India: economic growth, 1950 – 2000

This paper explores the factors explaining India’s economic growth performance between1950-2000. The paper compares India’s economic development to a group of developing countries. It then presents an overview of India’s growth and divides India’s economic history into four sub-periods, marked by major policy shifts or shocks:

• the evolution of industrial development strategy: 1950-67
• inward orientation and industrial stagnation: 1967-1980
• deregulation, fiscal expansion and growth: 1980-1990
• economic reforms, growth and slowdown: 1991-2001

The paper finds that:

• the deepening of import substitution, industrial regulation, a reduced role of the market combined with exogenous shocks led to a significant slowdown in industrial growth in the 1970s
• strong domestic demand, significant export growth and more liberal supply-side policies led to a decade of high growth in the 1980s
• a severe balance of payments crisis triggered extensive reforms in economic policy during the early 1990s, leading to an unprecedented spurt in economic growth during 1992-97
• a slowdown in reforms and worsening fiscal balances, coupled with a deterioration in the international economic environment contributed to a decline in economic performance in the late 1990s

Overall, the paper concludes that India achieved some clear successes, including: the transition from the virtually stagnant economy of pre-Independence India to achieve sustained, albeit modest, growth over long periods; the development of modern industrial, service and financial sectors; avoiding the high inflationary bouts witnessed in Latin America; and the achievement of self-sufficiency in food grains.

However, the paper also highlights several failures. The paper argues that India could have achieved 5-6 percent growth a decade before it actually happened. Moreover, the prevalence of poverty has remained high, and the record in providing primary education and health care has been disappointing. Also, the paper notes that low agricultural growth, the infrastructure sectors, high fiscal deficits and highly bureaucratic systems and procedures have been a constraint on economic performance.

In light of the slowdown in growth between 1997-2001, the paper concludes that major corrective measures are necessary, and recommends that:

• the fiscal deficits of the central and state governments have to be reduced
• power distribution should be privatized
• the financial sector has to be overhauled, including privatisation of government-controlled banks and financial institutions
• reforms of rigid labour laws and bankruptcy provisions need to be implemented swiftly
• trade policy reforms need to pursued