Day: September 16, 2005

It is common knowledge that the Indian economy which was securely imprisoned since independence in 1947 has undergone a radical transformation and has seen a departure from its dismal 3 percent “Nehru Growth” to a more respectable 6 percent and more since the 1980s. There is little room for debate on that fact. What observers appear to disagree on is what were the factors that led to the transition from the “Nehru Growth” to the present.

Very broadly speaking, here is a thumb-rule I use to figure out what factors led to the Indian economic growth 1980s onwards. List every policy—domestic, international, industrial, education, health, banking, etc—that Nehru and his descendents imposed on the economy. Systematically reverse the policy and as you do so, you see the economy accelerating. In other words, if your goal is to create a set of policies that would ensure economic stagnation and deepening poverty of a large economy, the shortest route for you would be wholesale adoption of all the Nehruvian policies. Conversely, the quickest method of figuring out what to do to for economic growth, is to take any component of the Nehruvian policy prescription and apply the reverse.

To the extent that Nehruvian policies have been reversed, India’s economy is prospering. If the economy has not attained its potential growth rate yet, it is because not all of the mindless Nehruvian (but I repeat myself) policies have been discarded yet. I have no doubt that the nation will become slowly wise eventually. How many hundreds of millions will suffer poverty in the meanwhile is a question that is best not contemplated.

What got me thinking about the “Nehru Growth” rate is a recent paper in “IMFstaffpapers: A journal of the IMF” by Rodrik and Subramanian “From ‘Hindu Growth’ to Productivity Surge: The Mystery of the Indian Growth Transition.”
Continue reading “From ‘Nehru Growth’ to Productivity Surge”