IMPORTANT EVENTS

in the History of
INDIA'S ECONOMY
SOURCE : FORBES INDIA

The IMF and the World Bank in October this year prognosticated
an identical 5.6 per cent growth rate for India in 2014 and a
higher 6.4 per cent in 2015, citing renewed confidence in the
market due to a series of economic reforms pursued by the new
government. While experts believe that Indian Economy is at
inflection point, here is a synopsis of series of decisive events in
India's history post independence that shaped contemporary
Indian Economy.

Second Five Year Plan (1956)

While India's first Five Year Plan in 1951 was largely penned in response to
shocks such as Partition and World War II, its second was all about
industrialisation. The young nation needed building and industry was on the
agenda of the second Five Year Plan, which was announced by the Planning
Commission on May 14, 1956.
Prime Minister Jawaharlal Nehru was influenced by the industrialisation that
had swept the then USSR. In fact, the 2nd plan was nicknamed the
'Mahalanobis Plan', after one of its architects, renowned statistician
Professor Prasanta Chandra Mahalanobis, who used resource allocation
ideas from Soviet economist GA Feldman. Nehru outlined the central role of
government when he said, The public sector must grow not only absolutely but also relatively to the private sector.
The second Five Year Plan centred on a shift towards developing capital goods and heavy industry for long-term economic benefit.
Of the Rs 4,672 crore in public spending, there was a significant shift in allocation from agriculture to industry between the first
and second Five Year Plans. During that period, agriculture spending fell from 37 percent of public spending to 20.9 percent,
while industry allocation increased from 4.9 to 24.1 percent.
About 70 percent of the funds allocated for industry were allotted to large- and medium-sized businesses, while the rest lay with
mineral development and village and small industries. There was a marked emphasis on boosting public sector activity; setting up
steel plants in Rourkela, Bhilai and Durgapur is an example of this. India's coal production also increased during the same period.

Green Revolution (1963)

As India battled bitter memories of the 1943 Bengal famine,
and the prospect of another threatened the nation in the '60s,
renowned geneticist Dr MS Swaminathan invited American
biologist Dr. Norman Borlaug to help increase the country's
food production. Borlaug, known as the 'Father of the Green
Revolution', was famous worldwide for developing highyielding, disease-resistant wheat varieties. He came to India in
1963 and, along with Swaminathan, examined its food
situation and advised the government on a new course of
action. Their work led to a surge in food production and a
decline in food prices, and eventually contributed to Borlaug
winning the Nobel Prize in 1970. Meanwhile, Swaminathan
was hailed as the 'Father of the Green Revolution in India'.
Dr. Devesh Roy, a research fellow at the International Food Policy Research Institute, says the Green Revolution is important
because it helped India move from being a massive food importer, heavily dependent on aid, to a food exporter. It still depends on
the geographic distribution but, overall, India became food-independent. Reaching self-sufficiency in food had huge political
implications, says Roy.
By 1966, Swaminathan and Borlaug started using the American biologist's high-yielding variety of wheat in Punjab. Their work
attracted the attention of the Ford Foundation, The Rockefeller Foundation and the Indian government. The most significant pilot
scheme was the introduction of IR8, a rice variety now known as 'miracle rice', which yielded 10 times more than traditional rice
did.

Devaluation of the Rupee (1966)

