Economic Growth in India Lumbering Elephant or Running Tiger -- Deepak Nayyar

ECONOMIC GROWTH IN INDIA

Lumbering Elephant or Running Tiger -- Deepak Nayyar

Is the India growth story over? The debate rages as pundits predict India’s growth rate between 5 and 6 percent in 2012-2013. From ‘Time’ magazine to news networks across the world, India’s crimping growth in recent years has become a favourite subject of discussion and debate. Headlines scream – Does India still have a growth story to tell, Who killed the India growth story, What can be done to revive the India growth story, -- all reflecting Indian economy’s significance in the global scheme.

While opinions range from downright pessimism to rosy optimism, Deepak Nayyar attempts to weave in a balance. The former Delhi University Vice Chancellor displays a sense of history, not falling prey to the cardinal mistake of looking at past from the prism of today. And by doing so, he puts things in perspective – neither being overwhelmed by India’s impressive growth over the post-liberalisation years nor slamming the slow growth in the first decades post Independence. One could say though that the economist with socialist leanings is more kindly disposed towards what critics have dubbed as the ‘Hindu rate of growth’ of the 50s through to the 70s. And less complimentary about the big growth push ushered in by the economic reforms introduced since 1991.

PHASED ANALYSIS

Nayyar’s analyses economic growth in independent India by dividing the sixty years in two distinct phases...from 50s, when India launched its mixed economy model with 5-year plans till the end of 70s; and then 80s, when the first steps of market-driven reforms were launched, till 2004-05.

This phased analysis puts things in perspective. Post-independence, for a nation exploited and shackled by colonial rule, the thrust was on following an egalitarian path of development that was sensitive to the needs of the 400 million people who were experiencing the whiff of freedom. Nayyar rightly points out that decisions of the political leadership of the time, led by Pandit Jawaharlal Nehru, as was the trend then, were influenced by the socialist wave that was sweeping through Europe and Asia. So, India’s ‘tryst with destiny’ led it to work towards a socialistic pattern of society through economic growth with self-reliance, social justice and poverty alleviation. These objectives were to be achieved within a democratic political framework using the mechanism of a mixed economy where both public and private sectors co-exist.

WEAK DEFENCE

This development model, though did not quite achieve its goals. Till the 90s, India’s growth rate averaged just about 4 percent per annum, shockingly even less than Sub-Saharan Africa and other least developed economies of the world. Nayyar acknowledges this failure, but perhaps his leftist leanings, make him take a more than sympathetic view. The distinguished economics professor couches his criticism by highlighting the fact that the infrastructure built during this period served as the launch pad for the high economic growth of the 90s and the first decade of the 21st century. “It was about establishing institutions, not only economic but also social and political. Goals were to create the base for development in a country that was a latecomer to industrialisation,” defends Nayyar. The JNU Professor is, however, silent on how India suffered for entrusting these goals to its public sector whose monumental inefficiency was seen as one of the key reasons to drag the country to the precipice of an economic collapse in the early 90s. Thanks to it, the premise on which post-independence development strategy was built -- generate public savings for increasing levels of investment -- failed to achieve the heights that it had targeted. The public sector instead of being a generator of savings for the community’s good became, over time, a consumer of community’s savings and gradually became a net drain on the society as a whole. The ‘trickle down’ theory which presumed that fruits of economic growth would percolate to the bottom of the pyramid remained on paper with almost half of the population remaining below the poverty line till the 70s. Nayyar does not highlight these failures. In fact he defends this phase of India’s growth by comments such as “ Strategy for economic development was shaped by colonial past and nationalist present, State controlled economy because market was perceived as insufficient to meet aspirations of the latecomer to industrialisation. “

The fact that India’s political leadership missed the opportunity to do a course correction in the 70s is also overlooked by Nayyar. This is pertinent since Nayyar advocates assessment of economic growth also with respect to other countries. But India failed to do what China did. Like India, the Dragon had a closed economy till the late 70s but its political leadership sensed the need for change and turned to marketization in 1978, more than a decade before India opened up to the world. And results are there to see, as India plays ‘catch up’ with China.

