Way to Grow

Context:  On economic growth, there is much we can learn from our past and from our neighbour.

Key facts from the economic history of India:

• India did reasonable well during Nehruvian Era: characterized by state-led industrialization and creeping protectionism on account of the balance of payment crisis in 1956.
  • In 1950 with a Gross Domestic Product (GDP) per person was US$841, with an annual per-person GDP growth average of 2 %.
• Damage during the Indira Gandhi Era: marked by closing of the economy to trade through tariff and non-tariff barriers and a systemic weakening of institutions.
  • The average Indian in 1984 was 8% poorer than the average Indian in 1965.
• Period of reform consolidation:
  • Turnaround during Rajiv Gandhi Era: marked by liberalizing capital goods imports as well as starting industrial de-licensing.(India’s annual per capita GDP growth averaged 3.1%).
  • Post-1991 liberalization: The reform effort was reflected in the 4.9% annual per capita GDP growth during 1991- 2004. Per capita GDP average 7.7% between 2004 -2015.
    • Cost of liberalization: As a number of infrastructure projects later caused problems in the banking sector, leading to a rise in Non-Performing Assets (NPAs).

Comparison with Pakistan:

• In 1950: Pakistan’s per-person GDP was US$1268, almost 50% higher than India’s.
• By 1984: Pakistan’s per capita income was more than double that of India’s.
• Slowdown of Pakistan and Rise of India: After 1984, military regime and Islamic fundamentalism in Pakistan thwarted development while economic liberalization in India supported the growth.

Key takeaways for the policymakers: to sustain economic growth.

• Factors having a positive effect: Openness to trade and private enterprise.
• Factors having negative effects:
  • Rapacious and exploitative democratic systems do not necessarily promote growth forg. Pakistan in the 1950s, 1990 and post-2010.
  • The socio-economic environment surrounding religious fundamentalism may be inimical to growth.
  • Degradation of institutions that regulate, arbitrate and enforce laws can be costly.