here we have india the second largest country in terms of population in the world it looks set to
overtake china in part due to the consequence of china's famous one-child policy for some
years it also looked as if it was going to be able to overtake the chinese economy too
especially as chinese growth slowed down around 2015 unfortunately that doesn't look set to happen
any time soon in part due to what has happened over the last 12 months but the reality is indian
growth had started to slow down before that and in this video we are going to explore how that has
happened and how the indian economy had started to stall in the meantime though it is worth saying
high economic growth has done wonders for india and its people the indian economy has been through
a remarkable transformation and it has helped the country establish itself on the world stage
especially useful when the other dominant country in that part of the world is china
but there is still much more to be done in 2019 the indian economy was smaller in gdp terms
than california over half of the population still works in agriculture and extreme poverty is still
very high in certain parts of the country on a per capita basis gdp in the indian economy
is less than half of that of china the good news though is that the state of the indian economy
is generally heading in the right direction even though growth has been slowing down it
has still been growing quicker than most advanced economies and given the number of people in india
this means that literally millions of people are getting pulled out of extreme poverty each
year in order to understand the indian economy of today we must go back in time and look at where
the economy of india has been before and like many of my videos we're going back to the 1940s
in august 1947 india gained independence from the british unlike many countries that became
an economic basket case following independence india was different once they were free from
colonial rule they ran a fairly decent system of governance which helped provide the stability
for the indian economy to grow protectionism was central to the economy of india and whilst i'm not
a huge fan of protectionism i'd rather that than lots of other economic policies protectionism is
the policy of favoring domestic production over foreign production the idea being that it gives
domestic producers an advantage typically on price although sometimes protectionism can take the form
of import quarters too it's worth saying that even though i'm not a huge fan of protectionism most
countries have some form of it over the four years that trump was president of the united states
protectionism was used regularly to try to reduce imports whilst this was primarily a
political player protectionism can play a key role in political ideologies an argument that is often
made is around protecting key strategic industries such as steel production when steel manufacturers
were struggling in the uk some politicians pushed for tariffs which would artificially raise the
price of foreign steel free trade however is one of those topics that economists from
left right and center all agree on they all think free trade is good and protectionism is bad it's
one of the few topics that unites us in india's case it justified protectionism for a different
reason it wasn't a geopolitical player against another superpower nor was it argued that they
needed to protect their domestic industries after all domestic production in india at this point
was still incredibly cheap instead the government justified protectionism within the indian economy
based on its experience living under british rule rather than subject another country to the bottom
rung of the supply chain the indian economy would do everything itself if you have seen the meme
about being a strong independent woman who don't need no man the indian economy was doing
the country version of that to do this the indian government introduced a series of five-year plans
now if you're in favor of capitalism that probably made your skin crawl five-year plans are typically
associated with the central planning of a certain type of economic system that for the most part are
known to lead to absolute catastrophe part of this involved nationalising most domestic industries
within the indian economy the government also introduced a soviet-style bureaucracy called the
license raj the license raj was essentially a big book of red tape i know what you might be thinking
then was india communist state the answer is no it just wasn't a very efficient one either whilst it
traded with the communist states and introduced a lot of the bureaucracy of communist states
ultimately the private sector could still make a profit if you wanted to open a restaurant and turn
a profit you could perhaps that was the reward of expecting businesses to go through the license raj
and understand all of that essentially it was adopting some of the worst features of different
economic systems which meant the indian economy was being held back as a whole the economy of
india was growing at similar rates as other soviet countries and the sectors that were prevalent were
similar too agriculture played a key role as it does now as did nationalized heavy industries
this all changed in 1991 thanks to the fall of the soviet union throughout the cold war the
soviet union was india's biggest trading partner this was despite india remaining broadly neutral
the fall of the soviet union in 1991 meant that india lost a lot of its trade and industrial
support like north korea indian companies were very reliant on soviet trade so this
was a huge economic shock the indian economy grew at its lowest rate since achieving independence
it wasn't just the fall of the soviet union as a trading partner that caused the slowdown though at
the same time there was a spike in oil prices and given the role of heavy industry within the indian
economy this hurt a lot this left the economy of india in a position where it was very possible
that it might default on its debt in a last-ditch effort to try and get itself out of the mess india
reached out to the international monetary fund for a 1.8 billion dollar bailout the international
monetary fund is an international organization that promotes trade between nations but it can
also provide emergency funding in situations like this member states essentially peer subscription
fee that is then used on lawns such as this one made to india more recently it was involved in
the bailout of many eurozone countries in 2011. the lawns do come with strings attached on top of