TURNING POINT, REALLY?

According to Nayyar, the decisive phase of India’s growth story is the 80s, and not 90s, as is the popular perception. He is very categorical that the turning point in India’s economic growth came in 1981, more than a decade before economic liberalisation began. Nayyar is only partially right. It is a fact that governments of Indira Gandhi and Rajiv Gandhi through the eighties took steps to dismantle the ‘licence-Permit Raj’ that stifled entrepreneurship. Private sector investments were encouraged and effects of these policy changes shifted the balance to capital formation. But reforms in the 80s were limited in scope and without a clear road map. Growth during the 1980s was fragile, highly variable from year to year and unsustainable. Expansionary macro-economic policies to boost growth like subsidies in agriculture and public distribution system pushed the country to the brink. This brought about a clear break from the past in 1991 when economic liberalisation began in its true sense.

So, to say 1981 was the turning point and the years that followed was decisive for India’s growth story is far-fetched. Harsh it might seem, but it almost appears that Nayyar’s assessment of the eighties is an attempt to belittle the success of the reforms process ushered in post 1991. At best the 80s can be viewed as precursor and not really the turning point as Nayyar would like us to believe. However, it cannot be denied that the limited reforms of the 80s helped build confidence of India’s political class -- largely influenced by a socialist mindset -- to undertake decisive policy changes such as trade liberalisation, disinvestment and devaluation of rupee later (post 1991). These and other reforms that followed through the 1990s were systematic and systemic unlike those undertaken in the 80s.

NOT A FAN OF LIBERALISATION

Nayyar’s take on economic liberalisation too is less than complementary. He goes on to say policies of the 90s and the first decade of 21th century did not touch upon the political domain. Nayyar also believes there has been no thrust on economic redistribution or concentration of wealth. The fact though is it was a coalition government headed by Narasimha Rao which ushered in the reforms in 1991. And though it was a desperate compulsion as India stared at a balance of payments crisis, steps such as devaluation of the rupee, trade liberalisation and disinvestment of PSUs kick started then would not have been possible had it not got the consent of the political class.

Nayyar is right in so far as saying that there has been no thrust in economic redistribution or on concentration of wealth. But the much vaunted “trickle down effect”, advocated by policy makers in the first few decades post-Independence but which failed miserably, seems to have worked in the post liberalisation era. According to the Planning Commission, 27.5% of the population was living below the poverty line in 2004–2005. This is nearly half of 51.3% in 1977–1978 when India followed the state-controlled mixed economy model, and one-third less from 36% in 1993-1994 – a phase when India made tentative steps to open up its economy.

BALANCED ANALYSIS

In final analysis, Nayyar’s overview of the economic growth seeks to present a balanced picture, though he is found to be more kindly disposed to the first few decades post-Independence and less charitable towards the post-liberalisation phase. His submission that India’s success story is a cumulative impact of economic policies and public actions in the three decades before India took tentative steps towards reforms is a fair assessment as no phase of a nation’s history can be seen in isolation. Like in the life of a human being, experiences of growing up shape the later years, so is the case with a nation. There is no denying the fact that the institutional framework set up in the initial decades post-independence, higher educational infrastructure and the legal framework played a key role in facilitating growth when Indian economy eventually took off.

Where Nayyar seems to have hit the nail on the head is his conclusion that India has failed to transform economic growth into economic development (well-being of the largest number of population). Poverty and deprivation of a substantial portion of the population resonates among policy makers as they talk of inclusive growth or growth with equity, bridging the rural-urban and regional disparities. In post liberalisation India, the middle class has expanded and so also the number of those living under poverty line. In so far as not being besotted by India’s economic rise and by flagging up problems of the future, Nayyar presents a well-rounded view of India’s growth story. It was neither a lumbering elephant in the initial decades post independence nor a running tiger post liberalisation!

Chetan Srivastava– GMPELC0508
Venkatesh A– GMPELC0532
Sanjay Wilfred – GMPELC0524
Sandeep Acharya – GMPELC0523
Shantanu Chatterjee – GMPELC0527