If we want to understand Indian economy in a macroscopic perspective, we will have to overview it since Independence.
When India got freedom in the year 1947, Britishers left India in a state of complete shattered economy. Poverty was extreme with people dying due to drought, famine, hunger and different diseases. In such situation, the newly formed government had many challenges to address.
The world was divided into two types of economies, one United States of America and other European countries were advocating and following open type of economy. In which they were promoting Capitalism and encouraging cross border trade to have better economic development. On the other hand some countries like USSR (earlier Russia), China was following closed type of economy, in which they were focusing to make their country self-sufficient in all areas. They blocked trade and business co-operation with other countries.
Whereas India adopted policy of mixed economy, keeping maximum sectors under government control and allowing private players in some sectors. Main objective of the government was to focus on infrastructure and uplift people from huger and extreme poverty.
What was impact of Open, Closed and Mixed Economy?
Mainly the United States and European countries those who were pioneer of open & liberalized economy had a taste of development due to industrial revolution. They focused on capitalism to have sustained growth and development.
Besides, USSR and China mainly adopted policy of closed economy. They emphasized on to develop their country in all sectors without having dependence on other countries. This policy has long term impact on their economy, leading breakup of USSR due to acute economical crisis. Whereas China opened economy understanding the need of time
However, India was following mixed economy which gradually led India to have minimum foreign reserve which was only sufficient to feed this country for few days. At the time, Mr. Chandrashekar was the prime minister of India and India had to mortgage her gold reserves to have foreign currencies to meet import obligations of country.
Later on when Mr.P.V. Narsimharao became the Prime Minister and Mr. Manmohan Singh became Finance Minister of India , they took very audacious steps to liberalize Indian economy. Foreign investor were allowed in most of the sectors which was the turning point of Indian economy. India became a lucrative market for investors due to low labour cost and sizebale amount of population which was a huge market.
After this policy, India's development gradually started at a very good pace. Now, all the governments are following almost same economic policies for foreign investment in the country.
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