Dialogue July-September, 2011, Volume 13 No.1
Bharathiya Economic Model
The global economy witnessed two major changes during the last decade. One was the decline of the West and the other was the rise of Asia; both in terms of performance and reputation. The global economic crisis that erupted during 2008 and devastated many western countries, particularly the US, clearly showed that the western systems have failed. At the same time, Asia has been increasing its share in the global growth and GDP, through the higher performance of its leading nations namely China and India. In this context it is important to note that the Indian systems are getting increased attention of the world for their unique qualities and better performance.
India was a poor, underdeveloped and illiterate country at the time of Independence. During that time, about 45 per cent of the people were living below poverty line. 18 per cent was the literacy rate. The average age of life was slightly above 32. Most of the people had to depend on agriculture and allied activities for their livelihoods. Industrial and business sectors were very weak. The British rule had already destroyed the native economic and business systems.
But in a period of sixty years, India has emerged as a leading performer at the global level. Presently India is the fourth largest economic power in the world in terms of GDP (in PPP terms). India also is the second highest growing nation in the world. The growth-rates during the past few years have been particularly impressive. Even the global economic crisis that affected most of the richer countries in the world could not make much impact on India, It was estimated a little earlier that there were 85 million entrepreneurs in the country, perhaps the largest in the world, The predictions of the international agencies unanimously point out that India would be able to better her performance in future and has the potential to reach the higher levels in the years to come.
India has achieved this performance, in spite of many difficulties and disturbances. We were a condemned nation at the time of independence. Earlier during the nineteenth century, with 20 rupees as the per capita income India was the “poorest nation in the civilized world,” Today most of the world looks at India’ as a model nation. No other country in the world has made such a U turn in just six decades.
Indian economy since the ancient periods
India is an ancient civilization, with a proud history spanning thousands of years. The country could not have survived so long with all her achievements, without strong economic fundamentals in place. Evidences point out that India remained a prosperous nation for hundreds of years since the earliest periods. Agarwala notes that India was a powerful exporting nation even during the days of the Indus-Saraswathy civilization. The first book on economics in the world namely the Arthashastra was written here in India more than 2300 years back.
We do not have the economic details of ancient India in quantitative figures, as the yardsticks that are used in relation to the economies such as the GDP and growth rate are the products of the twentieth century from the west. But we have ample evidence to prove that India remained a prosperous nation since the periods. Englishman John Sullivan, who had worked in India in different capacities including that as a member of the Madras Council was examined by the British on the occasion of the renewal of the Company’s Charter in 1813, The noted economist Romesh Dutt has reproduced one of the questions directed to Sullivan and his answer to the same in his celebrated work entitled the Economic History of India more than a century back. Sullivan’s answer indicates the state of prosperity of India from the earliest times. It is as follows:
Question: “Do you suppose that they (the people of India) have traditions among them which tell them that the economic conditions of the population was better in former times under their native rulers than it is now?”
Answer: “I think, generally speaking, history tells us that it was; they have been in a state of greatest prosperity from the earliest time, as far as history tells us,”
The noted economic historian Angus Maddison has compiled and published the details of the economic position and performance of different countries of the world since the beginning of the Common Era (CE). Hence we have comparable economic details using the’ contemporary yardsticks for the past 2009 years. We will be able to get clear insights into the position and performance of India and other economies when we study them. Table 1 presents the GDP figures relating to different countries/regions during 0 CE.
Table 1: World GDP -0 CE
(million 1990 international $)
Total Western Europe 11,115
Eastern Europe 1,900
Former USSR 1,560
Total Western offshoots 468
Total Latin America 2,240
Other Asia 16,470
Total Asia (excluding Japan) 77,040
The above table shows that the GDP of the world was $102.5 billions. It is informative to note that India was the largest contributor to the global economy with $33.75 billions. China was following India with $26.82 billions.
What was the share of India and other countries/regions in the global GDP? Let us look at Table 2 to understand the shares of different countries/regions in the GDP of the world during those times.
