Cha

lleng

esto

In

dian

Gro

wth

Felix

Lam

Rob

ert B

ogol

ub

How

has

Indi

as

econ

omic

gr

owth

bee

n po

rtray

ed in

the

med

ia?

Age

nda

I. E

cono

mic

stru

ctur

e&

gro

wth

acc

ount

ing

II.H

isto

rical

lega

cy &

loca

ting

the

turn

arou

ndIII

.A

ddre

ssin

g th

e is

sues

Econ

omic

Stru

ctur

e an

dG

row

th A

ccou

ntin

g

The

Indi

an s

ituat

ion

Sec

ond

larg

est p

opul

atio

n in

the

wor

ldV

ery

succ

essf

ul s

ervi

ce s

ecto

r, bu

t a p

oorly

pe

rform

ing

indu

stria

l sec

tor

Nat

ion

ofE

nglis

h sp

eake

rsG

eogr

aphi

c ec

onom

ic d

ispa

rity

Dem

ocra

ticgo

vern

men

t & tr

aditi

ons

Stro

ng fi

nanc

ial i

nstit

utio

ns

Econ

omic

Stru

ctur

eH

isto

ry &

Turn

arou

ndA

ddre

ssin

gth

e Is

sues

Com

paris

on w

ith C

hina

Indi

aC

hina

Popu

latio

n:1.

095

B1.

314

BPo

p. G

row

th:

1.38

%0.

59%

2006

GD

P:$7

96.1

B$2

.512

TG

DP

Gro

wth

:8.

5%10

.5%

Sou

rce:

CIA

Wor

ld F

actb

ook

Econ

omic

Stru

ctur

eH

isto

ry &

Turn

arou

ndA

ddre

ssin

gth

e Is

sues

Indi

as

econ

omic

org

aniz

atio

n

I N D

IA

C

H I

N A

GD

PLa

bor

G

DP

Labo

rA

g.19

.9%

60

%

11

.9%

45%

Ind.

19.3

%

12%

48.1

%

24%

Serv

.60

.7%

28

%

40

%31

%

Sour

ce:

CIA

Wor

ldFa

ctbo

ok

Econ

omic

Stru

ctur

eH

isto

ry &

Turn

arou

ndA

ddre

ssin

gth

e Is

sues

Gro

wth

Acc

ount

ing

Sou

rce:

Bos

wor

th, C

ollin

s,&

Virm

ani.

Sou

rces

of G

row

th in

the

Indi

an E

cono

my.

Bro

okin

gs In

stitu

te, 2

006.

Econ

omic

Stru

ctur

eH

isto

ry &

Turn

arou

ndA

ddre

ssin

gth

e Is

sues

Gro

wth

Acc

ount

ing:

C

ompa

rison

with

Chi

na

Reg

ion

Ou

tpu

tLab

or

Ou

tpu

t /

W

ork

er

Ph

ysi

cal

Cap

ital

Lan

dEd

uca

tio

nFact

or

Pro

du

ctiv

ity

Ch

ina

9.2

27.3

3.2

00.2

3.7

Ind

ia5.4

23.3

1.3

00.4

1.6

East

Asi

a7.3

2.7

4.6

2.6

00.6

1.4

Co

ntr

ibu

tio

n o

f:

Figu

res

for 1

978-

2004

Sou

rce:

Bos

wor

th &

Col

lins.

Acc

ount

ing

for G

row

th: C

ompa

ring

Chi

na a

nd In

dia.

200

6.

Econ

omic

Stru

ctur

eH

isto

ry &

Turn

arou

ndA

ddre

ssin

gth

e Is

sues

Gro

wth

Acc

ount

ing:

Sec

tora

l

Sou

rce:

Bos

wor

th, C

olin

s &

Virm

ani.

Sou

rces

of G

row

th in

the

Indi

an E

cono

my.

Bro

okin

gs In

stitu

te, 2

006.

Econ

omic

Stru

ctur

eH

isto

ry &

Turn

arou

ndA

ddre

ssin

gth

e Is

sues

Sect

oral

Gro

wth

in O

utpu

tper

W

orke

r, 19

93-2

004

To

tal

Ag

ricu

ltru

al

Ind

ust

rial

Serv

ices

Reall

oca

tio

nC

hin

a8.5

0.7

51.7

1.2

Ind

ia4.6

0.5

0.9

2.1

1.2

Ana

lysi

s:In

dian

indu

stry

gain

s pr

imar

ily d

ue to

em

ploy

men

t, no

t ca

pita

lIn

dian

ser

vice

-sec

torg

ains

due

to s

trong

TFP

gro

wth

,de

spite

rela

tivel

y w

eak

capi

tal i

nves

tmen

t

Sou

rce:

Bos

wor

th &

Col

lins.

