By Pahur Jain

Edited by Namitha Sadanand, Associate Editor, The Indian Economist

In a class on Indian economic development, our professor talked about the Hindu rate of growth of the economy during the Nehruvian regime and the subsequent one and a half decades. He asked the class that what we thought it could be. No one answered. I guess everyone was as befuddled as I. After some kind words of encouragement from our teacher, one student answered-the majority of the Indian population is Hindu, so the term Hindu rate of growth might refer to its growth. Economists could not be that lame, I thought, and my qualm was settled as our professor seemed amused at the answer.

The term: How it came about and what became of it

The phrase Hindu rate of growth, often considered pejorative, was christened by famous anti-establishment economist Raj Krishna, who used it to describe India’s unsatisfactory growth trend, which at the time (1950-80) was stuck at 3.5 to 4% per year. He was a staunch opponent of the government’s pro-socialist, protectionist and interventionist policies, popularly known as ‘license-permit-quota-raj’, a term that refers to the copious licences, tedious regulations and accompanying red tape that were necessary to set up businesses in India between 1947 and 1990. Though it was not stated by Raj Krishna what he meant by Hindu rate of growth, some economists of his time believe he alluded to the cliché of acquiescence in the present-that the religion supposedly imparts, because of a greater emphasis on the hereafter[1] . In layman’s terms, the rate of growth reflected the Hindu philosophy of contentment and good karma, which are essential traits for leading a better afterlife.

Arvind Virmnani, an eminent Indian economist who has served as Chief Economic Adviser to Government of India and was appointed as India’s representative in the International Monetary Fund in 2009, however, dismisses the connotation in a paper and says, “There is nothing in the literature that suggests that this period of the “Hindu Rate of Growth” had anything to do with Hinduism per se. This paper shows that had a lot to do with the Indian version of Socialism. The 30-year period from 1950-51 to 1979-80 is therefore better described as the “Indian-socialist” or perhaps “Hindu-socialist” period.”[2] In the same paper, Virmani has termed India’s exceptionally high growth rate from 1980-81 till 2002-03(5.8% on an average) as the “Bharatiya rate of growth”.

The term “Hindu rate of growth” finds usage in contemporary media as well. The economic slowdown that began in 2011 has almost led to halving of the GDP growth rate in just three years (from 9.3% in 2010–11 to 4.8% during the quarter through March 2013) .Many news reports term this slowdown as “going back to the Hindu rate of growth.”[3]

Some interesting economic phenomenon, and more interesting nomenclature: The Birth of the ‘Tigers’ and Miracles on rivers

While India was struggling with low rates of growth of GDP and per capita income, and probing ways to transform itself from a gloomy saga of missed opportunities of development to an ambitious story of self-reliance, its neighbours in the east were unleashing the ‘Tiger’ within. The spectacular growth stories of Hong Kong, Singapore, South Korea and Taiwan in the second half of the twentieth century led to them being branded as the Four Asian Tigers. From 1966 to 1990, while per capita income growth in the US was 2 percent, it managed to average 7 percent in these economies.

In the 1950s, these countries had the same income levels as India but have prospered to become developed nations. While Indian policy makers continued to belabour jingoist sentiments, these countries grew by leaps and bounds by heavily relying on industrialisation, free-riding on foreign technology, and rapidly accumulating physical and human capital to enhance domestic productivity. While some commentators feel that an efficient imitation of foreign technology that led to rapid industrialisation was a major growth factor, some others trace it to large increases in measured factor inputs: increases in labour-force participation, increases in capital stock, and increases in educational attainment. In South Korea, for example, the investment-GDP ratio rose from about 5 percent in 1950s to about 30 percent in the 1980s; the percentage of the working population with at least a high school education went from 26 percent in 1966 to 75 percent in 1991. [4]

The Miracles: Long before Psy and Gangnam happened to South Korea, it witnessed a miracle famously called ‘Miracle on the river Han’. Actually, the post war boom created by a rapid increase in exports, industrialisation and urbanisation in South Korea turned it into the world’s 15th largest economy and a role model for many developing nations in Asia [5], was termed as the miracle. This alludes to the economic growth of Seoul, through which the River Han flows. The phrase takes inspiration from the ‘Miracle on the Rhine’, used to refer to the rapid economic rebirth of West Germany after World War II. The penchant to give fancy names to interesting phenomenon also led to the coining of ‘Taiwan Miracle’, along similar lines.

The reader must be wondering about the reason for calling these terms bizarre. That is due to the fact that what happened in the Asian Tigers is an economic phenomenon that can be explained using tools of growth theories. It took great amount of hard work and economic planning to bring about such prodigious growth turnarounds. To term it as a ‘miracle’, would be to belittle the efforts of the stakeholders in the economic development of these nations.

The economic oxymoron

Oxymoron is not just a device confined to literature. In a shift from talking about bizarre economic phrases and growth histories of nations, I am now going to define a rational economic process with a bizarre name (everything is so BIZARRE about this article, and that was the last time I used THAT word). In his book ‘Capitalism, Socialism, and Democracy’ (1942), economist Joseph Schumpeter suggested that economic progress comes through a process of “creative destruction.” [6]According to him, the driving force behind progress is innovation. The generation of ideas to manufacture new products or create new ways to manufacture existing products, is a creative process but it has an inherent element of causing destruction: destruction of the old ways or products.

Ponder over it and you realise that the process of creative destruction has been in force much before Schumpeter gave a formal definition to it. Not going much deeper into the past, consider the Industrial Revolution in Britain. The advent of machines made it possible to replace unskilled workers at low cost. A more recent example would be of E-commerce. The process of online shopping has eventually affected traditional retail and in the near future, might as well engulf it.

Now the question-is creative destruction always welcome? The answer is no. Faced with the prospects of being victims of creative destruction, incumbent market operators might as well look to the political process to stop or delay the entry of new, more competent products. An apt example would be the opposition to FDI in retail in India. The opposition from small retailers would hinder the process of emulation of Walmart’s model in India, preventing consumers from reaping the benefits of getting goods at lower costs from traditional retailers; this might hamper productivity growth in the retail sector.

This article is an attempt to highlight that economics is not just about economics. The outcome of economic phenomenon is not independent of various other facets of a society, be it religious, legal, political, philosophical, cultural and so on. Economic theories hold good as long as the assumptions made in devising them hold ground, which seldom happens in real life.

References:

1)     Arvind Subramanian, 2012, Growth Experience in K. Basu and A. Maertens, The New Oxford Companion to Economics, OUP.

2)     Arvind Virmani , 2004, India’s Economic Growth: From Socialist Rate of Growth to Bharatiya Rate of Growth, Working Papers from Indian Council for Research on International Economic Relations, New Delhi, India

3)     The following news reports were retrieved:

4)     N. Gregory Mankiw, Macroeconomics, Worth Publishers, 2010. For an insight into the debate:http://scholar.harvard.edu/barro/files/98_0427_easiantigers_bw.pdf

5)     http://koreatimes.co.kr/www/news/nation/2009/07/113_48292.html

6)     http://www.econlib.org/library/Enc/CreativeDestruction.html

 

Posted by The Indian Economist | For the Curious Mind