Understanding the Indian Economy from the Post-Reforms of 1991, Volume I

History, Evolution, and Growth

Shrawan Kumar Singh

• Publisher: Business Expert Press
• Year: 2020
• ISBN:
  9781951527419
• Topic: Économie
• Subtopic: Politique monétaire

> This series is intended to serve as an introduction to the Indian Economy from the Post Reform of 1991. The author makes an endeavor to present how India's economic fortunes dwindled over the centuries. This first volume begins with an analysis of the history, evolution, and growth of the Indian economy through several periods along with their positive and negative aspects.

The author attempts to bring fairly interesting snapshots to highlight how the Indian economy has evolved over the years. The book provides history; traces the evolution of the economy during the early Muslim period and the Mughal Empire as well as during the British regime (1761 to 1947); and analyzes the impact of the British regime and the growth of the economy between 1947 and 1990. Points of analysis include policy framework—state and market; NITI Aayog—a think tank; the Indian polity—fiscal federalism; democracy and development; the economic policy regime prior to 1991; and economic reforms. The penultimate chapter looks at the future direction and task ahead of the economy. Finally, Indian economic thought is analyzed. There is plenty to discuss!

CHAPTER 1

The Economic History of India from the Paleolithic Period to 1200 CE

Taking into account the importance of understanding the Indian economy, knowledge of its history is essential. This chapter attempts to discuss the history of the Indian economy in ancient times. India is one of the oldest civilizations in the world, and its economic history is at least 5,000 years old, dating back to the Indus Valley Civilization (DeFrain and Asay 2012). Ancient India was a rich country until foreigners plundered it for several hundred years. But it has a history of a great economy due to its trade relations with foreign countries ranging from those in the Far East to Western Europe and Africa.1

The earliest periods of Indian history are known only through reconstructions from archaeological evidence. Since the late 20th century, much new data has emerged, allowing a far fuller reconstruction than was formerly possible. Because of availability of this new data it is easier to frame the analysis into the following five major periods (Encyclopedia Britannica):

1. I.The early prehistoric period (before the 8th millennium BCE)
2. II.The period of the prehistoric agriculturalists and pastoralists (approximately the 8th to the mid-4th millennium BCE)
3. III.The Early Indus, or Early Harappan, Period (so named for the excavated city of Harappa in Eastern Pakistan), witnessing the emergence of the first cities in the Indus River system (c. 3500 to 2600 BCE)
4. IV.The Indus, or Harappan, Civilization (c. 2600 to 2000 BCE, or perhaps ending as late as 1750 BCE)
5. V.The Posturban Period, which follows the Indus Civilization and precedes the rise of cities in Northern India during the second quarter of the 1st millennium BCE (c. 1750 to 750 BCE)

The economy of a society is one of the most important factors in determining its progress. The Indus Valley people had developed a prosperous civilization on the basis of a thriving agricultural economy. It is interesting to note that the economic history of India begins with the Indus Valley Civilization (3300 to 1300 BCE), whose economy appears to have depended significantly on trade, most notably Indus–Mesopotamia trade relations. The Vedic Period, or Vedic Age (1500 to 500 BCE), is the period in the history of the Northern Indian subcontinent between the end of the urban Indus Valley Civilization and a second urbanization that began in the central Indo-Gangetic Plain (c. 600 BCE). During 1750–500 BCE Indo-Aryans settled into northern India, bringing with them specific religious traditions. Vedic society was patriarchal and patrilineal. The period saw countable units of precious metal being used for exchange.

The people were rural and agricultural. They domesticated animals like the cow, sheep, goat, ass, ox, and dog. People’s wealth was known in terms of cattle rearing. Domestication of animals was a useful profession. People domesticated animals and birds for the purpose of milk, meat, and pleasure. Rig Vedic Indians (1500 to 500 BCE) also resorted to hunting for a livelihood. Mining was another important occupation, although the Aryans had not discovered iron during the Rig Vedic period. They had trade relations between themselves in the expanded lands formed by their migrations very early in their history. They produced wheat, barley, millet and a variety of fruits. The carpenter, the weaver, the potter, the goldsmith, the jeweler, the physician, and the house builder represented some other professions of this society. In the Later Vedic Period (1000 to 600 BCE), the economic life of the Aryans was well advanced and prosperous. The growth of cities was the best proof of this. Agriculture was still their main occupation, though. Cattle rearing was another important occupation. People were organized into guilds and had more extensive knowledge of different kinds of metals. Besides gold and copper, they also used silver and iron.