Table 2: Shares of different countries/regions in World GDP - 0 CE
(million 1990 international $)
Total Western Europe 10.8
Eastern Europe 1.9
Former USSR 1.5
Total western offshoots 0.5
Total Latin America 2.2
Other Asia 16.1
Total Asia (excluding Japan) 75.1
Table 2 clearly reveals that India remained at the top of the global economy 2009 years back, contributing almost one third of the global economic output. India could not have reached the premier position in a short time without well functioning systems and superior performance during the earlier centuries before the Common Era (BCE). India- was followed by China with more than 26 per cent share. India and China together were contributing 59.1 per cent to the global GDP. It is worth noting that the Asian countries were dominating the global economy with a total contribution of more than 75 per cent. So the global economy was Asia-dominated India-driven one during the beginning of the Common Era.
We have to remember that ancient Indian economy was not dependent on agriculture alone. India was well known for her manufacturing and service sector activities since the earlier times. Montgomery Martin, who compiled the complete history of the British for the first time in 1840, had noted: “India is as much a manufacturing country as agricultural, her manufactures of various descriptions have existed for ages, and have never faced any, competition from any nation, whenever fair chance have been given to them.” Moreover large numbers of people were involved in different industrial activities till the British started interfering with the Indian economy. Agarwala notes: “A large proportion of the Indian population was engaged in various industries up to the first decade of the nineteenth century.” Kennedy notes that the share of India in global manufacturing output was 24.5 per cent in 1750. The contribution of the UK at that time was just 1.9 per cent. The intellectual contribution of India to different fields of life such as science, .technology, medicine, literature and logic since the earliest periods were pioneering and too numerous,’ to be recounted. As a result of the superior performance of the different sectors of the economy, India remained the most prosperous nation in the world.
One of the most important aspects of ancient Indian economy was its sustainability over the years. Table 3 presents the shares of India and other major countries/ regions in the global GDP from 0 CE to 1700 CE.
Table 3: Share of India and other major countries/regions (0 CE to 1700 CE)
Year/Countries 0 1000 1500 1600 1700
UK 1.1 1.8 2.9
Total western 10.8 8.7 17.9 19.9 22.5
US 0.3 0.2 0.1
China 26.2 22.7 25.0 29.2 22.3
India 32.9 28.9 24.5 22.6 24.4
Africa 6.8 11.8 7.4 6.7 6.6
World 100 100 100 100 100
The above table shows that the India remained as the most powerful economy during the whole of the first millennium. India’s share went down to the second position during”1500 CE, only to come back again during 1700 CE. It shows that India was in the forefront of the global economy for seventeen centuries, with most of the time as the top most performer in the international arena. This is no mean achievement as no other country in the world has remained as the most powerful economy so long in the history of the world.
Destruction of the native systems by the British
When the British came to India, they were surprised to see the prosperity of India and her well functioning native systems. Soon they started interfering with the Indian economic systems. As a result all the different sectors of the economy namely agriculture, industry, trade and services were seriously affected. Ultimately these sectors had to face large scale destruction over the years. Moreover there were huge draining of resources from India over the years. Ultimately the Indian economy collapsed in a period of Just 250 years, while the UK emerged as an important economy. Table 4 presents the share of India and other major countries/regions in the world GDP during 1700 to 1950 CE.
Table 4 Share of India and other major countries/ regions in global GDP
(1700 to 1950 CE)
Year/Countries 1700 1820 1870 1913 1950
UK 2.9 5.2 9.1 8.3 6.5
Total western 22.5 23.6 33.6 33.5 26.3
US 0.1 1.8 8.9 19.1 27.3
China 22.3 32.9 17.2 8.9 4.5
India 24.4 16.0 12.2 7.6 4.2
Africa 6.6 4.5 3.6 2.7 3.6
World 100 100 100 100 100
The above table shows the drastic decline of the Indian economy from the eighteenth century. With the result India lost her long position as the most powerful economy in the world and became a poor and underdeveloped country. Meanwhile the countries that entered the global GDP map only in the sixteenth century emerged victorious. UK became the powerful economy in the world in a period of less than two centuries, surpassing the GDP of India in the early twentieth century. The US which started its upward journey in the nineteenth century, overtook China, India and the Europe in a short time to reach the top position in the global economy in 1913.