Acc

ount

ing

for G

row

th: C

ompa

ring

Chi

na a

nd In

dia.

200

6.

Econ

omic

Stru

ctur

eH

isto

ry &

Turn

arou

ndA

ddre

ssin

gth

e Is

sues

Educ

atio

nal A

ttain

men

t

Sou

rce:

Bos

wor

th, C

ollin

s,&

Virm

ani.

Sou

rces

of G

row

th in

the

Indi

an E

cono

my.

Bro

okin

gs In

stitu

te, 2

006.

Econ

omic

Stru

ctur

eH

isto

ry &

Turn

arou

ndA

ddre

ssin

gth

e Is

sues

The

trad

ition

al g

row

th p

atte

rn

The

tradi

tiona

leco

nom

ic g

row

th re

cipe

relie

s he

avily

upo

n in

dust

rial s

ecto

r exp

ansi

onIn

dust

rial g

row

th c

an li

ft a

larg

e pr

opor

tion

ofa

coun

trys

pop

ulat

ion

out o

f pov

erty

Indu

stry

brin

gs in

cap

ital a

nd e

ncou

rage

s in

frast

ruct

ural

dev

elop

men

tE

xpor

t-driv

en g

row

th is

use

ful f

or d

evel

opin

g co

untri

esY

et In

dia

is la

ckin

gin

dust

rial g

row

th

Econ

omic

Stru

ctur

eH

isto

ry &

Turn

arou

ndA

ddre

ssin

gth

e Is

sues

Indi

as

grea

test

obs

tacl

eto

gro

wth

is

its p

oori

ndus

tria

l sec

tor

We

belie

ve th

atIn

dia

s se

rvic

e se

ctor

gro

wth

can

not

subs

titut

e fo

r ind

ustri

al g

row

th in

defin

itely

Indi

as

larg

e (a

nd q

uick

ly g

row

ing)

pop

ulat

ion

need

s ab

unda

ntin

dust

rial j

obs

to ra

ise

livin

g st

anda

rds

Ser

vice

sec

tor j

obs

requ

iring

ext

ensi

ve e

duca

tion

affe

ct to

o fe

w p

eopl

eW

e w

ill n

ow a

ddre

ss w

hy In

dia

s m

anuf

actu

ring

sect

or is

perfo

rmin

g po

orly

, and

how

it c

anbe

set

rig

ht

Econ

omic

Stru

ctur

eH

isto

ry &

Turn

arou

ndA

ddre

ssin

gth

e Is

sues

Indi

as

His

toric

al L

egac

y &

Lo

catin

g th

e Tu

rnar

ound

A b

rief h

isto

ry o

f Ind

iaR

elat

ivel

yin

dust

rializ

ed b

efor

e co

loni

zatio

nTe

xtile

sect

orB

ritis

h co

loni

zatio

n in

19t

h C

. deindustrialized

Indi

aB

ut b

roug

htst

rong

lega

lins

titut

ions

and

ca

pita

l mar

kets

Bom

bay

Sto

ck E

xcha

nge

is th

e lo

nges

t-run

ning

st

ock

exch

ange

in A

sia

Inde

pend

ence

from

Brit

ain

in 1

947

Eco

nom

icS

truct

ure

His

tory

&Tu

rnar

ound

Add

ress

ing

the

Issu

es

Post

-inde

pend

ence

Indi

aP

rime

Min

iste

r Neh

ru (1

947-

64) r

espo

nded

to th

e po

st-B

ritis

hsi

tuat

ion

Hos

tility

to fr

ee tr

ade

and

mul

tinat

iona

lsIm

port

subs

titut

ion

in w

ake

ofth

e G

reat

Dep

ress

ion

Impr

esse

d by

Sov

ietm

odel

Mai

ntai

ned

rest

rictiv

e B

ritis

h la

bor l

aws

Poo

r gro

wth

resu

lted

1950

-74,

GD

P g

row

th w

as le

ss th

an 1

.5%

Dub

bed

the

Hin

du ra

te o

f gro

wth

Eco

nom

icS

truct

ure

His

tory

&Tu

rnar

ound

Add

ress

ing

the

Issu

es

How

bad

was

Indi

as

grow

th?

