strategic thinking in government as it moves from resolving crises in fire fighting mode by the various steps announced by the finance minister and RBI .

So how  is possible now to reach the goal of 9.5 % ( old 8 %) growth rate in two years when for six years it has not been possible by the combined might of the government ?

India had an estimated 714 thousand hospitals beds spread out over 69 thousand hospitals as of 2019. Of these, around 1.1 million beds were in private sector hospitals, outnumbering the public hospitals.

govt portal

Health infrastructure is an important indicator for understanding the health care policy and welfare mechanism in a country. It signifies the investment priority with regards to the creation of health care facilities. Infrastructure has been described as the basic support for the delivery of public health activities. Medical education infrastructure in the country has shown rapid growth during the last 20 years. The country has 476 medical colleges, 313 Colleges for BDS courses and 249 colleges which conduct MDS courses. There has been a total admission of 52,646 in 476 Medical Colleges & 27060 in BDS and 6233 in MDS during 2017-18. There are 3215 Institutions for General Nurse Midwives with admission capacity of 129,926 and 777 colleges for Pharmacy (Diploma) with an intake capacity of 46,795 as on 31st October, 2017. There are 23,582 government hospitals having 710,761 beds in the country. 19,810 hospitals are in rural area with 279,588 beds and 3,772 hospitals are in urban area with 431,173 beds. 70% of population of India lives in rural area and to cater their need there are 156,231 Sub Centres, 25,650 Primary Health Centres and 5,624 Community Health Centres in India as on 31st March 2017.

The total number of hospital beds in India is 1,759,580, with the actual total beds in the government hospitals at 739,024, the estimated total beds in private hospitals across all states at 973,048, and the estimated total beds in charitable hospitals at 47,508. Across all sectors, we estimate that India has about 131 beds per 100,000 persons.

Table 1: Heterogeneous Growth and Structure of Private Healthcare Sector in India 1905–1950 1951–1960 1961–1970 1971–1980 1981–1990 1991–2000 2001–2010 Total GR Hospital   187 11 1284 4332 8123 13973 52240 80265 1.13 Medical 331 2342 2539 19630 42847 137144 368517 576027 1.12 Dental 42 0 201 73 1747 7841 31805 42052 1.16 Ayurvedic 504 449 1796 6866 9812 29662 27767 76891 1.08 Unani 0 512 477 202 61 6187 9346 16837 1.06 Homo 0 23 765 4709 11150 34000 64748 115760 1.16 Nursing 0 0 2366 1360 1130 13712 23663 42231 1.07 Diagnostic 0 0 32 707 2342 13215 29056 45805 1.18 Others   0 0 1239 1053 2591 5688 12931 23856 1.07 Residential 289 90 42 429 127 1233 4232 6521 1.05 Social   0 1 0 388 800 2270 5783 9252 1.10 Total 1353 3428 10741 39749 80730 264925 630088 1035497 1.11 Note: Total enterprises are higher than the cumulative add up, as it represents the year 2010–11.   Source: 67th round of NSS.

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India now faces stiff competition from the Philippines, according to recent research from IBM. The study for the Contact Center Association of the Philippines estimates that 350,000 Filipinos work in call centres, compared with 330,000( 2011)

Indian telecom industry underwent a high pace of market liberalisation and growth since the 1990s and now has become the world’s most competitive and one of the fastest growing telecom markets.^[7][8] The Industry has grown over twenty times in just ten years, from under 37 million subscribers in the year 2001 to over 846 million subscribers in the year 2011, and 1.1514 billion at the end of December 2019.^[2][9] As of Dec 2019, India has the world’s second-largest mobile phone user base with over 1.1514 billion users.^[2]

Mobile telephony is the nucleus of an entire ecosystem. Across organized and unorganized sectors, the mobile phone ecosystem generates millions of direct and indirect employment. According to GSMA, the total economic value to be generated due to increased mobile phone production will be approximately Rs 14 lakh crores by 2020. This will include salaries, profits, and tax payments as well. The numbers quoted for employment generation are even more impressive. It is 3 million direct jobs by 2020, with an additional 2 million indirect jobs.

