By 1985, India had started having balance of payments problems. By the end of 1990, it was in a serious economic crisis. The government was close to default, its central bank had refused new credit and foreign exchange reserves had been reduced to such a point that India could barely finance three weeks worth of imports which lead the Indian government to airlift national gold reserves as a pledge to the International Monetary Fund (IMF) in exchange for a loan to cover balance of payment debts. Reasons for economic crisis: The crisis was caused by currency overvaluation; the current account deficit, and investor confidence played significant role in the sharp exchange rate depreciation. The economic crisis was primarily due to the large and growing fiscal imbalances over the 1980s. During the mid-eighties, India started having balance of payments problems. Precipitated by the Gulf War, Indias oil import bill swelled, exports slumped, credit dried up, and investors took their money out. Large fiscal deficits, over time, had a spillover effect on the trade deficit culminating in an external payments crisis. By the end of 1990, India was in serious economic trouble. The gross fiscal deficit of the government (centre and states) rose from 9.0 percent of GDP in 1980-81 to 10.4 percent in 1985-86 and to 12.7 percent in 1990-91. For the centre alone, the gross fiscal deficit rose from 6.1 percent of GDP in 1980-81 to 8.3 percent in 1985-86 and to 8.4 percent in 1990-91. Since these deficits had to be met by borrowings, the internal debt of the government accumulated rapidly, rising from 35 percent of GDP at the end of 1980-81 to 53 percent of GDP at the end of 1990-91. The foreign exchange reserves had dried up to the point that India could barely finance three weeks worth of imports. In mid-1991, India's exchange rate was subjected to a severe adjustment. This event began with a slide in the value of theIndian rupee leading up to mid-1991. The authorities at the Reserve Bank of India took partial action, defending the currency by expending international reserves and slowing the decline in value. However, in mid- 1991, with foreign reserves nearly depleted, the Indian government permitted a sharp depreciation that took place in two steps within three days (1 July and 3 July 1991) against major currencies
Recovery With Indias foreign exchange reserves at $1.2 billion in January 1991 and depleted by half by June, barely enough to last for roughly 3 weeks of essential imports, India was only weeks way from defaulting on its external balance of payment obligations. Government of India's immediate response was to secure an emergency loan of $2.2 billion from the International Monetary Fund by pledging 67 tons of India's gold reserves as collateral. The Reserve Bank of India had to airlift 47 tons of gold to the Bank of England and 20 tons of gold to the Union Bank of Switzerland to raise $600 million. [6]
National sentiments were outraged and there was public outcry when it was learned that the government had pledged the country's entire gold reserves against the loan. Interestingly, it was later revealed that the van transporting the gold to the airport broke down on route and panic followed. A chartered plane ferried the precious cargo to London between 21 May and 31 May 1991, jolting the country out of an economic slumber. The Chandra Shekhar government had collapsed a few months after having authorized the airlift. The move helped tide over the balance of payment crisis and kick- startedP.V.Narasimha Raos economic reform process P. V. Narasimha Rao took over as Prime Minister in June, and roped in Manmohan Singh as Finance Minister. TheNarasimha Rao government ushered in several reforms that are collectively termed as liberalisation in the Indian media. Although, most of these reforms came because IMF required those reforms as a condition for loaning money to India in order to overcome the crisis. There was significant opposition to such reforms, suggesting they are an "interference with India's autonomy". Then Prime Minister Rao's speech a week after he took office highlighted the necessity for reforms, as New York Times reported, "Mr. Rao, who was sworn in as Prime Minister last week, has already sent a signal to the nationas well as the I.M.F.that India faced no "soft options" and must open the door to foreign investment, reduce red tape that often cripples initiative and streamline industrial policy. Mr. Rao made his comments in a speech to the nation Saturday night." The forex reserves started picking up with the onset of the liberalisation policies and peaked to $314.61 billion at the end of May 2008