Then came the period of various empires in India, including the Gupta and the Mauryan Empires (325 to 185 BCE). India during the Mauryan period inevitably brings reference to the great king Ashoka. The Mauryan dynasty existed between the 4th and 3rd centuries BCE and unified the subcontinent for the first time and also contributed to the spread of Buddhism.

The Mauryan Empire brought large areas of land under cultivation. Land revenue was recognized as an important source of income. Assessment of land also took place at regular intervals. One-fourth of the national income was spent on public works and the salaries of the large staff. Public works included road construction, irrigation, rest house construction, and army maintenance. Iron was widely used. During excavations different types of iron tools like socketed axes, sickles, and possibly plowshares have been found. These tools must have made the task of clearing the thick forests of the Eastern Ganges plains easy. Additionally, these tools facilitated the efficiency of agriculture. Numerous small heaps of iron slogs have been found scattered all over the iron belt of South Bihar (Encyclopedia Britannica). Mauryan India had numerous private commercial entities. These existed purely for private commerce and developed before the Mauryan Empire itself.

The Gupta Empire existed from the mid-to-late 3rd century to 543 CE. It covered much of the Indian subcontinent. This period is considered the Golden Age of India by some historians. The most notable rulers of this dynasty were Chandragupta I, Samudragupta, and Chandragupta II (or Vikramaditya). The 5th century Sanskrit poet Kalidasa credits the Guptas with having conquered about 21 kingdoms, both in and outside India. Education played an important role in the Gupta Period. During the Gupta, period agriculture formed a significant part of the empire’s economy. However, the trade and commerce activities of the Gupta Empire grew steadily. The merchant and other traders were organized into guilds. These guilds were given concessions in the taxes that were liable to be paid to the government.2 During this era, primary education was obtained by the people. To obtain formal and higher education, people had to stay in Brahmanical Agraharas3or Buddhist monasteries.4

Trends in early Indian society: A considerable change is noticeable during this period in the role of institutions. Clan-based societies had assemblies, whose political role changed with the transformation of tribe into state and with oligarchic and monarchical governments. Centralized imperialism, which was attempted under the Mauryan Empire (325 to 185 BCE), gave way gradually to a decentralized administration and to what has been called a “feudalistic pattern” in the post-Gupta Period, that is, from the 7th century CE. Although the village as an administrative and social unit remained constant, its relationship with the mainstream of history varied. The pendulum of politics swung from large to small kingdoms, with the former attempting to establish empires—the sole successful attempt being that of the Mauryan dynasty. Thus, true centralization was rare, because local forces often determined historical events. These small kingdoms also often boasted the most elaborate and impressive monuments.

The major economic patterns related to land and to commerce. The transition from tribal to peasant society was a continuing process, with the gradual clearing of wasteland and the expansion of the village economy based on plow agriculture. Recognition of the importance of land revenue coincided with the emergence of the imperial system in the 4th century BCE, and from this period onward, although the imperial structure did not last long, land revenue became central to the administration and the income of the state. Frequent mentions of individual ownership, references to crown lands, numerous land grants to religious and secular grantees in the post-Gupta Period, and detailed discussions in legal sources of the rights of purchase, bequest, and sale of land all clearly indicate that private ownership of land existed. Much emphasis has been laid on the state control of the irrigation system; yet, a systematic study of irrigation in India reveals that it was generally privately controlled and serviced small areas of land. When the state built canals, they were mainly in the areas affected by both the winter and summer monsoons. Here, village assemblies played a dominant part in revenue and general administration, as in the Chola Kingdom of Southern India.

The urban economy was crucial to the rise of civilization in the Indus Valley (c. 2600 to 2000 BCE). Later, the 1st millennium BCE saw an urban civilization in the Ganges (Ganga) Valley and still later in coastal South India. The emergence of towns was based on administrative needs, the requirements of trade, and pilgrimage centers. In the 1st millennium CE, when commerce expanded to include trade with Western Asia, the Eastern Mediterranean, and Central and Southeast Asia, revenue from trade contributed substantially to the economies of the participating kingdoms.