The destruction of the Indian economy and her time-tested systems is one of the most serious crimes committed by an alien power anywhere in the world. In this context it may be relevant to quote the words of Will Durant, who used strong words to describe the attacks on the Indian economic system by the British. He wrote in 1930: “British rule in India is the most sordid and criminal exploitation of one nation by another in all recorded history. This evidently was not a minor civilization, produced by inferior people.’ It ranks with the highest civilizations of history, and some, like Keyserling, would place it at the head and summit or all. ……. Those who have seen the unspeakable, poverty and physiological weakness of the Hindus today will hardly believe that it was the wealth of eighteenth century India which attracted the commercial pirates of England and France.”
Indian economy during Independence
The misrule of the British rule had made India a poorer nation much before independence Poverty had already become part of life for sections of Indians. Famines had taken away the lives of millions of people. The fine balance that existed between the different sectors of the economy remained broken. Maddison notes that at the end of the British rule, the percentage of the labour force dependent on the village economy was 75 per cent for a share of 54 per cent of national income after tax. 17 per cent of the labour force was working as landless labourers and scavengers for a share of just 4 per cent of national income. The country that remained as a premier exporter for thousands of years since the ancient periods had become a net importer.
With India attaining independence, the country got the opportunity to frame the economic policies based on the priorities and preferences of her people. But unfortunately the policy makers decided to frame our policies based on a western ideology, namely socialism. As a result the time-tested Indian systems were neglected by the ruling classes, in preference to a system born in the west. So for more than thirty .years beginning from the 1950s, the policies that governed the country were guided by the socialistic ideas. After more than three decades of experiments with socialism, the establishment realised that it would no longer be able to fulfill even the basic minimum requirements of the people. Meanwhile the fall of communism in the USSR during the late 1980s resulting in the breaking up of the country into several pieces, fastened the process of its abandonment.
History presented another opportunity to India to frame policies based on the ethos and experiences of her people. But again for the second time in post-independence period, another alien ideology was chosen to guide the destiny of the nation. Without any discussion or debate at a wider level, the ruling circles decided the free market ideology driven by the US. As a result the policy framework since the beginning of the 1990s revolves around the free market ideology. Hence the economy has been facing serious problems, resulting in difficulties to large sections of the society. Agriculture has been facing a very severe crisis, leading to thousands of farmers committing suicides. Sections of the small scale industries have already been wiped out. Unemployment is on the rise. The performance of the social sectors has not been impressive.
It is unfortunate that there has not been a clear cut vision in policy making in the post-independent India. Even after more than sixty years of independence, the policy makers have not realized the significance of making India-centric policies. They always look up to the west and copy them in whatever they do. But in spite of all confusions and contradictions, India has been continuously moving forward. For more than a century before independence, India’s rate of growth was around zero percent. Starting from a very low base, the economy picked up quickly with an average growth rate of 3.5 per cent during the first three decades beginning from the 1950s. The rate steadily increased thereafter to 5.5 per cent during 1980-90, and 6 per cent in the next decade. It averaged more than 9 percent during 2005-06 to 2007-08, before going down to 6.7 per cent in 2008—09 due to the global economic crisis. The economy started recovering quickly with the growth rate touching 7.4 per cent during 2009-10.
Unique nature of Indian economic systems
How is it that India has been growing steadily, in spite of a clear lack of continuity and clarity at the top level in macro economic management during the past sixty years? What is driving the country towards progress, even when there has been no congenial environment for economic development? The answer is the unique Indian models. Studies reveal that it is the native models that are responsible for the development in the country. India remained the most powerful economy for many centuries since the ancient periods, as the native systems were vibrant. There were well developed mechanisms to nurture and maintain such systems at the state and social levels. It was only the British interference that disturbed and destroyed the, systems. As a result India lost her superior economic status.
