India

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Full Report: India

Overview

1910-1919: World War I's high casualty rates, inflation, and trade disruption lead to human suffering and a rise in nationalism, crystallizing in the Indian National Congress Party. When the British pass an act enabling them to quell opposition, Mohandas Gandhi calls for the nation to cease work. The subsequent massacre of some 400 people in an unarmed crowd by the British ends wartime hopes of cooperation.

1920-1924: The Congress Party is reorganized and given a new constitution, with the goal of independence. The party has mass appeal, though many Muslims fear the Hindu majority and withdraw. Gandhi urges Indians to boycott British education, law courts, and products. He is forced to call off the campaign of civil disobedience when civilians commit atrocities against police. Gandhi is imprisoned until 1924.

1925-1930: Mohandas Gandhi, also known as "Mahatma," promotes social reforms, seeking equality for the rural poor and "untouchables," whom he renames harijans, or "children of God." The British fail to appoint an Indian to a commission to discuss devolution of power. In response, the Congress Party demands full independence. Gandhi and thousands of followers march in protest of exorbitant British taxes.

1931-1939: The Hindu-dominated Congress Party, the Muslim League, and the British are locked in negotiations. In provincial elections in 1937, Congress emerges as the dominant party. The Muslim League galvanizes its followers by claiming that Islam is in danger. The British viceroy declares India's entrance into World War II without consulting Indian leaders.

1940-1946: The British maintain control of India and mobilize resources for the war, but the war upsets the social and political basis for British rule. Communal violence mounts over conflicting ideas for an independent India. The British, Muslim League, and Hindu-dominated Congress Party reach an impasse over ethnic groups, the country's 562 princely states, and, above all, the large Muslim minority.

1947-1955: The British colony of India is partitioned into India and Pakistan, and India becomes an independent republic with a new constitution. Gandhi is assassinated. Under Jawaharlal Nehru, India's first prime minister, the country embarks on a course of rapid industrialization in a highly protective environment. The state plays a massive role in the economy as its planner and main participant.

1956-1964: Indian states reorganize along linguistic lines, and India annexes the French and Portuguese enclaves. Separatist groups, particularly in Punjab, and opposition parties proliferate. Despite industrial growth, pervasive government controls and the resulting bureaucratic processes hamper economic development. India faces a rapidly growing population, unemployment, and economic inequality.

1965-1970: Nehru's daughter, Indira Gandhi, succeeds her father as prime minister shortly after his death. Her Congress Party's majority is reduced for the first time. Violent religious demonstrations erupt. Punjab is divided along linguistic lines into two states, Punjab and Haryana. The Green Revolution ushers in a period of intense and more scientific crop production to move India toward self-sufficiency.

1971-1977: Promising to eradicate poverty, Indira Gandhi is reelected in 1971, but her administration, facing war with Pakistan, is in chaos. Separatist sentiment intensifies in Punjab. When the high court invalidates Gandhi's election, the president declares a state of emergency. Civil rights are suspended, and thousands of Gandhi's opponents are jailed. Public outcry necessitates a new election.

1978-1984: A coalition government fails to bring reform. Indira Gandhi returns as prime minister. Mounting state-owned company losses lead to heavy public deficits which the government tries to stem through foreign borrowing. Gandhi orders the military to storm a Sikh holy shrine where extremists have taken refuge. Religious tensions come to a head when Gandhi is assassinated by her Sikh bodyguards.

1985-1990: As prime minister, Indira Gandhi's son Rajiv temporarily restores calm and begins to liberalize the economy. Several opposition factions join forces to create the National Front. The Hindu nationalist Bharatiya Janata Party (BJP) gains strength, particularly in the North. The government falls apart after Rajiv Gandhi's 1989 resignation. Two subsequent minority coalition governments fail.

1991-1995: The Congress Party returns to power under Prime Minister Narasimha Rao. He selects Cabinet members whom he feels will break from the past. A substantial International Monetary Fund loan comes with an agreement to speed up economic liberalization. Accordingly, many trade restrictions are lifted, and the door is opened to foreign investment. Violent Hindu-Muslim riots erupt in 1992.

