chalanges to indian growthwebfac/eichengreen/e183_sp07/...in the indian economy. brookings...
TRANSCRIPT
-
Cha
lleng
esto
In
dian
Gro
wth
Felix
Lam
Rob
ert B
ogol
ub
-
How
has
Indi
as
econ
omic
gr
owth
bee
n po
rtray
ed in
the
med
ia?
-
Age
nda
I. E
cono
mic
stru
ctur
e&
gro
wth
acc
ount
ing
II.H
isto
rical
lega
cy &
loca
ting
the
turn
arou
ndIII
.A
ddre
ssin
g th
e is
sues
-
Econ
omic
Stru
ctur
e an
dG
row
th A
ccou
ntin
g
-
The
Indi
an s
ituat
ion
Sec
ond
larg
est p
opul
atio
n in
the
wor
ldV
ery
succ
essf
ul s
ervi
ce s
ecto
r, bu
t a p
oorly
pe
rform
ing
indu
stria
l sec
tor
Nat
ion
ofE
nglis
h sp
eake
rsG
eogr
aphi
c ec
onom
ic d
ispa
rity
Dem
ocra
ticgo
vern
men
t & tr
aditi
ons
Stro
ng fi
nanc
ial i
nstit
utio
ns
Econ
omic
Stru
ctur
eH
isto
ry &
Turn
arou
ndA
ddre
ssin
gth
e Is
sues
-
Com
paris
on w
ith C
hina
Indi
aC
hina
Popu
latio
n:1.
095
B1.
314
BPo
p. G
row
th:
1.38
%0.
59%
2006
GD
P:$7
96.1
B$2
.512
TG
DP
Gro
wth
:8.
5%10
.5%
Sou
rce:
CIA
Wor
ld F
actb
ook
Econ
omic
Stru
ctur
eH
isto
ry &
Turn
arou
ndA
ddre
ssin
gth
e Is
sues
-
Indi
as
econ
omic
org
aniz
atio
n
I N D
IA
C
H I
N A
GD
PLa
bor
G
DP
Labo
rA
g.19
.9%
60
%
11
.9%
45%
Ind.
19.3
%
12%
48.1
%
24%
Serv
.60
.7%
28
%
40
%31
%
Sour
ce:
CIA
Wor
ldFa
ctbo
ok
Econ
omic
Stru
ctur
eH
isto
ry &
Turn
arou
ndA
ddre
ssin
gth
e Is
sues
-
Gro
wth
Acc
ount
ing
Sou
rce:
Bos
wor
th, C
ollin
s,&
Virm
ani.
Sou
rces
of G
row
th in
the
Indi
an E
cono
my.
Bro
okin
gs In
stitu
te, 2
006.
Econ
omic
Stru
ctur
eH
isto
ry &
Turn
arou
ndA
ddre
ssin
gth
e Is
sues
-
Gro
wth
Acc
ount
ing:
C
ompa
rison
with
Chi
na
Reg
ion
Ou
tpu
tLab
or
Ou
tpu
t /
W
ork
er
Ph
ysi
cal
Cap
ital
Lan
dEd
uca
tio
nFact
or
Pro
du
ctiv
ity
Ch
ina
9.2
27.3
3.2
00.2
3.7
Ind
ia5.4
23.3
1.3
00.4
1.6
East
Asi
a7.3
2.7
4.6
2.6
00.6
1.4
Co
ntr
ibu
tio
n o
f:
Figu
res
for 1
978-
2004
Sou
rce:
Bos
wor
th &
Col
lins.
Acc
ount
ing
for G
row
th: C
ompa
ring
Chi
na a
nd In
dia.
200
6.
Econ
omic
Stru
ctur
eH
isto
ry &
Turn
arou
ndA
ddre
ssin
gth
e Is
sues
-
Gro
wth
Acc
ount
ing:
Sec
tora
l
Sou
rce:
Bos
wor
th, C
olin
s &
Virm
ani.
Sou
rces
of G
row
th in
the
Indi
an E
cono
my.
Bro
okin
gs In
stitu
te, 2
006.
