Has Indian Economy Got Its Freedom Post “Independence”

One of the leading themes of India’s freedom movement was the economic costs imposed by unfriendly British policies on India. Liberation from British Raj not only brought about political freedom but more concerted efforts to raise the level of economic growth and development. Despite glitches and some inherent flaws in the plans of India’s new political elites, India’s growth engine witnessed a revival after independence in 1947. In less than seven decades since then, India’s per capita income—at constant prices —grew six times, data from The Maddison Project shows.

The Maddison Project database, based largely on data accumulated by renowned economic historian Angus Maddison, is an attempt to provide consistent macro-economic time-series data for major economies since the nineteenth century. The database uses a common currency unit: the GK$ or Geary–Khamis dollar to compare trends across time and geographies.

The per person value of goods and services that India generated in 1884 was GK$551 in 1884. This statistic grew only marginally over the next 63 years to rise to GK$ 618 in 1947. In the 63 years that followed Indian independence, this figure shot up six times to touch GK$3372 in 2010.

Growth Rates Picked Up After the British Left

During the advent of India’s Independence, the economy’s growth rate was lower but comparable to India’s emerging market peers. The key emerging markets included in the analysis are Brazil, China, South Africa and South Korea.

The dawn of Indian economic planning, led by Jawaharlal Nehru was moderately successful in raising growth. Like the economist-turned-lawyer B.R. Ambedkar, Nehru trusted that rapid industrialisation driven by the state was the most effective way to abolish mass poverty.

The post-Nehru era, however, saw India’s growth rate slip below those of her peers. At a time when other controlled economies such as South Korea were opening up their economies and turning their industrial hubs into export powerhouses, Indian economic policy continued to be inward-looking. The licence-permit raj gained in strength, leading to corruption, and cramping economic growth. The chains on Indian businesses began to be slackened around the 1980s, and the Indian economy started growing at rates never experienced before. Since then, the growth rate of the Indian economy has eclipsed that of most of the country’s peers.

India Has Outperformed Since The 1980s

While the recovery in India’s growth rates, fostered first by political freedom and then by economic freedom, has been impressive, the distribution of those gains has left a lot to be desired. India’s profile in developmental indicators lags far behind that of her peers, and income inequality is far higher, data shows.

East India Asia Other emerging markets
1950-1964 3.54 2.04 2.66
1964-1980 3.44 0.84 3.94
1980-2010 4.18 4.36 3.52

Note: Chart shows compounded annual growth rate in GDP per capita (1990 Int. GK$). Key emerging markets include China, Brazil, South Africa and South Korea. Source: The Maddison-Project.

Among the Bric (Brazil, Russia, India, and China) economies, India has the lowest literacy rate. India is lagging more than a quarter century behind China on literacy and 35 years behind Brazil, shows World Bank data. This calculation is based on how long ago a peer country achieved a similar milestone.

Lagging Behind on Literacy

The gap in healthcare, measured in terms of life expectancy, is similar. On life expectancy, India is 19 years behind Brazil and 30 years behind China.

The inadequate development of India’s human capital has meant that only a minority of Indians have been able to gain from the country’s rapid growth over the past three-and-a-half decades. Only a small section has been able to move up the educational and occupational ladder. It is not so surprising then that the level of income inequality in the country is among the highest in the world.

Inequality Remains a Problem in India

While in terms of consumption inequality, India’s inequality looks gentle, in terms of income inequality measured using data from the India Human Development Survey, India’s inequality appears to be extremely high, and comparable to the most unequal Latin American countries.

The elevated levels of inequality threaten the gain from political and economic freedom which India has enjoyed over the past several decades.

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