Indian Economy- A Historical perspective

Indian economy portrayed a pathetic picture on the eve of independence. Two hundred years of  drudgery under British colonialism had plunged Indian economy into a dilapidated state with productivity abysmally low in agriculture and industrial sector.

The following article throws light on the course of economic reforms undertaken by the government to ameliorate the situation and bolster the Indian economy!! Here, its worth mentioning that political and economic thinkers adopted a "socialist" model of economic system although not as stringent as that of China or Russia. "Nehruvian socialism" allowed co-existence of both public and private sectors, thus giving Indian economy a "mixed" form.

Economic Planning:

Borrowed from Soviet Union, the idea of economic planning was central to the economic reforms of the country. P.C. Mahalanobis is regarded as the "architect of Indian planning". Planning commission was set up in 1950 with focus on economic growth, modernization in terms of technology and social outlook, self-reliance in terms of productivity and equity. "Five year plans" were formulated which focussed primarily on boosting agriculture and industrial growth in initial years.

Agrarian Reforms:

"Land Reforms" and "Land Ceiling Act" are regarded as breakthrough reforms in agriculture sector. It helped reduce socio-economic inequalities and gave a fillip to agricultural productivity. However, loopholes in the implementation curtailed its success. Then came the phase of "Green Revolution" when government laid emphasis on high yielding variety(HYV) of seeds. It made India self-sufficient in food grains but gap between rich and poor farmers widened. The high input costs involved in HYV seeds was beyond the affordability of small and marginal farmers. Moreover, there were inter-regional disparities as not all regions could reap the benefits of green revolution. In order to bridge this gap, subsidies were provided on agriculture inputs such as fertilizers which largely benefitted fertilizer industries and led to environmental degradation.

Industrial Reforms:

"Industrial policy resolution of 1956" which categorized industries into public and private sectors. Privatization was not encouraged so as to protect Indian industries from getting stifled by the hands of competition in its nascent phase only. However, lack of competition led to inefficient productivity. Furthermore, public sector undertakings were incurring huge losses. License system was also introduced for industrial expansion in terms of quantity and product diversification.

In order to promote growth of village and small scale industries, "Karve Committee" was formed. Being labour intensive, it promoted employment and rural development.

LPG Reforms of 1991:

Series of events such as ever dwindling forex reserves, inflation of essential goods and non-payment of external borrowings due to crippled state of Balance of Payments (BoP) plunged India into a crisis like situation. IMF and IBRD agreed to grant loans only on one condition- "New Economic Policy" popularly known as "Liberalisation, Privatisation and Globalisation". Thus, there was liberalisation in trade and investment resulting in greater FDI and FII inflows; deregulation of industries thus ending "permit license raj"; financial sector reforms where role of RBI was enhanced from being a mere regulator to facilitator of banking system; forex reforms where government intervention was drastically reduced in currency devaluation or revaluation; private players encouraged to flourish in diverse sectors of economy to enhance productivity through fair competition thus interlinking Indian economy with global economy.

Thanks to the relentless efforts of our eminent leaders which proved to be fruitful in integrating the crumbling blocks of Indian economy and transforming it into a globally competitive one!! India, today, stands on the threshold of new era where bright opportunities beckons us with twinkling light.

The beautiful words of Jawaharlal Nehru symbolising steadfastness and eternity will act as the beacon light in taking India to the heights of glory in this millenium.

"Woods are lovely, dark and deep;

 But I have promises to keep and 

 Miles to go before I sleep"

Happy reading!!

What Managers think??-Psychology of work place

The boss-employee relationship has never been smooth in any organisation howsoever big or small it may be. Facebook status of such relationships tends to be "its complicated". Being an employee myself, dealing with bosses often leads to mental turbulence amidst monotonous work schedule. Based on my experience and readings, I have tried to depict "Managerial Behaviour" in an organisation in layman's terms.

According to basic management theory given by McGregor, there are two different kinds of managers with extreme assumptions about their subordinates.

Theory X- This is the most negative assumption and most of the time dominates over other theories. The managers assume that employees are lazy and not at all motivated towards their work. They work only out of greed (monetary benefits, promotion, power, fame) or fear (getting penalised!!!). In other words, negative motivation is the guiding force behind accomplishment of assigned tasks. "Self" becomes more important than "committment towards organisational goals". However, such assumptions may not always be true and in such cases, the outcome is ever deteriorating boss-employee relationship further weakening the organisation's fabric. Even the most optimistic and interested employee turns pessimistic and work environment turns loathsome. Weird vibes pervades the atmosphere leading to poor/sub-standard work performance.

Theory Y- The assumptions of the manager under this theory is highly ideal- brimming with optimism. The employees are regarded as driving wheels of an organisation. Thus, given high importance!! They are considered to be motivated (positive motivation) towards organisational goals. Their minds are free from the shackles of greed or fear. Such assumptions create a healthy atmosphere leading to increased work performance implying greater productivity.

Well! in my case, Theory X is quite prominent and hence mental juggle and adrenaline rush have become routine events.

