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Abstract
The global economic crisis hit the Indian economy at a time when it was riding a wave of unprecedentedly high growth. This article argues that while the global crisis has particularly impacted exports, and hence growth, and worsened the fiscal balance, India is already returning to an 8% per annum growth. The limited impact, the article argues, has been driven by the fact that both savings and investments have risen sharply in the first decade of the millennium and are likely to remain high. It is the domestic savings/investment as well as the domestic markets that are driving the growth. However, the article also highlights a series of long-term challenges that policy-makers must address if rapid growth is to be sustained and poverty sharply reduced.
Acknowledgement
This article was presented at the UK Development Studies Association conference, University of Ulster, Northern Ireland at a special plenary. I am grateful to James Copestake and other seminar participants for their comments and Ankita Gandhi for her excellent research assistance. The usual disclaimer applies.
Notes
1. India's population growth rate had averaged 1.25% per annum over 1941–1951 (most of which was prior to independence), but was 1.96% per annum over 1951–1961, 2.2% per annum over 1961–1971, and 2.22 per annum over 1971–1981 (as estimated by the Registrar General of India, in the decennial Censuses of India). The current rate (2008) is estimated to be only 1.34% per annum.
2. Growth was 5.5% per annum over the Sixth Plan (1980–1984) and 5.6% per annum over the Seventh Plan (1985–1989) (Planning Commission Citation2008).
3. Growth was 6.5% per annum over the Eighth Plan (1992–1996) and somewhat slower at 5.5% per annum over the Ninth Plan (1997–2001). This slowdown during the Ninth Plan was driven by a much shown rate of growth of agriculture.
4. There was growth between 1951 and 1965 followed by drought and war-driven recession until 1970; again growth between 1980 and 1995 and a slowdown between 1996 and 2002 caused by a decline in agricultural growth followed by a boom until 2008, turning into a slowdown after the global economic crisis.
5. As Rodrik (2000) puts it: ‘The main difference between Latin America, say, and East Asia was not that the former remained closed and isolated while the latter integrated itself with the world economy… … The countries that got into trouble were those that could not manage openness, not those that were insufficiently open’.
6. Other developing economies have indeed grown faster than India or China, especially the oil-producing countries (for example Azerbaijan, Saudi Arabia) which are smaller economies in absolute terms than India or China. They have shown short bursts of economic growth only because global oil prices have risen very sharply in some years, and oil accounts for a very high proportion of GDP. But their growth rates have similarly plummeted suddenly when oil prices decline.
7. At market exchange rates India is still only the 10th largest economy in the world.
8. The new Chief Economic Advisor to the Government of India, Prof. Kaushik Basu, has stated in interviews (after taking over in December 2009) that India is likely to exceed China's growth rate in 4–5 years, since a 40% savings rate to GDP is likely to be achieved shortly.
9. This figure is from a UNCTAD study cited in Ministry of Finance (Citation2009, p. 26), and hence happens to be different from the Ministry's own figure cited in the same volume (which we cited earlier).
10. Acharya (Citation2004), had similarly argued that the potential growth was going to be higher.
11. Mayer and Wood (Citation2001), examining export structure by region, argue that India (and South Asia) has a comparative advantage in labour-intensive manufactured goods (and not processed agricultural products). This is the result, they argue, of South Asia's distinctive combination of resources: by comparison with other regions, it has a low level of education and few natural resources, relative to its supply of labour. However, this analysis is based on 1990 data for export structure, and hence dated even for exports now. In any case, we are arguing that for the domestic market, which is obviously large and growing, India must improve/expand the processing of its agricultural products in small towns close to agricultural production to increase value added and incomes of rural/semi-urban populations.
12. Thus, township and county (or local) governments in China account for 56% of public expenditure incurred by all three levels of government (central, provincial, local); 23% of all revenues are collected by local governments. The corresponding shares in India for local governments are 5% for expenditure and 1% for revenues.
13. There appears that some change is in the offing even here. The Finance Minister, in his budget speech (28 February, 2010), announced that of the Administrative Reforms Commission's 800 recommendations, 350 have been accepted by the Government of India and are being implemented, and the remaining are under consideration.
14. Datt and Ravallion (Citation2009), in a comparative perspective on poverty reduction in India, Brazil and China, note: ‘China clearly scores well on the pro-poor growth side of the card, but neither Brazil nor India do, in Brazil's case for lack of growth and in India's case for lack of poverty-reducing growth; Brazil scores well on the social policies side, but China and India do not; in China's case, progress has been slow in implementing new social policies more relevant to the new market economy (despite historical advantages in this area, inherited from the past regime) and in India's case, the bigger problem has been the extent of capture of the many existing policies by non-poor groups.’