The simple reason is that socialism didn’t work when tried in India. Until 1991, India was governed by socialist policies under these policies:
#1: Banks were nationalized with the intention that more people would have bank accounts, restrict monopolies, reduction in inequality.
Result: poor banking facilities, lower efficiencies, and lower profits, and also too much political interference led to an increase in Non-profit assets.
#2: The freight equalization Policy was adopted to facilitate equal growth of the industry. This means that cost of essential metals like Iron, Steel, or Aluminium which was available in mineral-rich states like Madhya Pradesh, Bihar, Odisha, and Bengal will be the same throughout the country. Factories can be set up anywhere in the country and the transportation cost will be subsidized by the government.
Result: But this led to industrialists setting up industries in coastal areas as the cost of minerals were the same throughout the country which proved to be a disaster for mineral-rich states as they lost their competitive advantage. The policy weakened the incentives for private capital to establish production facilities in these states.
#3: Implementation of License Raj where a series of licenses and regulations were set up in such a way that setting up a business in India was a tedious process. It was basically aimed at replacing foreign products with Indian ones with the intention to support local production by reducing competition from foreign companies.
Result: Markets were flooded with incompetent goods and since the import goods were ruled out. The consumer had to make up for the substandard and mediocre products. Even though there were people who aspired to build better products but they couldn’t because everything was regulated. Big businesses like Tata’s, and Birla’s had to deal with incompetent and corrupt bureaucrats to acquire licenses and set up the business. It was worst for smaller businesses due to businesses couldn’t flourish during that era.
#4: Socialism resulted in a breeding ground for red-tapism, Corruption. The State and the Central Planning Authority held too much of the power which they often abuse for their personal gains.
#5: Socialism didn’t promote Entrepreneurship ideas due to every citizen was guaranteed a secure job which later resulted in not promoting hard work and creativity in its citizen.
Since then India had to adopt a free market economy in 1991 to avoid bankruptcy in the economy[1]. Since then, India had a growth rate averaging around 6 to 7% from 1991 until today. Also:
- GDP increased from $280 Billion in 1991 to $3.1 Trillion in 2021
- The contribution of the service sector to the economy increased from 39% to 53.5% of the economy.
- It promoted entrepreneurship ideas which led to the creation of new jobs by means of establishing startup companies. Now India has almost 39,500 startups and the number of people employed is 4.7 lakh.[2]
- It helped in pulling people out of poverty. In 2005, almost 640 million were in poverty but by 2015–16 number of people in poverty reduced to 370 million.[3]
- Lastly, Capitalism is dynamic, competitive and productivity-oriented.
Footnotes:
[1] https://www.jstor.org/stable/45193436?read-now=1&refreqid=excelsior%3A72f668c560cb2ea5896559b2e2a3912d&seq=1
[2] https://economictimes.indiatimes.com/tech/startups/what-economic-survey-2020-21-says-about-indias-startup-ecosystem/articleshow/80586774.cms?from=mdr
[3] https://www.forbes.com/sites/niallmccarthy/2019/07/12/report-india-lifted-271-million-people-out-of-poverty-in-a-decade-infographic/?sh=1a9ce1db2284
