What freedom has meant for the Indian economy
One of the dominant themes of India’s freedom movement was the economic costs imposed by unfriendly British policies on India. Liberation from British Raj not only brought about political freedom but more concerted efforts to raise the level of economic growth and development. Despite hiccups and some inherent flaws in the plans of India’s new political elites, India’s growth engine saw a revival after independence in 1947. In less than seven decades since then, India’s per capita income—at constant prices —grew six times, data from The Maddison Project shows.
The Maddison Project database, based largely on data compiled by renowned economic historian Angus Maddison, is an attempt to provide consistent macro-economic time-series data for major economies since the nineteenth century. The database uses a common currency unit: the GK$ or Geary–Khamis dollar to compare trends across time and geographies. The Geary-Khamis dollar is the hypothetical unit of currency that has the same purchasing power parity that the US dollar had in the US in 1990.
The per person value of goods and services that India produced in 1884 was GK$551 in 1884. This figure grew only marginally over the next 63 years to rise to GK$ 618 in 1947. In the 63 years that followed Indian independence, this figure shot up six times to touch GK$3372 in 2010.
During the early years of India’s Independence, the economy’s growth rate was lower but comparable to India’s emerging market peers. The key emerging markets included in the analysis are Brazil, China, South Africa and South Korea.
The early phase of Indian economic planning, led by Jawaharlal Nehru was moderately successful in raising growth. Like the economist-turned-lawyer B.R. Ambedkar, Nehru believed that rapid industrialisation driven by the state was the most effective way to abolish mass poverty. These leaders’ views in fact echoed those of the titans of Indian industry at that time, articulated in the Bombay Plan of 1944-45.
The post-Nehru era, however, saw India’s growth rate slip below those of her peers. At a time when other controlled economies such as South Korea were opening up their economies and turning their industrial hubs into export powerhouses, Indian economic policy continued to be inward-looking. The licence-permit raj gained in strength, leading to corruption, and cramping economic growth. The shackles on Indian businesses began to be loosened around the 1980s, and the Indian economy started growing at rates never experienced before. Since then, the growth rate of the Indian economy has eclipsed that of most of the country’s peers.
While the recovery in India’s growth rates, fostered first by political freedom and then by economic freedom, has been impressive, the distribution of those gains has left a lot to be desired. India’s record in developmental indicators lags far behind that of her peers, and income inequality is far higher, data from a newly instituted household survey shows.
Among the Bric (Brazil, Russia, India, and China) economies, India has the lowest literacy rate. India is more than a quarter century behind China on literacy and 35 years behind Brazil, shows World Bank data. This calculation is based on how long ago a peer country achieved a similar milestone. For example, China achieved a similar literacy rate as India’s more than 25 years ago.
The gap in healthcare, measured in terms of life expectancy, is similar. On life expectancy, India is 19 years behind Brazil and 30 years behind China.
As a previous Plain Facts column pointed out, the gap between India and China is the widest when it comes to social indicators. China is about three decades ahead on most social indicators, one decade ahead when indicators of income are considered, while the two countries are almost on par on digital parameters.
The poor development of India’s human capital has meant that only a minority of Indians have been able to gain from the country’s rapid growth over the past three-and-a-half decades. Only a small section has been able to move up the educational and occupational ladder. It is not so surprising then that the level of income inequality in the country is among the highest in the world.
While in terms of consumption inequality, India’s inequality looks benign, in terms of income inequality measured using data from the India Human Development Survey, India’s inequality appears to be extremely high, and comparable to the most unequal Latin American countries.
The high levels of inequality threaten the gain from political and economic freedom which India has enjoyed over the past several decades.
As Ambedkar warned in his final speech to the Constituent Assembly, political equality in the face of stark economic and social inequality may prove unsustainable over the long run in the absence of economic equality.
“On the 26th of January 1950, we are going to enter into a life of contradictions,” said Ambedkar. “In politics, we will have equality, and in social and economic life, we will have inequality.... How long shall we continue to live this life of contradictions? How long shall we continue to deny equality in our social and economic life? If we continue to deny it for long, we will do so only by putting our political democracy in peril. We must remove this contradiction at the earliest possible moment or else those who suffer from inequality will blow up the structure of political democracy which this Assembly has so laboriously built up.”
This is the first of a two-part data series on how the Indian economy has changed over the past 70 years.
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