Since Independence, when India was thrust into a Socialist model of growth by Nehruvian policy. This policy envisaged the public sector assuming a dominant role in the economy while the private entrepreneurship was subjected to the draconian licence raj which only fostered Red tape and corruption. This model of socialist and centrally planned economy limited the role of private investments. This model failed to lift India out of Poverty and delivered years of Flat or sub-par GDP Growth rates when compared to its peers. When questioned about this epic failure of decades of low growth rates, the explanation or rather the narrative was found in degrading and blaming the Hindu’s of the country. The late economist Raj Krishna coined the phrase “Hindu rate of growth” in 1978 to describe India’s slow economic development from the 1960s to the 1980s, which averaged approximately 4%. It was intended to convey that the Hindu of the country was contended with slow progress during a period of socialist policies in the early decades of independent India. Fast forward to today when India stands as the 5th Largest Economy in the world and is poised to reclaim its lost glory.This blog delves deep into India’s economic history, from its unparalleled dominance in ancient times to the tumultuous colonial era and its subsequent struggle for economic independence.
Current Economic Status of India-
By end of 2024–25, India’s nominal GDP will have surpassed $4 trillion. The recent strong depreciation of the yen has relegated Japan’s economy to 4.1 trillion USD, indirectly putting India in a position of strength of overtaking it as the world’s fourth-largest economy in dollar terms within the next year.
Germany’s nominal gross domestic product is rising at a modest pace and is now valued at USD 4.6 trillion. As a result, by 2026–27, India would also be tantalizingly close to surpass Germany as the world’s third-largest economy. These predictions are on the basis of assumptions (Ceteris paribus) that no unforeseen shocks affect the calculations.
While India’s per capita income will still remain low despite its status as the world’s third-largest economy, the country’s sheer size does provide certain advantages. The size and the aggregate ability of the consumption of the economy based on population and demographics would present enough opportunities for all businesses including manufacturers, Traders, and services. Having said that we should not forget that India was a great economic power for a large portion of its history, even as we rejoice its recent economic ascent. It is for this reason that that this blog shall revisit India’s Economic history.
Fascinating Economic History of India
For understanding this it is important to quote the work of “Angus Madison” who was an accomplished economist who specialized in Quantitate macro-economic History. His most notable work by the name “The World Economy- A Millennial Perspective published by OECD Organization shook the western world when it learnt about India’s Economic dominance in not only ancient but also the most recent history of the world
As per research of Angus Madison, in 1 AD, India’s economy was worth around 33% of the global total.The estimations were conducted using the Purchasing Power Parity (PPP) method to account for the potential fluctuations in exchange rates and comparable pricing. Western Europe—including most of what was formerly Roman territory—accounted for about 11% of the market, second only to China (26%).
This seems obviously incredible especially when our own understanding of our country’s economy was so limited due to years of invasions and wars fought by generations of Indians to resist foreign occupation. Even though if we are to discount the approximations due to the vast expanse of time and antiquity this indeed is a very remarkable piece of work. The work of Angus Madison also contains passages which talk about the dominance of Indian merchants who were operational right from Middle East to East Asia and even Roman officials complaining about their country’s current account imbalance (Deficit) with India.
India even after 1000 years ie.. in 1000 AD, continued to dominate the world trade with about 29% of the share. China’s share still continued to be at second place with 23% while following the fall of the Roman Empire, Europe’s proportion dropped below 9%. The Fatimids of Egypt who were in charge of practically most of Africa’s economy, which at the time comprised 12% of the global economy—a proportion that the continent has not seen before or since this period.
Supply chains running between the Egyptian Fatimid, Indian Cholas, and Chinese Song dynasties dominated the world economy. Merchant guilds in India expanded their trade network well beyond the Indian Ocean with the help of financing done by temple banks. Also there are several references which indicate that to keep the Southeast Asian sea trade routes free for navigation and trade, the mighty Cholas launched two attacks in 1017 and 1025 which indicates highly sophisticated blue water Naval capabilities of Indians.
However, all this progress in the world trade led by India began to change with the advent of Abrahamic religions which prescribed Conquests as the only motive for advancing global trade. The Abrahamic faiths prescribed the “One life” concept which believed in the world and its goodness to be exploited only by human beings in just one available life especially by those who believed in their faith. This was in complete contrast of the Indian Sanatan Dharma philosophy which believed in many life times (rebirth cycles) and the Karma (Duty & Responsibilities). It believed that your Karma in one Birth will have impact in your next birth and hence there were checks and balances which were in built for longevity of prosperity.
China’s Rise and Fall of Bharat-
All of the main commercial centers suffered throughout the thirteenth and fourteenth centuries by the Turko-Mongol invasions and epidemics. However, China under the Ming Dynasty, managed to rebound to a point where it was 25% of the global total by 1500 AD, making it the biggest economy in the world at that point in time. Although India’s contribution by that time had dropped to 24.5%, it remained the second biggest throughout the height of the Vijayanagar kingdom.
However, by 1600 AD, China’s share in the world trade had further increased to 29%. On the other hand, India’s share further dropped to 22.6%. This happened as Vijaynagar which until then was the biggest and most prosperous metropolis in the world at the time was completely destroyed by Mughal conquests. The establishment of the Mughal empire failed to compensate the economic impact of the fall of Vijayanagar Empire. The Mughals fostered the growth of certain commercial centers while destroying others particularly those who tried to offer bitter resistance to their tyrannical rule.
