Hindu rate of Growth

It was before the liberalisations of 1991 that the annual growth rate of the country stagnated around 3.5%. This rate remained constant from the 1950s to the 1980s when the per capita income growth averaged 1.3%.

The term ‘Hindu Rate’ was coined by an Indian economist Raj Krishna to symbolise the slow growth. It was cited that Hindu outlook of fatalism and contentedness were responsible for the slow growth, but it was only the result of socialist policy making that did not boost the economy. The sluggish movement of the economy were due to many reasons that India faced all at the same time. The economic issues inherited post-independence, the costs and heavy drain in the economy due to partition and refugee settlements in India. There were many mouths to feed than the economic resources of food, shelter and production of goods and services. Mainly, the land post-independence was converted for cultivation of cotton and jute, both of which are not food crops. India experienced serious shortages. This burden reflected on the budget and India witnessed a huge trade deficit. The deficit made the government handicap and hence it couldn’t borrow funds nationally or internationally.

The Reserve Bank of India then increased the supply of money, which led to inflation. It was almost a domino effect that the economy faced. The high expenditures in defence, followed by the 1956 drought led to further devaluation. In this phase import duties were the highest, foreign direct investment was prohibited and there was extensive regulation of interest rates.

The turnaround happened after 1980 where the growth shot up mainly due to large scale macroeconomic causes and that the turnaround happened before the balance of payment crisis of 1991. The important part to note here is that the change was neither due to manufactured exports nor due to any major industrial revolution but it was the service sector that led to the growth post the stagnancy phase of growth.

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Author: Kaushal Shah
Kautilya 
IBS Mumbai