Emerging India Failing State – Economic lessons from the first decade of the twenty first century

Historically speaking, the twenty first century is important to India in more than one way. Beginning from the eighteenth century, for around two hundred years of the second millennium, the country was under the domination of the British. Indians could not do much on their own under the oppressive alien forces. India was suppressed cruelly and her citizens had to face untold miseries. The native systems that had made India a unique nation since the ancient days, with contributions of the highest order in almost all the fields of human activity, had to suffer and die. The country was compelled to do away with and forget the knowledge and expertise gained through experience over many centuries. 

In fact, the Indian economy had to face difficulties from the invading forces for many centuries even earlier. Beginning from the end of the first millennium, the second millennium saw a continuous stream of outsiders pillaging the country and interfering with the native practices that made the country prosperous and peaceful at the same time. Hoards of wealth were swindled out. Different parts of the country were ransacked and many regions came under the domination of outsider- rulers, inflicting serious pain on the native population. 

Indians withstood all the onslaughts with courage and rebuilt the systems to the maximum extent possible, though scars remained all over their bodies. As a result, as the OECD economist Maddison has shown, India was the largest contributor to the global economy even in 1700 with 24. 4 per cent share. It is relevant to know that India’s contribution to the global economy was an astonishing 32.9 per cent during the beginning of the first millennium. The share of India stood at 28.9 per cent a thousand years later, maintaining her position as the most powerful economy in the world throughout the period, followed by China. But things began to change drastically during the British domination, initially through the East India Company and later under the British sovereign rule. 

The native systems that had sustained the economy continuously for hundreds of years were systematically destroyed by the colonialists. Hence at the time of Independence, India was reduced to a poor and underdeveloped country. 45 per cent of the population was living below the poverty line around that period. The industrial and business sectors were very weak. India’s share of trade was very low. The agricultural sector was over populated. Literacy rate was around 17 per cent. This situation led to loss of respect for the country at the international level. 

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With Independence, the country got the opportunity to frame her own economic policies based on the priorities and preferences of her people. It was necessary to formulate an independent policy framework as India had prospered as the most successful economy possessing superior systems of functioning for most of the time in the history. After the country fell into the hands of the alien elements, she could not continue her style of functioning making use of her time-tested native systems, as the motives of the rulers were different. Hence Independence presented the country with a historic opportunity to set things right, rectifying the mistakes of the alien classes that ruled us during the previous centuries, and move forward with a clear vision. But unfortunately the ruling sections did not have a proper understanding of the history of this ancient nation, and so looked outside for ideas to frame policies for deciding the course of action to be followed. Ultimately they chose the socialistic model, conceived in the west less than two hundred years back as a reaction to the circumstances then prevailing there, based on their limited experience and turbulent history. 

Later when the socialistic ideology was discarded even in its own favorite grounds such as the USSR and China, it began losing its appeal. Meanwhile the Indian economy was facing serious difficulties on certain grounds. Hence after about forty years of experiments, the establishment realized that they would not be able to fulfill the objectives with policies based on a flawed economic idea. Circumstances compelled them to look for a change. At that time, history presented another opportunity for the country to formulate policies that would make use of all her potential and make people participate in the progress and share the benefits with joy. 

But alas, the ruling segments once again believed that only the ideologies borrowed from the west would make the country better off. This time they chose the free market ideology as the panacea for the ills affecting the country. It was again adopted without any serious discussion or debate at the national level. The decision on such a vital subject concerning the future of one sixth of the humanity was decided by a few at the top, with the tacit acceptance of the elite and educated. Hence the nation was forced to follow another philosophy born and brought up elsewhere, based on their own narrow views and outlook about the society and the economy. 

As a result, the country still has more than one fourth of the population going to bed without food three times a day. The agricultural sector, which is critical for us, has been facing severe crisis. It is a shame that no tangible steps are taken to revive the sector, even when farmers have been committing suicides. The easy entry of the multinational corporations has forced many of the traditional, small and medium scale industries to close down. Financial markets are increasingly controlled by the foreign institutions. The establishment does not have any clue to decide the future course of action, as the dependent mindset still dominates its thought process. 

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In a period of six decades, India has emerged as the fourth largest economy in the world, with the second highest growth rates. The global economic crisis that devastated most of the richer parts of the world, could not affect India much. Indian businesses have spread to different parts of the world. The corporate sector is in an expansion mood diversifying its activities in distant lands and buying foreign entities, wherever possible. The family based non-corporate sector has silently been contributing a dominant share to the growth of the economy. The Indian economic and business systems are increasingly being recognized the world over as worth studying for emulation. No other country in the world has seen such a turnaround in a period of just sixty years. The country which remained neglected during much of the second half of the twentieth century is now being looked upon as a model for the future. 

What is the reason for such a progress in such a short period of time? How could a country that was decimated by the aliens with brute force make a comeback and emerge as one of the top two promising nations in the very first decade of the twenty first century? How is it possible for a country to move up continuously at a steady and fast pace, even when her policy makers remain confused to identify a suitable policy framework? The answer lies in the functioning Indian systems. 

