Introduction
Elections are a few months away and the election battle has been
joined. Parties are formulating their manifestos
and trying to refine a vision that they can present to the voters. It is therefore timely for those of us with a
national (as against party) perspective and some knowledge and experience of
economic development, growth and governance, to put forward our views for the
consideration of the contending parties.
In the first of a series of notes, we start by putting the critical
importance of economic growth to people’s Welfare in historical perspective.
Social Welfare
History
The welfare of the average Indian was about
the same as the welfare of the average inhabitant of the World at the peak of the
Pala (Northern) and Chola (Southern) empires (1000-1200). This was followed by
a period of invasion, wars and political consolidation (Sultanate, Mughals),
during which the real income of the average Indian fell to 80% of the average
World inhabitant by 1820. The gap between the welfare of the average Indian and
the World widened dramatically during colonial rule, reducing the average
Indian to pathetic poverty by the time of Independence. In 1950 the real income of the average Indian
(per capita GDP at PPP) was reduced to a quarter (1/4th) of that of
the average inhabitant of the World. The British colonialists ensured through a
combination of neglect and design, that the industrial revolution did not revolutionize
India’s economy. The fruits of the
industrial revolution, which originated in Great Britain and propelled it to
global super-power in 19th century, were denied to India.[i]
Socialist Decline
The gap continued to widen during the
first 30 years of Independence, to reach its widest point of 85 per cent points
in 1980. During this period economic
policy was driven by the ‘Indian version of socialism,’ sometimes incompletely
referred to as “Fabian” or “Nehruvian Socialism”, as Shrimati Indira Gandhi
contributed to its negative development from 1966 to 1977. This misplaced approach
continued the Indian people’s descent into abject poverty, to 14.5% of World
average. In 1980s Mrs. Indira Gandhi
abandoned her failed policies, accelerating India’s per capita income growth
above the World average and began to close the Welfare gap.
Reforms and Catch UP
The economic reforms and liberalization of the Indian economy, first in
the 1980s and then further in the 1990s, has had unambiguous benefits for the
Indian people. The welfare of the
average Indian had increased to about a third (1/3rd) of that of the
average World inhabitant by 2010. The
rate at which the welfare gap has been closing has accelerated over this period
(1980 to 2010), with the rate of catch up during the 2000s being about three
times that during the eighties. The
highest average 10 year growth rate of per capita GDP at PPP was 6.2% in decade
2002 to 2011. These facts contradict assertions based on selective use of
comparator countries and time periods. However, this acceleration had within it
the seeds of its own hubris. Because of widespread growth complacency and consequent
mismanagement, growth collapsed in 2011 and the welfare gap has started
widening again. Unless the new government formed after the election, takes decisive
corrective action, the gap may continue to widen in 2014.
Social Indicators
It is very important to
understand that it is this gap between our per capita GDP (at PPP) and the
World, that, (a) categorizes us as a (relatively) poor country, (b) results in
our having much greater ratios of poor and near-poor people than other
countries, and (c) Is the primary cause of the gap between our social welfare
indicators and those of better off countries. In 2012, Vietnam with a per capita
GDP at PPP of 30% of the World average was two ranks below India at 32% while
Pakistan with 24% of World average is 8 ranks below. On the upper side are Philippines (37%),
Indonesia (42%) and Sri Lanka (52%), still poor, but with their “Aam Admi” much
better-off than ours.
Conclusion: Objective
The fundamental objective of any
Indian government must be to close the welfare gap of the Indian people with
the rest of the World, in the shortest possible time. This objective is inseparable from the
objective of sustaining fast growth. What is a realistic target to aim for by
2020-2025? The next Indian government should
aim to raise the per capita GDP level of India to 43% of global average by 2020
and 54% by 2025 (from 32% today). This will require a restoration of per capita
growth to 6.5% within three years and a sustaining of this growth rate till
2025. This will generate economic opportunities and jobs for youth and begin to
restore the welfare and dignity of the average Indian to the level of the
average World inhabitant. We will
explore other elements of the broad vision in subsequent articles.
[i] Arvind Virmani, "Fall and Rise of India", Working paper No. WsWp 1/2013, October 2013 at https://sites.google.com/site/drarvindvirmani/growth or https://sites.google.com/site/drarvindvirmani/working-papers
[i] Arvind Virmani, "Fall and Rise of India", Working paper No. WsWp 1/2013, October 2013 at https://sites.google.com/site/drarvindvirmani/growth or https://sites.google.com/site/drarvindvirmani/working-papers
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A version of this note appeared under the same title at:
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