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Posted on April 11th, 2014, by

India is a bright and diverse country with the long history, but the country’s economic situation is still contradictory. On the one hand, India is one of the richest countries in the world based on mineral resources and agricultural lands making 55% of India’s territory, while Indian scientists, researchers and programmers are considered to be one of the most authoritative in the world (Panagariya, 2010). Yet India is an agro-industrial country, hosting two thirds of the planet’s poorest people, and having GDP per capita at the range of $300 (Ghate, 2012). Today, Indian economy is trying its best to become more integrated with the global economy. Large-scale economic reforms undertaken in the latest decade surely have had far-reaching consequences, and today Indian vast and growing market, developing infrastructure and financial sector, its flexible regulatory environment and tax incentives, stable government and generally good economic perspectives make India a player to count with (Panagariya, 2010; Ghate, 2012). However, despite the fact that India is now on the path of developing into the open-market economy, the traces of the previous policy can still be seen. In particular, India’s long term challenges include widely spread poverty and low per capita consumption ( explained not only by the low incomes of population, but also by the under-production of public goods and services); inappropriate physical and social infrastructure; limitation of non-agricultural employment opportunities and generally high level of unemployment; lack of access to qualitative secondary and higher education; low productivity due to low education levels and hence, poor quality of products; significant differentiation of Indian population by income, religious and social status (high importance of caste system); and corruption in the economy (Ghate, 2012; Basu, 2007). It is now also necessary for India to reduce the high budget deficit, along with the increase of base rates to contain growing inflation (Ghate, 2012).

According to dependency theory, the underdevelopment and political instability in India can be attributed to its active integration into the world economy and thus, the systematic pressure by developed powers. The classic example of such relationships in the history of India is when British colonialists encouraged Indians to grow cotton, but simultaneously forbade them to produce fabric. Today, foreign states are also rather interested in India’s resources than in its business environment; factually, foreign investors are in no hurry to invest into the Indian industry (Basu, 2007).

According to Wallerstein (1995) and world systems theory, all pre-capitalist world-economies sooner or later turn into world-empires through their political union under one government. In an essay entitled Does India exist?, Wallerstein (1995) develops a theory that since the peninsula was colonized half by the British and half by the French, two states should probably have had to form after the decolonization. Indeed, the regional development of modern India is not heterogeneous. The north of the country turned to be out of the influence of Western civilization, and now preserves local customs and culture which are retarding industrial development. At the same time, the modern culture of the south has developed under the influence of Great Britain and has long been one of the most regulated in the world after the communist bloc (Basu, 2007; Ghate, 2012).

In addition, the policy of import substitution and economic isolation pursued by the Indian government in the 1950-1980’s led to the capital outflow, flourishing of corruption and crime, as well as the growth of shadow economy and smuggling (Basu, 2007). The result of this policy was the general technological backwardness of India. The country showed a very low standard of living, and advanced technologies were not available for semi-handicraft production. Thus, India has missed a whole cycle of modernization. In our opinion, it is the modernization theory that most adequately explains the current situation of the stuck economy of India.

Thus, despite the obvious economic and political achievements of India since the reforms-full 1991, the extent and level of country’s modernization is still open. Speaking of the linear model of modernization, it may be noted that India has passed through the three stages out of four, but to move to the last stage, it should address a number of key problems, the resolution of which will directly influence the further vector of country’s transformation. Identifying countermeasures aimed at minimizing the negative trends in the modernization of India, we should, above all, mention such measures as the refusal from the caste system, declericalization and strengthening of secular institutes (universities, schools, research centers, cultural institutions, sports structures), increased urbanization resulting in the reduction of peasant communities, and the creation of the innovative internal market through the liberalization of socio-political and economic system of the country and improvement of education level.

Realized together, these measures can lead to the increase in the post-industrial component of Indian economy. The innovative modernization along with the strengthening of democratic institutions would be the evidence of the level of formation, degree of responsibility, sustainability and professionalism of the political elite and society in modern India.

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