It was moving to be in Delhi for the 71st celebration of India’s independence on August 15. I am not quite ‘midnight’s child’, but gnarled enough to recollect most of the narrative over this long period. The anniversary has also provoked an outpouring of interest in the partition of British India into the successor states of India, Pakistan and Bangladesh following independence. This also has personal resonance as I was born in Delhi to a mother from Amritsar and a father from Lahore, both educated in Lahore, the cultural capital of undivided Punjab. While they were both already in Delhi in 1947, their small flat provided succour to hordes of fleeing relatives.
As a development economist, my purpose in this column is to reflect on India’s economic journey over this long period. In his speech from the ramparts of the Red Fort, prime minister Narendra Modi called upon the nation to join together in a dash for modernity over the next five years, when India will have been free for 75 years. While I was born in Delhi, more than half my professional life has been spent abroad. My perspective on India is therefore irredeemably ‘from the outside in’. Economic progress is not an end in itself. It is a means to enhanced human agency: Both ‘freedom from’ (hunger, disease etc.) and ‘freedom to’ (develop skills and talents), in the distinction made by Sir Isaiah Berlin. Today, there is often scepticism expressed on the value of economic growth, but I still believe that there is a loose but important correlation between real per capita income and these ultimate fruits of affluence.
Equally, based on the work of Nobel Laureate Angus Deaton (among others) on health outcomes, I also agree that for any given level of real average personal income, determined public action can make a big difference to social outcomes. Finally, over the same 70 years, government action has come to be seen, rightly or wrongly, as the decisive element in determining economic performance, and for that reason as a key yardstick of governmental success. So how well (or badly) has India performed since independence? The standard source for comparing real income levels across countries over long periods of time is the work of Angus Maddison, continued after his death by researchers at the University of Gröningen. These data apply a common set of prices across countries and over time to facilitate comparison, to what are referred to as constant 1990 Geary-Khamis dollars (G-K$).
Using this common measuring rod, we learn that in 1947 India’s real output per head (per capita GDP) was G-K$618. The last year for which these calculations are available is 2010, by which time real output per head had gone up five-fold, to G-K$3372. Is this good or bad? We can ask when today’s rich countries were as poor as India, and how long some of them took to quintuple their output per head. The shocking reality is that where India was in 1947 is about where England was in 1280, while India in 2010 is where England was in the Victorian era, 700 years later. So our development has been ten times quicker than the country from which we gained independence.
It will be argued, rightly, that it is much easier to grow quickly today because the path has already been trodden, a mechanism that economists call ‘convergence’. This is true, and I will provide some numbers from our Asian peers which bear this out. But let me first observe that the belief in the possibility, indeed probability, of convergence is itself of recent origin. Writing in the 1960s, another Nobel Laureate, Gunnar Myrdal, in his magisterial ‘Asian Drama’ foresaw Malthusian disaster for much of Asia, India included. As the Harvard economist Lant Pritchett observed at a recent lecture sponsored by the National Council for Applied Economic Research, there is actually little hard evidence that high growth rates persist indefinitely, even in middle-income countries. More common are spurts of growth (which can last for as much as a decade or two) after which growth returns to a lower long-term trend.
Turning to more contemporary experience, the Maddison data confirm that India’s relative growth performance over the long haul is at this point clearly inferior to that of China, South Korea, Indonesia and Thailand, about the same as the Philippines and Vietnam, and distinctly superior to our larger South Asian neighbours, Pakistan and Bangladesh. These comparisons help to make two points. The first is that it is hard to get growth momentum going when an economy is as poor as India was in 1947, but we succeeded. The second, more important point is that, over the long sweep, India is neither abject failure nor blinding success.
This is true in other areas as well: in recent joint work on Indian energy1 which benchmarked Indian energy consumption against a wide array of countries, India ended up in the middle of the pack. An aspect of our noisy democracy is our belief that we are somehow unique. In many areas, the boring truth is that we are surprisingly middle-of-the road, and are lucky to have a relatively balanced economy both across sectors and between domestic and external sources of demand. Even our low rank on the human development index broadly tracks our rank in real per capita GDP. For these reasons my judgment is that overall India is more ‘on track’ than ‘off the rails’, an English phrase meaning someone has lost its way.
Notwithstanding this optimism, I believe the Prime Minister has shown insight and leadership in identifying four elements in our development experience that require public debate and policy attention. The first is ‘informality’ in employment: the fact that the vast majority of the labour force works in small unregulated establishments or are self-employed by necessity rather than by choice. The second is the unacceptable treatment of women and children in large parts of the country. The third is awareness of the importance of public sanitation and hygiene. The fourth is the fiscal, and indeed moral, need to improve direct tax compliance.
This is a difficult but worthwhile agenda on which to engage the nation. Whether it will be sufficient to usher in a ‘new India’ in five years remains to be seen.