A clarification is necessary. The history of Indian business is not as recent as that of India as an independent nation. It points to the history of many centuries before India became an independent country before India opened up its economy in the nineties, the nineties was not the first time the Indian economy was opened up to the forces of globalization, nor was it the first time! Whenever we see the Indian economy developing, a question has arisen and will arise, is India always lagging behind the western countries in economic development? The simple and straightforward answer is, NO!
India’s share of world GDP in 1700 was 24.4 percent, ahead of China’s share of 22.3 percent. During the hundred years between 1850 and 1950, India had the fourth largest cotton mill industry in the world. It was the backbone of Indian business! which was effectively supported by a thriving banking and exchange business. India’s trade with the world reached unprecedented levels, and the economy opened up to global powers from around the world.
Post-independence India is a mixed story of capitalism and government regulation of trade. Later in India the description of free trade changed. The government of independent India decided that trade was undesirable, and money lending was evil. Socialists among Indian politicians wanted Soviet-style industrialization. Metals, machinery and chemicals were to be favorable sectors. Technology had to be bought from western markets, a book titled ‘Business History: From Enterprise to Capitalism’ describes the history of Indian business.
In the 75 years since India’s independence from British rule, the Indian economy has seen several economic transitions. Most notable was the transition of the Indian economy from a free trade regime to a socialist and protectionist regime in the fifties and sixties, followed by a wave of economic reforms in the nineties that opened up and transformed the Indian economy. As we complete 75 years as an independent country, we have a long and rich history to study, ponder and think about. Finally, business history has a key role to play in developing and enhancing the understanding of how businesses have evolved in response to aspects of a country’s past in the prevailing social and economic environment.
Here is a prime example of history that shaped the Indian trade and economic system in the post-British era! The leadership of the Indian National Congress presented the Bombay Plan vision of economic development in India: focus on industrialization and devalue trade. This resulted in the Bombay Plan of 1944 which ushered in the era of socialist planning. Those involved in drafting the plan agreed with protectionism as a means of achieving industrialization, and public opinion on foreign capital hardened. Labor Laws Within a year of Indian independence, laws regarding minimum wages and labor regulations in factories came into being. The Minimum Wages Act empowered both the central and state governments to fix the amount of wages to be paid in factories. This was intended to ensure a decent standard of living for all, but gradually turned into a red tape and a tool of industrial control. There are more than twelve hundred minimum wage rates in India.
The Factories Act 1948 was another socialist addition. Enacted in 1948 to protect workers in factories, it sought to unify the law by adding provisions for imprisonment for violations and made provisions for inspection of factories.
Development Finance Institutions: The Industrial Finance Corporation of India, India’s first development bank, was formed in March 1948 to facilitate the long-term credit needs of Indian industry, which was in its infancy. Less than a decade later, the government formed the Industrial Credit and Investment Corporation of India in 1955 to facilitate long- and medium-term credit to Indian businesses in partnership with the World Bank and private investors. Over the next 10 years, the Industrial Development Bank of India (IDBI) was created for the same purposes. Today both ICICI and IDBI are successful banks.
The Indian government emphasized the nationalization of large industries in the later decades of the 1940s. In 1948 the Reserve Bank of India, then a shareholders’ bank, was nationalised. Air India was nationalized in 1953. In 1955, the Imperial Bank of India was nationalized to form the State Bank of India. A wave of nationalization hit the aviation, mining and oil and gas industries!
India began planning in 1950 with the establishment of a central planning agency, the Planning Commission. Five Year Plans followed. Consumer brands emerged. The 1950s can be best remembered for the emergence of some of India’s best-known consumer brands: Godrej Typewriters, Ambassador Cars, Bajaj Scooters, Usha Sewing Machines, etc.! The advent of technical education in India coincided with the demands of post-war industrial growth and the ambition to advance engineering education. The government established the Indian Institute of Technology (IIT), India’s first engineering educational institution, in 1951 at Kharagpur.
Five other IITs soon followed. IIT Bombay in 1958, and IIT Kanpur and IIT Madras opened in 1959. License Raj begins in 1956 The Indian Parliament passes the Industrial Policy Resolution, which marks the beginning of the License Raj. The government drew up a list of industries it would set up and the industries whose production it would control through licences. The resolution drew heavily and the Second Five Year Plan began in 1956. The same year the life insurance industry was nationalized, and the state-led Life Insurance Corporation (LIC) was established.
Advent of India’s nuclear program and India’s first nuclear reactor Apsara marked the beginning of India’s nuclear power program in August 1956 at the Bhabha Atomic Research Center in Bombay. The reactor, built by Indian engineers in fifteen months, also demonstrated India’s capabilities in nuclear energy. In April, 1957, the decimal system of coins came into effect. Indian coins were decimalized and changed from rupee, anna, pi system to decimal currency where each unit of currency can be divided into 100 sub-units. Gujarati businessman Dhirubhai Ambani founded the trading house Reliance Commercial Corporation in 1958. Government of India started Rourkela Steel Plant in 1959.
The scheme was the first public sector integrated steel plant. Bharat is managed by the Steel Authority of India and established in collaboration with West Germany. IIT Delhi was established in 1961. In the same year, the Indian Institute of Management was established in Calcutta (now Kolkata) and Ahmedabad. Bhakra Nangal Dam, opened in 1963, is considered the earliest river valley development scheme undertaken by India after independence. From 1965 India entered the era of Green Revolution which continued till 1977, which led to increased production of food crops. India became one of the world’s leading agricultural nations from a food-scarce country! Daily TV programming transmission started in 1965 under All India Radio initiative. The first commercials were aired in 1967 on Vivid Bharati.
