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Mallikeshwari Mallika
Social and Religious Reforms
During the 19th Century
there were attempts to follow the example of the
West in religion and in social and political
reform. Educated India became growingly receptive
to modern European thought. Raja Ram Mohan Roy
(1772-1833), may be said to have initiated a new
age in India's history. The constitutional
methods in politics which he advocated were the
beginning of the trend which led to the
foundation of the Indian National Congress in
1885. He also founded the Brahmo Samaj, a
religious group seeking to rid Hinduism of
irrational distortions and practices.
Among other pioneers of religious,
social, educational and political reforms were
Ishwarchandra Vidhyasagar in Bengal and Jyotiba
Phule in Maharashtra. They worked actively to
improve the position of women, giving them
education and recognizing their rights.As a
reaction against the tendency of some to imitate
the West and to ignore India's own rich and
valuable traditions, and also a reaction to the
adoption of the Christian forms of worship, Swami
Dayanand Saraswati (1824-83) established Arya
Samaj and urged a revival of Hinduism in its
pristine Vedic form.
The synthesis of the two great forces, the
ancient Indian and the modern Western, was
brought about by Ramakrishna Paramhansa
(1836-1886) and by his disciple, Swami
Vivekananda (1863-1902). He believed in and
preached the superiority of the Hindu path to
spiritual salvation. At the same time, he urged
India to adopt the scientific attitude of West.
Vivekananda founded Ramakrishna Mission. He
condemned the caste-system, rituals and
superstition and urged people to imbibe the
spirit of liberty, equality and free
thinking.The Theosophical Society was founded
in U.S.A. and the movement grew in India under
the leadership of Mrs.Annie Beasant, which
glorified Indian religion and philosophical
tradition and helped the Indians to recover their
Cultural and Scientific Awakening The theme of
this century was predominantly humanistic and
stressed the freedom of man and equality of all.
Geetanjali - the distinctive work of poet
Rabindranath Tagore won him the Nobel prize.The
modern Indian sought to reconcile the ideas and
thoughts of the east and west. Later on, similar
trends appeared in paintings and sculptures as
well. In the field of science, high recognition
was given to the works of scientists like
Ramanujam in Maths, Dr.C.V.Raman in Physics for
the Raman Effect and Dr.Jagdish Chandra Bose in
the field of Botany.
The Revolt of 1857 severely jolted the British
administration in India and forced its
reorganisation. By the act of 1858, the governing
power was transferred from the East India company
to the British crown. This power was to be
exercised by the Secretary of State for India
(member of the British cabinet and responsible to
Parliament) aided by an Indian Council, which had
only advisory powers.For administrative purpose
India was divided into three presidencies,
namely, Bengal, Madras and Bombay Presidency. The
interests of the British thus became paramount in
the governance of India. The policies and
interests of the British in India were determined
by the industrialists, the most powerful section
in British society. Indian resources were also
utilized to serve the interests of the British
empire in other parts of the world and in costly
The British PolicyThe queen's proclamations of
1858, promised not to extend British territories
in India by annexing Princely states and they
were subordinated to the British government. By
the act of 1876, Queen Victoria assumed the title
of Empress of India. This implied that Britain
would protect the Indian states from internal as
well as external danger and get the unlimited
powers to intervene in the internal affairs of
the State.Thus after 1857, India was divided
into two parts - British India, directly governed
by the British government and the Indian states
ruled by Indian princes. Britishers gradually
stopped their support to the reforms which
resulted in the preservation of social evils.
After 1857 mutiny, they followed the Divide and
rule policy, in a aim to create a rift between
the Indian Hindus and Muslims.The impact of
modern western culture brought into being a few
movements which contributed much to the making of
modern India. Many Indians realized that the
reform of social institutions and religious
outlook of people was a necessary pre-condition
for the growth of national unity.
The Economic Impact Indian economy was
transferred into a colonial economy whose nature
and structure was determined by the needs of the
British economy. India supplied all the raw
material required for the Britain's Industrial
need, especially the cash crops like jute,
cotton, iron ore and became the ready market for
its large-scale finished product. The cottage
industries were destroyed systematically and
India was forced to accept British goods, which
were cheaper than Indian counterpart.High
revenue demands and rigid manners of collection
forced peasants into the clutches of the
moneylenders. Expanding population put greater
pressure on land as there was no corresponding
development of industry. Britain's policy of
one-way free trade ruined India's urban and rural
industries, which further added to the pressure
on land.
