There are gold diggers in India

Main features of the economy since 1947

India's economy has been growing rapidly since the 1990s, and the country is one of the emerging global economic powers. However, extensive reform steps are still necessary to secure this growth in the long term.

Mumbai is the financial and economic center of India. 18.1 million live in the up-and-coming mega-city, with its skyscrapers and sprawling slums, right on the Arabian Sea. (& copy Quentin Donze)


While India was a comparatively reform-resistant economy that grew at a rate of around 3.5 percent until the 1980s, it has now become an economically dynamic country whose gross domestic product, according to the Federal Agency for Foreign Trade, achieved a real growth rate in the 2005/06 financial year of 9.2 percent. Publications by the IMF and the World Bank describe India today as a rising global economic power or even as the economic and political superpower of the 21st century. Overall, a considerable change in mood is emerging, which until the beginning of the 1990s was hardly considered possible in the country itself and which is the basis for many calls for India to have greater influence worldwide.

Policy of self-sufficiency

Economic data India
Of course, Indian governments have tried to promote the country's economic development since independence. However, in order to prevent threats to their autonomy, they relied on extensive self-reliance, the priority development of industry, especially heavy industry, in which state-owned companies were to dominate, to which the lion's share of Indian development expenditure went for a long time. The sphere of activity of large private companies and foreign investors was severely restricted to certain sectors or shares. The state tried to set the direction of development through five-year plans and was given investment management functions vis-à-vis the private sector in order to ensure that the scarce financial resources did not flow into areas that were assigned less socio-political importance. As a counterweight to the build-up of heavy industry and with the aim of creating a sufficient number of jobs, a wide range of around 800 product lines was reserved for the small business sector. In addition to grandfathering, this was also promoted by means of discounted loans, provided that the farms did not exceed a fairly low set size.

In order to ensure regionally balanced development, the state promoted the establishment of industries in structurally weak areas through subsidies and requirements. At the same time, industrial development was consistently shielded from international competition. With a few exceptions, the import of consumer goods was prohibited, capital and intermediate goods were only allowed to be imported against the granting of licenses on a case-by-case basis, and the level of customs duties was immense. The shielding of the domestic market meant that export production was not very attractive. Attempts were made to promote them by means of an ever more extensive and increasingly complex set of instruments. The main instrument for implementing the industrial policy objectives was the granting of state capacity licenses for industrial investments of all kinds (for start-ups, capacity expansions, the broadening of the product range or a relocation). As a result, essential business decisions could not be made without state interference. Finally, the financial system was also geared towards the state's development goals and credit needs: interest and credit conditions were strictly regulated, the entry of new banks was hindered, the establishment of foreign institutions was prohibited, and the autonomy of the 27 state banks was severely restricted. These had to keep their deposits mainly in government bonds and as reserves at the Indian central bank, which in turn could be used to a large extent as the financier of the national budget deficit. Most of their loans were for agriculture, small-scale industry, and housing.

Successes and Deficits

From today's and comparative point of view, the results of this economic policy have been rather modest. Although the goal of self-sufficiency was largely achieved, the import quota in the early 1980s was only five percent; the industry was broad and a considerable number of scientific and technical specialists were trained. In addition, India financed more than 90 percent of its investments from its own resources, as it received scant development aid and attracted little foreign investment. Admittedly, the economic successes were offset by serious deficits: The tight network of state controls and incentives increased the companies' production costs and encouraged corruption. The economic growth achieved was quite meager in relation to the funds deployed (the investment ratio was often around 25 percent of GDP), so capital productivity was low and fell even further over the years. The numerous state-owned companies were characterized by low profitability, despite massive support, and the reservations for the small-scale sector hindered the growth of companies, as the privileges would no longer apply from a certain company size. The shielding of the domestic market and the granting of preferential loans to industry by the state banks, together with the slight overvaluation of the rupee, led to a relative advantage of the investment of capital at the expense of labor; therefore the supply of jobs in the industrial sector increased only at the rate of population growth. Protection from foreign competition was reflected in minimal research and development expenditure. This isolation went hand in hand with the fact that the price level of Indian industrial goods was in some cases well above that of the world market, thus allowing safe and comfortable profits with only moderate efforts to improve products. State export incentives only partially compensated for the greater attractiveness of domestic market production. As a result, India's share of world exports fell dramatically from 2.8 percent in the early 1950s to 0.4 percent in the mid-1980s.