Contrary to the above two theories, William Ouchi, a Japanese propounded Theory Z, the basis for strong Japanese economy.

Theory Z- "Well being" of employees is given top priority apart from providing conducive work environment. Happiness of employees, amicable boss-employee relationship is the essence of this theory. Strong intimate bonds lead to better expression of job complexities leading to fruitful discussions and coming up with better solutions. "Theory Z" being the reason behind success of Japanese economy.

Choosing a management style is pre-requisite to achievment of cherished goals of an organisation. No theory is absolutely good or bad. One must strike a fine balance before applying these theories depending upon what suits the best relative to the then situation. Finally, it's worth mentioning that "Assumptions can be deceptive".

Vicissitudes of global economic history

When we turn back the pages of economic history, we come across major events that have jolted the course of global economic growth. Although, these events were region specific, the ripples of "economic turbulence" could be felt worldwide due to the interlocked nature of balance sheets. Below, I have given a brief account of events which have proved to be a watershed in the history of global economy.

The Great Economic Depression: A major downturn in global economy leading to a prolonged phase of economic recession. A cycle of events which transformed US from "bread basket" to "dust bowl". Skyrocketing production of goods followed by fall in demand resulted in unemployment which inturn resulted in further fall in demand and cycle continued. Let me explain. The US industrialists were among the richest 1% Americans. Remaining population comprised of agriculture labourers and middle class who did not have enough wealth to accommodate increased production due to low agriculture prices and low wages. As a result, demand fell; fall in demand meant fall in price of goods; production of goods was curtailed and yes, less production meant less labour requirement leading to rampant unemployment. More unemployed meant further less demand of goods thus jeopardising the revenue of major industries. Gradually, the industries were put in dilapidated condition with mass closures all around. Consequently, the share prices of industries began to fall. The shareholders/investors began selling all their stocks afraid of perpetually falling stock prices. Mass fall of stock prices resulted in steep fall of stock market indices- commonly called the stock market crash of 1929. The market turned "bearish". It took years to restore normalcy when finally after the second world war, Bretton Woods Agreement led to the establishment of Bretton Woods twins- IMF and World Bank to bolster the global economy.

US sub-prime crisis: Also called the "mortgage crisis" of 2008 was an outcome of popping of the "Asset bubble" largely backed by sub-prime lending. In US, housing (asset) prices were ever increasing. Borrowers with healthy credit history called as "prime borrowers" began mortgaging houses on credit from banks. Banks pooled together the various mortgages into mortgage backed securities or collateralised debt obligations (CDO) with credit ratings assigned to distinguish "safe" and "risky" investment. The institutional investors such as mutual funds, pension funds, hedge funds began investing in the asset backed security/CDO hopeful of getting high returns on investment because of continuous rise in housing prices. Everything seemed alright till date! The problem started when banks began lending sub- prime borrowers with poor credit history. What prompted them to do so?? The belief that even if these borrowers defaulted on credit, houses could be sold to recover the amount (assumption that housing prices would never fall). No step was taken to limit the number of sub-prime borrowers thus widening the basket of risky investment. Initially, there were handful of defaulters but gradually the number multiplied and to such extent that there was more number of houses in the market than buyers!! Remember basic concepts of Microeconomics where excess supply of goods results in fall of prices. The same happened. Soon the asset bubble burst as prices slumped. Further diminution in price was attributed to the fact that prime borrowers refused to pay the interest they were already paying which was higher compared to market conditions and wanted to sell off their housing property. This aggravated the situation leading to crash of major financial institutions in US- the most notable of those being fall of Lehman Brothers, an investment bank turned bankrupt!!

Eurozone crisis: Commonly known as the "sovereign debt crisis" of 2011 which had staged in the backdrop of exorbitantly high sovereign debt by five fragile economies of Europe- Greece, Ireland, Spain, Cyprus and Portugal. The sovereign debt was extensively used to meet high fiscal deficit of the country and bail out of ever worsening banking system. Over a period of time, the size of debt increased to an extent that it was greater than the size of economy as a whole!! Soon, the lenders realised that credit worthiness of government has taken a backseat and feared of credit default. As a result, they categorised the investment as "risky" and charged high yield of returns on debt. Unable to pay off the previous debts due to sluggish economic growth, the government was compelled to take more debts to finance its expenditures and prevent its economy from turning dormant. Thus, the government was caught in the vicious cycle of debt. Capital infusion from International Monetary Fund and European Central Bank proved to be effective in curbing this malady. 

Thanks to the robust monetary policy of Reserve Bank of India backed by strong financial system that helped India withstand economic turmoil in the past. However, the stark reality looming large before us is the mounting NPAs(Non- performing assets). Today, Indian banking system which is regarded as the balancing wheel of financial system is reeling with the problem of bad loans. "Bail out" policies of goverment and bank mergers have been only partially successful. Solving the NPA problem is a herculean task to be accomplished soon, else Indian economy will head towards its doomsday.

Crisis presents two situations- "Danger" and "Opportunity". Choice is ours!!