Economic Growth in India: Some Considerations

It has been pointed out earlier in this blog that economic growth cannot be understood by merely looking at the rate of growth of GDP; and that an adequate explanation of economic growth needs to incorporate the ‘structure of economic growth’. This post builds on the idea that ‘structure of growth’ is of paramount importance by pointing out certain important aspects of growth, which have been put forward by Pulapre Balakrishnan in his new book (OUP, 2010), Economic Growth in India: History and Prospect.

Balakrishnan’s book questions several aspects of mainstream theorising on growth. Firstly, he emphasises that fact that, there can be no ‘universal model of growth and development’ (p. 29). Though, this point is very obvious to most people, economists still try to develop ‘scientific models’ which are general enough so that the varied growth experiences of different countries can be explained. In particular, the fact that there is no universal model has been shown by the growth experiences of countries like Japan and China. Maybe, unfettered competition and self-interest work in certain countries. In others, a one party system might work. Or, democracy coupled with active state intervention might be the solution for a few. The growth trajectory of a particular economy depends on its history, its people, its land, its politics, its institutions, its culture, its government, its media and so on. For example, it would be foolish to provide disproportionate sops and subsidies to the service sector, when majority of the population depend on agriculture. Whatever be the model of growth and development, it is of utmost importance that the inhabitants or the populace of that country has enough food to eat, proper clothes, access to safe drinking water, a proper house, a job, etc. In other words, the minimum requirements (which is historically, socially and culturally determined) of the inhabitants need to be met.

The recent past has witnessed a lot of debates on the juncture at which the Indian economy structurally transformed. Several years have been identified as break-points depending on the base year adopted, the kind of statistical test chosen, the nature of data, etc. There has been no consensus. Some identify 1991 as the point of change. Others argue that the growth process had begun as early as the late 1970s. Not surprisingly, these results also depend on what the economists think the role of the government is (or the role of the markets). However, Balakrishnan argues that the time period 1900 to 2005 ‘may be seen as setting the minimum agenda for an investigation of growth in the country’ (p. xxvi). This assertion is a noteworthy one, for it can aid in understanding the role of the government as well as the role of the market (understood as the competitive mechanism) in the economic growth process for over 100 years.

An examination of the process of growth from 1900 onwards is certainly a very difficult task. However, the merits of the hard work outweigh the costs. Systematic data collection in India begins from only around 1950s. However, by making use of the scattered accounts written by various travelers, historians, fiction writers, etc and from English archives, port records, and others, one could construct a narrative of the growth process. Unfortunately, most of the growth narratives of the Indian growth stress only on ‘numbers’. An analytical growth narrative, according to Balakrishnan, offers a better mode of capturing growth. It ‘may be seen as a theoretically informed empirical analysis of growth in a country over a specified period.’ (p. 36) However, this mode of analysis can become narrow if the ‘theory’ is only taken from economics. If the theory can be expanded to take in insights from related disciplines like history, political science, sociology and anthropology, the analytical growth narrative can provide a rich and comprehensive account of growth.

Such a growth narrative would also mean a shifting of research from the growth accounting based on production function to a more holistic one, which takes into account the structure of the Indian economy ‘ the divide between rural and urban, between men and women, between agriculture and services, between organised and unorganised, between English-educated and illiterate, between those who have access to computers and those who do not, etc. For, growth accounting based on production function suffers from numerous logical and conceptual issues. This method assumes that the contributions made by labour and capital (means of production) are independent, which in reality and accounting wise, is difficult to accept. This method also gets into trouble when it tries to incorporate rapid technological advancements.

From the preceding discussion, it is clear that there can be no universal model of economic growth and development. And, until a more comprehensive understanding of economic growth is presented by economic theorists, the urgency to find out a break point is of no use. Also, economic growth is a process which takes place over time; hence, a long term perspective is necessary to understand growth and to put forth the determinants of growth. Also, it is time to give up growth accounting based on the aggregate production function. To conclude, it is time that growth narratives are also put forth by other social scientists. And, why is it that discussions on economic growth remain the prerogative of the economists alone’

Author: Alex M Thomas

A passionate student of economics!

3 thoughts on “Economic Growth in India: Some Considerations”

  1. This is interesting. And somewhere in the article there is a criticism aimed at the use of production function as an indicator of growth and how it can not incorporate rapid technological changes. But that again sounds contradictory to using a 100 year statistics for measuring growth. Agreed that such a study will provide for a more comprehensive study on growth, but would that also provide us with answers to the questions that we face today (in the cliched ‘economic terms’)? I raise this question in the light of the fact that today we are seeing technological changes so rapid that we have not seen ever before. This brings me back to the idea of productivity as a measure of growth and development. It is no doubt a narrow term. But isn’t it also the most comprehensive single term for measurement?
    Also I completely agree that there can never be a universal model for growth and economists today need a more objective outlook to their strategies. But I also find that the article stresses just on inter distinction of economies in terms of their characteristics, but it would be interesting to study the same characteristics in an intra economy comparison spread over the years. Balakrishnan hints at that, but at the same time I would dare say that such a study might as well prove that the have-nots have been left behind. So do we only end up in concluding that we need to provide for better services and an inclusive growth model? Forgive my hugely presumptuous ideas to conclude a study that may be way richer.

  2. Dear Shashank,
    Thank you for your comment. I will respond issue wise.

    (1) The post argues against the use of production functions as a tool, and not against productivity, as a measure of technological progress. Just like you point out, technology is advancing at such a rapid speed that a single numerical measure, such as A in Y=A.L.K cannot capture it. This is a broad critique. Apart from this, the production function approach suffers from several logical and conceptual drawbacks. One of the drawbacks being the assumption that labour (L) and capital (K) are independent. In other words, the contribution of labour to output (Y) has no impact on capital (K) and vice versa. Another fundamental problem is that of measurement of capital. In the production function, what are the units of measurement of capital (K)?

    (2) You write “But I also find that the article stresses just on inter distinction of economies in terms of their characteristics, but it would be interesting to study the same characteristics in an intra economy comparison spread over the years.”

    Can you please elaborate?

  3. In the second last paragraph, there is a mention of divides which is what I am talking of in intra economy comparison. The idea is, no doubt, such a study will be far richer in context; but the only logical conclusion that i can think of through this sort of a study would be that the haves have it and the have-nots don’t have it.
    The divide structure is too apparent in India. What do you think? What sort of conclusions are you looking at? Obviously before a study you never know where it might lead, but if i were to study these trends mentioned in the article I’d like to have a motive as to where it might lead. More basically, if we realise that this has been an issue with regards to the study and strategy, wouldn’t it be more pragmatic to plan ahead with such view points? Also does it necessarily point at inclusion as in strategising for bridging the divides?

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