EurekaWow | Indian Economic Development

Integrating Growth and Development

-Amartya Sen & Jean Dreze (An Uncertain Glory)
Growth: A Relative Concept-the wonderful fact of a Zero economic growth after fall in GDP of previous
years will be better than a 6.2 % Growth rate in India (2012) which was considered dismal after previous
rates of 8 to 9% p.a.
Importance of Economic Growth:
1. It raises the per capita income and hence increases the standard of living of people.
2. It expands the public revenue, which can later be spent on social infrastructure (health,education etc)
thereby enhancing the quality of life of the people. (Eg, Had Europe not had a cut on the expenditure,
No cut in Expenditure Growth Increased Revenue No compromise on essential public services
Character of Growth:
Sustainability

Growth

Equity

Growth Trends:
Indias Past
Pre-Independence

India had a prosperous past.

Adam Smith: Talks about Indias comparative prosperity due to flourishing trade,owing to navigable
rivers [Wealth of Nations(1776)].
Ptolemy: Recognized towns engaged in internal and international trade.
When in 1757, the East India Company (EIC) initiated, India was exporting a great variety of
manufacturers, apart from grains. The competitiveness and quality of exports became a cause of
concern in Britain before British rule was established.
There is a paucity of data for living standards but pre-colonial Indian labour had adequate real wages
(Parthsarthy compared British and Indian textile labour wages where the latter were more.)
During the British Raj, there was a decline in the growth. (Per capita growth -0.1 %)

Post Independence:

From 1950s-1980s, India grew at 3.5% (Hindu rate of Growth)& 1.5% per capita growth- less for the
purpose of rapid development and poverty alleviation
1980s: Growth rates started rising.
1990s: Economic reforms, post which India saw high rates of growth .
4th Semester | B.A. Economics (H)

EurekaWow | Indian Economic Development

Qualitatively, India is still one of the poorest countries in the world, both in terms of per capita
income and quality of life (living standards).
Time Period

Rate of Growth(GDP)

1900-1947

0.9

1950-1960

3.7

Per Capita Rate of Growth

0.1
1.8

Hindu Rate
of Growth

1960-1970

3.4

1.2

1970-1980

3.4

1.2

1980-1990

5.2

3.0

1990-2000

5.9

4.0

2001-2010

7.6

6.0

India is the fastest growing country after China, and is followed by Indonesia and Japan.
Analysing Growth:
No reduction of poverty for the three decades following the First Five Year Plan in 1951.
Reasons:
Argument - Some people hold Indias socialist planning responsible for it.
Counter Argument- However, our policies didnt resemble that of the communist countries like USSR
where policies aimed to achieve free and universal school education. The first plan argued against regular
schooling, supporting M.K.Gandhis idea of Basic education, where children were taught self-financing
handicrafts.
Argument India followed a state-led development strategy where most of the economy was in private
sector (with the main exception of essential services like railways etc) and the Govt did intervene in
many ways.
Failure In terms of Social Infrastructure & tertiary industries.
15 years after 1950s saw higher growth in primary and secondary sectors as compared to after 1991
reforms (Economists call it :Material production)
Mid 1960s:
Successive droughts + Costly Wars + Political chaos after Nehrus death

Stagnated growth (per capita agricultural production declined)

Aims of Economic Policies: Economic Policies & Politics: Nationalization of Commercial Banks (1969),
import quotas, industrial licenses, abuse of power due to corruption, the aims of which were:
1. Rewarding supporters
4th Semester | B.A. Economics (H)

EurekaWow | Indian Economic Development

2. Winning over the uncertain

3. Punishing opponents
Growth in 1980s:
Second phase of growth acceleration (first being after 1947), with recovery in agriculture came out to be
a balanced & equitable growth.
Major Reason: Green Revolution was showing results. Agriculture sector grew at 3% pa. Real Wages grew
at 5% pa Decline in poverty.
1990: Crisis due to rising fiscal and trade deficit & foreign debt in 1980s along with rising oil prices made
India run out of foreign exchange reserves
SAP (Structural Arrangement Programme) - Huge cuts in expenditure on social Infrastructure -1991.From
the IMF (International Monetary Fund) and then on Indian Govts own terms, including openness to
foreign trade, relaxation of internal controls, labour reforms etc
The reforms were gradual, mainly due to the Indian democratic system and GDP growth picked up after
economic stabilization in 1993.

Growth of What
Living standard of Middle class (top 20% of population by income) has increased in India over time.
Although there has been a very slow improvement, if at all, in the quality of life of underprivileged.

