India After 20 Years

Draft
January, 2007

INDIA’s GROWTH: PAST AND FUTURE

by

Shankar Acharya*

* Honorary Professor and Member Board of Governors, Indian Council for
Research on International Economic Relations (ICRIER)

Paper for presentation at the Eighth Annual Global Development
Conference of the Global Development Network, January 14-16, Beijing.

0

India’s Growth: Past and Future
By
Shankar Acharya1

This paper is divided into five sections. Section I briefly reviews India’s growth performance since 1950 and indicates a few salient features and turning points. Section II discusses some of the major drivers of India’s current growth momentum (which has averaged 8 percent in the last 3 years) and raised widespread expectations (at least, in
India) that 8 percent plus growth has become the new norm for the Indian economy.
Section III points to some of the risks and vulnerabilities that could stall the current dynamism if corrective action is not taken. Section IV appraises the country’s medium term growth prospects. The final section assesses some implications of India’s rise for the world economy.

I

Review of Growth Performance, (1950-2006)
Table 1 summarizes India’s growth experience since the middle of the twentieth

century. For the first thirty years, economic growth averaged a modest 3.6 percent, with per capita growth of a meager 1.4 percent per year. Those were the heydays of state-led, import-substituting industrialization, especially after the 1957 foreign exchange crisis and the heavy industrialization bias of the Second Five Year Plan (1956-61). While the strategy achieved some success in raising the level of resource mobilization and investment in the economy, it turned out to be hugely costly in terms of economic efficiency. The inefficiencies stemmed not just from the adoption of a statist, inward1

The author is Member, Board of Governors and Honorary Professor at Indian Council for Research on
International Economic Relations (ICRIER). He was Chief Economic

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