1996-1998: Sonia Gandhi, widow of slain former Prime Minister Rajiv Gandhi, campaigns for the Congress Party against caste-based and regional parties and the Hindu nationalist Bharatiya Janata Party (BJP). A tenuous BJP-led coalition wins the election. Atal Behari Vajpayee becomes prime minister. Economic growth is constrained by inadequate infrastructure, complex bureaucracy, and high interest rates.

1999-2001: Prime Minister Vajpayee's 13-party coalition fails to win a majority of parliamentary seats. Relations with Pakistan falter after a military clash and renewed nuclear arms race. Three new states are created for sociopolitical reasons. Economic deregulation and decentralization continue. An erratic monsoon, global slowdown, and inefficient industry prevent India from achieving its economic goals.

2002-2003: The Vajpayee government still governs with a minority coalition, but maintains control. International tensions are high, and relations with Pakistan remain difficult. Religious violence in Gujarat has a chilling effect on Hindu-Muslim relations and raises fears that the government protects militant Hindu groups. The economy stumbles amid global slowdown but maintains growth around 5 percent.

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Political

1935-1938: The British attempt to appease India's call for independence while retaining their prize colony. The result is the Government of India Act of 1935, which increases the country's provincial autonomy. In the 1937 elections, India's Congress Party outperforms the Muslim League, deepening the three-way rift between Muslims, Hindus, and the British.

1939-1946: The British hand over power at local and provincial levels, but keep control of the center. More autonomy seems inevitable, but negotiations between the Congress Party, the Muslim League, and the British reach an impasse. In March 1940, the Muslim League demands partition and spends the next five years building support in Muslim-majority areas. The 1946 elections lead to further violence.

1947-1948: Britain partitions the colony, with free India flanked by East and West Pakistan. Most of the 562 independent princely states join India, under Prime Minister Jawaharlal Nehru. In the South, Telugu-speaking Hyderabad tries unsuccessfully to remain independent. Millions of people flee Pakistan for India and vice versa amid mounting violence. Hindu extremists assassinate Gandhi in 1948.

1949-1955: India adopts a British-style parliamentary democracy with elected state and national governments. It retains the judicial, administrative, defense, and educational structures and institutions set up by the British. India becomes a republic in 1950, with a largely ceremonial president as head of state. Prime Minister Nehru enjoys nationwide support, but new opposition parties begin to form.

1956-1961: The federal system is reorganized along linguistic lines into 15 states and eight federally administered territories. Separatist movements exist in pockets throughout the country, notably in Muslim-dominated Kashmir and the Western region of Punjab, where Sikhs grow increasingly militant. Democratization of the political process leads to the spread of opposition parties.

1962-1963: India proves ill equipped for the 1962 war with China along the countries' shared border, and Prime Minister Nehru's image is tarnished, both at home and abroad. India acquires the former French settlement of Pondicherry and forcibly annexes the Portuguese enclaves of Goa and Daman and Diu. The state of Assam begins to lose territory as non-Assamese populations are granted autonomy.

1964-1966: Lal Bahadur Shastri becomes prime minister upon Nehru's death. Anti-Hindu demonstrations erupt in Tamil Nadu (then Madras), and India enters a second war with Pakistan over Kashmir. Shastri dies after signing an agreement with Pakistan for a cease-fire line in Kashmir. Opposition to the Congress Party grows. The state of Punjab is partitioned into Hindi-speaking Haryana and Punjabi-speaking Punjab.

1967-1970: Nehru's daughter, Indira Gandhi, becomes prime minister. For the first time, the Congress Party majority is reduced, as opposition alliances control almost two-thirds of the state governments. Indira Gandhi's imperious style angers some party members, and the party splits into Congress (O) and Congress (R). Regional parties proliferate, especially in Tamil Nadu, Punjab, and Jammu and Kashmir.

1971-1974: The Congress (R) party under Morarji Desai gains a parliamentary majority. Indira Gandhi consolidates her power, but a deepening economic crisis, war with Pakistan, and civil disobedience test her administration. Displeased with central government, Punjab unsuccessfully calls for a "Sikh Autonomous Region." The government is in turmoil after Gandhi's 1971 election is invalidated.

1975-1977: At Indira Gandhi's request, the president declares a state of emergency, suspending civil rights. Gandhi's opponents are jailed until public outcry forces general elections. The multiparty opposition campaigns as the Janata Party, stressing decentralization and employment, and wins a majority in the Lower House. Morarji Desai becomes prime minister. India's protectorate of Sikkim becomes a state.

