The tortoise and the hare

How can we create conditions for a next Indian growth episode?

- AJAY SHAH

Most people think of economic growth as the norm, as a steady state, as something that happens (on average) for a long time. This intuition is based on the experience of the first world, most notably the United States (US) and the United Kingdom (UK). These countries have a remarkable experience with extremely stable, low average growth rates over long periods of time.

They got there through the power of compounding: A 1.5 per cent per capita real GDP (gross domestic product) growth for 200 years starting from 1820, which gave gains of about 20 times. Surrounding this long-term average, they had ups and downs of world wars, recessions, and depressions. The intellectual and institutional capabilities of countries like the UK and the US were able to grapple with the challenges that came along, maintain social cohesion, and create conditions for safety and optimism for private persons, through which low stable growth was sustained across an astonishing array of challenges.

For many of us in India, it is easy to slip into this illusion: The idea that there is a stable long-term growth rate which is baked in, and then around that we have business-cycle fluctuations. However, this is not how underdevelopment works. The essence of development macroeconomics is the analogy with a hare and not a tortoise.

In the Indian story, there are clear phases which help us organise our thinking. At first, from 1947-62 (15 years), we got a nice phase of growth. Some colonial repression was eased. The political and bureaucratic leadership was of very high quality. The repressive apparatus of Indian socialism was not yet in play. Growth accelerated compared with the 1757-1947 period.