Development of Transport and TradeA cheap and
easy system of transport was important for the
flow of British ready made goods and the export
of raw material to Britain on large scale.Roads
were improved and steam ships were introduced.
But real improvement came with the railways which
started in 1853, between Bombay V.T. and Thane.
In her trade with other countries, India usually
maintained a favourable balance, which were used
for paying off various kinds of dues charged on
India by Britain. Development of
IndustriesUpto 1914, Industrial development was
mainly restricted in the production of export of
those goods with the natural advantage (jute, tea
etc.) and in those areas where competition with
British counterparts was not serious (coarse
goods).During the inter-war period of 1914 -
39, it was in the production of consumer goods
for mass market within India, mainly due to war
tariffs and depression.Finally the last decade
of British rule from 1939-47, brought another
phase - the production of capital goods for the
domestic market.
POLITICAL 1935-1938 The British attempt to
appease India's call for independence while
retaining their prize colony. The result is the
Government of India Act of 1935, which increases
the country's provincial autonomy. In the 1937
elections, India's Congress Party outperforms the
Muslim League, deepening the three-way rift
between Muslims, Hindus, and the British.
1939-1946 The British hand over power at local
and provincial levels, but keep control of the
center. More autonomy seems inevitable, but
negotiations between the Congress Party, the
Muslim League, and the British reach an impasse.
In March 1940, the Muslim League demands
partition and spends the next five years building
support in Muslim-majority areas. The 1946
elections lead to further violence. 1947-1948
Britain partitions the colony, with free India
flanked by East and West Pakistan. Most of the
562 independent princely states join India, under
Prime Minister Jawaharlal Nehru. In the South,
Telugu-speaking Hyderabad tries unsuccessfully to
remain independent. Millions of people flee
Pakistan for India and vice versa amid mounting
violence. Hindu extremists assassinate Gandhi in
1948. 1949-1955 India adopts a British-style
parliamentary democracy with elected state and
national governments. It retains the judicial,
administrative, defense, and educational
structures and institutions set up by the
British. India becomes a republic in 1950, with a
largely ceremonial president as head of state.
Prime Minister Nehru enjoys nationwide support,
but new opposition parties begin to form.
1956-1961 The federal system is reorganized
along linguistic lines into 15 states and eight
federally administered territories. Separatist
movements exist in pockets throughout the
country, notably in Muslim-dominated Kashmir and
the Western region of Punjab, where Sikhs grow
increasingly militant. Democratization of the
political process leads to the spread of
opposition parties. 1962-1963 India proves ill
equipped for the 1962 war with China along the
countries' shared border, and Prime Minister
Nehru's image is tarnished, both at home and
abroad. India acquires the former French
settlement of Pondicherry and forcibly annexes
the Portuguese enclaves of Goa and Daman and Diu.
The state of Assam begins to lose territory as
non-Assamese populations are granted autonomy.
1964-1966 Lal Bahadur Shastri becomes prime
minister upon Nehru's death. Anti-Hindu
demonstrations erupt in Tamil Nadu (then Madras),
and India enters a second war with Pakistan over
Kashmir. Shastri dies after signing an agreement
with Pakistan for a cease-fire line in Kashmir.
Opposition to the Congress Party grows. The state
of Punjab is partitioned into Hindi-speaking
Haryana and Punjabi-speaking Punjab. 1967-1970
Nehru's daughter, Indira Gandhi, becomes prime
minister. For the first time, the Congress Party
majority is reduced, as opposition alliances
control almost two-thirds of the state
governments. Indira Gandhi's imperious style
angers some party members, and the party splits
into Congress (O) and Congress (R). Regional
parties proliferate, especially in Tamil Nadu,
Punjab, and Jammu and Kashmir.
