Indian Economy- A Timeline of Rise, Fall, and Rebound

– Anisha James

26th August 2026

For over four decades after independence, India ran a tightly controlled, inward-looking economy. The government controlled everything: companies needed special permission if they wanted to expand or diversify their line of business. This system was called license raj. Imported goods had high taxes on them and the government itself ran most of the industries. Because of the stringent control, the economy was growing- about 3-4% per year which was barely enough at that point in time for a country with growing population. Due to India being a closed economy the trade which happened was very less.

This resulted in the Indian economy collapsing. A balance of payments crisis left India with barely enough foreign reserves to cover a few weeks of imports, forcing the government to take assistance from the world bank and IMF just to stay solvent. This crisis became a catalyst for sweeping reforms under the finance minister Manmohan Singh companies no longer required permissions for everything, rupees were devalued, import taxes and tariffs were cut, the economy opened to foreign investment. This liberalization unleashed two decades of much faster growth.

Over the next two decades, India weathered a few global shocks, but none tested the newly open economy like the 2008 financial crisis, thanks to the limited exposure to western demand and strong consumer demand, though growth did slow down before recovering, but it bounced back.

But growth wasn't the only thing shaping the economy, India was also making some bold moves of its own. In 2016 the government banned the two high value currency notes of denomination of 500 and 1000, by way of introducing demonetisation. The main aim for this was to eliminate black money, corruption, counterfeit currency and terror funding. Moreover, this move was made by the government of India to encourage greater digitisation of the economy, increase flow of financial savings and greater formalisation of the economy. Then in 2017, India rolled out the “Goods and Services tax”, which replaced a messy mix of state and central taxes with one nationwide tax system, which in turn made it difficult for the businesses to adapt to.

Just as the economy was settling into this new tax regime, a bigger shock was already on its way- COVID 19. When the lockdown was imposed back in 2020, the economy shrank by almost 6% that year which is one of the worst drops among major economies. Millions of workers lost their jobs suddenly and the small businesses were hit hardest of all. Yet the recovery was quick. A wave of pent-up spending, once people were free to move again, and heavy government spending on infrastructure helped the economy bounce back fast.