paying the loan back with interest generally the loans are made on the basis of economic
reforms that will be made to promote trade free markets and a strong private sector until 1991
india had shunned international trade in favor of protectionism and state-run enterprises
this was about to change to india's credit it embraced the economic reforms international trade
became a key part of indian growth it's once state-run industries have been privatised
albeit not every one of them it is trading with more than just soviet states it has
become open to businesses investing from abroad and the licensed raj has been cut dramatically
what followed was an explosion of growth within the indian economy the country has essentially
doubled in size every five years since 1991 a growth rate not seen by many countries
these economic miracles however are becoming more and more common around the world
with many eastern european and southeast asian countries also growing rapidly this
makes sense when you think about it when the first industrial revolution happened in the 18th century
no one knew what best practice was or what would be the most efficient method of manufacturing
with the indian economy and others entering their own industrial revolution so to speak
they can just research what has worked before that's the beauty of international openness
this has helped the indian economy massively and its large population is also a huge boost because
of the rapid growth and large population india is already the fifth largest economy in the world and
many expect it to climb into the top three however the chaos of the last 12 months has disrupted this
massively unfortunately india has experienced some of the worst health and economic outcomes
not helped by the density and the fact that a lot of the country is still really poor but the indian
economy was already struggling before everything that has happened over the last year that's not to
say that the economy of india had stopped growing but it was experiencing growing pain shall we say
that had reduced the pace of growth modi was elected as the prime minister of india in 2014
and he quickly pinned his political hopes on the continual economic growth of india
irrespective of modi's policies india did look well set to benefit from high growth
more of the population was getting educated it was receiving large foreign investment and chinese
manufacturing was becoming increasingly expensive all of this should have helped the indian economy
moved to that next stage a bit like china has with cities like beijing and shenzhen it seems though
that the indian economy hasn't taken that next step and instead economic growth has slowed down
instead of growing at roughly 10 per year it is growing at closer to 5 this is still remarkably
positive it is pulling millions of people out of poverty but if it was hitting double-digit growth
millions more would be out of poverty by now gdp and investment growth had been declining since
2016 and 2018 respectively annual vehicle sales in 2019 were lower than they had been a year before
industrial production was weakening so what led to this there are a couple of things which
contributed significantly financial management of the country has generally been pretty awful
for a few years now very large deficits were justified on the basis of high growth expectations
an expectation that tax receipts would fly up and more privatisations none of these things
have really come to fruition a large part of the indian economy is still in the informal economy
which makes tax collection almost impossible privatisations haven't really occurred either and
as i said earlier on growth has been slowing down the state of the indian finances don't look set
to improve anytime soon and in mid 2020 multiple ratings agencies consider downgrading indian debt
if india can't get its finances under control it may have to speak to the international monetary
fund again for another round of financing secondly india is going through its own financial crisis
when the 2008 global financial crisis hit the large lenders essentially stopped lending money
hence the phrase the credit crunch the indian banks are experiencing this right now the kicker
is that most indian banks were already state-run emergency rules on deferring payments have made
the balance sheets of these large indian banks even worse than they were without getting finance
into the private sector growth and investment will be slower than it could be and finally
there is sometimes just bad economic policy making the informal economy in india is very large
and there is not much consistency across the different states within the country
when it comes to business policy a series of reforms introduced by modi had the aim of
dealing with these two problems unfortunately they didn't work he introduced a goods and services tax
essentially attacks on consumption across the country the idea being that each state would be
following this goods and services tax which would make it easier to trade between one region and
another the second reform was removing some of the larger denomination notes from circulation
to try and deal with the informal economy while both reforms created economic turmoil the new
tax reduced consumption and the destruction of high denomination notes caused havoc within the
indian economy cash machines couldn't convert money quick enough neither could the banks
it was all a bit chaotic and what does economic growth and business dislike most chaos all is
not lost though and as i said earlier on india is still growing quickly just not as quickly as it
could modi to his credit has been on a global tour to try and attract much needed foreign investment
india is in a pretty unique position whereby once the health crisis is sorted and countries continue
to turn their back on china it could benefit the highest prize is global supply chains for
international companies and to an extent this has already started apple for example is scaling up
smartphone production in india india is in a good position to take over from china as a high growth
high exporting manufacturer in asia the question is will it there's lots of competition from
countries like bangladesh and vietnam so it's really up to india in the indian government
to create an environment that works well for the indian economy now it's your turn
did you learn much about the indian economy from this video do you think that the indian economy
will go back to double-digit growth anytime soon as always please do leave your feedback in the
comment section down below thank you very much for watching and i'll see you in the next one