1978-1984: Prime Minister Desai resigns after failing to bring about reform. He is briefly succeeded by Chaudhury Charan Singh and Chandra Shekhar. Renaming her party Congress (I) for Indira, Gandhi is reelected. In 1984 she is assassinated by her Sikh bodyguards after ordering the army to storm a holy Sikh shrine where extremists have taken refuge. Her son Rajiv replaces her.

1985-1987: Rajiv Gandhi temporarily restores calm, but two scandals taint his Congress (I) Party. The new nationalist Bharatiya Janata Party (BJP) incites the public by celebrating Hindu heritage and opposing secularism and affirmative action for lower castes. Several opposition factions join the Janata Dal Party in the National Front. India and Pakistan agree not to strike each other's nuclear facilities.

1988-1990: Rajiv Gandhi wins the 1989 election, but resigns after failing to form a majority government. The National Front's V.P. Singh becomes prime minister, but his government's dependence on the Communist and Bharatiya Janata parties proves untenable. The latter withdraws its support, and Singh loses a vote of confidence. The subsequent minority opposition government collapses after four months.

1991-1995: Rajiv Gandhi is assassinated by a Tamil suicide terrorist. The Congress Party prime minister, P.V. Narasimha Rao, is stronger than expected, selecting ministers (in particular finance and commerce ministers) who will break with the past. Support for the Bharatiya Janata Party grows among the upper castes. Central government intervention in local affairs fuels existing separatist movements.

1996-1998: Two minority coalition governments survive a scant year each. The 1998 elections pit the Congress Party's Sonia Gandhi, widow of former Prime Minister Rajiv Gandhi, against the United Front alliance and the Bharatiya Janata Party (BJP). The vote runs deeply along the lines of caste and religion. A BJP-led coalition barely emerges victorious, and Atal Behari Vajpayee becomes prime minister.

1999-2001: Vajpayee's 13-party coalition fails to win a majority in Parliament. Bowing to sociopolitical demands, the government creates three new Northern states. The Bharatiya Janata Party conducts nuclear tests, sparking counter tests by Pakistan and bringing international sanctions upon both countries. A serious military clash in Kashmir and a series of scandals further undermine the government.

2002-2003: The Bharatiya Janata Party-led coalition maintains control at the federal level and scores some victories in state elections. Tension with Pakistan is high. The opposition accuses the BJP of advancing a right-wing Hindu agenda. India offers support to the U.S. antiterrorism campaign. In Cabinet reshuffles, the finance and foreign ministers swap jobs, and two famous film stars enter the government.

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Economic

1939-1946: During World War II, the British impose controls over prices, production, and the use of foreign exchange. The war sparks inflation, corruption, shortages, and black markets. Disruptions in international trade and famine in Eastern and Southern India lead the government to initiate its "Grow More Food" campaign.

1947-1950: Nehru combines a mixed-economy approach with central planning and rapid industrialization under the newly established Planning Commission. The government takes on a significant role in the economy, granting itself a monopoly in several defense and infrastructure industries. A complex system of controls and licenses comes to dominate production, investment, and trade.

1951-1955: India's First Five-Year Plan prioritizes agriculture, irrigation, and power projects in an attempt to increase self-sufficiency. Two acts provide the legal framework for the government's extension of its intervention and price controls in dozens of industries. Pervasive controls give rise to the complex bureaucratic processes of the "Permit Raj." Industrial and agricultural production rise.

1956-1960: The Second Five-Year Plan emphasizes social goals and industrialization in a protected environment. The Industrial Policy Resolution extends the grasp of the government in the areas of capital and intermediate goods. Industrial production rises an average of 6 percent per year. Land reform is geared toward removing basic socioeconomic constraints for rural populations.

1961-1964: The Third Five-Year Plan focuses on raising national and per capita income levels and expanding the industrial base. Private investment falls as a result of corruption, extensive controls, and an inefficient and bloated bureaucracy. Continuing food shortages reinforce the importance of self-sufficiency in food grain production and the need for government procurement of an adequate buffer stock.

