Sunday, March 21, 2004


Times of India, Mar 20, 2004

‘India Shining’ is a nice expression, but it’s a pity that it’s got mixed up with politics. It is synonymous with India ’s economic success, and not surprisingly both the BJP and the Congress want to take the credit. The BJP claims its policies are responsible for this year’s fine performance; the Congress argues the economy grew faster under Narasimha Rao.

Both are right (and wrong). The truth is that India ’s economy has been shining for two decades, growing around 6 per cent a year, making it the fifth fastest in the world. After stagnating for centuries, our economy finally picked up after Independence . It grew 3.5 per cent a year between 1950 and 1980; but our population also grew 2.2 per cent; hence, the net affect on per capita income was 1.3 per cent (3.5 minus 2.2) — this is what we mournfully called the ‘Hindu rate of growth’. Things began to change with modest liberalisation in the eighties when annual GDP growth rose to 5.8 per cent while population growth remained at 2.1 per cent; thus, income per capita moved up to a more respectable 3.7 per cent.

This happy trend continued in the reforms decade of the nineties when growth averaged 6.2 per cent a year; moreover, population slowed to 1.9 per cent average; thus, per capita income rose by a decent 4.3 per cent a year.

If our per capita GDP had continued growing at the pre-1980 level, Indian incomes would have reached American capita income levels only by 2250. But now, if our economy continues to grow at the current 6 per cent rate, we will reach it by 2066. This is what ‘India Shining’ really means and it’s worth dying for: It is possible to believe that we shall soon be able to conquer India ’s age-old worry over want and hunger.

It is easier to explain why India was shining in the nineties. The brave reforms of Rao’s government opened our economy, dismantled controls, lowered tariffs and taxes and broke public sector monopolies. And the economy responded magnificently. But how does one explain the 1980s? And here I think we don’t give enough credit to Rajiv Gandhi.

He too opened the economy, albeit reticently and modestly — lowering marginal taxes and tariffs, removing the most irritating import restrictions, and liberalised industrial licensing through ‘broadbanding’. These modest efforts seem to have had a bigger impact than even the sweeping reforms of the 1990s. Bradford Delong, an American economist, wrestles with this puzzle in In Search of Prosperity: Analytic Narratives on Economic Growth, edited by Dani Rodrik of Harvard.

But the real miracle is that all the governments after Rao surprisingly continued the reforms, albeit very slowly. Yet, this elephant-like pace has made India one of the fastest growing major economies in the world. So, the lesson is that if you consistently reform in one direction in a democracy, it adds up. Since we haven’t had strong reformers at the top, like Thatcher or Deng, is it possible that the reform process has become institutionalised?

This ‘adding up’ over time has enhanced our national confidence, which makes ordinary people do extraordinary things, and which, to my mind, is central to the notion of ‘India Shining’. Thus, it is the Indian people who are shining as they have overcome all the obstacles put in their way — by all the vested interests of the Licence Raj. But for all Indians to shine, we must begin to seriously reform agriculture and education.

1 comment:

Medical Blog said...

It is easier to explain why India was shining in the nineties.