---
type: faq
question: >-
  India tried to make everything itself for 40 years, then opened up in 1991.
  What did that journey teach us?
topic: trade
topic_title: Trade
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---
# India tried to make everything itself for 40 years, then opened up in 1991. What did that journey teach us?

For forty years after independence, the most valuable thing an Indian company could own was a piece of paper. A government licence fixed what a firm was allowed to make and how much of it. Growing meant collecting more licences across more industries, and a single refusal could finish a firm off. Firms competed for permissions instead of for customers.

The intent behind the system was defensible. India was poor and newly independent, and the government meant to build Indian industry rather than buy from the countries that had just stopped ruling it. It banned or taxed above 100% any import that competed with a licensed product, and it reserved whole industries by rule for tiny workshops.

Because licences capped output below what Indians wanted to buy, shortages were built into the design. The government answered them with price controls, and then with permits to buy the scarce goods at all. Families waited years for a scooter or a telephone. Industry, shielded from every rival and pushed to make more of each product at home, turned out goods too costly and too shoddy to sell abroad. India's share of world trade fell from 2.2% in 1950 to under half a per cent by 1985. Growth crawled at about 3.5% a year, against twice that among trade-friendly Asian neighbours, and the factory jobs meant to absorb a farming country never arrived: as late as 1987, two in three Indians still worked the land. Self-reliance made India poor.

Crisis forced the turn. By 1991, years of overspending and a Gulf War oil shock had left India with about three weeks of foreign currency, little enough that the government shipped its gold abroad and pledged it against a loan. Cornered, it scrapped the licences, cut tariffs, opened the door to foreign investment, and devalued the rupee.

Most Indians alive today have lived in the country that followed. Growth climbed from 3.5% towards 8% in the 2000s, and more than 200 million people rose out of poverty in three decades. The queues went. Indian firms began buying their foreign rivals: the Tatas took over Jaguar Land Rover, and an Indian steelmaker bought Arcelor to build what was then the largest steel company in the world.

The job is only half done, though. Liberalisation left the biggest and best-connected firms comfortable, and a new company still struggles for the ordinary conditions of competition: a contract enforced in reasonable time, rules that hold still, credit without connections in Delhi.

India tried to make everything itself and stayed poor. It opened to the world and grew richer and freer. Openness delivered what self-reliance had only promised, and the call to be atmanirbhar, self-reliant, all over again asks India to run the first experiment and expect the second result.