After independence, when people realized political freedom after long years of subjugation by the alien forces, they started entering into different vocations, without waiting for policy initiatives and financial support from the state and state institutions. As a result the income started increasing leading to more savings and more investments. Over the years the rates of saving and capital formation increased continuously resulting in more asset creation, entrepreneurial activities and development.
Basic Features of Indian economic system
1. Family Base
2. High level of savings
3. Self-employment as the base
4. Highly entrepreneurial
5. Community orientation and social capital
6. Non-corporate sector as the core ‘
7. Society driven, not state dependent
Western models proved unsuitable
The economic history of the west is limited and narrow. Mercantilism became the dominant economic system between the sixteenth and eighteenth centuries, after the feudal system that prevailed in Europe earlier witnessed its end in the fourteenth century. Mercantilism began to lose its hold after the people started questioning the theory amidst wide discontents. Adam Smith published his Wealth of Nations arguing for a capitalistic model without interference from the stale. After about ninety years the communist model was advocated by Marx and Angels.
Later the neo-classical thoughts emerged within the capitalistic ideology, Subsequently the US became the dominant economy in the beginning of the twentieth century. Later a set of new policies called as the “Washington Consensus” was prescribed by the west for all the economic problems of different countries. The globalization framework became the standard framework. Now we all know that globalization has failed, even in the west. The western countries have been facing serious problems in the recent years. The global economic crisis has affected many of the richer countries including the US. As a result both the western models namely communism and capitalism have failed even in their own lands.
In this context we have to remember that the rise of the West happened with the ascendancy of Europe in the nineteenth century, due to their colonial policies. The noted economic historian Andre Gunder Frank notes that the West was not anywhere near the top till the eighteenth century. He notes further that it was the Europeans who presented the west-centric economic history of the world, neglecting the Asian powers and other regions in the world. So there has never been a comprehensive western model in the history. Their modern theories based on the individualistic and market-centric philosophies have failed to understand the integrated nature of the human systems, leading to the failure of their approaches.
Bharathiya model with culture as the driving force
An objective study of the Indian economic history shows that our economy remains a unique one since the ancient periods. The economy was very prosperous with’ a remarkable sustainability that cannot be seen anywhere in the world. Higher ethical standards governed even the economic arid business systems. Thiruvalluvar had written an entire chapter on ‘means of wealth’ about 2100 years earlier. But unfortunately the native systems were destroyed by the alien forces in the later centuries. Subsequently the Indian economy has been witnessing economic progress continuously during the post-Independent era. There is no doubt that the progress is not to the extent desired and in the direction required. It is not based on our ethos and experiences either. Hence there are severe problems at different levels.
But there is progress. India has emerged as a successful nation worthy of envy and emulation by the rest of the world. Foreign universities and organizations are coming to India to understand her performing systems. The admiration and respect for India is going up. The rest of the world is willing to learn from us. Studies reveal that all these achievements have been due to the great culture and the traditions that have been handed over to us from our forefathers. It is time for us to see that we frame policies based on our own foundations. The rise of India is clearly not for the children of her alone; but for the rest of the world as well.
1. Agarwala, P.N., A Comprehensive History of Business in India — from 3000 BC to 2000 AD, Tata McGraw Hill, New Delhi, 2001
2. Angus Maddission, The World Economy — A Millennial Perspective, Overseas Press (India) Limited, New Delhi, 2003
3. Andre Gunder Frank, Re-orient: Global Economy in the Asian Age, Vistaar Publications, New Delhi, 1998
4. Dadabahai Naoroji, Poverty and the Un-British Rule in India, Govt. of India, New Delhi, 1966
5. Paul S Kennedy, The Rise and Fall of Great Powers — Economic Change and Military Conflict from 1500-2000, Fontana Press, 1988
6. Romesh Dutt, The Economic History of India — two volumes, Kegal Paul, Trench and Trubner, Great Britain, 1906