In June 6, 1966, in one fell swoop, the Indira Gandhi
government devalued the Indian rupee by 57 percent, from
Rs. 4.76 to Rs. 7.50 to a dollar, triggering bitter criticism
in the Parliament and media. The people, too, joined in
claiming that this was the ultimate sell-out to America and
the World Bank.
The move, however, was in the offing for some time. Since
Independence, India had held the dollar constant at Rs.
4.76 in spite of increased trade deficits and a reliance on
foreign aid to maintain a constant valuation. The final straw
was the wars India fought (with China and Pakistan) and the
shock of a major drought in 1965-1966. Each instance
increased deficit spending, further accelerating the already
severe inflation. Besides, the World Bank, largely funded by
the US, fell short of its promised aid inflows to India.
The Indian government took the step to counter soaring inflation, but it turned out to be very unpopular and laid the foundation for
distrust between the people and the government. The devaluation had its ramifications abroad as well; Oman, Qatar and the UAE,
countries which used the Gulf Rupee (issued by the RBI), were forced to come up with their own currencies.
Even though PM Indira Gandhi took all the flak for the move, her predecessor Lal Bahadur Shastri had set the stage for it.
According to Rohit Lamba, post-doctoral fellow at Cambridge-INET at the faculty of economics, University of Cambridge, Strictly
speaking, public perception/reception should not matter for macroeconomic policy. History remembers politicians and
policymakers who do the unpopular but economically sound. However, no policy decision is or should be devoid of the politics of it,
especially in a democracy. With the state of affairs as they were in 1966, the devaluation was unavoidable. We can argue how we
got into that state but that is another debate.

Nationalisation of Banks (1969)

In the end, it was politics that trumped economics in 1969 when Prime Minister Indira Gandhi nationalised 14 banks. She had
been under pressure from older, more experienced hands within the party (known as the Syndicate) who wanted banks to be
nationalised to neutralise them.
Morarji Desai, who was finance minister then, remained adamant and refused to go ahead with the proposal. Recent experience
does not suggest that large banks need to be taken over so as to do something they have not been doing, he wrote. However, on
July 19, 1969, the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance resulted in the ownership of 14
banks being transferred to the state. This made Desai's position in the cabinet untenable. Indira Gandhi, however, offered that he
could stay on as deputy prime minister, but Desai declined.
The 14 banks controlled 70 percent of the country's deposits. In 1980, six more banks were nationalised. (Imperial Bank had
been nationalised in 1955, making it the State Bank of India.)

Exit of the MNCs (1977)

The latter half of the 1970s was a tumultuous period in Indian politics
fuelled by a wave of anger towards the Indira Gandhi-led Indian National
Congress, which had declared a state of emergency on the nation
between 1975 and 1977. In the general election of 1977, held after
emergency was withdrawn, the Congress lost its seat of power to the
Janata Party, formed by an amalgamation of non-Congress parties, and
led by Prime Minister Morarji Desai and other leaders.
At the time, several international companies, including IBM and Unilever,
had a presence in India. However, it was becoming increasingly difficult
for them to operate effectively because of the Foreign Exchange
Regulation Act (FERA), which had come into effect in 1974. Under FERA,
the country placed a cap on foreign equity participation at 40 percent,
though the limit was higher for pharmaceutical companies. The newly
elected government's decision to become more insular and focus on
promoting agriculture, rural and indigenous industries made the economy unsuitable for multinational companies (MNCs).
According to data from the Reserve Bank of India (RBI), at least 54 companies applied to exit India. By 1978, Coca-Cola, IBM,
Mobil and Kodak had already quit India or had applied to do so. Coca-Cola, for instance, was the leading beverage giant until it
chose to exit the country because of FERA norms and the Janata government's insistence that it reveal its secret formula.

Maruti Rolls Out People's Car (1983)

Maruti Udyog Ltd. was incorporated on February
24, 1981, but its history can be traced back to
1971. Sanjay Gandhi launched Maruti Motors
Ltd., a private company, which would design,
manufacture and assemble small cars. The firm
was dissolved in 1977, but later resurrected by
Indira Gandhi under her nationalisation drive,
paving the way for a new public sector entity that
went on to become India's largest passenger car
manufacturer.
The company rolled out its first people's car,
Maruti 800, a 796 cc hatchback, in December
1983. The vehicle went on to rule Indian roads for
two decades.

Vikram Kirloskar, president, Society of Indian Automobile Manufacturers, adds: Maruti brought about a change in
manufacturing in India. Indian industry had gained skills in local content and the ability to make anything in small quantities. He
contrasts that with the fact that India exported more than half a million cars last year, a little more than China. That speaks of the
progress made, he says.