In 1974 the Foreign Exchange Regulation Act (FERA) came into force which regulated transactions in foreign exchange and securities and mandated that foreign investors could not own more than 40 percent in Indian enterprises. Within four years of the law, American multinationals IBM and Coca Cola shut down their operations in India. In the same year, India’s first oil well was discovered at Sagar Samrat near Bombay High! To abolish bonded labor in India in 1976, the Parliament of India enacted the Bonded Labor System (Abolition) Act. The Industrial Disputes Act mandates that companies with more than 300 workers seek government permission before dismissing workers. In 1977, Reliance Industries launched its initial public offering. Over the previous decades the company had diversified its business which helped it grow. 1978 was the year India first experienced demonetisation. To flush out black money from the economy, the government withdrew the legal tender status of Indian currency notes of 1000, 5000 and 10000.
1978 India’s first home loan disbursed by Housing Development Finance Corporation Limited or HDFC and launched its first television commercial. The Industrial Policy of 1980 expanded the Open General License List for imports, eased industrial controls, allowed limited external borrowing and initiated reforms in indirect taxes. This year the Central Bank of India issued India’s first credit card. R. Narayan Murthy and six other co-founders founded Indian IT leader Infosys in 1981.
1982 was a difficult year for Mumbai’s textile industry as a strike by mill workers led by union leader Datta Samant brought operations to a standstill. In the same year, Indian Oil Corporation opened India’s first public sector petroleum refinery, and NABARD, the National Bank for Agriculture and Rural Development (NABARD), was established to promote agriculture, small-scale industries and other rural handicrafts. The early years of India’s automobile revolution originated in 1983 with the launch of the first batch of Maruti cars.
India was rocked by the world’s worst industrial disaster in 1984 when gas leaked from Union Carbide’s pesticide plant in Bhopal. Thousands of people died in the tragedy and its effects continue to this day. National Stock Exchange was launched in 1992. Reliance Group became the first Indian group to raise money in international markets. In the same year, the Big Bull Harshad Mehta scandal rocked the stock markets. Which indicates the need for strict regulation of the market. That year also saw the Securities and Exchange Board of India Act, 1992, which was introduced to protect the interests of investors in securities and promote the development of the securities market, among other things. The National Telecom Policy came in 1995 which paved the way for foreign direct investment in the telecom sector as well as local investment and increased telecom penetration in the country. In the same year, the then West Bengal Chief Minister Jyoti Basu made the first cellular phone call from Kolkata. Telecom Authority of India was established in 1997.
1999 was a big year for the Indian portal market as Satyam Infoway Ltd., India’s first Internet service provider, signed an agreement to buy India World Communications Pvt. Ltd. or Seefi.com for 499 crores. In the same year, the Insurance Regulatory Development Authority of India was established for the insurance sector. Tata Nano was launched by Tata Motors in 2008, which was predicted to be the cheapest car in the world.
The Satyam scam in 2009 was India’s biggest fraud involving Satyam Computer Services, once known as the crown jewel of India’s IT industry! India’s first Internet startups were founded between 1995 and 2000, starting with Rediff.com and Fabmart.com and Make My Trip. The 2G spectrum scandal in 2010 was a major blow to the privatization drive. The scandal exposed corruption among high-ranking government officials where officials were found to be undercharging mobile companies for frequency allocation licences.
Bad loans of public sector banks reached Rs.59972 crore in 2010. India’s real GDP growth peaked in 2010 when it was 13.3 percent. India’s fiscal deficit for the fiscal year reached Rs3.69 trillion, equivalent to 4.6 percent of India’s gross domestic product, as capital investment reached 39.8 percent of GDP, according to Reuters calculations.
2019 also saw the rise of several e-commerce players like Flipkart, Myntra, Snapdeal, Amazon which marked the growth of the consumer internet ecosystem. The Make in India initiative was launched in 2014 to encourage companies to develop, manufacture and assemble products. Pradhan Mantri Jan Dhan Yojana A financial inclusion program launched to expand access to financial services for all Indians. The Goods and Services Tax Bill was passed in 2017 in a move to implement a uniform tax structure across the country. The tax was introduced in the same year. The move drew a line to create a common market that allowed for the free flow of goods and services.
The Real Estate (Regulation and Development) Act, 2016 mandated the establishment of a Real Estate Regulatory Authority (RERA) in each state to regulate the real estate sector. This bill was passed in 2016. For the first time since 2013, foreign portfolio investor inflows in 2019 reached Rs. The figure of one lakh crore was crossed. Unemployment also became a problem, according to domestic surveys by the Center for the Monitoring of Indian Economy. The government’s Production Linked Incentive (PLI) was launched with the aim of making India a world-class manufacturing hub after 2020. PLI was also intended to invite foreign investors to set up manufacturing units in India. The National Infrastructure Pipeline, National Monetization Pipeline and Pradhan Mantri Gati Shakti were launched to address the infrastructure deficit in the country with the aim of creating efficiency and assets through social and economic infrastructure projects including roadways. The answer to where India stands economically in the world will be met with stages!