{"id":422,"date":"2012-06-01T06:19:11","date_gmt":"2012-06-01T06:19:11","guid":{"rendered":"http:\/\/teekhapan.wordpress.com\/?p=422"},"modified":"2012-06-01T06:19:11","modified_gmt":"2012-06-01T06:19:11","slug":"sonias-upa-is-taking-us-to-new-hindu-rate-of-growth","status":"publish","type":"post","link":"https:\/\/vivekkaul.com\/2012\/06\/01\/sonias-upa-is-taking-us-to-new-hindu-rate-of-growth\/","title":{"rendered":"Sonia\u2019s UPA is taking us to new \u2018Hindu\u2019 rate of growth"},"content":{"rendered":"

\"\"<\/a>
\nVivek Kaul
\n<\/strong>
\nRaj Krishna, a professor at the Delhi School of Economics, came up with the term \u201cHindu rate of growth\u201d to refer to Indian economy\u2019s sluggish gross domestic product (GDP) growth of 3.5% per year between the 1950s and the 1980s. The phrase has been much used and abused since then.
\nA misinterpretation that is often made is that Krishna used the term to infer that India grew slowly because it was a nation dominated by Hindus. In fact he never meant anything like that. Krishna was a believer in free markets and wasn\u2019t a big fan of the socialistic model of development put forward by Jawahar Lal Nehru and the Congress party.
\nIn fact he realised over the years looking at the slow economic growth of India that the Nehruvian model of socialism wasn\u2019t really working. This was visible in the India\u2019s secular or long term economic growth rate which averaged around 3.5% during those days.
\nThe word to mark here is \u201csecular\u201d. The word in its common every day usage refers to something that is not specifically related to a particular religion. Like our country India. One of the fundamental rights Indians have is the right to freedom of religion which allows us to practice and propagate any religion.
\nBut the world \u201csecular\u201d has another meaning. It also means a long term trend. Hence when economists like Krishna talk about the secular rate of growth they are talking about the rate at which a country like India has grown year on year, over an extended period of time. And this secular rate of growth in India\u2019s case was 3.5%. This could hardly be called a rate of growth for a country like India which was growing from a very low base and needed to grow at a much faster pace to pull its millions out of poverty.
\nSo Krishna came up with the word \u201cHindu\u201d which was the direct opposite of the word \u201csecular\u201d to take a dig at Jawahar Lal Nehru and his model of development. Nehru was a big believer in secularism. Hence by using the word \u201cHindu\u201d Krishna was essentially taking a dig on Nehru and his brand of economic development, and not Hindus.
\nThe policies of socialism and the license quota raj followed by Nehru, his daughter Indira Gandhi and grandson Rajiv ensured that India grew at a very slow rate of growth. While India was growing at a sub 4% rate of growth, South Korea grew at 9%, Taiwan at 8% and Indonesia at 6%. These were countries which were more or less at a similar point where India was in the late 1940s.
\nThe Indian economic revolution stared in late July 1991, when a certain Manmohan Singh, with the blessings of PV Narsimha Rao, initiated the economic reform process. The country since then has largely grown at the rates of 7-8% per year, even crossing 9% over the last few years.
\nOver the years this economic growth has largely been taken for granted by the Congress led UPA politicians, bureaucrats and others in decision making positions. Come what may, we will grow by at least 9%. When the growth slipped below 9%, the attitude was that whatever happens we will grow by 8%. When it slipped further, we can\u2019t go below 7% was what those in decision making positions constantly said. On a recent TV show Montek Singh Ahulwalia, the Deputy Chairman of the Planning Commission, kept insisting that a 7% economic growth rate was a given. Turns out it\u2019s not.
\nThe latest GDP growth rate, which is a measure of economic growth, for the period of January to March 2012 has fallen to 5.3%. I wonder, what is the new number, Mr Ahulwalia and his ilk will come up with now. \u201cCome what may we will grow at least by 4%!\u201d is something not worth saying on a public forum.
\nBut chances are that\u2019s where we are headed. As Ruchir Sharma writes in his recent book Breakout Nations \u2013 In Pursuit of the Next Economic Miracles<\/em> \u201cIndia is already showing some of the warning signs of failed growth stories, including early-onset of confidence.\u201d
\nThe history of economic growth
\n<\/strong>Sharma\u2019s basic point is that economic growth should never be taken for granted. History has proven otherwise. Only six countries which are classified as emerging markets by the western world have grown at the rate of 5% or more over the last forty years. These countries are Malaysia, Singapore, South Korea, Taiwan, Thailand and Hong Kong. Of these two, Hong Kong and Taiwan are city states with a very small area and population. Hence only four emerging market countries have grown at a rate of 5% or more over the last forty years. Only two of these countries i.e. Taiwan and South Korea have managed to grow at 5% or more for the last fifty years.
\n\u201cIn many ways \u201cmortality rate\u201d of countries is as high as that of stocks. Only four companies \u2013 Procter & gamble, General Electric, AT&T, and DuPont- have survived on the Dow Jones index of the top-thirty U.S. industrial stocks since the 1960s. Few front-runners stay in the lead for a decade, much less many decades,\u201d writes Sharma.
\nThe history of economic growth is filled with examples of countries which have flattered to deceive. In the 1950s and 1960s, India and China, the two biggest emerging markets now, were struggling to grow. The bet then was on Iraq, Iran and Yemen. In the 1960s, the bet was Philippines, Burma and Sri Lanka to become the next East Asian tigers. But that as we all know that never really happened.