2.0 Recent Performance of India’s IT Sector: 2.01 Performance of IT Software Industry: In 1999 India’s IT industry generated $7.7 billion in revenues, 15 times the level in 1990. Exports rose from $150 million in 1990 to nearly $4 billion in 1999. With a compounded annual growth rate of more than 50 percent between 1991 and 2001, whereas in year 2002 IT Industry generated $12 billion of which exports were as high as $7.9 billion. The Indian IT software and services sector has expanded almost twice so fast as the US software sector though from a smaller base. No other country has consistently grown by more than 50 percent every year in the past ten years. 2.2 Performance of IT Services Industry: Growth of India’s IT sector is spurred by the global market for software services. The global outsourcing market is worth more than $100 billion. In 2000-01, software exports accounted for 13 percent of India’s total exports and in 2003, software exports from India accounted for almost 23 percent of India’s total exports. India has already acquired a substantial market share in the global customized software development market. In 1991, according to a World Bank study, India’s share was almost 11.9 % of the global market. In 2000, it was 19.5 percent. Last year 266 of the Fortune 1000 companies out sourced their software requirements to India. India now more than 1,250 companies exporting software.

The IT sector in India has been a major job creator for decades. The latest EPFO payroll data and a NASSCOM report highlights Indian IT industry’s contribution towards total job creation. IT Minister Ravi Shankar Prasad said that IT sector has generated 8.73 lakh jobs in the last five years.

Employees’ Provident Fund Organisation (EPFO) has declared growth in job creation for the first time since September 2017. Net job addition touched 17-month high in January 2019, recording 8.96 lakh jobs. The Indian IT industry generated $180 billion in 2018. The IT industry generated $106 billion in 2013-14. India’s top five IT services firms continue to close large deals, creating job opportunities for young graduates in the country.

IT sector has also created new opportunities for skilled techies in the country. The Ministry of Electronics and IT (MeitY) has confirmed the net job creation of 8.73 lakh in the last five years. The initiatives like rural BPO promotions, startups, common service centres (CSCs) have helped in job creation.

According to a NASSCOM report, India’s IT sector currently constitutes 41.40 lakh direct jobs and 1.2 crore indirect jobs. IT Minister Ravi Shankar Prasad said that CSCs have created 40,000 direct and 3 lakh indirect jobs. While Rural BPOs have helped in creation of 23,000 jobs.

Over 3,200 foreign companies operating in India: Government – 2014 . Increased to 4170 of which 3300 active in 2020

India was the fourth largest car manufacturer in the world in 2019¹. Indian auto manufacturers produced 26.36 million motor vehicles in 2019-20 (Apr-Mar), a decrease of 15 per cent over the previous record of 30.91 million motor vehicles manufactured in 2018-19. India was the largest manufacturer of three-wheelers (1.27 m units) and seventh largest commercial vehicle (1.11 m units) manufacturer in 2018-19 while India’s two-wheeler manufacturers rolled out 24.5 m units during the same fiscal.

India is the largest manufacturer of tractors having sold approx. 0.9 m units in 2018-19 or around a third of the global output. Construction vehicle production was approx. 59 000 units in 2014. 2.17 million passenger cars were sold in India in 2017-18 (1.17 m during H1 18/19). The total turnover of the auto industry amounted to ca USD 145 billion in 2015-16 while the overall installed capacity (2/3/4-wheelers) was ca 33.5 m units at the end of 2016-17. The auto industry provides direct or indirect employment to over 13 million people. A slowdown in the auto industry translated into a 13 % decrease in passenger vehicle sales in 2019 as compared to 2018. This was the largest annual decrease in the 21st century (India sales).

Indian motor vehicle exports in 2019-20 included 677 000 passenger vehicles, 61 000 commercial vehicles, 3.52 m two-wheelers and 502 000 three-wheelers. Exports (4.77 m units in 2019-20 compared to 4.63 m in 2018-19) were slightly higher than in 2018-19.

Major car models exported include Ford EcoSport and Figo, Hyundai Grand i10, Verna and Creta, Nissan Sunny, GM Beat, Kia Seltos, Suzuki Baleno and Volkswagen Vento. Ford India was the largest car exporter for FY18 having shipped over 181 000 cars overseas. Over 43 000 medium and heavy duty trucks were exported from India in 2016-17 incl. makes such as Daimler, Mitsubishi Fuso, Tata Motors and Ashok Leyland.

Domestic motor vehicle sales in 2018-19 included 3.38 m passenger vehicles, 1.01 m commercial vehicles, 701 000 three wheelers and 21.18 m two-wheelers. The luxury car segment is relatively small with sales of just over 40 000 cars in 2018. The total number of registered motor vehicles increased to approx. 253 million in 2017 (end-Mar), incl. 28.7 million cars.