Econ
omic
Stru
ctur
eH
isto
ry &
Turn
arou
ndA
ddre
ssin
gth
e Is
sues
-
Sect
oral
Gro
wth
in O
utpu
tper
W
orke
r, 19
93-2
004
To
tal
Ag
ricu
ltru
al
Ind
ust
rial
Serv
ices
Reall
oca
tio
nC
hin
a8.5
0.7
51.7
1.2
Ind
ia4.6
0.5
0.9
2.1
1.2
Ana
lysi
s:In
dian
indu
stry
gain
s pr
imar
ily d
ue to
em
ploy
men
t, no
t ca
pita
lIn
dian
ser
vice
-sec
torg
ains
due
to s
trong
TFP
gro
wth
,de
spite
rela
tivel
y w
eak
capi
tal i
nves
tmen
t
Sou
rce:
Bos
wor
th &
Col
lins.
Acc
ount
ing
for G
row
th: C
ompa
ring
Chi
na a
nd In
dia.
200
6.
Econ
omic
Stru
ctur
eH
isto
ry &
Turn
arou
ndA
ddre
ssin
gth
e Is
sues
-
Educ
atio
nal A
ttain
men
t
Sou
rce:
Bos
wor
th, C
ollin
s,&
Virm
ani.
Sou
rces
of G
row
th in
the
Indi
an E
cono
my.
Bro
okin
gs In
stitu
te, 2
006.
Econ
omic
Stru
ctur
eH
isto
ry &
Turn
arou
ndA
ddre
ssin
gth
e Is
sues
-
The
trad
ition
al g
row
th p
atte
rn
The
tradi
tiona
leco
nom
ic g
row
th re
cipe
relie
s he
avily
upo
n in
dust
rial s
ecto
r exp
ansi
onIn
dust
rial g
row
th c
an li
ft a
larg
e pr
opor
tion
ofa
coun
trys
pop
ulat
ion
out o
f pov
erty
Indu
stry
brin
gs in
cap
ital a
nd e
ncou
rage
s in
frast
ruct
ural
dev
elop
men
tE
xpor
t-driv
en g
row
th is
use
ful f
or d
evel
opin
g co
untri
esY
et In
dia
is la
ckin
gin
dust
rial g
row
th
Econ
omic
Stru
ctur
eH
isto
ry &
Turn
arou
ndA
ddre
ssin
gth
e Is
sues
-
Indi
as
grea
test
obs
tacl
eto
gro
wth
is
its p
oori
ndus
tria
l sec
tor
We
belie
ve th
atIn
dia
s se
rvic
e se
ctor
gro
wth
can
not
subs
titut
e fo
r ind
ustri
al g
row
th in
defin
itely
Indi
as
larg
e (a
nd q
uick
ly g
row
ing)
pop
ulat
ion
need
s ab
unda
ntin
dust
rial j
obs
to ra
ise
livin
g st
anda
rds
Ser
vice
sec
tor j
obs
requ
iring
ext
ensi
ve e
duca
tion
affe
ct to
o fe
w p
eopl
eW
e w
ill n
ow a
ddre
ss w
hy In
dia
s m
anuf
actu
ring
sect
or is
perfo
rmin
g po
orly
, and
how
it c
anbe
set
rig
ht
Econ
omic
Stru
ctur
eH
isto
ry &
Turn
arou
ndA
ddre
ssin
gth
e Is
sues
-
Indi
as
His
toric
al L
egac
y &
Lo
catin
g th
e Tu
rnar
ound
-
A b
rief h
isto
ry o
f Ind
iaR
elat
ivel
yin
dust
rializ
ed b
efor
e co
loni
zatio
nTe
xtile
sect
orB
ritis
h co
loni
zatio
n in
19t
h C
. deindustrialized
Indi
aB
ut b
roug
htst
rong
lega
lins
titut
ions
and
ca
pita
l mar
kets
Bom
bay
Sto
ck E
xcha
nge
is th
e lo
nges
t-run
ning
st
ock
exch
ange
in A
sia
Inde
pend
ence
from
Brit
ain
in 1
947
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
the
Issu
es
-
Post
-inde
pend
ence
Indi
aP
rime
Min
iste
r Neh
ru (1
947-
64) r
espo
nded
to th
e po
st-B
ritis
hsi
tuat
ion
Hos
tility
to fr
ee tr
ade
and
mul
tinat
iona
lsIm
port
subs
titut
ion
in w
ake
ofth
e G
reat
Dep
ress
ion
Impr
esse
d by
Sov
ietm
odel
Mai
ntai
ned
rest
rictiv
e B
ritis
h la
bor l
aws
Poo
r gro
wth
resu
lted
1950
-74,
GD
P g
row
th w
as le
ss th
an 1
.5%
Dub
bed
the
Hin
du ra
te o
f gro
wth
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
the
Issu
es
-
How
bad
was
Indi
as
grow
th?
