On economic development, there is much we can learn from our past and from Pakistan


Written by Amartya Lahiri
|

Updated: November 21, 2020 8:49:45 am


Migrants labourers return to New Delhi from varied a part of Uttar Pradesh, in New Delhi on August 10, 2020. (Express Photo: Praveen Khanna)

What drives economic development? It is a query that preoccupies policymakers, lecturers, commentators and analysts. The solutions, sadly, are elusive. Examining the experiences of various nations might appear to be a promising strategy. However, generalising from particular experiences can be deceptive since floor situations fluctuate vastly throughout nations.

There are two methods to keep away from the pitfalls of generalising from particular circumstances. The first is to look at the identical nation over time to search for adjustments in outcomes at particular time limits. If one can correlate the adjustments in outcomes with measurable insurance policies or occasions, then one can doubtlessly draw some conclusions. A second strategy is to match nations with shared historical past, tradition and geography. If there are stark variations in outcomes between them, then there could also be some coverage classes to be drawn.

The Indian subcontinent offers classes from each approaches. The 73 years of post-Independence India has generated plenty of proof throughout totally different political-economic regimes. This interval has additionally supplied us with the contrasting experiences of India and Pakistan, two nations that share historical past, geography and socio-cultural mores.

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Analysing India’s actual Gross Domestic Product (GDP) per particular person (in 2011 {dollars}, buying energy parity) since 1950 reveals 5 distinct economic phases. The first section was the interval 1950-65. This was the Nehruvian interval of state-led industrialisation. While there was creeping protectionism throughout this section on account of a steadiness of funds disaster in 1956, the economic system on the entire remained pretty open. Starting in 1950 with a GDP per particular person of US$841, annual per particular person GDP development averaged 2 per cent throughout this era. This translated to combination annual GDP development of round 4 per cent because the inhabitants was rising at near 2 per cent.

The second section of post-Independence India was the Indira Gandhi-led years, 1965-84. This interval was an unmitigated economic catastrophe with unfavorable per capita development. India’s per capita GDP in 1984 was US$1041 which was decrease than its 1965 degree of US$1134: The common Indian in 1984 was 8 per cent poorer than the common Indian in 1965. The section was marked with growing state management of the economic system, nationalisation of {industry}, closing of the economic system to commerce by way of tariff and non-tariff obstacles, and a scientific weakening of establishments.

The third section is 1984-91 when the Rajiv Gandhi authorities ushered within the first spherical of economic reforms by liberalising capital items imports in addition to beginning industrial de-licensing. These reforms have been rewarded by a development take-off. India’s annual per capita GDP development averaged 3.1 per cent whereas combination GDP grew at 5.2 per cent throughout 1984-91.

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The interval 1991-2004 is sometimes categorized because the liberalisation section, throughout which India dismantled much of its industrial licensing infrastructure and accelerated the removing of tariff and non-tariff obstacles to commerce. The reform effort was mirrored within the 4.9 per cent annual per capita GDP development throughout 1991-2004. Viewed together with the reforms that have been launched within the 1984-91 section, this era is maybe higher categorized as a interval of reform consolidation.

India launched into a particular section of sooner development post-2004 on the again of enormous investments in infrastructure. Per particular person GDP development within the interval 2004-2015 averaged 7.7 per cent. The corresponding combination GDP development averaged 9 per cent. The fast development pick-up was financed by way of the public-private partnership mannequin for infrastructure funding. This got here at a value, as quite a few these infrastructure tasks later brought on issues within the banking sector on account of burgeoning NPAs, an issue that continues until at present.

To put India’s economic document in perspective, it is helpful to match with Pakistan. In 1950, Pakistan’s per particular person GDP was US$1268, which was nearly 50 per cent better than India that 12 months. However, within the backdrop of sustained political uncertainty and upheaval, Pakistan stagnated all through the Nineteen Fifties whereas a politically secure India grew. As a end result, by 1960, India had nearly caught up with Pakistan in per capita GDP phrases with the per capita revenue hole having shrunk to fifteen per cent. Unfortunately, from 1964, India went into 20 years of economic stagnation whereas Pakistan, below the army rule of Ayub Khan, opened as much as international capital which funded a interval of fast industrialisation and economic development, albeit at the price of worsening inequality. By 1984, Pakistan’s per capita revenue was greater than double that of India’s.

Pakistan’s slowdown started within the Nineteen Eighties throughout the army regime of Zia-u-Haq. Zia enabled and institutionalised Islamic nationalism in Pakistan. This interval coincided with the reforms in India. As a end result, the revenue hole between the nations started narrowing sharply. Nevertheless, it wasn’t until as just lately as 2010 that India’s per capita GDP lastly overtook Pakistan. Put in another way, beginning in 1985, it took 25 years of sooner development for India to lastly undo the injury inflicted by the inward-looking, anti-industry, anti-trade and anti-foreign capital economic regime that was erected by the Indira Gandhi authorities.

From the precise perspective of India, the developments reveal three key details. First, India did moderately properly throughout the Nehru period. This is at odds with the more and more strident latest criticisms of the Nehru years. Second, the largest injury to the Indian economic system was completed throughout the Indira Gandhi years, which noticed unfavorable development over 20 years. Bizarrely, her administration seems to have escaped the virulent criticisms which have been directed on the Nehru years. Third, the Rajiv Gandhi authorities deserves far more credit score for ushering within the first development turnaround of the economic system. In some senses, the post-1991 reforms have been a consolidation of a course of that started below the Rajiv Gandhi authorities.

The developments additionally recommend 4 basic takeaways. First, openness to commerce and personal enterprise normally has optimistic results on development. Second, rapacious and exploitative democratic methods don’t essentially promote development. Pakistan within the Nineteen Fifties, 1990 and post-2010 is a great instance. Third, the socio-economic atmosphere surrounding spiritual fundamentalism could also be inimical to development. Fourth, degradation of establishments that regulate, arbitrate and implement legal guidelines can be pricey. There could also be classes in these for Indian policymakers.

This article first appeared within the print version on November 20, 2020 below the title ‘Way to grow’. The author is Royal Bank Research Professor, University of British Columbia

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