POLITICAL 1971-1974 The Congress (R) party
under Morarji Desai gains a parliamentary
majority. Indira Gandhi consolidates her power,
but a deepening economic crisis, war with
Pakistan, and civil disobedience test her
administration. Displeased with central
government, Punjab unsuccessfully calls for a
"Sikh Autonomous Region." The government is in
turmoil after Gandhi's 1971 election is
invalidated. 1975-1977 At Indira Gandhi's
request, the president declares a state of
emergency, suspending civil rights. Gandhi's
opponents are jailed until public outcry forces
general elections. The multiparty opposition
campaigns as the Janata Party, stressing
decentralization and employment, and wins a
majority in the Lower House. Morarji Desai
becomes prime minister. India's protectorate of
Sikkim becomes a state. 1978-1984 Prime
Minister Desai resigns after failing to bring
about reform. He is briefly succeeded by
Chaudhury Charan Singh and Chandra Shekhar.
Renaming her party Congress (I) for Indira,
Gandhi is reelected. In 1984 she is assassinated
by her Sikh bodyguards after ordering the army to
storm a holy Sikh shrine where extremists have
taken refuge. Her son Rajiv replaces her.
1985-1987 Rajiv Gandhi temporarily restores
calm, but two scandals taint his Congress (I)
Party. The new nationalist Bharatiya Janata Party
(BJP) incites the public by celebrating Hindu
heritage and opposing secularism and affirmative
action for lower castes. Several opposition
factions join the Janata Dal Party in the
National Front. India and Pakistan agree not to
strike each other's nuclear facilities.
1988-1990 Rajiv Gandhi wins the 1989 election,
but resigns after failing to form a majority
government. The National Front's V.P. Singh
becomes prime minister, but his government's
dependence on the Communist and Bharatiya Janata
parties proves untenable. The latter withdraws
its support, and Singh loses a vote of
confidence. The subsequent minority opposition
government collapses after four months.
1991-1995 Rajiv Gandhi is assassinated by a
Tamil suicide terrorist. The Congress Party prime
minister, P.V. Narasimha Rao, is stronger than
expected, selecting ministers (in particular
finance and commerce ministers) who will break
with the past. Support for the Bharatiya Janata
Party grows among the upper castes. Central
government intervention in local affairs fuels
existing separatist movements. 1996-1998 Two
minority coalition governments survive a scant
year each. The 1998 elections pit the Congress
Party's Sonia Gandhi, widow of former Prime
Minister Rajiv Gandhi, against the United Front
alliance and the Bharatiya Janata Party (BJP).
The vote runs deeply along the lines of caste and
religion. A BJP-led coalition barely emerges
victorious, and Atal Behari Vajpayee becomes
prime minister. 1999-2002 Vajpayee's 13-party
coalition fails to win a majority in Parliament.
Bowing to sociopolitical demands, the government
creates three new Northern states. The Bharatiya
Janata Party conducts nuclear tests, sparking
counter tests by Pakistan and bringing
international sanctions upon both countries. A
serious military clash in Kashmir and a series of
scandals further undermine the government.
1939-1946 In determining India's future,
Britain's focus on the Congress Party and Muslim
League diverts attention from social and
religious minorities. Communal violence mounts
over conflicting visions of an independent India.
1947-1950 India's poverty and social indicators
are among the world's worst. Partition unleashes
a wave of violence, misery, and loss of life and
property, as millions flee Pakistan for India and
vice versa. Discrimination against the
"scheduled," or socially disadvantaged, castes
and tribes (referred to by Gandhi as "harijan")
is prohibited by the constitution, but
discrimination remains entrenched. 1951-1957
Violence continues following the reorganization
of states along linguistic lines. New legal
reforms to emancipate women are poorly enforced.
One of the first family-planning efforts in the
developing world begins. The government grants
Dalits, a caste representing 16 percent of
India's growing population, additional
protections against discrimination, despite
protests from the upper castes. 1958-1966 The
high rate of population growth severely hinders
economic development. The government launches
anti-poverty programs, including food subsidies
and rural self-employment, but poverty rates
fluctuate with no clear trend, and food shortages
accentuate inequality. The 23rd Amendment to the
Constitution extends existing affirmative-action
measures until 1980. 1967-1974 Prime Minister
Indira Gandhi, seeking to eliminate poverty,
pursues land reform and places ceilings on
personal income, private property, and corporate
profits. But a rupee devaluation aggravates
famine, labor unrest, and misery among the poor.