Fol
low
ing
Sim
ple
Gro
wth
The
ory,
Bra
d D
eLon
g an
alyz
ed In
dia
s gr
owth
from
196
0-19
92 c
ompa
red
to o
ther
dev
elop
ing
coun
tries
Sim
ple
Gro
wth
The
ory
has
thre
e de
term
inan
ts
of g
row
th:
Inve
stm
ent-t
o-G
DP
ratio
Pop
ulat
ion
grow
th ra
teIn
itial
out
put p
er w
orke
r
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
the
Issu
es
-
Ave
rage
Indi
a
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
the
Issu
es
-
This
lead
s to
at l
east
one
ofth
ree
conc
lusi
ons
1) In
effic
ienc
ies
in In
dia
wer
e co
mm
on
arou
nd th
e w
orld
2) In
effic
ienc
ies
in c
entra
l pla
nnin
g w
ere
offs
et b
y re
sour
ce m
obiliz
atio
n (In
dia
had
an
extre
mel
y hi
gh s
avin
gs ra
te)
3) In
effic
ienc
ies
wer
e de
trim
enta
l and
pr
even
ts In
dia
from
ach
ievi
ng a
hig
her g
row
th
path
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
the
Issu
es
-
Pro-
mar
ket r
efor
ms
of th
e90
s
Red
uced
impo
rt co
ntro
ls /
tarif
fsR
efor
med
mon
etar
y sy
stem
Cur
renc
yflo
atR
emov
ed li
cens
ing
requ
irem
ents
for i
nves
ting
Low
ered
tax
rate
sR
emov
ed p
rivat
e-se
ctor
mon
opol
ies
Ref
orm
ed fi
nanc
ialm
arke
tsS
ourc
e: E
iche
ngre
en, E
cono
mic
s 11
5 Le
ctur
e S
lide,
Ind
ia,
Spr
ing
2006
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
the
Issu
es
-
Res
ults
Gro
wth
rate
acce
lera
ted
to 5
-6%
Pov
erty
redu
ctio
nE
mer
genc
e of
IT s
ecto
r and
out
sour
cing
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
the
Issu
es
-
Pro-
Mar
ket r
efor
ms
led
to
Indi
an g
row
th
righ
t?
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
the
Issu
es
-
Ye
t Ind
ias
econ
omy
took
off
in th
e 80
s
Sou
rce:
Bra
d D
eLon
g
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
the
Issu
es
-
Poss
ible
exp
lana
tions
Gre
en re
volu
tion?
Bet
ter c
rops
led
to im
prov
ed y
ield
sY
et o
nly
acco
unts
for 1
/10
of th
e G
DP
gro
wth
Hug
e pu
blic
inve
stm
ent i
n th
e 19
80s?
From
4%
to 8
% o
f GD
PY
et a
regr
essi
on b
y B
arro
(200
0) s
how
s th
at
Indi
an p
ublic
inve
stm
ent c
ould
lead
to o
nly
0.2-
0.3%
GD
P g
row
th
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
the
Issu
es
-
Poss
ible
exp
lana
tions
(con
t.)
