This gentleman has quite a different take on India
India was very late to experiencing modern economic growth. The escape from economic stagnation, the normal condition of humanity, became apparent in the U.K. and the U.S. in the 1800s. India remained mostly stagnant until 1991. In that year, under Prime Minister P. V. Narasimha Rao and Finance Minister Singh, India enacted economic reforms that have allowed growth to take off.
Post-independence India was committed to socialism and the development of the domestic economy to the exclusion of the rest of the world. Indian National Congress governments under Jawaharlal Nehru and his daughter Indira Gandhi put the state at the center of the economy, with five-year plans, import substitution, industrial policy, and severe restrictions on foreign trade and investment. Nehru was widely praised as a visionary leader striking out against Westernized capitalism.
Unsurprisingly, this policy program didn’t work. Economists in the 20th century referred derisively to the “Hindu rate of growth,” the unusually low GDP growth rate that India experienced for a developing country. But the legacy of Nehru was hard to shake politically.
Rao was finally able to do it in 1991, when a balance-of-payments crisis forced the government to turn away from socialism, but his contribution was as an experienced parliamentarian, not as the ideas guy. For ideas, he needed Singh, whom he appointed finance minister despite Singh’s having never served in parliament at all. Singh was an Oxford-educated economist who had previously been governor of India’s central bank. He was born in present-day Pakistan and his family moved to newly independent India after the Partition. He had studied India’s economy for decades and knew what needed to be done.
In 1991, Singh eliminated the License Raj that had replaced the British Raj as the oppressor of the Indian people. He removed prohibitions on foreign direct investment. He removed currency controls and deregulated the financial sector. He slashed tariffs and other trade barriers. He privatized state-owned companies. Growth took off and hasn’t looked back.
The reason we care about that GDP-per-capita graph is because that line shooting up corresponds with so many other things we care about. Since 1991:
- Consumption or income per day for the median Indian has nearly doubled.
- The percentage of Indians living in extreme poverty, defined as less than $2.15 per day in real dollars, declined from roughly half to roughly one-eighth.
- The percentage of Indians living on less than $3.65 per day in real dollars has declined from over 80 percent to 44 percent.
- The percentage of Indians living on less than one dollar per day in real dollars has declined from about 4 percent to about 0.5 percent.
- Indian life expectancy has increased from 59 to 72.
- India’s child-mortality rate, the percentage of children who die before the age of five, has declined from 11.9 percent to 2.9 percent.
- India’s infant-mortality rate, the percentage of babies who die before the age of one, has declined from 8.2 percent to 2.6 percent.
- The share of Indian children who are malnourished has declined from 52.8 percent to 31.5 percent.
- India’s death rate from malnutrition has declined from 8.6 per 100,000 to 1 per 100,000.
- The share of India’s population with access to electricity has increased from roughly half to nearly everyone. Put differently, the number of Indians without access to electricity has decreased from over 400 million to under 30 million.
- Electricity generation per Indian has roughly quadrupled.
- The share of India’s population with access to clean fuels for cooking has increased from 12.2 percent to 71.1 percent.
- The percentage of Indian deaths attributed to unsafe water has declined from 13.9 percent to 3.3 percent.
- India’s death rate from unsafe sanitation has declined from 167.2 per 100,000 to 25.2 per 100,000.
- The number of Indian air-travel passengers increased from about 10 million to over 150 million.
- India’s literacy rate has increased from 48 percent to 77 percent.
- The youth literacy rate for Indian women has increased from 49.3 percent to 95.5 percent. The literacy rate for adult women has more than doubled.
- The share of Indian children of primary-school age who are in school has increased from roughly four-fifths to nearly everyone.
- The gap between Indian boys and girls receiving primary education has disappeared.
- The percentage of Indians who have received no formal education has declined from about 50 percent to about 20 percent.
- Average years of schooling for Indians has more than doubled.
- India’s completion rate for primary education has increased from 57.2 percent to 96.2 percent.
These facts help clarify what economist
Robert Lucas meant when he said that once you start to think about economic growth, it’s hard to think about anything else. India’s economic liberalization, enacted by Singh as finance minister and continued in fits and starts since then, has improved the well-being of hundreds of millions of people in the most fundamental ways. Markets have done for Indians what decades of government policies could not.
Singh became prime minister in 2004 and won a second five-year term in 2009. He led coalition governments that relied on left-wing parties for support and was unable to liberalize the economy much further. His major advance as head of government was improving India’s relationship with the U.S. India had been closer to the Soviet Union during the Cold War. Singh realized times had changed and had strong personal relationships with both George W. Bush and Barack Obama, while deepening the business ties between the U.S. and India.
That India has only partially embraced markets and still retains significant barriers to growth only makes these gains more impressive. Markets are so powerful that even a partial move toward them can deliver these benefits.
“We must restore to the creation of wealth its proper place in the development process,” Singh said in his
1991 budget speech in parliament. “Without it, we cannot remove the stigma of abject poverty, ignorance, and disease.” Singh’s stint as prime minister was not all that it could have been, and India still has a lot of work to do to free its markets and allow Indians to thrive. But when confronted with a crisis in 1991, Singh knew what to do, he did it, and it worked.
Manmohan Singh made clear the need for markets and international economic engagement in a country with a history of socialism and autarky. Today, because the Indian government implemented Singh’s reforms, hundreds of millions of people are no longer living in extreme poverty. What an accomplishment, and what a legacy. R.I.P.
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