How India became a growth generator | The Daily Star
12:00 AM, November 26, 2017 / LAST MODIFIED: 01:21 PM, November 26, 2017

How India became a growth generator

Lessons for other nations

Addressing Rabindranath Tagore, the American philosopher Will Durant once pronounced, “You alone are sufficient reason why India should be free.” Durant underscored the necessity for India's independence for its cultural and intellectual development which also leads to economic advancement.

Durant was right. Education and institutional progress has been the centrepiece of policymaking that has built India up to what it is today. Hardly did Mahatma Gandhi think of such a scientific Bharat, nor did Nehru dream of a globalised India. But its founding fathers tried to usher in universal literacy to get rid of poverty and launch an uninterrupted journey towards democracy.

India is a shining example of how institutions can act as the vanguards of development. India thrived under Gandhi's philosophy of nonviolence and the spirit of liberty of Netaji Bose. While fighting the British, the great pioneers defined secularism as the integral mantra for the nation because of India's great diversity in ethnicity, race, religion, language and culture. And the subsequent leaders kept this candle alight for the greater interest of India's existence. This political principle paved the way for the continuation of British institutions on Indian soil, leading them to flourish under the visionary premiership of Jawaharlal Nehru and Indira Gandhi.

Their adherence to socialist planning was not based on their personal commitment to communism, but the inclusive development of Indian society. Debates continue as to how successfully that goal has been achieved.

Indira Gandhi had many dreams but even more reasons for despair. Her diplomacy and foresight in supporting Bangladesh's independence gave her extra mileage in being recognised as a world class leader; but economic failures in the 1970s slowed India's pace. She was a different person after her defeat in the late 1970s and emerged as a new leader who supported the gradual opening up of India's economy to the world. Her policies continued in that direction until she was assassinated. Indira's son, Rajiv Gandhi, took the helm in the mid-1980s and embarked on a new era of liberalisation which is why India is an emerging giant in the world today. All the subsequent governments of Rao, Vajpayee, Singh and Modi have just pressed the gas pedal to accelerate the economy through a coherent set of public policies on openness, globalisation, and finally, a technological revolution.

While democracy is India's greatest possession, income inequality is its worst liability. The first 40 years set the nation on a number of blunders: excessive control of the state, license raj, central socialist planning, massive nationalisation, saint-like self-reliance and a virtually closed-door policy. The country needed the entire 1950s to settle on which ideas and policies to pursue. During that time, India witnessed the shocks of license raj—a system that requires licenses for export, import, or any other business enterprise. The initial attempts to make India an industrial nation at least laid the foundation for creating a number of big entrepreneurs, and economic growth in the 1960s was close to four percent—not bad for a country with a fledgling democracy.

India's contemporary story, however, has been all about GDP growth. The main reason for its robustness has been the rise in its per capita income, the growth of the middle class and its increased levels of consumption which again propelled the wheels of investment further forward. Long after China, India realised that its population growth is detrimental to all its achievements. It had been particularly true in the 1970s when India's average population growth of 2.3 percent almost entirely eroded its average output growth of 2.9 percent, leaving only 0.6 percent for per capita income growth. As we know, per capita income growth is approximately equal to GDP growth minus population growth.

China, whose population growth was higher than India's until the early 1970s, brought the number down to one percent by the mid-1990s when the corresponding figure for India was just double. As a result, China's double-digit GDP growth was almost entirely translated into no less than double-digit per capita income growth. Per capita income eventually matters for consumption, investment, education, health and the elevation of living standards. Bringing success in birth control to a country with a population of one-billion-plus—the second highest after China—is a formidable task. But the central government's incredible commitment made it happen. Population growth in India has come down to 1.2 percent in recent years when its GDP growth of seven-plus percent has contributed to the six percent growth of India's per capita income—which was unimaginable until the 1990s.

The 1980s gave India its turning point when its per capita income growth exceeded three percent, rising from less than one percent in the 1970s. The country consistently increased its average per capita income growth by one percent in every decade since then; now reaching more than six percent.

Starting from USD 0.16 trillion in 1966, India's GDP now has almost reached USD 2.5 trillion, making its per capita income around USD 2,000 in 2016. It took the Indian economy almost two decades to double its GDP from the mid-1960s to the mid-1980s. But since the mid-1980s when India embarked on liberalising its economy, the country took only one decade to double its GDP till now, showing that its last three decades have been inherently different from previous times.

As a share of GDP, India spends double that of Bangladesh on its infrastructure. The same is true for education. The country continues to build Patal Rail in all its major cities one after the other to make growth centres dynamic and functional. Privatisation and outsourcing—once unpopular in India—are now the main strategies for drawing in foreign investment and expertise. India, being one of the oldest civilisations on earth, has now turned into a growth generator for the world, leaving many lessons for those nations which dream of growing fast to learn from.

Biru Paksha Paul is associate professor of economics at the State University of New York at Cortland. He is the author of the book Essays on Indian Business Cycles and Inflation: An Inquiry into the Indian Economy.


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