Finance:Hindu rate of growth

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Short description: Low annual growth rate of the Indian economy before the economic reforms of 1991
The Gross Domestic Product Per Capita (GDP Per Capita) Growth Rate: India had previously experienced periods of robust economic growth even prior to the 1991 reforms. Moreover, the growth rate has demonstrated a slowing trend since 2016, prior to the onset of the COVID-19 pandemic.

The term "Hindu rate of growth" was coined by the Indian economist Raj Krishna in 1978. It refers to the annual growth rate of India's economy before the economic reforms of 1991, which averaged 4% from the 1950s to the 1980s.[1] Advocates of liberalisation often use this term. However, modern neoliberal economists criticise the term, as they believe that the low growth rate was caused by the failed five-year plan model and economic mismanagement. Many economists worldwide characterise the economic system after the 1990s as Dirigisme.[2][3] Dirigiste policies often include indicative planning, state-directed investment, and the use of market instruments (taxes and subsidies) to incentivize market entities to fulfill state economic objectives.Eighth Five Year Plan (1992 - 1997) was for managing the transition from a centrally planned economy to market led economy through indicative planning.

India was a leader in the non-aligned movement and sought to maintain a neutral stance during the Cold War. As a result, it did not receive the same level of aid from the US and other Western countries as countries that were more closely aligned with the West.[4][5] Economists critical of neoliberalism criticised the term as oversimplifying the complex economic, political, and social factors that contribute to a country's rate of growth, as well as the use of GDP Growth Rate as a metric for "progress".[6]

The economy of India accelerated and has grown at a rate of around 3–9% since economic liberalisation began in the 1990s with the exception of 2020.[7][8] Recent research has shown that India's growth rate had begun to attain higher growth since Indira Gandhi's time in 1980s due to economic reforms, with average growth rate of 5.8% in 1981 to 1991.[9] GDP growth rate has however slowed since 2016.[10] In March 2023, Raghuram Rajan said that the growth rate in recent times was dangerously close to India's old Hindu rate of growth.[9]

The word "Hindu" in the term was used by some early economists like Vikas Mishra to imply that the Hindu outlook of fatalism and contentedness was responsible for the slow growth.[11][12] Later liberal economists reject this connection and instead attribute the rate to the Indian government's protectionist and interventionist policies, rather than to a specific religion or to the attitude of some of the adherents of a particular religion. Accordingly, some neoliberal writers instead use the term "Nehruvian rate of growth".[13]

Term

The first time Hinduism was equated with economic growth was in February 1973, by B.P.R. Vithal, who wrote under a pseudonym, Najin Yanupi about India’s per capita growth rates: “This is the range within which alone the Hindu view of life will hold."[14][15] The term was formally coined by India n economist Raj Krishna.[16][17] It suggests that the low growth rate of India, a country with mostly Hindu population was in a sharp contrast to high growth rates in other Asian countries, especially the East Asian Tigers, which were also newly independent. This meaning of the term, popularised by Robert McNamara,[citation needed] was used disparagingly and has connotations that refer to the supposed Hindu outlook of fatalism and contentedness.[18]

Economic system in India after Independence

India has never been a socialist country in the strict sense of the term. After independence in 1947, India adopted a mixed economy model, with elements of both socialism and capitalism.[19] It was seen as a way to achieve rapid industrialization and economic development, and to reduce the country's dependence on foreign capital and imports.[20] This approach, known as the "dirgitse model," involved state control of key industries, such as banking, insurance, and heavy industry, and the promotion of import substitution and self-reliance.

India abandoned its dirgitse model of economic development in the 1990s and adopted a more market-oriented approach, known as neoliberalism. The shift to neoliberalism in India was influenced by broader changes in the global economy, such as the dissolution of the Soviet Union[21] and the emergence of globalisation[22] as well as a condition of the IMF loan during 1991 Balance of Payments crisis, India was required to undertake economic reforms, including liberalization, deregulation, and privatization.

Comparison

In 1947, the average annual income in India was $439, compared with $619 for China, $770 for South Korea, and $936 for Taiwan. By 1999, the numbers were $1,818; $3,259; $13,317; and $15,720.[23]

Year India China South Korea Taiwan
1947 $439 $619 $770 $936
1999 $1,818 $3,259 $13,317 $15,720

India's growth rate was low by standards of developing countries. At the same time, Pakistan grew by 5%, Indonesia by 6%, Thailand by 7%, Taiwan by 8% and South Korea by 9%.[24]

Change in GDP per capita of India and its neighbours from 1947 to 2018
GDP Per Capita for years 1950,1999,2018[25]
Year India Pakistan China
1950 $987 $1025 $799
1999 $2708 $3112 $4667
2018 $6807 $5510 $13102

The comparison with South Korea was stark:

  1. In 1947, South Korean per capita income was less than 2 times bigger than India's.
  2. By 1960, South Korean per capita income was 4 times larger than India's
  3. By 1990, South Korean per capita income was 20 times larger.[26]

South Korea received much higher U.S aid and foreign investment when compared to India.[27] South Korea, similar to India was also forced to adopt IMF and World Bank imposed reforms during the 1997 Asian Financial crisis.