Average Per Capita Expenditure

Rural
Urban

1993
2009
1% per annum
2% per annum

Growth Rate of wages has been 2% or so in 1990s reducing to zero % in early 200s.However after NREGA
(National Rural Employment Guarantee Scheme), wages have grown, especially for women.
Comparing our wages with China, according to comparable international data, real wages in China in
manufacturing sector have increased at 12% as compared to Indian rates of 2.5%p.a.
Poverty Figures:
According to Planning Commission, Head Count Ratio (Proportion of people below poverty line) of rural
poverty reduced from 50% in 1993 to 34% in 2009-10.
Explanation- This improvement is explained by the Density Effect (Many people are just a little below the
official poverty line, so that a very small increase in expenditure is enough to lift people above the
poverty line.

4th Semester | B.A. Economics (H)

EurekaWow | Indian Economic Development

Criticism- Kotwal
,Ramaswamy and
Wadhwa have shown that
poverty has declined from
86% (1983) to 80%
(2004),if the poverty line
was doubled. Thereby the
rate of poverty decline in
India has been quite low.
Jobless Growth: Growth
in services has been
heavily concentrated in skill intensive sectors rather than traditional labour intensive sectors (as in
China).Informal Sector in India, which constitutes 90% of the labour force, saw no improvement in their
wages or productivity.
Economic Growth

Reduction in Poverty

Importance of Institutions in Economic Growth

In the past, rigid hereditary caste system and Mughal absolutism have been impediments in the
development of inclusive in India.

Institutions secure and encourage economic initiatives and operations.

Institutions are also important in the accumulation and expansion of knowledge, which further helps in
increasing Total factor productivity.
However, with the setting up of necessary institutions, development of human capital through them is
equally important.
Institutions are needed both for (A) achieving growth and development and (B) for translating the
achievements in growth into development and flourishing human beings.
Failures of Economic Governance (Pre-Reforms: 1991)

Failure to tap the Constructive Role of the Market: License-Raj made economic enterprise difficult,
putting it at the mercy of bureaucrats.
The 1991 reforms incorporated openness to trade and removal of arbitrary controls which has helped in
Indias high rate of growth.
Failure to harness the constructive role of the State: as in visible in the underdeveloped social
infrastructure, a dysfunctional system of accountability of public services and neglect of physical
infrastructure.
Post-reform period saw some improvement, credit being deserved by Indias democratic politics, various
social movements and sections of the media.

4th Semester | B.A. Economics (H)

EurekaWow | Indian Economic Development

Linkage between Growth and Development: The relation between the two depends on economic and
social inequality and on what the government does with the public revenue. It is necessary to recognize
the role of growth in facilitating development in the form of enhancing human lives and freedom, but it is
also necessary to appreciate how the growth possibilities depend on the advancement of human
capabilities.
Case Study (Kerala)
Public Investment in India is 1.2% Of GDP as compared to Chinese 2.7% of their GDP where GDP India <<
GDPChina. Indias has moved towards reliance on private health care without developing the support of
basic public health facilities. On the contrary, in Kerala, a major expansion of public health services was
accomplished before the large scale expansion of private medical care. There was universal health
coverage by the state and the private care developed much later for catering to the rich. The state
allowed and encouraged the auxiliary facilities of private health care to enrich a well-functioning state
system. Kerala experienced growth, which was in a way related to the development of human
capabilities.
Problems facing Indian Economy
1. Removing the sharp inequalities while continuing to encourage overall economic growth and expansion.
2. Bringing more accountability to the running of the economy in the delivery of public services and
operation of the public sector, in particular.
Sustainable Development: People, recently are worried about how
human lives will continue to prosper if the depletion of our
environment continues as fast as it is now. In India, the acceleration
of economic growth has coincided with unprecedented
environmental plunder. Rivers and ground water have reduced,
mining activities have destroyed forests and pollution is on a high.
Indias natural wealth is estimated to have shrunk by about 6% in
value terns between 1990 and 2008.Environmental Impact
Assessment (EIA) has lost its relevance in todays growth driven India.

Advancemnet
o f Human
capabilities

Economic
Growth

Development

In the broader perspective of seeing development, it is the progress of human freedom and capability to
lead the kind of lives that people have reason to value. Hence, development cannot be divorced from
ecological and environmental concerns. Important ingredients of the quality of human life are the air,
water and ecological surrounding we live in. Development and environment can never be drawn into a
conflict.

4th Semester | B.A. Economics (H)