Ushering in Telecom Reforms (1985)

Liberalisation of India's telecom sector started in 1984
when Sam Pitroda assisted by government set up the
Centre for Development of Telematics (C-DOT) to
develop indigenous digital switches. Until the 1980s,
Indian telecom was dominated by electromechanical
switches.
C-DOT set up a nationwide telecom network. Pitroda, an
NRI, also introduced the concept of coin-dropping Public
Call Offices (PCOs), which led to the exponential growth
of the telecom industry. In 1987, during Pitroda's
tenure as chief technology advisor to Prime Minister
Rajiv Gandhi, he founded India's Telecom Commissionthe country's highest telecom policymaking bodyand became its first
chairperson.
The seed for the information technology (IT) revolution was also planted during Rajiv Gandhi's time. The government removed
controls on computers and allowed the import of fully assembled motherboards with processors which led to a reduction in the
prices of computers. Then, in 1995, the then public sector monopoly Videsh Sanchar Nigam Limited launched India's first
internet service for public access.
The next big push for telecom reforms came in 1991 as part of the liberalisation policy. An independent regulatory body, the
Telecom Regulatory Authority of India (TRAI), was set up in 1997 to minimise government interference. In 1999, the New
Telecom Policy ushered in more changes. The new policy was an inflection point for the industry because it replaced bidding
criteria from license fee to percentage of revenue sharing, says Vishal Malhotra, Telecom Tax Partner with Ernst & Young and
head of Telecom Tax Practice, Europe, Middle East and Africa.

Liberalisation, Privatisation & Globalisation (1991)

It's often said that India only gets its act together when
pushed to the wall. 1991 was no different. Faced with a
balance of payments crisis, the country had to airlift gold to
the International Monetary Fundan act that shook the
nation out of its slumber. People wondered how the situation
had deteriorated so much. And, more importantly, what
could be done to salvage it.
That was when PV Narasimha Rao, who led a minority
government at the Centre, chose to leave his inedible stamp
on the nation. He chose Manmohan Singh, a former RBI
governor, as his finance minister and the rest, as they say, is
history.
Rising to present his maiden Budget on July 24, 1991,
Manmohan Singh dismantled the licence raj and ushered in a gradual lowering of tariffs. More importantly, he devalued the rupee
to make exports competitive. The initial result was euphoria. The stock market rallied (the rally had begun a little before the
Budget) and foreign investors rushed in. The office of the Controller of Capital Issues was abolished and foreigners were allowed
to invest in the stock market. Companies like Coca-Cola and IBM, which had left the country in the 1970s, came back.

Stock Market Scam (1992)

In 1992, Harshad Mehta, a broker known for his rags-to-riches story and a
poster boy for many investors, had used receipts of public sector banks to
manipulate stock prices.
Mehta siphoned off around Rs 1,000 crore from the banking system to buy
stocks on the Bombay Stock Exchange. In the period between April 1991
and April 1992, the Sensex went into a frenzy and returned 274 percent,
moving from 1,194 points to 4,467. That is the highest annual return for
the index. The scam came to light when the State Bank of India reported a
shortfall in government securities. That led to an investigation that later
showed that Mehta had manipulated around Rs. 3,500 crore in the
system. On August 6, 1992, after the scam was exposed, the markets
crashed by 72 percent leading to one of the biggest falls and a bearish
phase that lasted for two years.
Harshad Mehta scam revealed gaping holes in India's financial systems.
Ashishkumar Chauhan, MD and CEO, BSE, said, Though there was no
direct co-relation between the scam and the formation of the regulator, the scam became a catalyst for policy-makers to think
hard. It set in motion a chain reaction which lead to developments like the listing agreement. The first boost to Sebi's arsenal was
the Securities Laws (Amendments) Act 1995. This widened Sebi's jurisdiction and allowed it to regulate depositories, FIIs,
venture capital funds and credit-rating agencies. To secure investor interest, Sebi could also make it mandatory for disclosures
by companies issuing securities.