The total turnover of the Indian automotive component industry increased to ₹ 3.46 trillion (USD 51 billion) in 2017-18. Auto ancillary exports fetched ₹ 906 bn (USD 13.5 bn) in the same year while the total turnover of India’s vehicle tyre industry amounted to an estimated ₹ 450 billion in 2013-14.

competitive element into the automobile market.^[6] However, by the 1980s, the automobile market was still dominated by Hindustan and Premier, who sold superannuated products in fairly limited numbers.^[7] The rate of car ownership in 1981 was about one in every thousand citizens – understandable when the annual road tax alone cost about half the average income of an Indian at the time.^[8]

During the eighties, a few competitors began to arrive on the scene. Of the 30,487 cars built in India in 1980, all but six came from the two main players Hindustan and Premier: Standard had led a shadow existence in the latter half of the 1970s,

Exports[edit]

India’s automobile exports have grown consistently and reached $4.5 billion in 2009, with the United Kingdom being India’s largest export market, followed by Italy, Germany, the Netherlands, and South Africa.^[82]

According to The New York Times, India’s strong engineering base and expertise in the manufacturing of low-cost, fuel-efficient cars has resulted in the expansion of manufacturing facilities of several automobile companies like Hyundai, Nissan, Toyota, Volkswagen, and Maruti Suzuki.^[83]

In 2008, South Korean multinational Hyundai Motors alone exported 240,000 cars made in India. Nissan Motors planned to export 250,000 vehicles manufactured in its India plant by 2011.^[84] Similarly, US automobile company, General Motors had announced its plans to export about 50,000 cars manufactured in India by 2011.^[85]

In September 2009, Ford Motors announced its plans to set up a plant in India with an annual capacity of 250,000 cars, for US$500 million. The cars were manufactured both for the Indian market and for export.^[86] The company said that the plant was a part of its plan to make India the hub for its global production business.^[87] Fiat Motors had announced that it would source more than US$1 billion worth auto components from India.^[88]

The Great Wheat Scam – Brinda Karat TOI June 8 2006

Wheat deficits to the extent of 20 lakh  ..

or public sector jobs. Converse of the US, we are seeing exodus of super rich; their wealth, capacity to invest and create jobs, emigrate as well. As per a Morgan Stanley report a year ago, nearly 23,000 dollar-millionaires had left since 2014, with 7,000 leaving in 2017 alone, taking India to the top of the exodus charts.

obvious.

3. The education wave: Youth today are much better educated than their parents. According to the 2015 Employment-Unemployment Survey of the Labour Bureau, workers with no formal education at all are now a mere 12% of the labour force. The enrolment rate for secondary education reached 90% in 2015. The enrolment rate for higher education (for those in the 18-23 age group) rose from 11% in 2006 to 26% in 2016. As a result, while graduates constituted only 6% of the labour force in 2004, this was up to 15% in 2015. In absolute terms that means nearly 70 million people. Further, these educated youth are no longer concentrated in the large cities (as was the case in the pre-1991 period). Rather they are spread across smaller towns and villages. They constitute a small but vocal and politically visible minority everywhere.

The Indian information technology and business process management industry had over 15 million directly and indirectly employed personnel during financial year 2017. The south Asian country is the largest offshoring destination for IT companies across the globe. The IT-BPM sector has gradually grown in recent years, accounting for more than 30 percent of the global outsourced BPM market. The sector also contributed a share of around eight percent to the GDP of the country in 2017.

global services sourcing business in 2019-20. Indian IT & BPM companies have set up over 1,000 global delivery centres in about 80 countries across the world.

India has become the digital capabilities hub of the world with around 75 per cent of global digital talent present in the country.

Market Size

IT & BPM industry’s revenue was estimated at around US$ 191 billion in FY20, growing at 7.7 per cent y-o-y. It is estimated to reach US$ 350 billion by 2025. Moreover, revenue from the digital segment is expected to form 38 per cent of the total industry revenue by 2025. Digital economy is estimated to reach Rs 69,89,000 crore (US$ 1 trillion) by 2025. The domestic revenue of the IT industry was estimated at US$ 44 billion and export revenue was estimated at US$ 147 billion in FY20.

Total number of employees grew to 1.02 million cumulatively for four Indian IT majors (including TCS, Infosys, Wipro, HCL Tech) as on December 31, 2019. Indian IT industry employed 205,000 new hires and had 884,000 digitally skilled talent in 2019.