Indian Growth in a Brief Complex

By Rishi Varghese

Following a prolonged period of slow and non-liberalistic growth with low levels industrialization and lagging productive capital, the last two decades have proven to be prosperous for the developing economy since India has virtually doubled in economy size between 1980 and 2001. In terms of GDP on a purchasing power parity (PPP) basis, it had ranked fourth on a table of major economic powers. However, since population in India had risen some 63%, the immense growth in the country has been somewhat undermined. In this paper, I intend to analyze the causes of growth and potential sources of how this growth has been undermined.

How can we objectify this growth?

Growth Theory implicates that initial conditions of an economy can act as a promoter or a mere hindrance for growth. As predictable, poor countries can grow faster that rich countries as they have available to them a wider shelf of potential technological opportunities available to them. Similarly, studies have suggested that countries with abundant resources tend to perform less effectively than those well-industrialized economies. Nevertheless, India’s experience did not bear this convergence; countries richer and poorer (China) grew faster, most critically and surprisingly in the manufacturing sector.

Two other key differences between India and the other economies are as follows

1. India’s human capital development, which can be measured by literacy rates and productivity rates, were far poorer, with 67% of the population classes as illiterate in 1961, as opposed to 47% in China and 13% in Korea. Furthermore, the other countries had accelerated in reaching full literacy rate whereas India was considered stuck in Nehru’s government(74.4% in 2018).
2. There has been a significant debate around liberalisation, in India, as an inclusive economic growth strategy. Income inequality has deepened since 1992, economic growth was at it’s lowest in 2012-13 and consumption has remained low in the poorer classes. Economic reform have failed to tackle developmenal issues within the economy thereby restricting it from future sustainable growth. This may provide further insight into why other economies, namely S.Korea and Indonesia have begaan to approach the industrial ouput and capacity that India prides. Paul Romer, Nobel Prize winner of 2019, says ‘the source of growth in a few Asian countries was their ability to extract relevant (…) knowledge from industrial economies and utilize it productively within the domestic economy.’

I feel it is important to point out some key obstacles that India continues to face in labour market growth. One renowned criticism of the Indian economy is evidently the politicization of the free-market. In effect, no one major corporation is independent from political influence, and can/will be held to account for any margin-extending policies they may decide upon, by ministers. The has led to the spill-over effect the general economy where there is a lack of restructuring that is necessary for the business system to be compatible with the complex network of globalization.

Second to that, there exists a growing concern over Indian demographics and the consequence of an unofficial constraint on growth. Despite India’s dependency ratio fallng by 8 percentage points each decade since 1990 (faster than the 6 percentage points it dropped between 1978 and 1990), however by 2030, India could see an increase its workforce by upto 200 million. This therefore contitutes for the overwhelming dependence on foreign loans to contain the possibilty of an economic disaster. A clarifaction is needed on the debate about whether India is able to enforce the required guidelines that ensure disasters are prevented.

Speaking of politics, it is also considered that India, to date, it yet to have a Prime Minister who has developed fully effective policies to ensure a positive deviation toward a prosperous economy. Unlike in China where, the integral reformist, Deng Xiao Ping developed ongoing plans (1978 to 1989)that helped propel China to what can be considered a hegemon, India has never catered for such reform. 

Nehru(1947), the first PM, is known for manipulating and incentivizing the agriculture market as a mechanism to promote international cooperation. When Indira Gandhi took over as prime minister in 1966, after a delayed time period she vigorously followed the economic paradigm of her father and, in the addition, adopted a new program of ‘green revolution’. This changed when the Vajpayee government of 1998 demonstrated to resolve and carry forward reform, in terms of accelerating growth, rationalizing regulatory framework, and further liberalizing trade and financial network. We can infer that, due to the conflicting objectives of past Prime Ministers, India has been left with nothing more than a tangled web of ideologies, each individually meant to be follwed.

Conclusion

It is factually evident that India has demonstrated the ability to grow faster and economic reforms have been given a chance to showcase its competitiveness. Nevertheless, growth has been impeded by factors we have now analysed; therefore we can only hope that the right objectives are met so that best is still yet to come.