Redefining The Hindu Rate Of Growth

Updated: Apr 12 2004, 05:30am hrs
The political controversy over Indias 8% plus GDP growth during 2003-04 exemplifies the contested nature of this topic. True to form, the BJP-led government is tom-tomming this number as indica- ting that India is on the verge of explosive growth. The Opposition, for its part, is pooh-poohing it as statistical jugglery. Nevertheless, there is a lot of interest whe-ther this is a one-off phenomenon or is sustainable.

Arvind Virmani doesnt directly address this controversy, but his latest work* has a lot to say on trends over the last 50 years. For starters, he observes that Indian econom-ic growth has been stable although two pha-ses can be dis- cerned. The first, what he terms as Indian-socialist rate of growth, starts from 1951 and lasts till 1979-80. The second, termed as the Bharatiya rate of growth, starts from 1980-81 and is still going on.

During the first phase, GDP growth averaged 3.5% per annum while per capita income averaged 1.3%. The percentage of Indias popul-ation below the poverty line increased from 45.3% in 1951 to 47.3% in 1979-80. In contrast, growth accele-rated to 5.7% per annum during the second phase while per capita income grew by 3.6%. Poverty also trended downwards during this phase.

The choice of these expressions may not be the most felicitous, but the author intends to delineate the phase of state-directed economic activity or dirigisme from the second phase in which the reform saga begins. Virmanis intention is also to delineate sub-phases within these two broad phases to highlight the disastrous economic experience that befell this nation, especially between 1965 to 1979.

Similarly, there are two sub-phases within the Bhar-atiya rate of growth phase, notably 1980-91 and 1992 till now. Interesting paradoxes surface with this exercise starting with the dram- atic growth spurt that took place from 1980-81 to 1991 with very modest and half-hearted reform while subsequently growth picked up only marginally despite comprehen- sive reform. The author attempts to explain these puzzles, but is aware that the answers are not in the realm of economics but politics as well.

On GDP growth, Virmani shows that the growth trend during the Bharatiya rate of growth phase fell continuously since 1995-96. That the economy is now stuck at a rate of 5.8% per annum. That the trend in 2002-03 was a full 1% lower than this due to the sharp cyclical decline that took place. That even if the economy grew by 8% in 2003-04 and by 6% this fiscal, it is still condemned to the Bharatiya rate of growth.

*Indias economic growth: From socialist rate of growth to Bharatiya rate of growth, Working paper 112, ICRIER, New Delhi, February 2004