Incredible but true. Way back in 1700, India was actually the world's second-largest economy, accounting for 22.6 per cent of world income, second only to China. Three hundred years on, it's among the handful at the bottom, and just chips in with just around 5 per cent of world income. Who's to blame? Why, the Brits, of course, goes the chorus.

Sure. Two centuries of colonial rule have taken their toll on the economy. But the Brits left in 1947. So who or what stopped us from doubling or trebling our share of the world economy from the measly 3 per cent it was then? China has doubled its share from what it was in 1952. So has Japan.

As a nation we love pointing fingers at others-the British, the Americans, the CIA, the world economy, Pakistan-for all our woes. Unfortunately, the economy is one area where we have only ourselves to blame.

What was the challenge facing India in 1947? Says Pronab Sen, Advisor, Planning Commission, ''It was to chart a course of development from a poor, agricultural economy to a powerful and self-reliant industrial power.'' The colonial economic system couldn't deliver the goods. With Jawaharlal Nehru's fascination with the Soviet Union, the journey on the path of planned development was inevitable. ''The early planning framework has gone down in the history of economic thought as an outstanding example of vision coupled with technical excellence,'' says Sen. But instead of a garden of prosperity, the path led to a quagmire of poverty and mediocrity. Was the concept itself wrong? Or was there something wrong with the execution of the idea? It was a bit of both.

Nehru created a whole intellectual climate that viewed wealth-creation with suspicion and worshipped equity over efficiency. How pervasive that attitude was can be gauged from the Hindi films of yore-the glamourisation of poverty, the bucolic utopias, the evil seths in sinful cities with their mills built with the blood of the working class.

The public sector was positioned as being the saviour of the country, from the commanding heights of the economy that it was supposed to occupy. The market was seen as a maverick player, which had to be constantly disciplined. So industry was told what to produce, how much to produce, where to produce, the cost of inputs, the cost of output, and the number of people it could employ. There were controls on the movement of agricultural goods, in the name of the small farmer and the consumer.

Sure, growth happened. But it was a stunted and lopsided growth. The controls stifled innovativeness and bred corruption. The policies of import substitution meant we couldn't take advantage of the latest technological developments. Obsolete technology meant increased energy consumption and higher costs. Says D.K. Srivastava, Professor at the National Institute of Public Finance and Policy: ''Our economic policies only led to the underexploitation of India's full potential.''

Things have begun to change in the decade of reforms. Industrialists don't need the government's permission to breathe, Hindi films celebrate wealth and glamour, and socialism is seen as a reactionary philosophy. But the distortions in the economy run so deep that it may take India quite a while to regain its lost place on the world economic stage.

Business before and after economic reforms in India

Before: The relationship between the government and business has seen many ups and downs since 1947. For the first 20 years, both worked in unison. If Jawaharlal Nehru went in for a planned model of development and placed a lot of reliance on the public sector, then industry was more than willing to cooperate to achieve this vision.

Many industrialists of the era like J.R.D Tata, Walchand Hirachand, Jamnalal Bajaj and Ghanshyam Das Birla shared Nehru's vision. Tata, for example, sent his team to train staff of the public sector companies. And hotelier M.S. Oberoi arranged for the training of chefs at Ashok Hotel.

Things changed drastically after 1967 when Mrs Gandhi took a decidedly leftist line.Under the licence-permit-quota raj, entrepreneurs couldn't base their business plans on market conditions. New Delhi would decide what was to be produced, where, in what quantity and at what price. Bajaj Auto's Rahul Bajaj once said that he was willing to go to jail like his forefathers, not for the country's freedom, but the freedom to produce more than the stipulated amount to meet the demand.

Even projects took a long time, before they got a clearance from the government. The Mangalore Refinery (MRPL) project, though a joint venture between the the Aditya Vikram Birla group and the government, took 11 long years to be cleared.

The period between 1969-71 saw a slew of policies designed to kill industry-the Monopolies and Restrictive Trade Practices Act, the Foreign Exchange Regulation Act. Many of these policies were used to ensure that existing businesses did not grow.

What they did was to encourage crony capitalism as industrialists learnt to work the system.

-Swati Prasad

After: The reforms have not only freed industry from the licence-quota-permit raj but have created large, new companies in fresh sectors such as pharmaceuticals, telecommunications, and information technology. Foreign investment has flowed in and the consumer has had far more choice. Reforms have also spelt death for inefficient companies. There is nothing like a supplier's market anymore, feels Pankaj Munjal of Majestic Auto (Hero group). ''Customers have been the one ray of hope,'' adds SRF's CEO Ravi Sinha. ''If you can compete, you have them on your side.'' But consumers have become far more demanding.

Munjal feels that the industry and the government today work like a team, unlike before. ''We can see the change everywhere, be it in Delhi, Lucknow or Chennai. '' Most industrialists also claim their attittudes have changed. From lobbying, they'd have us believe, their focus has shifted to issues related to competitiveness.

That is only partly true, most companies that blossomed under the constraints of the l-q-p raj seem to miss the protectionism of those days. Clearly, the people who manage these companies are finding out the hard way that free market policies cut both ways, leaving no scope for the slow.

-Swati Prasad

Who Killed Indian Manufacturing?

Economies move from being agriculture-led to industry-led to being services-led. But India has transited straight from agriculture to services.

Till the late 1960s, the government's focus was on the public sector at one end of the manufacturing scale and on the small-scale sector at the other, pampering both with subsidies. The private sector was ignored.

The period between 1969 and 1972 saw the emergence of several industry-killing legislations. The Industrial Licensing Act, 1969, the MRTP Act, 1970, the string of nationalisations-all belong to this period. It was only after Rajiv Gandhi tentatively ushered in the first set of reforms in 1985 that industry picked up again. But by then, it was too late.

-Seetha

THE INDIAN ECONOMY: 1950-2001