Fol

low

ing

Sim

ple

Gro

wth

The

ory,

Bra

d D

eLon

g an

alyz

ed In

dia

s gr

owth

from

196

0-19

92 c

ompa

red

to o

ther

dev

elop

ing

coun

tries

Sim

ple

Gro

wth

The

ory

has

thre

e de

term

inan

ts

of g

row

th:

Inve

stm

ent-t

o-G

DP

ratio

Pop

ulat

ion

grow

th ra

teIn

itial

out

put p

er w

orke

r

Eco

nom

icS

truct

ure

His

tory

&Tu

rnar

ound

Add

ress

ing

the

Issu

es

Ave

rage

Indi

a

Eco

nom

icS

truct

ure

His

tory

&Tu

rnar

ound

Add

ress

ing

the

Issu

es

This

lead

s to

at l

east

one

ofth

ree

conc

lusi

ons

1) In

effic

ienc

ies

in In

dia

wer

e co

mm

on

arou

nd th

e w

orld

2) In

effic

ienc

ies

in c

entra

l pla

nnin

g w

ere

offs

et b

y re

sour

ce m

obiliz

atio

n (In

dia

had

an

extre

mel

y hi

gh s

avin

gs ra

te)

3) In

effic

ienc

ies

wer

e de

trim

enta

l and

pr

even

ts In

dia

from

ach

ievi

ng a

hig

her g

row

th

path

Eco

nom

icS

truct

ure

His

tory

&Tu

rnar

ound

Add

ress

ing

the

Issu

es

Pro-

mar

ket r

efor

ms

of th

e90

s

Red

uced

impo

rt co

ntro

ls /

tarif

fsR

efor

med

mon

etar

y sy

stem

Cur

renc

yflo

atR

emov

ed li

cens

ing

requ

irem

ents

for i

nves

ting

Low

ered

tax

rate

sR

emov

ed p

rivat

e-se

ctor

mon

opol

ies

Ref

orm

ed fi

nanc

ialm

arke

tsS

ourc

e: E

iche

ngre

en, E

cono

mic

s 11

5 Le

ctur

e S

lide,

Ind

ia,

Spr

ing

2006

Eco

nom

icS

truct

ure

His

tory

&Tu

rnar

ound

Add

ress

ing

the

Issu

es

Res

ults

Gro

wth

rate

acce

lera

ted

to 5

-6%

Pov

erty

redu

ctio

nE

mer

genc

e of

IT s

ecto

r and

out

sour

cing

Eco

nom

icS

truct

ure

His

tory

&Tu

rnar

ound

Add

ress

ing

the

Issu

es

Pro-

Mar

ket r

efor

ms

led

to

Indi

an g

row

th

righ

t?

Eco

nom

icS

truct

ure

His

tory

&Tu

rnar

ound

Add

ress

ing

the

Issu

es

Ye

t Ind

ias

econ

omy

took

off

in th

e 80

s

Sou

rce:

Bra

d D

eLon

g

Eco

nom

icS

truct

ure

His

tory

&Tu

rnar

ound

Add

ress

ing

the

Issu

es

Poss

ible

exp

lana

tions

Gre

en re

volu

tion?

Bet

ter c

rops

led

to im

prov

ed y

ield

sY

et o

nly

acco

unts

for 1

/10

of th

e G

DP

gro

wth

Hug

e pu

blic

inve

stm

ent i

n th

e 19

80s?

From

4%

to 8

% o

f GD

PY

et a

regr

essi

on b

y B

arro

(200

0) s

how

s th

at

Indi

an p

ublic

inve

stm

ent c

ould

lead

to o

nly

0.2-

0.3%

GD

P g

row

th

Eco

nom

icS

truct

ure

His

tory

&Tu

rnar

ound

Add

ress

ing

the

Issu

es

Poss

ible

exp

lana

tions

(con

t.)

Inte

rnal

libe

raliz

atio

n?Y

et s

till a

long

way

to g

o; ti

min

g an

d m

agni

tude

coul

d no

t exp

lain

198

0s g

row

thE

xter

nal l

iber

aliz

atio

n?Y

et In

dia

s sm

all m

anuf

actu

ring

sect

or p

reve

nted

it

from

reap

ing

subs

tant

ial b

enef

its

Eco

nom

icS

truct

ure

His

tory

&Tu

rnar

ound

Add

ress

ing

the

Issu

es

Apr

o-bu

sine

ss s

hift?

Rod

eric

k an

d S

ubra

man

ian

expl

ain

1980

s gr

owth

st

emm

ing

from

atti

tudi

nal s

hift

in th

e go

vern

men

tP

ro-b

usin

ess

vs. p

ro-m

arke

tY

et th

is e

xpla

natio

n se

ems

too

ephe

mer

alto

yie

ld

such

a m

assi

ve g

row

th-r

ate

incr

ease

Wha

t do

you

thin

k?