Changing structure characteristics of indian economy On the basis of the observed patterns of growth and structural changes, economic growth in post Independence India can be divided into the following four phases, each with its distinguishing characteristic: Phase 1. Independence to Mid1960s: This period saw a significant acceleration in the growth rate over the past decades marked by a high growth of industry, and a significant structural change with a large increase in the share of nonagricultural sector, especially of the industry in the national output. Phase 2. Mid1960s to 1980: This period was marked by a slower growth of GDP, accompanied by a deceleration in the growth of industry, a slower pace of structural shift from agriculture to nonagriculture and a very small increase in the share of industry. Phase 3. 1980 to early 1990s: This period saw a sharp acceleration in growth rate, mainly contributed by services. Structural changes were also swift, with a large decline in the share of agriculture, but very little increase in the share of industryservices picking up the major share of the shift. Phase 4. Easy 1990s Onwards: Growth continued at similar rate as 1980s, but declined during 20002004. Structural changes continued at an accelerated pace with share of agriculture sharply declining and services emerging as the major sector and with very small increase in the share of industry. Within this phase, period 200510 has seen a sharp acceleration in growth rate, despite a slowdown in 200809. Share of agriculture has declined from around 20 to 16 per cent, that of services has increased from 54 to 59 per cent and that of industry has stagnated. Apart from the growth in quantitative terms, there have been significant changes in Indias economic structure since independence. 1. Changing Sectoral Distribution of Domestic Product: Change in composition of domestic product or change in national income by industry of origin refers to change in relative significance (share) of different sectors of the economy. Generally, an economy is divided into three major sectors viz. primary, secondary and tertiary sectors. Primary sector includes agricultural and allied activities, secondary sector includes manufacturing industries and tertiary sector includes services. With the development process, significance of primary sector declines while that of secondary and tertiary sectors increases. After independence, Indian economy has also experienced such changes. 2. Growth of Basic Capital Goods Industries: When country attained independence, the share of basic and capital goods industries in the total industrial production was roughly one-fourth. Under the second plan, a high priority was accorded to capital goods industries, as their development was considered a pre-requisite to the overall growth of the economy. Consequently, a large number of basic industries which produce capital equipment and useful raw materials have been set up making the countrys industrial structure pretty strong. 3. Expansion in Social Overhead Capital: Social overhead capital broadly includes transport facilities, irrigation systems, energy production, educational system and organisation and health facilities. Their development creates favourable conditions for growth and also for better human living. The transport system in India has grown both in terms of capacity and modernisation. The railways route length increased by more than 9 thousand kms and the operation fleet practically doubled. The Indian road network is now one of the largest in the world as a result of spectacular development of roads under various plans. India has also seen growth in Life- lixpectancy and Literacy Rate but education has not expanded at a desired rate. 4. Progress in the Banking and Financial Sector: Since independence, significant progressive changes have taken place in the banking and financial structure of India. The growth of commercial banks and cooperative credit societies has been really spectacular and as a result of it the importance of indigenous bankers and money-lenders has declined. Since nationalisation, these banks have radically changed their credit policy. Now more funds are made available to priority sectors such as agriculture, small-scale industries, transportation, etc. Indian economy has progressed structurally when we consider the growth of capital goods industries, expansion of the infrastructure, performance of the public sector, etc. These factors over the years are believed to have created an element of dynamism in the countrys economy and one can now hopefully say that it would sustain development in the future.
Concept of Sustainable Growth Inclusive growth is a concept which advances equitable opportunities for economic participants during the process of economic growth with benefits incurred by every section of society. inclusiveness a concept that encompasses equality of opportunity, and protection in market and employment transitions is an essential ingredient of any successful growth strategy
The Indian economy, which has over the last six decades passed through various phases of growth, is now all set to enter an altogether different orbit: one marked by a high rate of expansion, combined with inclusive growth. In the last few years, inclusive growth has been at the forefront of studies sponsored by multilateral aid agencies, such as the United Nations, the World Bank, Asian Development Bank, and several nongovernmental organizations (NGOs). Successive governments have initiated several projects, such as Jawahar Rozgar Yojna, Integrated Rural Development Program, Rural Housing Scheme, Swarnjayanti Gram Swarozgar Yojana and Mahatama Gandhi National Rural Employment Guarantee Act to promote inclusive growth.