1965-1974: Inefficiency arising from protected industrialization leads to a decline in India's industrial growth rates. Skyrocketing world oil prices deeply affect the country, a large importer of oil. In agriculture, India ushers in the Green Revolution, emphasizing irrigation, hybrid seed development, and widespread use of fertilizers. The resulting agricultural growth helps offset the industrial slowdown.

1975-1979: The Fifth Five-Year Plan rapidly becomes obsolete as government changes its priorities to respond to rising oil prices. The dramatic increase in world oil prices, which increases India's oil bill threefold, attracts a large number of Indian workers to the Gulf countries and brings in the flow of foreign exchange.

1980-1984: Public-sector spending focuses on social services, agriculture, transportation, and mining. Mounting losses in state-owned companies increase deficits, which the state tries to stem by borrowing heavily. A substantial IMF loan comes with structural adjustment requirements. Rajiv Gandhi emphasizes economic liberalization and pushes for development of the technology sector.

1985-1989: The government introduces economic reforms, including reduced quantitative restrictions on imports, decreased subsidies, fewer licensing requirements, the sale of shares in select public enterprises, and tax reforms. Corruption is rampant, with officials often bending the rules. India continues to rely on foreign loans to finance development. Economic growth averages 6.6 percent per year.

1990-1994: Policymakers question state ownership, trade protectionism, and limits on foreign capital. Doubling oil prices and violence at home bring the economy near crisis. India borrows from the IMF, agreeing to speed liberalization. The government sells off shares in its companies and opens the door to foreign investment. Bangalore becomes a hub for the high-technology industry.

1995-1998: Reform efforts show positive results. GDP growth rises to 7 percent, and inflation falls. A new private sector emerges, especially in technology services, side by side with government-sponsored Research and Development efforts in Bangalore. India becomes a major exporter of software. Yet economic growth is constrained by inadequate infrastructure, Byzantine bureaucracy, and high interest rates.

1999-2001: The government favors foreign investment in infrastructure and high technology over consumer products. Deregulation and decentralization of the economy continue. Growth falls slightly to 6 percent in 2000 because of an erratic monsoon, a global slowdown, and inefficient industrial capacity. Prime Minister Vajpayee announces an ambitious goal of 9 percent annual growth.

2002-2003: Amid a global slowdown, India manages growth around 5 percent, but industrial production is down. The foreign and finance ministers swap jobs. Major tax reforms are in the works to simplify and streamline revenue; India's states agree to a common sales-tax policy, ending interstate competition and undercutting. Privatization revives with sales agreed to or scheduled in energy and industrial firms.

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Social

1939-1946: In determining India's future, Britain's focus on the Congress Party and Muslim League diverts attention from social and religious minorities. Communal violence mounts over conflicting visions of an independent India.

1947-1950: India's poverty and social indicators are among the world's worst. Partition unleashes a wave of violence, misery, and loss of life and property, as millions flee Pakistan for India and vice versa. Discrimination against the "scheduled," or socially disadvantaged, castes and tribes (referred to by Gandhi as "harijan") is prohibited by the constitution, but discrimination remains entrenched.

1951-1957: Violence continues following the reorganization of states along linguistic lines. New legal reforms to emancipate women are poorly enforced. One of the first family-planning efforts in the developing world begins. The government grants Dalits, a caste representing 16 percent of India's growing population, additional protections against discrimination, despite protests from the upper castes.

1958-1966: The high rate of population growth severely hinders economic development. The government launches anti-poverty programs, including food subsidies and rural self-employment, but poverty rates fluctuate with no clear trend, and food shortages accentuate inequality. The 23rd Amendment to the Constitution extends existing affirmative-action measures until 1980.

1967-1974: Prime Minister Indira Gandhi, seeking to eliminate poverty, pursues land reform and places ceilings on personal income, private property, and corporate profits. But a rupee devaluation aggravates famine, labor unrest, and misery among the poor. Activists form social movements to represent the interests of farmers, women, and environmentalists. National civil disobedience marks 1974.

1975-1978: During the two-year state of emergency, Prime Minister Indira Gandhi implements several controversial social measures, including forced sterilization for the poor and eviction of urban squatters. Half of India's population remains in poverty, but poverty incidence begins to decline. The Fifth Five-Year Plan includes programs to improve access to health care among the rural poor.