Activists form social movements to represent the
interests of farmers, women, and
environmentalists. National civil disobedience
marks 1974. 1975 During the two-year state of
emergency, Prime Minister Indira Gandhi
implements several controversial social measures,
including forced sterilization for the poor and
eviction of urban squatters. Half of India's
population remains in poverty, but poverty
incidence begins to decline. The Fifth Five-Year
Plan includes programs to improve access to
health care among the rural poor. 1979-1983 A
controversial report recommends that 27 percent
of all government jobs and university admissions
go to "backward classes," who represent 52
percent of the population. The proposal is not
immediately accepted. The Sixth Five-Year Plan
aims at training health workers and controlling
communicable diseases. Parliament endorses the
National Health Policy, criticized for its lack
of specific measures. 1984-1989 The government
tries to expand access to basic social services
and redirect industry to "backward areas." The
National Policy on Education initiates programs
aimed at improving the country's education
system. The central government funds an
increasing number of family-planning programs.
The economy is unable to generate sufficient jobs
for the rapidly growing labor force. 1990-1994
Prime Minister V.P. Singh supports the
affirmative-action proposals of 1980, triggering
riots in the North. Many of the unemployed join
militant religious groups, rekindling
Hindu-Muslim tensions that culminate in violent
riots in 1992. While 38 percent are still in
poverty, India's growing middle class contributes
to and benefits from the country's thriving
high-technology industry. 1995-1998 Noticeable
improvement in several social indicators,
including literacy and infant mortality rates, is
limited primarily to urban areas. Poverty worsens
following poor harvests and implementation of the
1991 stabilization policies. In particular,
relative neglect of the agricultural sector, in
favor of industry, contributes to the
perpetuation of rural poverty. 1999-2002 The
Vajpayee government announces plans to reduce
poverty through acceleration of GDP growth. It
remains to be seen whether a second generation of
economic reforms will have the desired
trickle-down effect. Social spending suffers a
significant blow when an earthquake in the
Northern state of Gujarat kills 20,000 people,
injures another 160,000, and leaves 600,000
ENVIRONMENTAL 1939-1946 Environmental
protection is scarce, limited primarily to
forests. The Forest Act and Forest Privilege
Codes grant India the right to demarcate reserves
and protected forests and give access to tribes,
castes, and villages. Local application of these
rights are at the discretion of government
officials and subject to withdrawal at any time.
1947-1956 Rapid state-led industrialization
begins, ushering in an era of increasing
pollution and dwindling forest resources.
National interest supercedes local claims to
resource management. The government sets up the
Central Board of Forestry to implement the
National Forest Policy, but large-scale
deforestation continues. The Factory Act
addresses the discharge of water and effluents by
factories. 1957-1967 Jurisdictional
complexities hamper the implementation of
environmental regulations. State governments have
jurisdiction over environmental issues, yet the
constitution gives the central government
sweeping powers to implement laws with regard to
international treaties or decisions.
Industrialization and increased agricultural
production lead to widespread pollution of
surface and groundwater. 1968-1975 The Green
Revolution increases productivity and expands
agricultural lands. This in turn accelerates the
use of chemical fertilizers and overexploits
groundwater resources. After a decade of debate,
Parliament passes India's first major water
legislation, spurred in large part by the 1972
Stockholm Conference on Human Environment.
Anti-dam campaigns halt several hydroelectric
projects. 1976-1980 India amends its
constitution to allow states to intervene in the
protection of public health, forests, and
wildlife. But the amendment is limited by a
clause specifying that it "shall not be
enforceable by any court." Indira Gandhi enacts a
series of environmental measures and creates the
Department of Environment. Environmentalists
criticize the department for being weak and
symbolic in nature. 1981-1985 The new Forest
Conservation Act finally lowers deforestation
rates. In 1984 India suffers a major
environmental setback when poisonous gas leaks
from a Union Carbide plant at Bhopal, killing or
injuring thousands in the country's largest
industrial accident. Uncontrolled emissions from
factories around the country contribute to major
air pollution. 1986-1990 The Environment
Protection Act of 1986 brings more effective
environmental legislation. The act establishes a
comprehensive Ministry of Environment and Forests
to administer and enforce environmental laws and
policies. The Environmental Action Plan
integrates environmental considerations with
development strategies, with an emphasis on the
reduction of industrial pollution. 1991-1995
The government's plan to build several
hydroelectric dams, including the Sardar Sarovar
Dam on the Narmada River, sparks protests by
activists and local communities facing
relocation. The Supreme Court halts construction
at a height of 80 meters, just over half of its
originally planned height. 1996-2002 The
Ministry of Environment and Forests strengthens
incentives for adoption of cleaner technologies.
