India, after gaining independence from British Rule in 1947, enlisted itself as a socialist country with limited trade and government control on production of all items. This era till 1991, was also termed as the ‘Licence Raj’ with licences required to establish any and every form of business. With the balance of payment crisis worsening, the government of that time was forced to open up the Indian economy in order to obtain stimulus from the International Monetary Fund. These reforms led to large scale reduction of legal formalities and privatisation was encouraged. Only 8 core sectors remained in which privatisation was not allowed and the state had exclusive monopoly on these sectors. [1]

However, it can be pointed out that socialism was necessary when India gained independence. The economy was in ruins and exposure to Privatisation could have ruined the domestic manufactures and left India at the mercy of foreign manufacturers. The ‘Five Year Plans’ helped the nation a lot in income generation and the development of infrastructure during the early post-independence period is a major achievement of the policymakers and the Planning Commission. A case in point is the growth in National Income after the completion of the First Five Year Plan. The national income grew from 9,110 crores to 10,800 crores in the span of the first Five Year Plan.[2]

The Indian constitution can be termed as being mostly socialistic in nature. The 42nd Amendment of the Indian Constitution in 1976 was a clear step towards the socialistic policies of that time. The proposal of this amendment stated that  ”it is, therefore, proposed to amend the Constitution to spell out expressly the high ideals of socialism, secularism and the integrity of the nation, to make the directive principles more comprehensive and give them precedence over those fundamental rights which have been allowed to be relied upon to frustrate socio-economic powers for implementing the directive principles.”[3] Indira Gandhi, the Prime minister of the country from 1966 to 1977 and again from 1980 to 1984  was an avowed socialist with the nationalization of mostly all sectors of the economy taking place during her term. India’s friendly relations with the Soviet Union during her term were also a major reason for India’s socialist policies and the friendly relations helped the nation in the 1971 war as well.

The supreme court in Samatha v. State of Andhra Pradesh[4], mentioned the term socialist and defined it as-” The word “socialist” used in the Preamble must be read from the goals Articles 14, 15, 16, 17, 21, 23, 38, 39, 46 and all other cognate Articles seek to establish, i.e., to reduce inequalities in income and status and to provide equality of opportunity and facilities -.” The court also stated that “the basic framework of socialism is to provide a decent standard of life to the working people especially to provide security from cradle to grave.” The court rejected the soviet notions of socialism and wanted the term to be seen as an aim of the government to uplift poverty and help the poorest of the poor. However, an analysis of the economic policies of the governments in the past 25 years is also essential to understand why the government has slowly moved towards privatisation.

The rush towards privatization was never a sudden one. After the departure of PV Narasimha Rao as PM, the government of Atal Bihari Vajpayee took over. The Pokhran nuclear test undertaken during his era is not an economic event, but it can be described as a watershed moment in India’s history as it marked an era in which India took major steps in the right direction. Deft macroeconomic policies led to a lowering in inflation rates and with fiscal prudence, India made progress in all fields of infrastructure.[5] However, there were issues with the privatization of Air India, an airline which the government has been trying to get rid of for almost 20 years now. The decision was ill-advised at that time as it delayed improving the aging fleet of planes that Air India had at that time. If the decision to privatize wasn’t taken at that time, the government would have attempted to reinvent the company and it could have still been a successful venture. Also, while India was progressing economically, the 2004 elections also proved that the public wasn’t exactly happy with rapid privatization and wanted a regime that helped reduce the income of the lowest section of the society as despite rapid economic growth, poverty was still rising.

The last 15 years have also been very fascinating from an economic point of view. With Dr. Manmohan Singh, the finance minister during the 1991 reforms taking over as Prime Minister, India saw very high growth rates in agriculture and the service sector. The rate of growth of these sectors was higher in the first term than the NDA government while the volatility was lower. While the second term was filled with corruption allegations, the economic progress was still high. This government’s policies, like the previous government can be described as attempting to balance the need of government control while encouraging investment as well. The current government led by Mr. Narendra Modi, like his rule in Gujarat, has often been seen as business-friendly. India’s improvement in Ease to Business rank has been seen as a major achievement of this current dispensation. While COVID-19 has thrown on a never- seen before challenge, the government has encouraged self-reliance and wants to reduce dependency on the global hub of manufacturing viz.  China. This government has also faced its share of criticism, with the fall in GDP growth in 2019 and the government’s demonetization in 2016 was widely criticized as not being able to achieve its objectives and being a wasted exercise, which led to massive public inconvenience. This government has also encouraged privatization like the first NDA term in the 90’s and has attempted to show itself as business-friendly.

In conclusion, the dichotomy of a socialist constitution and capitalistic executive is very perceptible due to privatisation being at the forefront of the economic policies of all governments in the 21st century. However, the present and future governments should not ignore the good features of socialism described by the courts in judgements like Samatha v. State of Andhra Pradesh[6] as ultimately, reducing income inequality must be top priority for the executive.   

[1] Centre for Civil Society, 1991: Economic Reforms,

Accessed on 16th January,2021

[2] Five Year Plans : With Objectives and Achievements,

Accessed on 16th January,2021

[3] 42nd Amendment of the Indian Constitution, Statement of Objects and Reasons, Paragraph 3

4 AIR 1997 SC 3297, JT 1997 (6) SC 449, 1997 (4) SCALE 746

[5] Kumar Mangalam Birla, ’Atal Bihari Vajpayee’s policies helped script high growth in 2003-08’,The Economic Times,

Accessed on 16th January,2021

[6] Supra , Footnote 4

Written by:

Sridhar Srinivasan

Sridhar is a First year law student at Symbiosis Law School, Noida

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