Correct statistics on India’s economy

The main aim of this note is to spell out the correct statistics on India’s economic growth record. A participant in today’s session on India at 60 at the Battle of Ideas conference claimed incorrectly that India enjoyed strong growth in the decades immediately following the second world war. I said I would put the correct statistics on my site so here they are:

1950-1980 – average growth rate 3.75%.

1980-1990 – average growth rate 5.7%.

1990-2000 – average growth rate 6.0%.

2000-2005 – average growth rate 6.9%.

My source for this is a presentation by TN Srinavasan, a professor of economics at Yale, to an International Monetary Fund book forum on December 14, 2006. A PDF is available here (see page 8).

The pattern is confirmed in the recent country report on India from the Organisation for Economic Cooperation and Development. The graph of GDP growth per head here clearly shows that the economy was pretty sluggish from the 1950s to the 1970s.

As it happens there is a serious debate among economists about Indian’s economic growth but it is not about the facts of growth from the 1950s to 1970s. Instead it is about whether India’s growth took off in the 1980s or whether the reforms of the 1990s were truly responsible.

While I am writing I will quickly correct a couple of other misconceptions.

First, while it is true that India’s agricultural sector is important socially it is much less important economically. Although agriculture accounts for 60% of India’s work force it only accounts for 17.5% of its GDP (see the India entry in the CIA World factbook). Therefore even if the output of the agricultural sector grew rapidly it would only have a limited impact on GDP.

Second, it is necessary to be wary of the talk of India’s “middle class” or indeed that of other developing countries too. The problem is that the term is used extremely loosely. It is necessary to be more specific about how the term is being defined before drawing any sweeping conclusions about a rising middle class.

The point of course it not to be against the use of statistics. On the contrary, they are a valuable tool in understanding development. But they need to be used carefully rather than in a cavalier way.