Air and water pollution remain the most severe
environmental problems due to industrialization,
rapid urbanization, and inconsistent regulation
enforcement. The Supreme Court allows
construction of the controversial Sardar Sarovar
Dam to resume and reach its originally planned
height of 138 meters.
RULE OF LAW 1939-1946 The requisitioning of
property for military installations disrupts
local economies, while wartime shortages spur a
black market. Communal rioting and massacres in
the North indicate the potential for civil war
and hasten plans for partition. 1947-1957 The
Indian Constitution guarantees the people certain
democratic rights and grants some protections
against discrimination against the lowest caste
"untouchables." The Supreme Court comes into
being in 1950. The rise of a massive public
sector and complex bureaucratic processes known
as the "Permit Raj" leads to institutionalized
corruption. Price ceilings contribute to the
growing black market. 1958-1967 The army quells
several violent religious demonstrations. In the
states of Kerala and Bengal, workers stage sieges
at several factories. Armed Maoists lead a terror
campaign in Bengal. In Muslim-dominated Kashmir,
a violent separatist movement gathers strength.
1968-1974 Labor unrest leads to national
strikes. Agitation for linguistic and religious
separatism intensifies in several states. Tens of
thousands of refugees flock to India from East
Pakistan, which becomes Bangladesh after a brief
but intense war in 1971. The Allahabad High Court
invalidates Indira Gandhi's 1971 election.
1975-1977 During a two-year state of emergency,
Indira Gandhi's government suspends civil rights
and imposes censorship. The Maintenance of
Internal Security Act is amended to allow the
government to arrest individuals without
specifying charges. Tens of thousands of Indira
Gandhi's opposition are arrested and jailed.
1978-1984 A rash of caste violence and regional
unrest leads to government legislation that
places substantial curbs on civil liberties.
Conflict culminates in 1984 when Indira Gandhi
orders troops to dislodge armed Sikh extremists
from the Golden Temple at Amritsar, a Sikh holy
shrine. In the ensuing backlash, Indira Gandhi is
assassinated. Within days, Hindus retaliate by
massacring thousands of Sikhs. 1985-1989 The
Sikh militant movement spreads through Punjab,
leading to additional legislation against
terrorists. Violence and repression escalate in
the area. Indian soldiers clash with Tamil
militants, and thousands are killed and wounded.
Insurgency breaks out as fighting spreads between
Kashmiri militant and army troops. Rajiv Gandhi's
reputation is sullied by an arms contract
kickback scandal. 1990-1995 Rajiv Gandhi is
assassinated by a Tamil terrorist. Riots in the
North follow V.P. Singh's announcement that 27
percent of central government jobs will go to
"Backward Classes." Hindu-Muslim conflict
intensifies when Hindu extremists demolish a
mosque. Corruption in Jammu and Kashmir leads to
the dissolution of the state government. Direct
presidential rule is declared in 1990 and lasts
five years. 1996-2002 The 1996 and 1998
elections are among the fairest in Indian
history, but are nevertheless marred by violence
at polling stations. Several politicians,
including Prime Minister Vajpayee, are charged
with corruption. Religious and regional unrest
escalates in Gujarat, Assam, and Kashmir despite
cease-fires agreed to by some rebel groups.