1979-1983: A controversial report recommends that 27 percent of all government jobs and university admissions go to "backward classes," who represent 52 percent of the population. The proposal is not immediately accepted. The Sixth Five-Year Plan aims at training health workers and controlling communicable diseases. Parliament endorses the National Health Policy, criticized for its lack of specific measures.

1984-1989: The government tries to expand access to basic social services and redirect industry to "backward areas." The National Policy on Education initiates programs aimed at improving the country's education system. The central government funds an increasing number of family-planning programs. The economy is unable to generate sufficient jobs for the rapidly growing labor force.

1990-1994: Prime Minister V.P. Singh supports the affirmative-action proposals of 1980, triggering riots in the North. Many of the unemployed join militant religious groups, rekindling Hindu-Muslim tensions that culminate in violent riots in 1992. While 38 percent are still in poverty, India's growing middle class contributes to and benefits from the country's thriving high-technology industry.

1995-1998: Noticeable improvement in several social indicators, including literacy and infant mortality rates, is limited primarily to urban areas. Poverty worsens following poor harvests and implementation of the 1991 stabilization policies. In particular, relative neglect of the agricultural sector, in favor of industry, contributes to the perpetuation of rural poverty.

1999-2003: Sustained economic growth between 5 and 6 percent still falls short of the 8 percent rate considered necessary to put a dent in poverty. An earthquake in the Northern state of Gujarat kills 20,000 people and leaves 600,000 homeless. Hindu fundamentalism is on the rise; the government is accused of complicity with right-wing Hindu groups that seek to rewrite Indian history.

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Environmental

1939-1946: Environmental protection is scarce, limited primarily to forests. The Forest Act and Forest Privilege Codes grant India the right to demarcate reserves and protected forests and give access to tribes, castes, and villages. Local application of these rights are at the discretion of government officials and subject to withdrawal at any time.

1947-1956: Rapid state-led industrialization begins, ushering in an era of increasing pollution and dwindling forest resources. National interest supercedes local claims to resource management. The government sets up the Central Board of Forestry to implement the National Forest Policy, but large-scale deforestation continues. The Factory Act addresses the discharge of water and effluents by factories.

1957-1967: Jurisdictional complexities hamper the implementation of environmental regulations. State governments have jurisdiction over environmental issues, yet the constitution gives the central government sweeping powers to implement laws with regard to international treaties or decisions. Industrialization and increased agricultural production lead to widespread pollution of surface and groundwater.

1968-1975: The Green Revolution increases productivity and expands agricultural lands. This in turn accelerates the use of chemical fertilizers and overexploits groundwater resources. After a decade of debate, Parliament passes India's first major water legislation, spurred in large part by the 1972 Stockholm Conference on Human Environment. Anti-dam campaigns halt several hydroelectric projects.

1976-1980: India amends its constitution to allow states to intervene in the protection of public health, forests, and wildlife. But the amendment is limited by a clause specifying that it "shall not be enforceable by any court." Indira Gandhi enacts a series of environmental measures and creates the Department of Environment. Environmentalists criticize the department for being weak and symbolic in nature.

1981-1985: The new Forest Conservation Act finally lowers deforestation rates. In 1984 India suffers a major environmental setback when poisonous gas leaks from a Union Carbide plant at Bhopal, killing or injuring thousands in the country's largest industrial accident. Uncontrolled emissions from factories around the country contribute to major air pollution.

1986-1990: The Environment Protection Act of 1986 brings more effective environmental legislation. The act establishes a comprehensive Ministry of Environment and Forests to administer and enforce environmental laws and policies. The Environmental Action Plan integrates environmental considerations with development strategies, with an emphasis on the reduction of industrial pollution.

1991-1995: The government's plan to build several hydroelectric dams, including the Sardar Sarovar Dam on the Narmada River, sparks protests by activists and local communities facing relocation. The Supreme Court halts construction at a height of 80 meters, just over half of its originally planned height.

1996-2003: The Ministry of Environment and Forests strengthens incentives for adoption of cleaner technologies. Air and water pollution remain the most severe environmental problems due to industrialization, rapid urbanization, and inconsistent regulation enforcement. The Supreme Court allows construction of the controversial Sardar Sarovar Dam to resume and reach its originally planned height of 138 meters.

