An Analysis of India's Economic Reform Policy

"Long years ago we made a tryst with destiny, and now the time comes when we shall redeem our pledge. At the stroke of the midnight hour, when the world sleeps, India will awake to life and freedom."
Jawaharlal Nehru, August 1947

After gaining independence in 1947, the government run by Jawaharlal Nehru was faced with a poor economy and a country suffering from the constraints of colonial rule. With India's interest in mind, Nehru exercised his strong political leadership and began to work towards a goal of economic development with a non-alignment perspective. (Sundrum, 11)

From 1950 until the late 1980's, Indian economic policy was based firmly on the "Swadeshi movement", a framework of extreme nationalism and isolationism from the rest of the world. Foreign investment was not welcome and multi-national corporations were seen as exploitative to India's national interest. American corporations like IBM and Coca-Cola were forced to leave India. Markets were closed and the economy was near autarkic. As a part of India's protectionism, tariffs were increased on all imports, discouraging trade and drastically slowing down growth. (Kulkarni, 4) India was determined to be self-reliant.
India's quest for economic self-reliance brought with it a heavy focus on the industrial sector. The goal of development planning in the mid 1950's was to generate resources for the industrial sector through agricultural production. It was predicted that a strong manufacturing sector would lead to modernization in the agricultural sector and equal growth would be seen in both areas.

This did not happen as planned by Indian economists. From 1951 to 1991 the agricultural share of India's GDP fell from 56% to 32%, while the industrial share of India's GDP was less affected, falling from 71% to 64%. This difference in productivity strengthened tensions between rural and urban India. (Ahluwalia & Little, 122)