Economy and the Independence Cup

Not surprisingly, the IMF’s World Economic Outlook which was released earlier this month estimated that India would take 154 years before its per capita income reached half that of the developed countries in 1995 ! This is based on growth in the period 1990-95. But even if it is able to sustain the last two years’ growth of 7 per cent, it will still take 70 years.

One will find, in the same report, that Indonesia will take just 23 years to achieve the same feat, Malaysia a mere 8, and China 16. Bangladesh, thankfully, has not deserted India and will trundle on to this target in 141 years. Sri Lanka, which may eventually celebrate India’s independence with the Independence Cup, will do it in 46 years.

What hurts the most is that, as in the match with Pakistan, India has managed to do a reasonably good job with the economy. How else would you explain the fact that we’ve averaged a growth of around 7 per cent for two years when we were just about resigned to growing at the rate of 3-4 per cent that the late Raj Krishna disparagingly called the Hindu rate of growth? How else can one explain the fact that today we have a fairly well-developed and diversified industrial structure and that only a few, like those in the BJP and the Left, are arguing that foreign competition will wipe out Indian industry?

So, what is it that makes one fear that, as in the cricket match, despite our best efforts we look all set to end up as hopeless losers? The answer lies in not learning from what others in the world are doing and, in the event, not being able to gain valuable insights.

So what can we learn from others? Let’s get back to that IMF report which, incidentally, is saying much the same thing that new-age economic gurus like Jeffrey Sachs of the Harvard Business School have been saying. The IMF compiled a data-set of 110 developing countries for the period 1985-95 to figure out what made them grow fast. They then identified three parametersopen economies, macroeconomic stability and small size of government-and tried to see how these affected growth.

What did they find? They found that only those countries which met all three criteria grew fast on a sustainable basis. So, a country which had an open economyhigh ratio of foreign trade to GDP over 45 per centbut had a large government was unlikely to succeed.

Where does India figure in terms of these parameters? With government spending close to a third of GDP, the size of government is medium. With imports and exports comprising around a fourth of GDP, clearly we’re a closed economy. And with the size of the combined central and states deficit, it is obvious that we are still quite a long way from macro-economic stability.

With the die so heavily loaded against us, it’s no surprise that we’re light years away from the growth that other countries in Asia have been seeing. Korea saw its real per capita income increase fivefold in the last 30 years, Thailand saw it grow five times, and Malaysia saw it grow four times.

India’s per capita income grew at a more sedate 1.7 times. That, in the 50th year of Independence, is surely a sad state of affairs. Which is why we’ve won Independence, but not the Independence Cup.