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Last week, I read Amitabh Kant's book Made in India, which examines the growth of private-sector entrepreneurship in India. Let me share the key insights from the book:
One is that many of today's conglomerates – Tata, Birla, Godrej, Bajaj, Cipla, etc. – were formed during the British Raj after the Limited Liability Act of 1857. But trade remained unfair, with export tariffs on finished goods from India to the UK but zero tariffs on raw materials, ensuring that India remained undeveloped.
However, the situation didn't necessarily improve after independence in 1947. The new government adopted Soviet-style governance methods, including requiring licenses for all types of business activities and laying off workers, nationalization of key enterprises, capital controls, high import tariffs, high taxes, an overvalued currency, and halting of foreign direct investment. The result was that much of the economy turned towards the informal sector.
It was only after the Soviet Union fell in 1991 that the Indian government felt compelled to introduce reforms, with fewer import restrictions, lower import tariffs, lower taxes, and a resumption of bank lending to the private sector. India's IT, pharma, auto, chemicals, and private banks sectors flourished.
The next step in India's liberalization came with Narendra Modi in 2014. His government has now introduced a new harmonized GST, making cross-state trade more straightforward. He's privatized businesses. He's introduced biometric identity cards, reducing corruption and making it easier to open bank accounts, bringing hundreds of millions into the formal economy. And the higher tax revenues have been used to build roads and airports.
India's manufacturing/GDP ratio remains flat at 15%, perhaps due to still-high import tariffs, land acquisition issues, and infrastructure bottlenecks. But the country is definitely on the right trajectory, as long as Modi continues to push forward with his reforms.
I thought it was a good book. If you're interested, you can find it on Amazon here.
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