Comparing economic performance between India and South Korea is a complex task that requires consideration of historical, political, and economic contexts. While South Korea did adopt a neoliberal model of development, the government still played an active role in shaping and directing economic growth through targeted investments and support for key industries and companies. India, on the other hand, pursued a more mixed economy model with less external support.

China kept a significant part of its economy under state control even after reform and opening up despite receiving criticism from liberal institutions.[28] However, despite such policies Chinese economy grew at a much higher pace than India's,[25] overtaking Japan in 2010.[29]

Pakistan meanwhile, despite implementing liberal reforms under Pervez Musharraf experienced lower economic growth compared to India.[30]

Therefore, the economic performance of a country is influenced by a multitude of factors, and not solely determined by its GDP per capita. Factors such as bureaucracy, state control, and red tape are often cited as potential hindrances to economic development, but a simplistic view that reduces complex factors to simple buzzwords may fail to accurately capture the complete picture of a country's economic performance.

Other reasons behind India's slow growth

  1. War: The partition of British India in 1947 led to significant economic disruption. Moreover, India was involved in several wars during this period, notably with China in 1962 and with Pakistan in 1947, 1965, and 1971. These conflicts strained the country's financial resources, as defense spending took a large share of the budget. Economic growth improved in 1980s until the 1991 Economic Crisis.
  2. Droughts: India faced severe droughts in the 1960s, which resulted in famine conditions in several parts of the country. The agricultural sector was particularly hard hit, leading to food shortages and a need for massive grain imports, which drained foreign reserves.[31]
  3. Oil Price Shock: The global oil crisis of 1973 caused a significant increase in fuel prices. India, being heavily reliant on imported oil, faced economic strain, which led to increased costs of production and transportation, contributing to inflation and slowing down economic activity.[32]
  4. Global Economic Conditions: The Bretton Woods system collapse and the subsequent instability in the global financial system also had an indirect impact on India's economy, affecting its trade and investment flows.

Criticism

Noted neoliberal politician and journalist Arun Shourie claimed that the "Hindu rate of growth" was a result of socialist policies implemented by governments:

because of those very socialist policies that their kind had swallowed and imposed on the country, our growth was held down to 3–4 per cent, it was dubbed — with much glee — as ‘the Hindu rate of growth’.[33]

According to economist Sanjeev Sanyal, the term was an attempt to suggest that "it was not Nehruvian economic policies that had failed India, it was India’s cultural moorings that had failed Nehru." He linked it with what he considered to be the ideological domination of the left, backed by the socialist regime, in post-Independence India.[34] However, Raj Krishna, who coined the term, was known as a right winger and opposed to Congress government. After the Indira Gandhi government was ousted in 1977, he became a member of the Planning Commission under the Janata Party government.[9]

The term is also seen by some as oversimplifying the complex economic, political, and social factors that contribute to a country's rate of growth. Economic growth is influenced by a wide range of factors such as education, infrastructure, political stability, and access to capital, among others.[6] It also neglects the progress in self-reliance that India had attained in metallurgical, mechanical, chemical, power and transport sectors.[9]

See also

  • Economic history of India
  • Economic liberalisation in India
  • Licence Raj
  • Poverty in India
  • The World Economy