“Gold coins were issued for the first time by the Kushan dynasty (95 to 127 CE), and in large quantities by the Guptas. Both kingdoms were active in foreign trade. Gold was imported from Central Asia and the Roman Republic and Empire and later perhaps from Eastern Africa because, in spite of India’s recurring association with gold, its sources were limited. Expanding trade encouraged the opening up of new routes, and this, coupled with the expanding village economy, led to a marked increase of knowledge about the subcontinent during the post-Mauryan period. With increasing trade, guilds became more powerful in the towns. Members of the guilds participated in the administration, were associated with politics, and controlled the development of trade through merchant embassies sent to places as far afield as Rome and China. Not least, guilds and merchant associations held envied and respectable positions as donors of religious institutions” (Encyclopedia Britannica).

Classical economic thoughts of India are based on the ideas of the Vedas, the Upanishads, the Epics, and so on. During the reign of Chandragupta, that is, in 300 BCE, Kautilya wrote a valuable book on economics titled Arthashastra (Kautilya (also known as Chanakya) was an Indian statesman and philosopher, chief advisor and Prime Minister of Emperor Chandragupta). The Arthashastra has continued to inspire nationalist economic historiography. Indian philosophers during ancient times stressed greatly on the equal distribution of produced commodities among the masses.

Sharma (2011) has pointed out as many as seven stages of the ancient Indian economy: (i) Harappan, (ii) Rg Vedic, (iii) Later Vedic, (iv) the period of c. 500 to 322 BC, (v) Mauryan, (vi) post-Mauryan (200 BC to 200 AD) and (vii) Gupta. He also touched upon the various modes of production, North Indian economic life during the Gupta Period, eight economic aspects of the caste system, the early medieval land grants, the peasant protest in early medieval India, usury in early medieval times, different aspects of urbanism along with urban growth and decline in early historic India.

Sharma (2011) dealt with the origins of Indian feudalism (300 to 750 AD) and studied the feudal polity and economy under the Palas, Pratiharas, and Rastrakutas (750 to 1000 AD), as well as during the two centuries preceding the establishment of the Sultanate (1000 to 1200 AD). According to Sharma, feudalism in India, unlike in Europe, began with the land grants made to learned “brahmanas” (the utterance of a priest, or Brahman. More commonly, it is used to refer to the explanation and meaning of a sacred word), temples, and monasteries, for which the epigraphic evidence begins from the 1st century AD and multiplies by the Gupta times, when villages together with their fields and inhabitants; fiscal, administrative, and judicial rights (with the right to enjoy fines received); and exemption from the interference of royal officials were given to religious beneficiaries. What was abandoned step by step to the priestly class was later given to the warrior class. Sharma (2011) postulates the existence of serfdom in Gujarat, Madhya Pradesh, Kangra, Andhra, Orissa, and Bengal during the 6th and 7th centuries on the basis of epigraphic references to the transfer of individual peasants and laborers together with the donated land. The crucial passage, in his opinion, indicates the general emergence of serfdom.

Before concluding, it is worthwhile to go through a recent research work that very elaborately analyzed the economic history of India. Deodhar (2018) “takes a comprehensive perspective on Indian economic thought leading up to Kautilya, highlighting the broader spread of economic writings prior to Kautilya as also the political economy aspects espoused by Kautilya. Thoughts on economic matters were being written in ancient Indian literature as much as the otherworldly concerns. Some of this literature, composed mostly in Sanskrit, spanned beyond a couple of millennia BCE.” For example, “the Rig Veda, one of the premier religious texts originating in India, dates back at least to 1500 BCE (Violatti 2013). In fact, there are four different kinds of Vedas and most were orally composed in the third millennia BCE.

The Arthashastra was written as a treatise for ideal functioning of the economy, state administration, and the conduct of the ruler. Kautilya also refers to a few earlier texts from where he had improvised some of the ideas in his treatise. “Prior to the Sarasvati–Sindu epoch (2300 to 1700 BCE) and thereafter, India has had a continuous and uninterrupted existence of social, religious, and economic life, a phenomenon that finds few parallels elsewhere. While the world populat...