In Europe, particularly Western Europe’s contribution increased to 20% by 1600 AD due to the influence of the Renaissance and maritime discoveries abroad. The European economy was controlled mainly by France and Italy at this point. In contrast inspite of their extensive empires in the newly colonialized South Americas, Spain and Portugal were still smaller economies at this point of time. The reason for their smaller economies could have been due to precious metals brought in from the Americas were constantly being used up to pay for high costs of maintaining this empire and to sponsor endless Wars and conflicts.
From the beginning of the late 18th century the European colonization spread across Africa, Americas and Asia which leads us to believe that the Industrial Revolution was literally funded by the loot of the colonies. Infact in other words, the colonies almost paid for their own deprivation. China was still the most powerful economy in the world then. As of 1820, China’s contribution to world GDP was 33%, with India’s part falling to 16%. India’s economy was in a complete tail spin by this time already due to constant wars between Mughals, Marathas, and then with the East India Company which had a devastating effect on India’s economy.
While it’s true that India and China together made up half of the global economy in 1820, analysts point out that China was already twice as big as India. At 23.6%, Western Europe was represented, with Britain at 5.2% and France at 5.5% (meaning that France’s GDP was somewhat larger despite the defeat at Waterloo).
Colonization of India , Steep Downfall of China and the Rise of United States-
The nineteenth century was all about extreme upheaval shaping the destinies of both India and China. After peaking at 27% in 1870, China’s world trade share nose-dived to 9% in 1913.India share fell to 12% before falling to less than 8% just before the First World War. Despite the obvious fall in India’s global standing caused by colonial rule, it is worth noting that China’s collapse was far more severe. The Chinese collapse was mainly due to the opium wars, several internal uprisings, and technological stagnation.
From 1870 to 1913, Western Europe’s share of the global economy reached a peak of 33.5%. Be that as it may, the relative paths taken by different nations are fascinating to see. After reaching a high of 9.1% in 1870, Britain’s contribution fell to 8.3% (not including its colonies). German GDP grew from 6.5% to 8.8% within the same time frame. As a result, although Britain possessed an empire, Germany possessed a greater economy prior to the First World War.
The United States, however, had seen tremendous growth in the preceding century, and by 1913 it had become the greatest economy in the world, accounting for 19% of the total. Its market share increased to more than 27% by 1950, after WWII. At 9.6%, the USSR was far behind; this would be its highest point; from then, it would fall steadily over the following 40 years until its eventual collapse).
In 1950, Britain’s share had dropped to 6.5% and has kept going down since then, exhausted from two wars and the gradual loss of its colonies. China and freshly independent India each had 4.2% and 4.5% of the market, respectively. The two civilizations that had controlled the global economy for millennia suffered a devastating loss; however, the Chinese may have felt the shame more acutely due to the rapidity and severity of their collapse.
During the following 25 years, Japan’s rise was one of the most astonishing changes. Although it only made up 3% of the global economy in 1950, by 1973, when the first oil shock struck the world economy, it had grown to 7.7%. It is worth noting that India’s position in the global economy was declining even after gaining independence. By the early 1970s, Nehruvian socialism had reduced India’s contribution to 3%.
Promising Future of India and Reclaiming Ancient Glory-
We will now move on to the estimations provided by the IMF. They are comparable to Maddison’s, but they may be extended all the way up to the current day, whereas Maddison’s estimations stop in 1998.
With more than 21% of global GDP in 1980, the United States remained the leading economy in the world. After the Great Leap and the Cultural Revolution, China’s share dropped to 2.3%, and India’s portion remained low at 3%. From this point on, both economies started to reform; China’s more methodically, and India’s first cautiously, until the crisis of 1991 made it more serious.
Performance was enhanced as a result of better policies. By 2000, China’s share had risen to 7.2%, and by 2017, it had caught up to the US’s 16.0%. It is once again the biggest economy in the world as of this writing in 2024, with a share of 19.4 percent.
Even if the United States’ share of the global economy has dropped to 15.5% in PPP measures, it remains the biggest economy in nominal dollar terms. In the meanwhile, India’s proportion has been going up. Between 2000 and 2024, it increased from 4.3% to nearly 8%. Put simply, it is already the third-largest economy in the world when adjusted for purchasing power parity. Please bear in mind that this was India’s percentage share just before WWI broke out, and it was far lower than its share before colonization.
By the end of this decade, according to the International Monetary Fund, China’s and the US’s respective share of the global economy would have levelled off at 19.5% and 14.7%, respectively, in PPP terms. The proportion of Japan will fall to 3.2% while the proportion of the UK will be 2%.
By comparison, projections show that India’s proportion of the global economy would increase to 9.2% by 2030. For an economy that has seen such a protracted period of relative decline, this is a significant turn of events.
The significance of India’s present ascent is best grasped when viewed through the lens of a civilizational timeline. We should rejoice in this new development, but we must not lose sight of the fact that India still has a long way to go before it regains its lost glory.
Jai Hind!!
