A New “Hindu” Rate of Growth: History and Perspectives
The political regime matters. It matters insofar as to indoctrinate an outlook for where the nation is headed. The regime is asymmetric. It comprises a dense core of power and cogs that radiate power onto the masses, which also form part of this network. India’s regime has witnessed two major watershed events, namely, Nehruvian governance after Independence (1947) and liberalisation reforms at the end of the 20th Century. Scholars often argue that an intermediate period during the 1980s kickstarted the high growth rates in wake of 1990 where the erstwhile dirigiste policies were removed. The Hindu rate of growth, coined by Indian economist Raj Krishna, refers to the low and stagnant real GDP figures in the decades preceding 1980 (3.6% per year). Criticism and appraisal of this term point out the philosophy of fatalism in Indian society, which means the resignation of activity to fate. However, in line with contemporary criticism, the regime of 1980 led to the Indian debt-crisis of 1990 instead of fueling growth. While I point out the emancipation from praxis gone wrong, our neoliberal decades are not so much a guarantee for prosperity either.
The Lost Decade and Balance Sheet Problems (1970-1990)
After the draconian grip of Indira Gandhi, her son Rajiv Gandhi emerged as the harbinger of an end to the licensing policy in the mainstream industry. His predecessor inherited a socio-economic and geopolitical turmoil. Indira’s time, considered as a lost decade of interventionist nation-building, comprised nationalising banks, removing Privy Purse privileges to royal families of the Princely States, and using the Bangladesh War as a populist manifesto for re-election. The turmoil of a centralised political regime culminated in The Emergency.
Figure 1: GDP per capita (1987-2000)
Rajiv Gandhi succeeded her mother’s office with a “business outlook” (Bhagwati 2012). His policy deregulated industry and entailed heavy fiscal spending. However, his policies favoured established monopolies of the industry as entrepreneurship was still cumbersome. Authors also argue that Rajiv Gandhi’s time was a debt-ridden fiscal spend, with a majority of government spending comprising debt service (Figure 2). The fiscal deficit increased from 7.5 per cent of GDP in 1980-91 to 9.4 per cent in 1990-91. External debt tripled over time from 19 billion USD in 1980 to 62 billion in 1990. Moreover, the real exchange rate depreciated from the mid-1980s. This period also witnesses import protectionism and deficient export needs. In effect, the fiscal expansion needed to fix domestic demand and import needs for intermediate goods was financed by external borrowings. Such policies are nothing short of “Keynesianism run amok”.
Figure 2: Total Debt Service (1975-2001)
Deregulation in 1990 and Beyond
The Indian experience of large-scale economic reforms began in the 1990s with the deregulation of industry, rapid privatisation, removal of licensing, the decline in quantitative measures, the rationalisation of tax rates and the introduction of fiscal responsibility norms. The resultant effects on economic growth were rapid, with industrial output and factor productivity rates registering at 6.7 per cent in 2007 from 5.4 per cent in 1978. High trade to GDP ratios witnessed a highly competitive corporate sector, which arguably has had spillover effects on the predominantly informal sector. The Indian experience has witnessed a higher dependence on service sector growth rather than the manufacturing sector.
Figure 3: Economic Complexity Index, India
While gross GDP figures of the economy have increased with an ever-rising complexity of its core sectors, the issue of growth divergence among states is noticeable. Moreover, there is evidence of consumption inequality. Between 1990-2015, there is an expansion of commodities with comparative advantage leading to a populated core of electronics, tech goods, apparel and textiles.
Figure 4: Top percentile Income Share (1978-2000)
The historical trend of inequality remained fairly stable throughout 1970-80. Two National Sample Survey rounds conducted in 1993-94 and 1999-2000 show that rural household inequality has seen a decline. The observations made by the two rounds are also highly debatable primarily owning to the recall periods used which give different estimates of consumption (the Mixed Recall Period is expected to generate a higher estimate). Deaton and Dreze (2007) point out the effects of the Mixed Recall Period and argue that inequality has risen post-1990s after controlling for recall periods in the two NSS rounds. The Gini Index, showing a secular decline from as far as 1951 till 1992, marked a rise in 2004 at 0.368. The National Council of Applied Economic Research, which collects income estimates rather than consumption, reports higher inequality estimates for the same period with a Gini index of 0.535. There is also a sharp extrapolation of inter-regional inequality, a departure from fairly stable income differentials in 1970-80.
Figure 5: India’s Product Space: 1995 and 2012 (Kochhar, et. al. 2015)
Glaring issues in the post-reforms period are hard not to notice. The first half of the 2000s witnessed a jump in employment. It is argued that the quality of the workforce of this period was of serious concern. There has been a shift of women in agriculture from self-employed in the periods of 1999-2000 and 2000-04 to domestic duties. The Female Labour Force Participation Rate in India was ranked 165th out of 184 countries in 2008. Domestic duty finds no mention in national income. Women exit the labour force and especially with a rise in household income levels. India also performs poorly in elementary Math and English assessments. Curriculum-based learning, absenteeism, excessive safety nets for public schools and improper incentives of the Right to Education Act are major problems.
The piecemeal reforms of Rajiv Gandhi are not a symptom of an “attitudinal shift” in favour of private enterprise, it is a precursor to a depleted debt-ridden economy. While the decades from 1980 to 2000 reversed the Hindu rate of growth, the 1990 regime is most noticeable in its fiscal responsibility. Although urban inequality alleviation has seen a positive spill-over in the rural sectors, the rise in inequality from a multidimensional perspective post-1990s is alarming. Needless to say, the consistent stagnation of the rate of growth since 2014 points to a new symptom of an ill-fated regime. The regime is marked with the turmoil of a health crisis, masochistic nationalism, and a new cult personality even on our vaccination certificates.
By Kunal Panda
Kunal Panda is a graduate majoring in Hindu College, University of Delhi. A Pushcart Prize nominee, he strives to pursue intersectionality in his research.
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