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Rule of Law

1939-1946: The requisitioning of property for military installations disrupts local economies, while wartime shortages spur a black market. Communal rioting and massacres in the North indicate the potential for civil war and hasten plans for partition.

1947-1957: The Indian Constitution guarantees the people certain democratic rights and grants some protections against discrimination against the lowest caste "untouchables." The Supreme Court comes into being in 1950. The rise of a massive public sector and complex bureaucratic processes known as the "Permit Raj" leads to institutionalized corruption. Price ceilings contribute to the growing black market.

1958-1967: The army quells several violent religious demonstrations. In the states of Kerala and Bengal, workers stage sieges at several factories. Armed Maoists lead a terror campaign in Bengal. In Muslim-dominated Kashmir, a violent separatist movement gathers strength.

1968-1974: Labor unrest leads to national strikes. Agitation for linguistic and religious separatism intensifies in several states. Tens of thousands of refugees flock to India from East Pakistan, which becomes Bangladesh after a brief but intense war in 1971. The Allahabad High Court invalidates Indira Gandhi's 1971 election.

1975-1977: During a two-year state of emergency, Indira Gandhi's government suspends civil rights and imposes censorship. The Maintenance of Internal Security Act is amended to allow the government to arrest individuals without specifying charges. Tens of thousands of Indira Gandhi's opposition are arrested and jailed.

1978-1984: A rash of caste violence and regional unrest leads to government legislation that places substantial curbs on civil liberties. Conflict culminates in 1984 when Indira Gandhi orders troops to dislodge armed Sikh extremists from the Golden Temple at Amritsar, a Sikh holy shrine. In the ensuing backlash, Indira Gandhi is assassinated. Within days, Hindus retaliate by massacring thousands of Sikhs.

1985-1989: The Sikh militant movement spreads through Punjab, leading to additional legislation against terrorists. Violence and repression escalate in the area. Indian soldiers clash with Tamil militants, and thousands are killed and wounded. Insurgency breaks out as fighting spreads between Kashmiri militant and army troops. Rajiv Gandhi's reputation is sullied by an arms contract kickback scandal.

1990-1995: Rajiv Gandhi is assassinated by a Tamil terrorist. Riots in the North follow V.P. Singh's announcement that 27 percent of central government jobs will go to "Backward Classes." Hindu-Muslim conflict intensifies when Hindu extremists demolish a mosque. Corruption in Jammu and Kashmir leads to the dissolution of the state government. Direct presidential rule is declared in 1990 and lasts five years.

1996-2000: The 1996 and 1998 elections are among the fairest in Indian history, but are nevertheless marred by violence at polling stations. Several politicians, including Prime Minister Vajpayee, are charged with corruption. Religious and regional unrest escalates in Gujarat, Assam, and Kashmir despite cease-fires agreed to by some rebel groups.

2001-2003: Religious tensions boil over in Gujarat in 2002, when Hindus massacre Muslims on a large scale in retaliation for an attack on a train of Hindu pilgrims. The Gujarat state government turns a blind eye to anti-Muslim violence. The federal government plans major tax reforms it hopes will reduce fraud and evasion.

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Trade Policy

1939-1946: Britain restricts its colony's trade with other nations by controlling the "sterling balances" from India's trade surplus. U.S. imports, however, increase, financed by lend-lease agreements. By the end of World War II, trade between the United States and India is twice its prewar level. India remains dependent on imported machinery, chemicals, and other basic inputs to production.

1947-1951: India is a founding member of the General Agreement on Tariffs and Trade (GATT), yet implements protectionist measures to reduce foreign competition. India accounts for 2.5 percent of world exports, primarily jute, tea, and cotton textiles. Engineering goods represent 1 percent of India's exports.

1952-1960: The government emphasizes self-sufficiency over foreign trade. India's import controls and tariff policy stimulate the production of import-substitution goods by local manufacturers. The government also imposes strict controls on exports.

1961-1969: India's share of world trade shrinks drastically as the country becomes isolated from the international market. Although exports cover the costs of residual import requirements, they are limited. Government-owned industries face little competition or pressure to maintain efficiency. As a result, Indian exports compete on the basis of price rather than quality.

