This paper empirically examines India's economic growth experience during 1960-2004, focusing on the post 1973 acceleration. Careful attention is paid to data quality. The analysis focuses on two unusual dimensions of India's experience-the concentration of growth in services production, and the modest levels of human and physical capital accumulation. A growth accounting analysis disaggregates by major sector, and highlights implications for aggregate productivity growth of the reallocation of resources out of agriculture to more productive activities in industry and services. But concerns are raised that growth in services may be overstated. India will need to broaden its current expansion to provide manufactured goods for the world market and jobs for its large pool of low-skilled workers. Increased public saving, as well as a rise in foreign saving-particularly FDI-could augment the rising household saving and support the increased investment necessary to sustain rapid growth.
Most estimates of Indian manufacturing productivity find a slowdown in the 1990s. This has puzzled analysts, given that 1990s reforms were deeper and wider than the 1980s reforms that raised the growth rate of the Indian economy by 2 per cent points. This paper tests the hypothesis of the J curve of Productivity and Growth following major liberalization and finds it to be broadly supported by the data: Technological obsolescence, gradual adoption of new technology and learning by doing result in negative effects on measured productivity. JEL Classification Numbers: D24, O41, O47, L60 s) and are published to elicit comments and to further debate. Curve Pattern J J S J J-S=>J S=>J S-S=>J S=>J J S=>J J Curve Pattern: S=>J J S=>J J J S=>J -J-S S=>J S=>J
The determinants of savings generally and the specific effects of government policies on savings and consumption are pivotal forces in investment and economic growth The Hall hypothesis states that consumption is a function of lifetime ("permanent") income, rather than income in each period independently Changes in interest and tax rates, money supply, or government expenditure will affect permanent income and hence consumption and savings only if they are unexpected and thus not already incorporated in the estimation of permanent income We are unable to reject the Hall hypothesis in tests for developing countries when we allow for varying interest rates We do find evidence of a negative effect of inflation on consumption, and a positive relatzonship between the real znterest rate and consumption The evidence for the Hall hypothesis also suggests that Ricardian equivalence may be valid-this is Barro's hypothests that the effect on savings is the same whether government deficits are financed through taxation or debt Our preliminary testing, however, does not support Ricardian equivalence
The paper reviews and draws lessons from the experience of fast growing economies including a subset of these termed High Growth Economies (HGEs) with a decadal rate of over 7 per cent. It then reviews the history of the Indian growth acceleration following the reforms of the 1990s and its future prospects given the recent slowdown. It analysis the potential dangers and reasons for India's growth slowdown and proposes policy reforms for sustaining fast growth.
The old paradigm of development is that of a Mai-Baap Sarkar, based on the assumption that the active involvement of the state is essential for economic development and poverty removal. This spread of the Leviathan has been accompanied by a gradual but pervasive deterioration of governance. There is therefore the need for a new paradigm that recognizes that 'government failure' is a much more important problem than 'market failure', based on a recognition of the strengths and the weakness of the state and the people. A democratic society has enormous potential for entrepreneurship, innovation and creative development. The people, their diverse forms of activity and association such as companies, cooperatives, societies, trusts and other NGOs must be allowed and encouraged to play their due role. The state must focus on what it alone can do best and shed all activities that the people can do as well or better. The heavy hand of the government in the form of incentives, distorting laws, rules, regulations, procedures and red tape, have also corrupted industry, business and other organized interest groups. These must be removed so as to release the energy of the people. The state should confine itself to managing the economy so as to accelerate employment and income growth in a self-sustaining manner, ensure that all citizens receive their entitlements of basic public goods and services, and empower the poor so that they have equal rights (and responsibilities) with other citizens.
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