CNBC's Sri Jegarajah traces India’s economic evolution from the restrictive License Raj era to the transformative 1991 liberalization. It also highlights how India now aims to become the world's third largest economy in the next 2 years after the U.S. and China.

New Delhi

India's economic history since independence has been marked by significant policy shifts and reforms. After gaining independence, India faced widespread poverty and limited industrialization, leading to the adoption of centralized planning and the 'license raj' system, which restricted private enterprise. Key milestones included the Green Revolution, currency devaluation, and the imposition of emergency rule, all of which shaped the country's economic landscape.

Major reforms began in 1991 with the liberalization of the economy, ending the license raj and encouraging foreign investment. More recent developments include the introduction of the Goods and Services Tax, demonetization, and a push for digital adoption, especially during the Covid-19 pandemic. Today, India aims to become a five trillion dollar economy and the world's third largest, requiring sustained high growth rates and ongoing reforms.

India’s economic evolution: From License Raj to liberalization

India marks Independence Day and let's just take a step back in history and take a look at what happened. Remember back in 1947 India stepped into freedom, a new nation with an economy scarred by colonial rule, poverty was widespread, industry scarce and agriculture was still the backbone of the economy. By 1951 the first five-year economic program took shape, the goal industrial growth and self-reliance but in 1956 the dreaded license raj emerged, a system where businesses needed government permits for almost everything and it aims to control resources but also slowed the pace of private enterprise. The 1960s brought the green agrarian revolution, high yield seeds, better irrigation and new technology turning India from a food deficit nation to self-sufficiency in grains. After the wars with China in 62 and with Pakistan in 65 the Indian rupee was devalued for the first time, a move to boost exports but one that also made imports costlier. 1975 came the emergency, Prime Minister Indira Gandhi imposing a 21-month political clapdown disrupting the economy, industry and everyday life. 1986 India's big bang moment of financial deregulation came, the BSE, the Bombay Stock Exchange launched its electronic trading system ushering in the modern capital markets but the real turning point came here. In 1991 facing a balance of payments crisis India opened its economy, ending the license raj, inviting foreign investment and unleashing private enterprise. The dawn of the century brought yet another war with Pakistan, the Kargil conflict straining the country's budget and then fast forward to 2016 India demonetized its currency notes of five hundred and one thousand rupees that were in circulation, that move caused chaos throughout the country but it did also accelerate digital adoption. 2017 GST, goods and services tax replaced a patchwork of levies with one nationwide tax system and we heard the Prime Minister talk about reform on GST and in 2020 we all know what happened then, the Covid pandemic hit hard, growth slumped, jobs were lost and digital adoption accelerated like never before. So this is the scale, let's take a look at the next representation of growth in India has seen since the 1960s, the oldest data that's available and just look at this perspective, today the economy stands at about four trillion dollars, by 2047 and the Vikshit Bharat development goals India is aiming for five trillion, aims to be a five trillion dollar economy and will hold the title of the world's third largest economy after the US and China and would require an annual growth rate of eight to ten percent, so very ambitious long-term development goals and targets. India's current GDP by the way stands at around six and a half percent and today from the Red Fort in the capital of New Delhi, Prime Minister Modi reiterated how India aims to grow by being self-reliant.

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Breakdown