1970-1979: Rising oil prices and subsequent balance-of-payment difficulties encourage India to promote exports. Yet the export sector suffers from India's policy of reserving the manufacture of most labor-intensive, low-tech products for the "small-scale sector" to promote employment. These small producers are unable to compete for contracts with large, international buyers.

1980-1984: India's share of world trade falls to 0.4 percent. Exports finance 60 percent of imports. By 1984, Rajiv Gandhi implements changes to stimulate India's nascent high-tech industry. The government removes import duties on select electronic goods and reduces duties on several critical electronic parts. Indian companies are allowed to partner with foreign companies.

1985-1989: The beginnings of trade liberalization are visible. The government reduces import duties and widens investment opportunities for the private sector. The reduction in tax rates and import deficits is financed through commercial borrowing. Liberalization of imports extends to capital and intermediate goods.

1990-1994: The 1991 economic reform package further liberalizes trade. The government reduces tariffs and trade barriers, eliminates licenses for most industries, and slashes subsidies for domestic products and exports. Many powerful vested interests oppose liberalization, however, and trade remains somewhat regulated. The government bans, for example, the import of many consumer goods.

1995-2001: To meet WTO commitments, India agrees to eliminate quantitative restrictions on many consumer and agricultural product imports, while retaining export subsidies and incentives. Growth of Bangalore's high-tech industry leads to the export of software and supercomputers.

2002-2003: The United States is India's largest trading partner, followed by Japan, the European Union, and OPEC states. India courts Southeast Asia with its "Look East" policy; it holds preliminary trade talks with the regional organization ASEAN, and free trade deals are in the works with Thailand and Singapore.

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Money

1939-1947: The rupee is linked to the British pound, resulting in "sterling balances" from India's trade surplus, which are kept under British control in London.

1948-1951: India nationalizes the Reserve Bank and devalues the rupee by 31 percent. The Reserve Bank formulates and administers a restrictive monetary policy to fight off inflationary pressures and promote stable prices and higher production.

1952-1960: The government seeks to revamp the banking system to stimulate development and forms several specialized institutions to provide credit to industry, agriculture, and small business. Inflation remains low.

1961-1970: India's macroeconomic policy is geared toward low monetary growth and moderate public sector deficits. Inflation remains low, and the current account registers a surplus. For the most part, capital entering the country takes the form of official aid. Indira Gandhi nationalizes the banking system, which expands rapidly.

1971-1979: The rupee is overvalued as part of an import-substitution strategy. The government tightly controls foreign exchange transactions, and the Central Bank closely manages the exchange rate.

1980-1985: While export growth is slow, an increase in domestic petroleum production and reduced petroleum imports keep the trade deficit in check. The current account deficit stays low. Tax receipts rise when comprehensive tax reform tightens enforcement, and taxpayers respond to lower taxes with greater compliance. The rupee is allowed to depreciate sharply in conjunction with economic liberalization.

1986-1990: Progress in tax collection is undermined by renewed tax evasion and insufficient coordination among authorities. The government responds to the growing deficit by borrowing. Foreign debt doubles. India becomes increasingly vulnerable to external shocks. Increasing oil prices, slow growth in countries trading with India, and political uncertainty put India on the verge of a currency crisis.

1991-1995: India undertakes broad fiscal reform, including reforms to the tax system and cuts in the public sector deficit. To boost exports, the government devalues the rupee by 19 percent and moves it toward partial convertibility to foreign currency. In 1993, the government devalues the rupee again and introduces a market-determined exchange rate. Inflation rises to 11 percent.

1996-2001: The fiscal situation deteriorates. The public-sector deficit rises sharply due to weak revenue performance and a lack of expenditure control at both the central and state government levels. Inflation falls to 3.5 percent in 1999, but then rebounds. Public-sector debt exceeds 80 percent of the GDP.

2002-2003: The rupee is under pressure in early 2002 as relations with Pakistan deteriorate, but it rebounds later in the year on improved political news and reasonable growth forecasts. The Unit Trust of India, the state-run mutual fund system, is bailed out and restructured following a near collapse after a panic run on one of its funds.

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Categories: Overview | Political | Economic | Social | Environmental | Rule of Law | Trade Policy | Money
Graphs: Growth | Income | Inflation | Well-being | Trade Volume | Trade (CAB) | Debt | Spending

Related: Video | LinksView all categories for years from to | See Full Report | Print