India: Growth and Development since Independence

Tough India got independence in the year 1947; it has actually started all its policies and plans from year 1951-52. While analysing the evolution of newly born Indian economy from year 1950 one can see various phases in which this economy has grown. Government of India was having choice to choose between two ways of establishment. One was USSR led socialism and the other one was US led capitalism. Indian politicians chose the mid way of both called socialistic pattern of growth and governance. In the early period though the Indian politics was highly influenced by Gandhian philosophy of self reliant rural base policies, it has adopted partial western models of growth under the leadership of Prime Minister Jawaharlal Nehru.

As per economist Arvind Panagariya there are four phases of growth of the economy since independence. These four phases are on the basis of variations in the growth rates.[1]

• Phase I, from 1951-52 to 1964-65 (or 1951-65 for short), with an annual growth rate of 4.1 percent
• Phase II, spannin 1965-81, with a growth rate of 3.2 percent
• Phase III, covering 1981-88, with a growth rate of 4.8 percent, and
• Phase IV, beginning in 1988-89 and continuing to date, with a growth rate during 1988-2012 of 6.8 percent.

India launched its first five year plan in the year 1951-52 on the background of almost zero growth rate in colonial period. Being an agrarian economy more than 50 percent contribution in GDP was by primary sector. Prime Minister Nehru started Indian planning and policies with focusing on heavy industries and small cottage industries. Because of high insist on secondary sector one can see the high growth rates for Industry and Manufacturing in first phase i.e. 1951-65. In the initial period industry and manufacturing both grew at more than 6 percent rate followed by more than 4 percent growth for services and less than 3 percent growth for agriculture (Table 1.1).

Table 1.1: Growth Rates of Sectoral GDP (at factor cost)[2]

Period	Agriculture & Allied	Industries	Services	GDP
1	2	3	4	5
1951-65	2.9	6.7	4.7	4.1
1965-81	2.1	4	4.3	3.2
1981-88	2.1	6.3	6.5	4.8
1988-2012	3.7	7.1	8.0	6.8

Note: Allied industries in the first category include forestry and fishing, Industry is defined as the sum of manufacturing, mining and quarrying, electricity, power, and water supply, and construction. All other output is included in the services.

Source: Calculations using the data on components of the GDP reported in RBI, Handbook of Statistics on Indian Economy (2006, table3).

The overall GDP growth was average 4.1 percent in the first phase. Apparently Government of India has ignored to develop the primary sector with policy initiatives in the first phase. Across years agriculture has grown at less than 3 percent since independence. Second phase of 1961-81 has seen huge political instability and one can see the drop in the overall growth rate. Though there is a drop in all the sectors agriculture sector has seen the lowest growth compare to other sectors. In the fourth phase because of liberalization and other policy initiatives the situation was improved. But by the fourth phase services sector has taken a high growth path and grew fast compare to all other sectors in the economy.

Let’s analyse the sectoral shares in the GDP from the year 1951-52 and one can easily see the structural change in the Indian economy.

Table 1.2: The Composition of GDP (percent)[3]

Period	Agriculture & Allied	Industries	Services
1	2	3	4
1950-51	57	15	28
1964-65	49	21	31
1980-81	40	24	36
1987-88	33	26	41
2011-12	17	26	57

Note: Sectors are defined as in the note to table 1.1.

Source: Calculations using the data on components of the GDP reported in RBI, Handbook of Statistics on Indian Economy (2006, table3).

There is a steady decline in the contribution in GDP by agriculture sector in last 62 years. The GDP contribution by agriculture sector has declined from 57 percent in the year 1951 to 17 percent in the year 2012, whereas industries sector has grown from 15 percent in the year 1951 to 26 percent in the year 2012. But from the second phase there is no commendable increase in the share of industries contribution. It has grown from 21 percent to 26 percent between 1965 and 2012. Services sector’s contribution has grown immensely over last 62 years. It has grown from 28 percent in the year 1951 to 57 percent in the year 2012. These shares of contribution in the GDP show the structural change in the Indian economy since 1950. The source of funds for national income has shifted from agriculture sector to services sector in the last 62 years skipping the industries sector which has shown a marginal increase in the GDP contribution over the period of time.

The other side of the growth[4]

India’s record of rapid economic growth in recent decades, particularly in the last ten years or so, has tended to cause some understandable experiments. The living standard of ‘middle class’ (which tends to mean top 20 percent or so of the population by income) have improved well beyond what was expected – or could be anticipated – in the previous decades. But the story is more complex for many others such as the rickshaw pullers, domestic worker or brick-kiln labourer. For them, and other underprivileged groups, the reform period has not been so exciting. It is not that their lives have not improved at all, but the pace of change has been excruciatingly slow and has barely altered their abysmal living conditions.

To illustrate, according to National Sample Survey data average per capita expenditure in rural areas rose at the exceedingly low rate of about one percent per year between 1993-94 and 2009-10, and even in urban areas, average per capita expenditure grew at only two percent per year in this period. The corresponding growth rates of per capita expenditures for poor households in both areas would have been even lower, since there was growing inequality of per capita expenditures in that period. The growth of real wages in other parts of the economy has also been relatively slow, especially for casual or (so-called) ‘unskilled’ workers.