1939-1946 During World War II, the British
impose controls over prices, production, and the
use of foreign exchange. The war sparks
inflation, corruption, shortages, and black
markets. Disruptions in international trade and
famine in Eastern and Southern India lead the
government to initiate its "Grow More Food"
campaign. 1947-1950 Nehru combines a
mixed-economy approach with central planning and
rapid industrialization under the newly
established Planning Commission. The government
takes on a significant role in the economy,
granting itself a monopoly in several defense and
infrastructure industries. A complex system of
controls and licenses comes to dominate
production, investment, and trade. 1951-1955
India's First Five-Year Plan prioritizes
agriculture, irrigation, and power projects in an
attempt to increase self-sufficiency. Two acts
provide the legal framework for the government's
extension of its intervention and price controls
in dozens of industries. Pervasive controls give
rise to the complex bureaucratic processes of the
"Permit Raj." Industrial and agricultural
production rise. 1956-1960 The Second Five-Year
Plan emphasizes social goals and
industrialization in a protected environment. The
Industrial Policy Resolution extends the grasp of
the government in the areas of capital and
intermediate goods. Industrial production rises
an average of 6 percent per year. Land reform is
geared toward removing basic socioeconomic
constraints for rural populations. 1961-1964
The Third Five-Year Plan focuses on raising
national and per capita income levels and
expanding the industrial base. Private investment
falls as a result of corruption, extensive
controls, and an inefficient and bloated
bureaucracy. Continuing food shortages reinforce
the importance of self-sufficiency in food grain
production and the need for government
procurement of an adequate buffer stock.
1965-1974 Inefficiency arising from protected
industrialization leads to a decline in India's
industrial growth rates. Skyrocketing world oil
prices deeply affect the country, a large
importer of oil. In agriculture, India ushers in
the Green Revolution, emphasizing irrigation,
hybrid seed development, and widespread use of
fertilizers. The resulting agricultural growth
helps offset the industrial slowdown. 1975-1979
The Fifth Five-Year Plan rapidly becomes obsolete
as government changes its priorities to respond
to rising oil prices. The dramatic increase in
world oil prices, which increases India's oil
bill threefold, attracts a large number of Indian
workers to the Gulf countries and brings in the
flow of foreign exchange. 1980-1984
Public-sector spending focuses on social
services, agriculture, transportation, and
mining. Mounting losses in state-owned companies
increase deficits, which the state tries to stem
by borrowing heavily. A substantial IMF loan
comes with structural adjustment requirements.
Rajiv Gandhi emphasizes economic liberalization
and pushes for development of the technology
sector. 1985-1989 The government introduces
economic reforms, including reduced quantitative
restrictions on imports, decreased subsidies,
fewer licensing requirements, the sale of shares
in select public enterprises, and tax reforms.
Corruption is rampant, with officials often
bending the rules. India continues to rely on
foreign loans to finance development. Economic
growth averages 6.6 percent per year. 1990-1994
Policymakers question state ownership, trade
protectionism, and limits on foreign capital.
Doubling oil prices and violence at home bring
the economy near crisis. India borrows from the
IMF, agreeing to speed liberalization. The
government sells off shares in its companies and
opens the door to foreign investment. Bangalore
becomes a hub for the high-technology industry.
1995-1998 Reform efforts show positive results.
GDP growth rises to 7 percent, and inflation
falls. A new private sector emerges, especially
in technology services, side by side with
government-sponsored RD efforts in Bangalore.
India becomes a major exporter of software. Yet
economic growth is constrained by inadequate
infrastructure, Byzantine bureaucracy, and high
interest rates. 1999-2002 The government favors
foreign investment in infrastructure and high
technology over consumer products. Deregulation
and decentralization of the economy continue.
Growth falls slightly to 6 percent in 2000
because of an erratic monsoon, a global slowdown,
and inefficient industrial capacity. Prime
Minister Vajpayee announces an ambitious goal of
9 percent annual growth.
MONEY 1939-1947 The rupee is linked to the
British pound, resulting in "sterling balances"
from India's trade surplus, which are kept under
British control in London. 1948-1951 India
nationalizes the Reserve Bank and devalues the
rupee by 31 percent. The Reserve Bank formulates
and administers a restrictive monetary policy to
fight off inflationary pressures and promote
stable prices and higher production. 1952-1960
The government seeks to revamp the banking system
to stimulate development and forms several
specialized institutions to provide credit to
industry, agriculture, and small business.
Inflation remains low. 1961-1970 India's
macroeconomic policy is geared toward low
monetary growth and moderate public sector
deficits. Inflation remains low, and the current
account registers a surplus. For the most part,
capital entering the country takes the form of
official aid. Indira Gandhi nationalizes the
banking system, which expands rapidly.
