HINDU
RATE OF GROWTH - ECONOMY
News:
Is India reverting to the
Hindu rate of growth?
What's
in the news?
●
India's gross domestic product (GDP) data
for the third quarter received a word of caution from the former Reserve Bank
of India (RBI) governor Raghuram Rajan.
Key
takeaways:
●
India’s GDP for Q3 slowed to 4.4%, and for
Q1, it grew by 13.2%, this slowdown in growth was termed as worrying by
Raghuram Rajan.
●
A report by the State Bank of India (SBI),
dismissed arguments that India is dangerously close to Hindu rate of growth.
Hindu
Rate of Growth:
●
The “Hindu Rate of Growth” is a term used
to describe the slow growth rate of the
Indian economy between the 1950s and the 1980s.
●
It was coined by the Indian economist Raj Krishna in the 1970s.
●
During this period, the Indian economy
grew at an average rate of around 3.5%
per year, which was much lower than other developing countries like South
Korea, Taiwan, and Hong Kong.
●
The term is considered controversial as it
suggests that the slow growth rate was a
result of cultural or religious factors rather than economic policies and
structural issues.
●
However, the term is still used in
academic and policy discussions to refer to the slow growth of the Indian
economy during this period.
Features
of Hindu Rate of Growth:
1.
Low GDP growth rate:
●
The term refers to the period from the
1950s to the 1980s when India’s economy grew at an average rate of around 3.5%
per year, which was much lower than other developing countries.
2.
Slow Industrialization:
●
The industrial sector was dominated by a
few public sector companies, and the private sector was heavily regulated.
3.
Stagnant Agriculture:
●
There was little investment in
agriculture, and the sector was not given much priority in government policies.
4.
License Raj:
●
India had a socialist economic model with
heavy government regulation.
●
The License Raj system required permits
and licenses for businesses, creating a bureaucratic and corrupt system that
hindered innovation and entrepreneurship.
5.
Import Substitution:
●
India followed a policy of import
substitution, where the government tried to develop domestic industries by
protecting them from foreign competition.
●
This led to a lack of competition, low
quality of products, and high prices.
6.
Inefficient Public Sector:
●
The public sector dominated the economy,
but it was inefficient, unproductive, and plagued by corruption.
●
Public sector companies were often
overstaffed and poorly managed, resulting in low productivity.
7.
Lack of Foreign Investment:
●
India was not attractive to foreign
investors during this period, and there was little foreign investment in the
economy.
●
The government imposed strict controls on
foreign investment, and the regulatory environment was not conducive to foreign
investment.
Concerns
flagged by Rajan:
Rajan noted that India’s
economic growth rate had been declining even before the COVID-19 pandemic hit
the country.
1.
Decline in GDP growth rate:
●
India’s
economic growth rate had fallen to 4.5% in the September quarter
of 2019, before the pandemic hit in early 2020.
●
During the pandemic, the Indian economy
contracted sharply, with GDP falling by 7.7% in the 2020-21 fiscal year.
●
The economy has rebounded somewhat, with
the IMF forecasting GDP growth of 9.5% for the current fiscal year.
2.
Lower growth potential than hyped:
●
Rajan noted that India’s potential growth
rate is likely to be lower than in the past, due to factors such as an aging population, a decline in the
working-age population, and sluggish investment.
●
He also cited the country’s poor
performance on human development indicators, such as education and health, as a
constraint on growth.
Key
suggestions:
●
Rajan called for measures to address the
structural factors that are holding back growth, such as investment in infrastructure and education, and improving the ease of
doing business in India.
●
He also emphasized the importance of macroeconomic stability and maintaining
fiscal discipline, to avoid inflation and currency depreciation.
●
He also called for measures to address
inequality, such as better targeting of
subsidies to those who need them most.