On 6th March, 2010 Dr.S.S.Sahasrabudhe visited Sinhgad institute of Management and talked about Indian Economy after independence and now. He gave an insight about the background, present scenario of the Indian Economy and the budget presented by Mr.Pranab Mukherjee on 26th Feb 2010.
Year1951-1991:-
Dr. Sahasrabudhe started his speech by referring to the year 1951-1991 “economic crises and policy formation”. After independence, with the partition of India and Pakistan, India faced mainly “food problems” as there were only 32 million tons of food grains for 40 crore plus population. In the year 1951 economic model Harrot model was used which talks about at what rate investment should be made and demand, supply should increase at same rate. Additional demand and additional supply should be at equal pace.
Inflation can be broadly defined as- Too much of money chasing too few goods. If demand exceeds supply then inflation occurs and if supply exceeds demand then depression occurs. He roughly explained the business cycle and compared it with the 24 hrs cycle of human being.
Business cycle starts with inflation which is followed by boom (prosperity) then comes the recession followed by depression (in this stage everyone is pessimistic about future) then comes the recovery stage.
Dr. Sahasrabudhe gave a very detailed overview of how and when nationalization of 14 commercialized banks happened. In the year 1969 India’s Prime minister was Mrs. Indira Gandhi. For 3years 1966-1969 there was social control over the banks. On 18th July 1969 cabinet meeting was held at PM Indira Gandhi’s residence and main agenda for the meeting was whether nationalization of banks should be done or not. At midnight, the meeting was concluded with a consensus over continuation of social control over the banks. But later at 2:30am PM Indira Gandhi called her secretary to make a draft of the Ordinance and she gave a call to President about her decision. In the morning at 6:00 am the 1st bulletin on All India radio was that banks had been nationalized. Mr.Morarji Desai was the then Finance minister and he gave resignation as he didn’t know about nationalization of banks and came to know through radio. Indira Gandhi carried on with the same nehruvian policy for public sector units. Nehru as well as Indira Gandhi was obsessed with expansion of public sector units as it will generate employment. 100 million crores of rupees were invested on public sectors but the rate of return was just 4%. Expansion of public sector continued till 1990 and several employment schemes were introduced for e.g. IRDP- Integrated Rural Development Programme. For those 40 years productivity was very low, per capita income increased at the rate of 3.5% per annum and at the same time population growth was 2.5% so net per capita income increased by just 1%
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Before 1991
- Growth in economy was very slow.
-Many sectors were sick including agriculture, small scale industries.
-At that time license Raj was there which means to open a single unit i.e. industry 23 different licenses were required, which meant more corruption.
-Income tax rate was very high up to 73.5%.
-Growth of tertiary sectors i.e. service sectors (banking, transport, aviation, education, communication) was only 4 %.
-Industrial growth was on an average 7%-8% per annum.
-In banks doubtful debts were shown as assets. |