However, for inclusive growth to happen in a country with the scale and size of India, private sector involvement is equally important. The private sector has started contributing with initiatives, such as the ICICI Foundation having been set up with the sole purpose of promoting inclusive growth. The government and private sector can play complementary roles in driving inclusive growth. There is a need for the public and the private sector in India to have a unified approach towards how they can extend, innovate, and collaborate in new ways to drive inclusive growth.This paper elaborates the need to build Inclusive India and emphasizes why it is imperative to focus on inclusive growth now. It presents the opportunities available for building an inclusive India by identifying key levers in governance, education, energy and resources, telecom and technology, infrastructure, healthcare, financial inclusion, and business model innovation. It also highlights some of the reasons why efforts to build an Inclusive India in the past have had only limited success and what can be done better in the future so that inclusive growth is realized. The paper further stresses upon the need for the public and the private sector to work in tandem and leverage each others strengths to drive inclusive growth.
Elements of Inclusive Growth
According to Prime Minister, Sri. Manmohan Singh, the key components of the inclusive growth strategy included a sharp increase in investment in rural areas, ruralinfrastructure and agriculture spurt in credit for farmers,increase in rural employment through a unique social safety net and a sharp increase in public spending on education and health care. The interrelated elements of inclusive growth are: Poverty Reduction Employment generation and Increase in quantity & quality of employment. Agriculture Development Industrial Development Social Sector Development Reduction in regional disparities Protecting the environment. Equal distribution of income
Employment Generation Poverty Reduction Agriculture Development
Industrial development Social sect Devt
Reduction in regional Disparities Equal distribution of income
Environmental protection
Concept of Sustainable Development Sustainable development is a roadmap, the action plan, for achieving sustainability in any activity that uses resources and where immediate and intergenerational replication is demanded. As such, sustainable development is the organizing principle for sustaining finite resources necessary to provide for the needs of future generations of life on the planet. Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs Towards Sustainable Development Sustainable development in India includes a variety of development schemes in social, cleantech (clean energy, clean water and sustainable agriculture) and human resources segments, having attracted the attention of both Central and State governments and also public and private sectors. Social sector, cleantech investments into green energy and fuel alternatives and development schemes for backward and below the poverty line (BPL) families are being touted as some of the more heavily invested segments in India in 2009, despite the economic
Elements of Inclusive Growth slowdown. Sustainable development is a term that can be defined in many different ways. However, the most widely recognized definition is found in the Bruntland Report. Titled Our Common Future, the report defines sustainable development as development that meets the needs of the present without compromising the ability of future generations to meet their own needs. From this definition, sustainable development can be reduced to two key concepts: needs and limitations. The needs, of course, being those of the worlds poor, the needy. The limitations are those imposed by the state of technology and social organization on the environments ability to meet present and future needs. Here are five examples of sustainable development that meet both those needs and those limitations. 1. Solar Energy The best thing about the suns energy is that it is completely free. Since solar energy is available in limitless supply, this provides a huge advantage to consumers, while also reducing pollution. Replacing non-renewable energy with this type of energy is both environmentally and financially effective. 2. Wind Energy Wind energy is another readily available source of energy. Harnessing the power of wind energy is as easy as investing in a windmill. The major problem is finding a suitable location. However, since wind energy can supplement or even replace the cost of grid power, it may be a good investment and remains a great example of sustainable development. 3. Crop Rotation The online dictionary defines crop rotation as the successive planting of different crops on the same land to improve soil fertility and help control insects and diseases. This practice is beneficial in several ways, most notably because it is is chemical-free. Crop rotation has been proven to maximize the growth potential of land, while also preventing disease and insects in the soil. Not only can this form of development benefit commercial farmers, but it can also aid those who garden at home. 4. Efficient Water Fixtures Replacing current construction practices and supporting the installation efficient showerheads, toilets and other water appliances can conserve one of Earths most precious resources: water. Examples of efficient fixtures include products from the EPAs WaterSense program, as well as dual-flush and composting toilets. 5. Green Space Green spaces include parks and other areas where plants and wildlife are encouraged to thrive. These spaces also offer the public great opportunities to enjoy outdoor recreation, especially in dense, urban areas.