The main point to note is that questions about the nature and reach of economic progress in India demand much greater attention than they tend to receive. One of these questions is why has economic growth in India led to so little increase in wages and incomes for the poorer sections of the population. It is not difficult to see that this is associated with a failure to generate adequate employment, sometimes described – a little simplistically perhaps- as ‘jobless growth’. In sharp contrast with China, where the post-reform economic boom happened first in agriculture and then in manufacturing, India’s rapid economic growth during the last twenty years or so has been driven mainly by ‘services’. This is very heterogeneous category, but there is growing evidence that the good deal of the growth in services has been heavily concentrated in skill-intensive sectors (such as software development, financial services and other specialized work), rather than more traditional labour-intensive sectors. While this enabled the more educated section of the labour force to earn much higher wages and salaries, the bulk of the workforce is marooned in agriculture and other sectors (including the ‘informal sector’, which employs more than 90 percent of India’s labour force) where wages and productivity are – and tend to remain – very low.

There are two schools of thought on the orientation of government policies. One school supports the growth related policies as they say growth will automatically bring the development on various fronts. If people get money in their hand then the standard of living will gradually improve and over the period of time country will achieve the progress in quality of life and factors like literacy, healthcare services, infant mortality, sanitation or better living conditions and women empowerment.

Another school says if you solely focus on growth policies and ignore the developmental aspects then that growth in not inclusive and not of any use. This kind of policies will create inequalities in the society and country has to pay great price of these inequalities. The country will end up with no betterment of the poor in the society will create long term problems in terms of sustainable growth. As per this school of thought government need to pay attention to the weaker section of the population and work for betterment of the same with various state led policies like building education and healthcare facilities at subsidies rate, providing food to the bottom of the pyramid section, developing sanitation facilities, empowering women with various government initiatives.

To examine these two schools of thought let us take example of two states in India which are based on two forms of policies of growth and development.

 A debate over Kerala model and Gujarat model

The Kerala model of development, based on the development experience of the southern Indian state of Kerala, refers to the state’s achievement of significant improvements in material conditions of living, reflected in indicators of social development that are comparable to that of many developed countries, even though the state’s per capita income is low in comparison to them.  Achievements such as low levels of infant mortality and population growth, and high levels of literacy and life expectancy, along with the factors responsible for such achievements have been considered the constituting elements of the Kerala model.

More precisely, the Kerala model has been defined as:

• A set of high material quality-of-life indicators coinciding with low per-capita incomes, both distributed across nearly the entire population of Kerala.
• A set of wealth and resource redistribution programmes that have largely brought about the high material quality-of-life indicators.

In Kerala the birth rate is 40 per cent below that of the national average and almost 60 per cent below the rate for poor countries in general. In fact, a 1992 survey found that the birth rate had fallen to replacement level. Kerala’s birth rate is 14 per 1,000 females and falling fast. India’s rate is 25 per 1,000 females and that of the U.S. is 16. Its adult literacy rate is 94.59 per cent compared to India’s 65 and the US’s 99. Life expectancy at birth in Kerala is 75 years compared to 64 years in India and 77 years in the US. Female life expectancy in Kerala exceeds that of the male, just as it does in the developed world. Kerala’s maternal mortality rate is: Total: 1.3 deaths/1,000 live births (1990), lowest in India.[5]

 Jagdeesh Baghwati[6] and Arvind Panagariya’s counter attack on Kerala Model

 “Kerala Model” in our book is a metaphor for a primarily redistribution and state driven development while “Gujarat Model” is the metaphor for a primarily growth and private-entrepreneurship driven development. As such the Kerala Model vs. Gujarat Model debate is a longstanding one. We show in our book, “India’s Tryst with Destiny,” that it is ultimately the Gujarat Model that has delivered in Kerala. Contrary to common claims, Kerala has been a rapidly growing state in the post-Independence era, which is the reason it ranks fourth among the larger states, according to per-capita gross state domestic product and first according to per-capita expenditure.

It also suffers from the highest level of inequality among the larger states. So growth, and not redistribution, largely explains low levels of poverty. In health, Kerala’s per-capita private expenditures are nearly eight times its per capita public expenditures. In education, excluding two or three tiny north-eastern states, at at 53%, rural Kerala has by far the highest proportion of students between ages 7 and 16 in private schools. The nearest rival, rural Haryana, has 40% of these students in private schools. We have always argued that the use of the conservative phrase “trickle-down” is misleading. We prefer to use the more radical phrase “pull up”. By reducing poverty, the growth strategy increases incomes which, in turn, can be expected to improve most social indicators (though nutrition in particular may get worse if the diet shifts to less nutritious but tastier foods).

Most social indicators have in fact seen a lot of progress in Gujarat and in many of these, the changes (which economists call “first difference”) in social indicators make Gujarat look pretty good indeed. Gujarat inherited low levels of social indicators and it is the change in these indicators where Gujarat shows impressive progress. The literacy rate has risen from 22% in 1951 to 69% in 2001 and 79% in 2011. The infant mortality rate per thousand has fallen from 144 in 1971 to 60 in 2001 and 41 in 2011. Growth is the single most important instrument of poverty reduction; and India needs to both accelerate growth and make it more inclusive through track-I reforms and make its redistribution programmes more effective through track-II reforms.

The battle of ideas in some ways captures a deeper question facing Indian political leaders: should India aim for growth that will lift incomes or should it first address social issues such as inequality and malnutrition that will eventually hinder growth?

Conclusion

Not by merely increasing spending, but by also converting these capability requirements into constitutional rights. Thus we have the “rights paradigm”-led development, conferring the right to employment, to education and to food, with utter disregard to costs. Even if you assume delivery efficiency, no leakages or corruption, ignoring costs in building capabilities does not make sense. Pitting human development versus growth is not right. It is more a matter of sequencing, and not so much about embrace versus outright rejection of the market mechanism[7].

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