India’s Growth in the 1990s and
beyond:
An International Comparison
Lant Pritchett
World Bank
Feb 10,2005
Loyola Chennai
Outline of the presentation
• Whirlwind tour of the 1990s
• India’s growth, compared
• Will India’s growth stall? Why?
• Will India’s growth accelerate? How?
Whirlwind tour of the 1990s-outside of India
• Deep and long, bit variable,
transformational recession in the FSU
• Reform but with little growth payoff in Latin
America
• Severe financial crises—with mixed
aftermath
• Bright spot for reform: rapid growth in
reforming socialist economies
Deep, long, and variable
transitional depression in FSU/EE
Pre-crisis level
Growth came, but did not stay in
Latin America, despite steady
reform progress
Financial Crises
• Korea, Thailand, Indonesia—shock as the
best performers suffer…then
• Brazil
• Russia
• Turkey
• Argentina—the deepest commitment to
convertibility at a fixed parity collapses
Reforming socialist star: China
Reforming Socialist Star II:
Vietnam
Regional divergence in the 1990s:
East Asia, followed by South Asia
200
EAP
P e r c a p ita G D P (1 9 9 0 =1 0 0 )
180
160
SAR
140
OECD
LAC
MNA
120
100
AFR
ECA
80
60
1990
1991
EAP
1992
ECA
1993
1994
LAC
1995
MNA
1996
1997
SAR
1998
AFR
1999
2000
OECD
India’ growth, compared
• India accelerated sometime in late
1970s/early 1980s and has been (roughly)
steady since
• Growth in the rest of the world (outside of
East Asia) has decelerated
• India’s growth is now rapid
• India’s growth has been very steady
Sometime in the late 70s/early
80s growth accelerated
India went from sputter to
sparkle
90th percentile
Median
China, has outperformed
India…and everyone else
But compared to Brazil…
…even superstar Korea came to earth
in the 1990s—slower than India
…and is substantially ahead of the
slower but steady USA
India is growing faster—but from a
very low base…
At current rates India reaches USA 1950 level in 34
years—not my lifetime…and USA’s current level in 61
years—not your lifetime
India reaches USA
1950 level
One big assertion--with two
problems for policy
Assertion: India is a rich country struggling
to free itself of the trappings of poverty—it
should not think of itself as a poor country
striving to be modestly less poor
An aside: Why worry about
economic growth?
Economic growth is good, good, good as it
makes things possible
Most socio-economic indicators are
explained overwhelmingly by income (and
education, which is itself driven by income)
Why settle for less? Who wants to be a
modestly less deprived poor country?
Can India Avoid a Stall?
Avoiding the pitfalls
Many countries have seen an episode
of rapid growth,then poof! It’s gone:
Brazil
After a great run of rapid growth
Japan grew at 1% in the 1990s
Philippines never recovers
momentum…
India’s many strengths: Bullish on
the elephant
• It is behind—playing catch-up creates potential
for super fast growth
• Democracy and political continuity
• Elite education (see below)
• Open ideology
• Large (population and area) integrated market
• Adequate, but not abundant resources
• English as one (of many) languages
Common causes of “stall”: So
far not India’s problems
• Macro-economic imbalance caused by public
sector borrowing and debt crisis (e.g. Brazil,
Mexico 1982)
• Economic overheating without adequate means
of adjusting to shocks in the financial sector (e.g.
Japan real estate vs. USA)
• Exogenous shocks to terms of trade, neighbor
competitiveness (Argentina 2002).
• Political shifts causing large amounts of investor
uncertainty about the “rules of the game” (e.g.
FSU, Indonesia, coming for China?)
How might India stall?
• Fiscal space to meet infrastructure needs
• Regions are lagging—eventually the dog
has to walk, not just the tail wag.
• Education is highly stratified—will the
“services” sector absorb all “qualified”
labor and sputter out
• Not able to sustain reforms to spur the
growth process socially and politically
Infrastructure is bad, might get
worse, choke off innovation
Some regions are suffering from
infrastructure bottlenecks worse than
others
Figure 3.17. Percent of respondents identifying
infrastructure as major or severe obstacle
Karnat aka
61. 21
Ut t ar Prad esh
51. 72
M ad hya Prad esh
49. 29
Tamil Nad u
40. 91
W est B eng al
31. 68
M aharasht ra
31. 60
Haryana
30. 69
Gujarat
24. 36
Kerala
19. 80
A nd ra Prad esh
17. 26
Punjab
Delhi
-10
11. 67
4. 76
10
30
50
70
India is not well places in many
indicators of “governance”
Rank in:
Control of
corruption
Regulatory Growth
quality
China
63
94
3
Vietnam
105
135
4
India
86
101
14
Out of N:
151
180
136
Regional growth: what is the
dog, what is the tail
• Growth is concentrated in a few cities,
mainly in the South and West
• Huge parts of India—some complete
states (e.g. Bihar) and many rural areas
are left behind
• Will regional laggards draw the overall
down?
Educational inequalities in India
were (are?) worst in the world
India, bottom
40%=0
India, top
20=10
Median
attainment of
richest 20%
Median attainment of
Bottom 40%
Gaps in education by wealth
and sex: TN and UP compared
Social and Political Pressures of
Rapid Growth
• Huge social tensions inherent in the
transition called “development”
• Productive and unproductive ways to cope
with those tensions (e.g. expanding
opportunity versus extensive subsidies to
well-off but adversely affected)
India is low inequality in income
(despite social stratification)
China
India
OECD
FSU/EE
Vietnam
Income inequality has increased
dramatically in China
Growth has, and does, reduce income
poverty—even with inequality increasing if it
is fast enough…
70
% population living below $1 a day
60
50
India
40
30
China
20
10
0
1980
1985
1990
1995
2000
How to accelerate growth?
• Increased accumulation versus improved
productivity—do you want to?
• Accelerations from high to higher are
relatively rare
• Firm signals of committed future direction
are as important as dramatic actions
Acceleration of growth
• Raising the magnitude of private
investment—
– More favorable investment climate
• Continuing strong growth in productivity
• Continuing stream of
innovations/introduction of new sectors
Is there a key binding constraint?
• Financial sector?
• Labor market reforms?
• Infrastructure?
Conclusions:
• India is a rich country in waiting
• India moved in the right direction in the
1990s
• Steady as she goes is good--stall must be
avoided
• Acceleration is possible—the ride will be
bumpy the faster it goes
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India’s Growth in the 1990s and beyond: An International