Inte
rnal
libe
raliz
atio
n?Y
et s
till a
long
way
to g
o; ti
min
g an
d m
agni
tude
coul
d no
t exp
lain
198
0s g
row
thE
xter
nal l
iber
aliz
atio
n?Y
et In
dia
s sm
all m
anuf
actu
ring
sect
or p
reve
nted
it
from
reap
ing
subs
tant
ial b
enef
its
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
the
Issu
es
-
Apr
o-bu
sine
ss s
hift?
Rod
eric
k an
d S
ubra
man
ian
expl
ain
1980
s gr
owth
st
emm
ing
from
atti
tudi
nal s
hift
in th
e go
vern
men
tP
ro-b
usin
ess
vs. p
ro-m
arke
tY
et th
is e
xpla
natio
n se
ems
too
ephe
mer
alto
yie
ld
such
a m
assi
ve g
row
th-r
ate
incr
ease
Wha
t do
you
thin
k?
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
the
Issu
es
-
Why
serv
ices
gre
w b
ut n
ot
indu
stry
?In
198
1, In
dia
s in
dust
rial s
ecto
r was
on
par w
ith
thos
e of
oth
er c
ount
ries.
Att
hat t
ime,
its
serv
ice
sect
or a
ctua
lly la
gged
(in
term
s of
the
valu
e-ad
ded
as a
per
cent
of G
DP
and
in
term
s of
em
ploy
men
t sha
re)
How
ever
, at t
hat t
ime
Indi
a di
d no
t fav
or la
bor
inte
nsiv
e in
dust
ry in
198
1; it
inst
ead
favo
red
skill
in
tens
ive
indu
stry
Val
ue-a
dded
by
labo
r int
ensi
ve in
dust
ryV
alue
-add
ed b
yno
n-la
bor i
nten
sive
indu
stry
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
the
Issu
es
-
Why
did
som
e st
ates
acce
lera
te fa
ster
than
oth
ers?
Som
e st
ates
sim
ply
had
a la
rger
cap
acity
for
grow
th(in
itial
ly)
Koc
hhar
, et a
l. us
ed a
dive
rsifi
catio
n in
dex
to
capt
ure
each
sta
tes
cap
acity
for g
row
thD
iver
sific
atio
nis
a p
roxy
for t
heam
ount
of
high
ly s
kille
dhu
man
cap
ital
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
the
Issu
es
-
Qui
ckTi
me
and
aTI
FF (L
ZW) d
ecom
pres
sor
are
need
ed to
see
this
pic
ture
.
Initi
al D
iver
sific
atio
n an
d St
ates
ND
SP G
row
th
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
the
Issu
es
-
The
role
of d
ecen
tral
izat
ion
Dec
entra
lizat
ion
led
to In
dia
s st
ates
bei
ng
mor
e in
con
trol o
fthe
ir gr
owth
path
sS
ome
stat
es h
ad in
here
nt q
ualit
ies
that
en
able
d th
em to
take
adv
anta
ge o
fthe
lib
eral
izat
ion
refo
rms
and
boos
t the
ir se
rvic
e se
ctor
sQ
ualit
y of
infra
stru
ctur
eA
mou
nt o
f inv
estm
ent
Edu
catio
n le
vel
Fina
ncia
l sec
tor s
treng
thE
cono
mic
Stru
ctur
eH
isto
ry &
Turn
arou
ndA
ddre
ssin
gth
e Is
sues
-
Indi
an S
tate
Div
erge
nce
-
Add
ress
ing
the
Issu
esFa
cing
the
Indi
an E
cono
my
-
Who
se e
cono
mic
str
uctu
redo
es
Indi
a m
ost c
lose
ly re
sem
ble?
78.6
%60
.7%
40%
Serv
ices
20.4
%19
.3%
48.1
%In
dust
ry
0.9%
19.9
%11
.9%
Agr
icul
ture
USA
Indi
aC
hina
(Per
cent
age
of G
DP
)
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
-
Div
erge
nce
amon
gsts
tate
s
Indi
as
curre
nt s
trate
gy is
lead
ing
tost
ate
dive
rgen
ce in
inve
stm
ent a
nd g
row
thFa
st g
row
ing
peni
nsul
ar s
tate
s vs
.slu
ggis
h hi
nter
land
sC
an th
e in
land
sta
tes
catc
h up
with
the
grow
th o
f the
pen
insu
lar s
tate
s?