1971-1979 The rupee is overvalued as part of an
import-substitution strategy. The government
tightly controls foreign exchange transactions,
and the Central Bank closely manages the exchange
rate. 1980-1985 While export growth is slow, an
increase in domestic petroleum production and
reduced petroleum imports keep the trade deficit
in check. The current account deficit stays low.
Tax receipts rise when comprehensive tax reform
tightens enforcement, and taxpayers respond to
lower taxes with greater compliance. The rupee is
allowed to depreciate sharply in conjunction with
economic liberalization. 1986-1990 Progress in
tax collection is undermined by renewed tax
evasion and insufficient coordination among
authorities. The government responds to the
growing deficit by borrowing. Foreign debt
doubles. India becomes increasingly vulnerable to
external shocks. Increasing oil prices, slow
growth in countries trading with India, and
political uncertainty put India on the verge of a
currency crisis. 1991-1995 India undertakes
broad fiscal reform, including reforms to the tax
system and cuts in the public sector deficit. To
boost exports, the government devalues the rupee
by 19 percent and moves it toward partial
convertibility to foreign currency. In 1993, the
government devalues the rupee again and
introduces a market-determined exchange rate.
Inflation rises to 11 percent. 1996-2002 The
fiscal situation deteriorates. The public-sector
deficit rises sharply due to weak revenue
performance and a lack of expenditure control at
both the central and state government levels.
Inflation falls to 3.5 percent in 1999, but then
rebounds. Public-sector debt exceeds 80 percent
of the GDP.
1939-1946 Britain restricts its colony's trade
with other nations by controlling the "sterling
balances" from India's trade surplus. U.S.
imports, however, increase, financed by
lend-lease agreements. By the end of World War
II, trade between the United States and India is
twice its prewar level. India remains dependent
on imported machinery, chemicals, and other basic
inputs to production. 1947-1951 India is a
founding member of the General Agreement on
Tariffs and Trade (GATT), yet implements
protectionist measures to reduce foreign
competition. India accounts for 2.5 percent of
world exports, primarily jute, tea, and cotton
textiles. Engineering goods represent 1 percent
of India's exports. 1952-1960 The government
emphasizes self-sufficiency over foreign trade.
India's import controls and tariff policy
stimulate the production of import-substitution
goods by local manufacturers. The government also
imposes strict controls on exports. 1961-1969
India's share of world trade shrinks drastically
as the country becomes isolated from the
international market. Although exports cover the
costs of residual import requirements, they are
limited. Government-owned industries face little
competition or pressure to maintain efficiency.
As a result, Indian exports compete on the basis
of price rather than quality. 1970-1979 Rising
oil prices and subsequent balance-of-payment
difficulties encourage India to promote exports.
Yet the export sector suffers from India's policy
of reserving the manufacture of most
labor-intensive, low-tech products for the
"small-scale sector" to promote employment. These
small producers are unable to compete for
contracts with large, international buyers.
1980-1984 India's share of world trade falls to
0.4 percent. Exports finance 60 percent of
imports. By 1984, Rajiv Gandhi implements changes
to stimulate India's nascent high-tech industry.
The government removes import duties on select
electronic goods and reduces duties on several
critical electronic parts. Indian companies are
allowed to partner with foreign companies.
1985-1989 The beginnings of trade
liberalization are visible. The government
reduces import duties and widens investment
opportunities for the private sector. The
reduction in tax rates and import deficits is
financed through commercial borrowing.
Liberalization of imports extends to capital and
intermediate goods. 1990-1994 The 1991 economic
reform package further liberalizes trade. The
government reduces tariffs and trade barriers,
eliminates licenses for most industries, and
slashes subsidies for domestic products and
exports. Many powerful vested interests oppose
liberalization, however, and trade remains
somewhat regulated. The government bans, for
example, the import of many consumer goods.
1995-2002 To meet WTO commitments, India agrees
to eliminate quantitative restrictions on many
consumer and agricultural product imports, while
retaining export subsidies and incentives. Growth
of Bangalore's high-tech industry leads to the
export of software and supercomputers. The United
States is India's largest trading partner,
followed by Japan, the European Union, and OPEC