The economy is family driven, society dominated, highly entrepreneurial and self dependent. The family orientation of Indians makes people save as much money as possible so that the future would be secured. India’s rate of saving was 8.6 per cent of GDP during 1950-51, even when about half of her citizens were starving for food. Compare this with the negative and near zero saving rates of many of the richer countries today. The rates of saving have been continuously on the rise throughout the last six decades, contributing enormously to the growth of the economy. As a result capital formation took place at a faster rate without much difficulty, leading to investments in productive activities. It is only in this context that the Reserve Bank of India has recently noted that 95 per cent of the Indian economy is being financed by the domestic finance. 

The family orientation, combined with the self dependent attitude and the entrepreneurial spirit of Indians, compels them to promote different ventures, however small they might be. As a result, new initiatives are continuously being taken at different levels, making India as one of the most entrepreneurial nations in the world. The types of enterprises that are functioning in the country are of different sizes and varieties. Economic Census 2005 estimates that there were 41.83 million establishments operating under the category of the unorganized sector, providing employment to more than 100 million persons. We have to remember that these are all the units promoted by people from the ordinary and under privileged sections of the society through their own efforts. 

On the other end of the spectrum, there were more than 7, 86,000 companies during 2009, as per the details provided by the central Government. In between these two smaller and the bigger types of organizations, there are millions of small and medium units spread across the country. Earlier the Government of India estimated that there were 2042 clusters engaged in a wide variety of industrial and business activities. The contribution of these clusters in terms of entrepreneurship, employment, output, innovation and turnover is very significant to the economy. It is important to remember that these clusters were developed by the local entrepreneurs themselves, without the involvement of the state and state machineries. Many of these clusters such as Surat and Tirupur are synonymous with their products at the global level. 

For more than a century before independence, India’s rate of growth was either around zero percent or negative. 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 per cent 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. There has been a continuous growth over the last six decades, in spite of the confusions and contradictions in the policy making circles. 

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We are in a paradoxical situation now. On the one hand, there are serious problems threatening the stability and future of the economy. The ruling establishment does not seem to understand the gravity of the situation and take immediate steps to address the issues. On the other hand, all the international bodies, research firms and think tanks unanimously agree that the Indian economy would continue its growth momentum in future to ultimately over take China and move forward. India is increasingly being looked upon by the rest of the world as a performing economy with a lot of potential for further progress. 

What does this signify? It clearly shows that while India is emerging, it is the state that is failing. This is the lesson we learn after the close of the first decade of the twenty first century. India, with her abundant energy and native strengths, has been constantly struggling to move forward through the hard work and commitment of her citizens, whose roots remain firmly in the tradition and culture of this great nation. But the state, with its colonial mindset and borrowed thinking, continues to fail the country even after sixty years. Is it not time for the state to take stock of its role and rectify its mistakes? 

(Swadeshi Patrika, Vol.16, No.2, New Delhi, February 2011)


Superior economic systems destroyed by colonialists

It is history that the European colonialists interfered with the native functioning systems in different parts of the world, after they entered their territories. As a result the political, economic, social and cultural systems that were functioning in different countries came under attack. India remained a unique country in the world, full of wealth and prosperity, sustained by superior economic systems functioning very successfully for at least five thousand years or more. So India was the “ crown jewel” among all the colonies of the British with abundant resources and opportunities. One of their Viceroys, namely Curzon, made their intentions clear when he declared: “India is the pivot of Empire, by which I mean that outside the British Isles we could, I believe, lose any portion of the dominions of the Queen and yet survive as an Empire; while if we lost India, I maintain that our sun would sink to its setting”.

The East India Company, founded in 1600, gained its entry into India within a few years by establishing its trading post in Surat, through the rights granted by the ruling Mughal Emperor. Over the years the Company became richer and stronger and was able to take control of a few regions in the country. Robert Clive’s victory in the Battle of Plassey in 1757 made the Company so powerful, that it ultimately became the ruler. The Company and its officials misused their positions and plundered the resources of the country in every possible way. Widespread resentment against the attitudes and approaches of the Company led to mass uprisings, resulting in the First War of Independence in 1857. Soon India was brought under the British sovereign rule in 1858.

The biggest loss to the country under the British domination, initially through the Company and later through the sovereign Government, was the attacks on the time-tested and well -functioning systems nurtured over thousands of years of experience. The attacks were made continuously and systematically, especially targeting the economic systems. As a result all the different sectors of the economy had to face serious problems, leading to the loss of their original status, which in the process made India one of the poorest countries in the world. 