References

  1. ↑ Das, Gourab (2023-03-07). "Sure-footed India's economic potential outpaces 'ill-conceived' notion of Hindu rate of growth". https://economictimes.indiatimes.com/news/economy/policy/strong-footed-indias-economic-potential-outpaces-ill-conceived-hindu-rate-of-growth/articleshow/98472368.cms. 
  2. ↑ "The rusty frame of Indian state capitalism". https://www.india-seminar.com/2020/734/734_elizabeth_and_rohit.htm. 
  3. ↑ "India's Far from Neo-liberal Economic Order in the Modi Era". 30 October 2020. https://www.epw.in/journal/2020/44/commentary/indias-far-neo-liberal-economic-order-modi-era.html. 
  4. ↑ "Net official development assistance received (current US$) - India | Data". https://data.worldbank.org/indicator/DT.ODA.ODAT.CD?locations=IN. 
  5. ↑ "South Korea and Taiwan's institutional capacity helped U.S. aid to be used well after 1945, while South Vietnam's French colonial legacy hindered development. | USAPP". 21 October 2014. https://blogs.lse.ac.uk/usappblog/2014/10/21/south-korea-and-taiwans-institutional-capacity-helped-u-s-aid-to-be-used-well-after-1945-while-south-vietnams-french-colonial-legacy-hindered-development/. 
  6. ↑ 6.0 6.1 (in en) When Did the 'Hindu' Rate of Growth End?. 2006-05-13. https://www.epw.in/journal/2006/19/perspectives/when-did-hindu-rate-growth-end.html. 
  7. ↑ Subramanian, Arvind (2018-02-08). "India's Path From Crony Socialism to Stigmatized Capitalism | by Arvind Subramanian" (in en). https://www.project-syndicate.org/commentary/india-cronyism-to-capitalism-by-arvind-subramanian-2018-02. 
  8. ↑ Derviş, Kemal (2018-02-12). "The Future of Economic Convergence | by Kemal Derviş" (in en). https://www.project-syndicate.org/commentary/emerging-countries-economic-convergence-by-kemal-dervis-2018-02. 
  9. ↑ 9.0 9.1 9.2 9.3 "ExplainSpeaking | Is India reverting to the Hindu rate of growth?" (in en). 2023-03-06. https://indianexpress.com/article/explained/explained-economics/india-hindu-rate-of-growth-explained-8481608/. 
  10. ↑ "GDP growth (annual %) - India | Data". https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=IN. 
  11. ↑ Mishra, V. (1962). Hinduism and economic growth. Indian Branch, Oxford University Press.
  12. ↑ "The Hindutva Rate of Growth". https://casstt.com/post/the-hindutva-rate-of-growth/278. 
  13. ↑ Chakravarty, Manas (November 17, 2014). "The Nehruvian rate of growth". Livemint. http://www.livemint.com/Money/76l5Klit1s3nWARdEbD4LI/The-Nehruvian-rate-of-growth.html. 
  14. ↑ Chikermane, Gautam. "Hinduphobia infects economics—again". https://www.orfonline.org/expert-speak/hinduphobia-infects-economics-again/. 
  15. ↑ Virmani, Arvind; Malhotra, Rajeev. "SHAPING OF THE INDIAN MIRACLE: Acceleration towards high growth". https://egrowfoundation.org/site/assets/files/1835/shaping_of_indian_miracle_avrm10mar26.pdf. 
  16. ↑ Indian Economy: Dutt & Sundaram
  17. ↑ "First Raj Krishna Memorial Lecture, 1995 : Economic Reforms for the Nineties". http://planningcommission.gov.in/aboutus/speech/spemsa/msa033.pdf. 
  18. ↑ Tripathi, Salil (June 13, 2006). "Escaping the 'Hindu rate of growth'". The Guardian (London). https://www.theguardian.com/commentisfree/2006/jun/13/escapingthehindurateofgro. 
  19. ↑ Das Gupta, Chirashree. "State and Capital in Independent India: From Dirigisme to Neoliberalism". https://eprints.soas.ac.uk/29360/1/10731455.pdf. 
  20. ↑ Roffelsen, Cees (2016-09-25). "How Nehru Shaped India's Development" (in en). https://medium.com/@ceesroffelsen/how-nehru-shaped-indias-development-4df38535bf98. 
  21. ↑ Ahmed, Waquar (2010). "Neoliberalism, Corporations, and Power: Enron in India". Annals of the Association of American Geographers 100 (3): 621–639. doi:10.1080/00045601003794965. ISSN 0004-5608. https://www.jstor.org/stable/40863552. 
  22. ↑ "Finance and Development" (in en-US). https://www.imf.org/external/pubs/ft/fandd/2002/03/bought.htm. 
  23. ↑ Meghnad Desai (2003). "India and China: An essay in comparative political economy". IMF. http://www.imf.org/external/np/apd/seminars/2003/newdelhi/desai.pdf. 
  24. ↑ "Industry passing through phase of transition". The Tribune India. http://www.tribuneindia.com/50yrs/kapur.htm. 
  25. ↑ 25.0 25.1 "GDP per capita". https://ourworldindata.org/grapher/maddison-data-gdp-per-capita-in-2011us. 
  26. ↑ "India: the economy". BBC. February 12, 1998. http://news.bbc.co.uk/2/hi/south_asia/55427.stm. 
  27. ↑ "From Aid to Trade: How South Korea is a Model for U.S. Foreign Assistance" (in en-US). https://www.usglc.org/blog/from-aid-to-trade-how-south-korea-is-a-model-for-u-s-foreign-assistance/. 
  28. ↑ "Explained, the role of China's state-owned companies" (in en). 7 May 2019. https://www.weforum.org/agenda/2019/05/why-chinas-state-owned-companies-still-have-a-key-role-to-play/. 
  29. ↑ Barboza, David (2010-08-16). "China Passes Japan as Second-Largest Economy" (in en-US). The New York Times. ISSN 0362-4331. https://www.nytimes.com/2010/08/16/business/global/16yuan.html. 
  30. ↑ "GDP growth (annual %) - Pakistan | Data". https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=PK. 
  31. ↑ Dyson, Tim; Maharatna, Arup (1992). "Bihar Famine, 1966-67 and Maharashtra Drought, 1970-73: The Demographic Consequences". Economic and Political Weekly 27 (26): 1325–1332. ISSN 0012-9976. https://www.jstor.org/stable/4398553. 
  32. ↑ "Backstory: How India reeled under the oil shock of 1973" (in en). 2022-01-03. https://www.cnbctv18.com/market/commodities/backstory-how-india-reeled-under-the-oil-shock-of-1973-11997452.htm. 
  33. ↑ "IndianExpress.com :: Hindutva and radical Islam: Where the twain do meet". http://www.indianexpress.com/story/254969.html. 
  34. ↑ Madhusudan, Harsh; Mantri, Rajeev. "Foreword". A New Idea of India: Individual Rights in a Civilisational State. Sanjeev Sanyal (Foreword). Westland. 

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