Initially, after independence in 1947, India promoted self-sufficiency by focusing on rapid industrialization and shrugging off its dependence on foreign exchange. To achieve this, the country enacted import-substitution measures which also restricted trade. Furthermore, there was an emphasis on having a large public sector involved in producing capital goods while controlling the private sector; however, small enterprises were still encouraged to produce manufactured goods. 1
By the 1980s, and accelerating in the 1990s, India began to relax its restrictions on the private sector due to a shift in the political and economic climate. 1980s policies included liberalizing imports (especially capital goods), increased access to foreign credit, and the easing of licensing requirements in some industries. In the 1990s, India liberalized its international trade and finance structures even further while leaving the labour market as is.1
To summarize sector trends since the 1980s, India’s manufacturing remained unchanged or declined, the service sector soared via the boom of the IT industry, and agriculture appeared to have declined. Of course, these sectors and general economic progress varied by state, and it is suggested that the policies enacted at the state level mattered in the 1990s, creating a divergence of development. Greater human capital and entrepreneurship would contribute to a state’s higher economic growth. However, a shift towards services by nearly all states is witnessed. 1
Moving forward, the decentralization of states in their economic progress created a divergence where faster-growing states are looking more like developed countries while slower states are falling behind via high births and low education. These latter states are expected to follow a traditional growth path via manufacturing, but they require further reforms and restructuring to do so. Indeed, India’s economic growth is evident, but inequalities remain.1