The Indian farmers, who were known throughout the world for their outstanding knowledge of agriculture and abundant production, could not continue their vocation due to unbearable taxes and unfavorable conditions. Naoroji quoted the narrations of the British officials themselves to prove the pathetic condition of the Indian farmers. One of the officials by name Mr.Giberne who returned to India as a judge in 1840, saw the wealthy farmers in Gujarat becoming poorer in a period of just fourteen years. To quote: “I did not see so many of the more wealthy classes of the natives. …… The ryots all complain that they had money at once, but they had none now.” The attitude of the state was to collect as much revenue as possible even in difficult times, thereby pushing the farmers into debt and poverty. The following words taken from a letter written by John Bruce Norton, an official, to another official in 1854 mentions the condition of the farmers. “Now, it may certainly be said of almost the whole of the ryots, …………, that they are always in poverty and generally in debt.” 

Their taxation system was so oppressive that even a few of their own officials voiced their opinions against it. For example, Frederick John Shore of the Bengali Civil Service had recorded in 1837: “The fundamental principle of the English has been to make the whole Indian nation subservient, in every possible way, in the interests and benefits of themselves. They have been taxed to the utmost limit; every successive province, as it has fallen into our possession, has been made a field of higher exaction; ……………. The summary is that the British Indian Government has been practically one of the most extortionate and oppressive that existed ever in India -- ……….” 

The native industries, that were admired and respected for their products of highest quality throughout the world, were killed by the British within a short period. India, that remained an exporter of textiles for centuries since the ancient times earning enormous surpluses to the treasury, was forced to import from Britain due to their one-sided policies. Even Karl Marx who otherwise supported the British rule in India noted in 1853: “It was the British intruder who broke up the Indian hand-loom and destroyed the spinning-wheel. England began with driving the Indian cottons from the European market; it then introduced twist into Hindostan, and in the end inundated the very mother country of cotton with cottons. From 1818 to 1836 the export of twist from Great Britain to India rose in the proportion of 1 to 5,200. In 1824 the export of British muslins to India hardly amounted to 1,000,000 yards, while in 1837 it surpassed 64,000,000 of yards. But at the same time the population of Dacca decreased from 150,000 inhabitants to 20,000. This decline of Indian towns celebrated for their fabrics was by no means the worst consequence. British steam and science uprooted, over the whole surface of Hindostan, the union between agriculture and manufacturing industry.” As a result the local industries were wiped out leading to the “de-industrialisation” of the country. Millions of artisan families with skills acquired through centuries of involvement in their vocation lost their livelihood and were pushed into land based activities and other menial jobs as there was no place for them to go. This, of course, gave further pressure to the already struggling agricultural sector. 

India was well known for exports since the ancient periods. Experts note that the country has a proud record of at least five thousand years in trade. The important point to be remembered is that India had maintained a favorable balance in international trade from the beginning, resulting in huge accumulation of gold and silver in the country. But all this changed with the entry of the British. India was made to become a net importer. Jawaharlal Nehru made the following observations on the trade practices of the British and their consequences in the country. “It was pure loot. The ‘Pagoda tree’ was shaken again and again till the most terrible famines ravaged Bengal. This process was called trade later on but that made little difference. Government called this so-called trade, and trade was plunder. There are few instances in history of anything like it. And it must be remembered that this lasted, under various names and under different forms, not for a few years but for generations. ”

The destruction of all the critical sectors of the economy, namely agriculture, industry and trade severely affected the overall performance of the country. Besides the other services sector activities also suffered serious blows. The figures provided by Maddison show as to how the share of India in the global GDP went down drastically from the eighteenth century, while that of the UK had increased many times. 

Share of GDP of India and the UK in Global GDP

Year/ Country 


















The figures show that India’s share of global GDP, which in fact was the highest in the world in 1700, came down to 4.2 per cent in 1950, about one sixth of what it was just before 250 years. At the same time, the share of the U K, whose GDP was less than one eighth of that of India’s in 1700, overtook India in 1913. Studies undertaken during the past few years indicate that it was the stolen wealth from India which was mainly responsible for the “industrial revolution” in the U K. 

The destruction of the native economic systems and the consequent difficulties led to the growth rates of per capita GDP of Indians to almost zero or negative, beginning from the nineteenth century till independence. The above rate during 1913-50 was a pathetic -0.22 per cent. So when India got her independence, she was a poor, illiterate and underdeveloped country. This was not due to any fault in her economic systems. India was made poor, illiterate and underdeveloped as the colonial rulers did not allow the home- grown systems to function, even while bleeding the country of all her resources and imposing alien systems that suited their self interests. As a result the most sustainable and effective economic system ever practiced in the history of mankind, which made India remain a superpower continuously for centuries had become extinct by time the British handed over the reins of the Government to the Indians.


1. Angus Maddison, The World Economy- A Millennial Perspective, Overseas Press ( India) Private Limited, New Delhi, 2003 

2. Dadabhai Naoroji, Poverty and the Un-British Rule in India, Second Edition, Ministry of Information and Broadcasting, Government of India, 1996

3. Jawaharlal Nehru, Discovery of India, Penguin, New Delhi, 2004

4. Karl Marx, ‘The British Rule in India’, New-York Herald Tribune, June 10, 1853

( Yuva Bharati, Vol.38, No.8, Vivekananda Kendra, Chennai, February, 2011)