First economic reforms

Due to the size of its internal market, India could afford to pursue this economic policy longer than other developing countries. In the mid-1980s, however, the Rajiv Gandhi government cautiously initiated a change of course and initially liberalized the internal market. These reforms were firstly due to the fact that other, also competing states such as China had already carried out economic reforms and were overtaking India; Furthermore, the growth of the middle classes, who demanded a supply of better consumer goods, played a role, as well as the emergence of internationally competitive companies in the course of the previous economic development, which required know-how from abroad and were dependent on cooperation with foreign partners for export .

The first cautious liberalization push brought about the abolition of the licensing requirement in numerous sectors, a relaxation of the control of large companies, the lowering of the income and corporation tax rates as well as the introduction of an "import-export passport", which allows the companies to import duty-free components for the export production allowed. Politically more delicate projects such as the privatization of state-owned companies and the treatment of the problem of "sick", that is to say de facto insolvent private companies, were not or only cautiously addressed. The Indian economy reacted surprisingly positively to these relatively modest measures of deregulation: the growth rates and exports rose significantly; however, the imports that had been pushed back so far also increased considerably. Together with the rise in oil prices in the course of the First Gulf War (1990/91), the falling remittances of funds by foreign Indians and the collapsing foreign trade with the former Eastern Bloc countries, this led to a serious balance of payments crisis. At the beginning of 1991 India was almost insolvent; borrowing from the International Monetary Fund is unavoidable.

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Thriving film industry

[...] India is the world's craziest nation - and the only one in which Hollywood has a market share of less than five percent without any control or censorship measures. The popular claim that Bollywood produces around eight hundred films every year, three times more than Hollywood, is not entirely correct - but only because the term "Bollywood" usually only includes Hindi-language commercial cinema. The claim is correct if one includes the Indian films made in other languages ​​(Tamil, Malayalam, Telugu etc.). (The exact figures for 2004: 934 films in all of India, 244 in Hindi.) [...] The name "Bollywood" is a very vague, once rather unfriendly designation that was created at the end of the 1970s, but is now widely used. The B stands for "Bombay" (which is now officially called Mumbai), which has always been home to the largest film industry on the subcontinent, the one with the largest catchment area, the most extensive production and the most famous stars. The film is shot in the most widespread language "Hindi", which, however, is not the main language in Bombay itself. In Bombay, too, Bollywood is a world of its own, in which different rules apply than in Indian society. The presence of Muslims here is exceptionally high, which you can already see from the fact that the biggest star in Bollywood in the last decade - .] Shah Rukh Khan - a Muslim is [...].

With the wealthy NRIs (non-resident Indians) living mostly in the US and UK and the growing middle class in major cities, industry [in the 1990s] discovered a new target audience. The development is quite ambivalent. While more demanding blockbuster productions are now emerging for the new, better educated and wealthier multiplex visitors and are also being exported to western festivals [...], the masala film, which always promised something to all classes and one of the original products of the Indian, threatens Film industry was about to die out. The blockbusters that are also successful [...] with us, such as Kabhie Kushi Khabie Gham (2003) or Kal Ho Naa Ho (2004), are prime examples of this change of direction. Technology and show values ​​have reached western standards and the partial or complete relocation of the locations to Europe and the USA made the transfer of the Bollywood aesthetic to the west [...] really appear as an option for the first time in the history of Indian commercial film. [...]

Ekkehard Knörer, "Bollywood 101", in: Splatting Image No. 62 from June 2005