Chidambaram's Dream Budget (1997)

As P Chidambaram geared up to present the Union
Budget on February 28, 1997, the then finance
minister was fully aware of the political and
economic uncertainties India was going through.
His predecessor Manmohan Singh might have
saved the country the blushes with his pathbreaking Budget of 1991, but the government he
belonged to was voted out of power in 1996.
Economic reforms were increasingly being seen as
anti-poor. The United Front, an alliance of 13
parties, was governing India with HD Deve Gowda,
as a prime minister.
The corporate world was lobbying for more growth
enablers, including rationalised taxes. But they wouldn't have been very hopeful as the FM had imposed a minimum alternate tax
on profits in his maiden Budget a year before. However, by the time Chidambaram finished his Budget speech, the Sensex had
risen by 6.5 percent, a booming vindication second only to Singh's 1991 Budget.
As part of a slew of measures, the FM reduced personal income tax rates from 40 percent to 30 percent and cut corporate tax
rates, including doing away with surcharge and bringing down royalty rates. He increased the limit of FII investment and laid the
ground for the first round of disinvestment in PSUs. Import duty on many products saw a steep cut as well.
One of the biggest long-term impacts of the Dream Budget has been on income tax collections, which grew from Rs. 18,700
crore in 1997 to over Rs. 2 lakh crore in 2013.

Rise of India Inc (2005)

The noughties saw a bull run: A super-cycle for stocks and
commodities, powered by Chinese demand for resources
and exuberant US markets. But few countries were as
deeply impacted by the events of those heady days as India.
There was new hope when the UPA government came to
power in 2004. Medium-sized companies in real estate,
infrastructure and core manufacturing were mushrooming.
IPOs were able to collect funds that promoters never dreamt
of earlier: KP Singh's DLF raised Rs. 9,000 crore in 2007,
and Anil Ambani broke all records when the Reliance Power
IPO raked in Rs. 11,700 crore. The Indian elephant was
learning how to dance.
Powered by new confidence, and cash, India Inc scoured the
world for acquisition targets. Large corporate houses like
the Tatas and the Aditya Birla Group were joined by dozens of smaller and relatively unknown Indian companies. Tulsi Tanti (of
Suzlon Energy) and GM Rao (GMR Infra) were the toast of Dalal Street; they (and others) looked for ways to build scale quickly.
Fundraising was a cinch; all they needed were the right targets.
Swashbuckling Indians became the new kings on M&A league tables. In January 2007, Tata Steel beat competition to acquire
UK-based Corus for $12.9 billion, the biggest-ever Indian takeover of a foreign company. In February, Aditya Birla Group company
Hindalco bought Novelis for a $6 billion all-cash deal. Dozens of others followed to buy mines, power projects, hotels and BPOs.
The ride continued through 2008: Tata Motors picked up loss-making Jaguar Land Rover for $2.3 billion and Suzlon Energy
bought German wind turbine maker REpower for $1.7 billion.

Beginning of the Downturn (2010)

The first decade of the 21st century saw tremendous growth and
optimism in India. While the markets unleashed animal spirits, the
country became an idiom for development, thanks to massive
poverty reductions reflected in increased per capita income (from
$300 in 1991 to $1,700 in 2011), second only to China. India also
held its own during the 2008 global financial crisis that had brought
most

of

the

financial

powerhouses

to

their

knees.

However, the good work was undone in 2010 as growth tanked,

inflation rose, and the current account deficit increased (to $31
billion in 2013). Just by looking at the numbers in this period, it
would seem that the high growth rate in the preceding years was an
aberration.
So what went wrong? As many economists observed, the main players which led to India's upturn were also the very reasons for
its downfall: Its economic and political institutions. On the economic front, outdated land rights and even more archaic laws, the
rise in cost of living, and India's strongest industries (steel, manufacturing and auto) going through tough times meant that the
pillars of the economy remained wobbly due to domestic policies that led to inflation and limited growth.
As if the economic churn wasn't enough, India also saw some of the most politically unsettling times of the decade. It was during
this period (2008-10) that a series of mega scams2G, Adarsh, Commonwealth Games, to name a fewtumbled out of the
UPA's closet and exposed the widespread corruption.
The policy paralysis that set in gave birth to cronyism, especially in the management of natural resources, such as coal. By
2013, infrastructure projects worth an estimated Rs. 7 lakh crore or more were held up for various reasons.