Eco

nom

icS

truct

ure

His

tory

&Tu

rnar

ound

Add

ress

ing

the

Issu

es

Why

serv

ices

gre

w b

ut n

ot

indu

stry

?In

198

1, In

dia

s in

dust

rial s

ecto

r was

on

par w

ith

thos

e of

oth

er c

ount

ries.

Att

hat t

ime,

its

serv

ice

sect

or a

ctua

lly la

gged

(in

term

s of

the

valu

e-ad

ded

as a

per

cent

of G

DP

and

in

term

s of

em

ploy

men

t sha

re)

How

ever

, at t

hat t

ime

Indi

a di

d no

t fav

or la

bor

inte

nsiv

e in

dust

ry in

198

1; it

inst

ead

favo

red

skill

in

tens

ive

indu

stry

Val

ue-a

dded

by

labo

r int

ensi

ve in

dust

ryV

alue

-add

ed b

yno

n-la

bor i

nten

sive

indu

stry

Eco

nom

icS

truct

ure

His

tory

&Tu

rnar

ound

Add

ress

ing

the

Issu

es

Why

did

som

e st

ates

acce

lera

te fa

ster

than

oth

ers?

Som

e st

ates

sim

ply

had

a la

rger

cap

acity

for

grow

th(in

itial

ly)

Koc

hhar

, et a

l. us

ed a

dive

rsifi

catio

n in

dex

to

capt

ure

each

sta

tes

cap

acity

for g

row

thD

iver

sific

atio

nis

a p

roxy

for t

heam

ount

of

high

ly s

kille

dhu

man

cap

ital

Eco

nom

icS

truct

ure

His

tory

&Tu

rnar

ound

Add

ress

ing

the

Issu

es

Qui

ckTi

me

and

aTI

FF (L

ZW) d

ecom

pres

sor

are

need

ed to

see

this

pic

ture

.

Initi

al D

iver

sific

atio

n an

d St

ates

ND

SP G

row

th

Eco

nom

icS

truct

ure

His

tory

&Tu

rnar

ound

Add

ress

ing

the

Issu

es

The

role

of d

ecen

tral

izat

ion

Dec

entra

lizat

ion

led

to In

dia

s st

ates

bei

ng

mor

e in

con

trol o

fthe

ir gr

owth

path

sS

ome

stat

es h

ad in

here

nt q

ualit

ies

that

en

able

d th

em to

take

adv

anta

ge o

fthe

lib

eral

izat

ion

refo

rms

and

boos

t the

ir se

rvic

e se

ctor

sQ

ualit

y of

infra

stru

ctur

eA

mou

nt o

f inv

estm

ent

Edu

catio

n le

vel

Fina

ncia

l sec

tor s

treng

thE

cono

mic

Stru

ctur

eH

isto

ry &

Turn

arou

ndA

ddre

ssin

gth

e Is

sues

Indi

an S

tate

Div

erge

nce

Add

ress

ing

the

Issu

esFa

cing

the

Indi

an E

cono

my

Who

se e

cono

mic

str

uctu

redo

es

Indi

a m

ost c

lose

ly re

sem

ble?

78.6

%60

.7%

40%

Serv

ices

20.4

%19

.3%

48.1

%In

dust

ry

0.9%

19.9

%11

.9%

Agr

icul

ture

USA

Indi

aC

hina

(Per

cent

age

of G

DP

)

Eco

nom

icS

truct

ure

His

tory

&Tu

rnar

ound

Add

ress

ing

Div

erge

nce

amon

gsts

tate

s

Indi

as

curre

nt s

trate

gy is

lead

ing

tost

ate

dive

rgen

ce in

inve

stm

ent a

nd g

row

thFa

st g

row

ing

peni

nsul

ar s

tate

s vs

.slu

ggis

h hi

nter

land

sC

an th

e in

land

sta

tes

catc

h up

with

the

grow

th o

f the

pen

insu

lar s

tate

s?

Eco

nom

icS

truct

ure

His

tory

&Tu

rnar

ound

Add

ress

ing

Wha

t Can

Indi

a D

o?

The

lagg

ing

stat

es n

eed

to fo

llow

a m

ore

tradi

tiona

l pat

tern

of g

row

th: l

abor

-inte

nsiv

em

anuf

actu

ring

Eas

ier t

o em

ploy

the

mas

ses

Eas

ier t

o ex

port

man

ufac

ture

d go

ods

Wha

t has

pre

vent

ed In

dia

from

doi

ng s

uch

a th

ing

in th

e fir

st p

lace

? H

arm

ful r

egul

atio

n is

th

e pr

imar

y cu

lprit

.

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