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
-
Wha
t Can
Indi
a D
o?
The
lagg
ing
stat
es n
eed
to fo
llow
a m
ore
tradi
tiona
l pat
tern
of g
row
th: l
abor
-inte
nsiv
em
anuf
actu
ring
Eas
ier t
o em
ploy
the
mas
ses
Eas
ier t
o ex
port
man
ufac
ture
d go
ods
Wha
t has
pre
vent
ed In
dia
from
doi
ng s
uch
a th
ing
in th
e fir
st p
lace
? H
arm
ful r
egul
atio
n is
th
e pr
imar
y cu
lprit
.
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
-
Reg
ulat
ions
and
labo
r law
s
Whi
le In
dia
has
mad
e re
form
s in
the
early
90
s, it
stil
l suf
fers
from
dra
coni
an re
stric
tions
Hig
h le
vel o
f tar
iffs
com
pare
d to
Chi
naR
estri
ctiv
e la
bor l
aws
A fi
rms
cann
otfir
e w
orke
rs if
itha
sm
ore
than
100
em
ploy
ees
This
yiel
dsnu
mer
ous
smal
lfirm
s in
indu
strie
s w
here
eco
nom
ies
of s
cale
wou
ld b
e he
lpfu
l
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
-
Qui
ckTi
me
and
aTI
FF (L
ZW) d
ecom
pres
sor
are
need
ed to
see
this
pic
ture
.
A c
ompa
rison
of a
vera
ge fi
rm s
ize
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
-
Indi
as
path
way
to g
row
thD
ual-t
rack
gro
wth
: ind
ustri
al g
row
th in
the
inla
nd s
tate
s al
ongs
ide
co
ntin
ued
serv
ice-
sect
or e
xpan
sion
Pru
ning
regu
latio
ns a
nd la
bor l
aws
rela
ting
to m
anuf
actu
ring
Allo
w p
eopl
e to
be
fired
Enc
oura
ge in
dust
rial f
irms
to a
chie
ve e
cono
mie
s of
sca
leG
radu
ally
wea
nIn
dia
off o
f im
port-
subs
titut
ing
polic
ies
tofo
rce
dom
estic
indu
stry
to b
ecom
e co
mpe
titiv
e in
the
inte
rnat
iona
l m
arke
tpla
ceIn
vest
ing
in e
duca
tion,
esp
ecia
lly in
prim
ary
and
seco
ndar
y ed
ucat
ion
for t
he g
ener
al p
ublic
Inve
stin
g in
publ
ic in
frast
ruct
ure
Focu
s on
aid
ing
indu
stry
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
-
Isco
rrup
tion
hind
erin
g In
dian
gro
wth
?
We
initi
ally
thou
ght s
o,bu
t
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
-
Indi
an c
orru
ptio
n le
vels
com
pare
fa
vora
bly
with
Chi
nese
leve
ls
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
-
an
d w
ith th
ose
of c
ount
ries
of
com
para
ble
econ
omic
dev
elop
men
t
Eco
nom
icS
truct
ure
His
tory
&Tu
rnar
ound
Add
ress
ing
-
Take
away
sIn
dian
grow
th s
tem
spr
imar
ily fr
om it
s se
rvic
e se
ctor
Cap
ital h
as h
ad re
lativ
ely
smal
l rol
e in
Indi
an g
row
thTh
e B
ritis
hle
ft st
rong
inst
itutio
ns, b
utth
eir l
egac
y in
spire
d ha
rmfu
l reg
ulat
ions
and
pol
icie
sIn
dian
gro
wth
incr
ease
d in
the
80s,
bef
ore
the
neol
iber
al re
form
s of
the
90s
The
key
to im
prov
ing
the
Indi
an g
row
thra
te, a
nd to
m
inim
izin
g ec
onom
ic d
ispa
rity,
isin
dust
rial r
efor
mC
orru
ptio
n le
vels
are
act
ually
bette
r tha
n th
ose
of
com
para
tor c
ount
ries
-
That
s a
wra
p,fo
lks!