\nIndia is going the Brazil way
\n<\/strong>Brazil was to the world what China is to it now in the 1960s and the 1970s. It was one of the fastest growing economies in the world. But in the seventies it invested in what Sharma calls a \u201cpremature construction of a welfare state\u201d, rather than build road and other infrastructure important to create a viable and modern industrial economy. What followed was excessive government spending and regular bouts of hyperinflation, destroying economic growth.
\nIndia is in a similar situation now. Over the last five years the Congress party led United Progressive Alliance is trying to gain ground which it has lost to a score of regional parties. And for that it has been very aggressively giving out \u201cfreebies\u201d to the population. The development of infrastructure like roads, bridges, ports, airports, education etc, has all taken a backseat.
\nBut the distribution of \u201cfreebies\u201d has led to a burgeoning fiscal deficit. Fiscal deficit is the difference between what a government earns and what it spends.
\nFor the financial year 2007-2008 the fiscal deficit stood at Rs 1,26,912 crore against Rs 5,21,980 crore for the current financial year. In a time frame of five years the fiscal deficit has shot up by nearly 312%. During the same period the income earned by the government has gone up by only 36% to Rs 7,96,740 crore. The huge increase in fiscal deficit has primarily happened because of the subsidy on food, fertilizer and petroleum.
\nThis has meant that the government has had to borrow more and this in turn has pushed up interest rates leading to higher EMIs. It has also led to businesses postponing expansion because higher interest rates mean that projects may not be financially viable. It has also led to people borrowing lesser to buy homes, cars and other things, leading to a further slowdown in a lot of sectors. And with the government borrowing so much there is no way the interest rate can come down.
\nAs Sharma points out: \u201cIt was easy enough for India to increase spending in the midst of a global boom, but the spending has continued to rise in the post-crisis period\u2026If the government continues down this path India, may meet the same fate as Brazil in the late 1970s, when excessive government spending set off hyperinflation and crowded out private investment, ending the country\u2019s economic boom.\u201d
\nWhere are the big ticket reforms?
\n<\/strong>India reaped a lot of benefits because of the reforms of 1991. But it\u2019s been 21 years since then. A new set of reforms is needed. Countries which have constantly grown over the years have shown to be very reform oriented. \u201cIn countries like South Korea, China and Taiwan, they consistently had a plan which was about how do you keep reforming. How do you keep opening up the economy? How do you keep liberalizing the economy in terms of how you grow and how you make use of every crisis as an opportunity?\u201d says Sharma.
\nIndia has hardly seen any economic reform in the recent past. The Direct Taxes Code was initiated a few years back has still not seen the light of day, but even if it does see the light of day, it\u2019s not going to be of much use. In its original form it was a treat to read with almost anyone with a basic understanding of English being able to read and understand it. The most recent version has gone back to being the \u201cGreek\u201d that the current Income Tax Act is.
\nIt has been proven the world over that simpler tax systems lead to greater tax revenues. Then the question is why have such complicated income tax rules? The only people who benefit are CAs and the Indian Revenue Service officers.
\nOpening up the retail sector for foreign direct investment has not gone anywhere for a long time. This is a sector which is extremely labour intensive and can create a lot of employment.
\nWhat about opening up the aviation sector to foreigners instead of pumping more and more money into Air India? As Warren Buffett wrote in a letter to shareholders of Berkshire Hathaway, the company whose chairman he is, a few years back \u201cThe worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down\u2026The airline industry\u2019s demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it.\u201d
\nIf foreigners want to burn their money running airlines in India why should we have a problem with it?
\nThe insurance sector is bleeding and needs more foreign money, but there is a cap of 26% on foreign investment in an insurance company. Again this limit needs to go up. The sector very labour intensive and has potential to create employment. The same is true about the print media in India.
\nThe list of pending economic reforms is endless. But in short India needs much more economic reform in the days to come if we hope to grow at the rates of growth we were growing.
\nTo conclude
\n<\/strong>Raj Krishna was a far sighted economist. He knew that the Nehruvian brand of socialism was not working. It never has. It never did. And it never will. But somehow the Congress party\u2019s fascination for it continues. And in continuance of that, the party is now distributing money to the citizens of India through the various so called \u201csocial-sector\u201d schemes. If economic growth could be created by just distributing money to everyone, then India would have been a developed nation by now. But that\u2019s not how economic growth is created. The distribution of money creates is higher inflation which leads to higher interest rates and in turn lower economic growth. Also India is hardly in a position to become a welfare state. The government just doesn\u2019t earn enough to support the kind of money it\u2019s been spending and plans to spend.
\nIts time the mandarins who run the Congress party and effectively the country realize that. Or rate of growth of India\u2019s economy (measured by the growth in GDP) will continue to fall. And soon it will be time to welcome the new \u201cHindu\u201d rate of economic growth. And how much shall that be? Let\u2019s say around 3.5%.
\n(The article originally appeared at www.firstpost.com on June 1,2012. http:\/\/www.firstpost.com\/politics\/sonias-upa-is-taking-us-to-new-hindu-rate-of-growth-328428.html<\/a>)
\n(Vivek Kaul is a writer and can be reached at vivek.kaul@gmail.com)
\n<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Vivek Kaul Raj Krishna, a professor at the Delhi School of Economics, came up with the term \u201cHindu rate of growth\u201d to refer to Indian economy\u2019s sluggish gross domestic product (GDP) growth of 3.5% per year between the 1950s and the 1980s. The phrase has been much used and abused since then. A misinterpretation that … <\/p>\n

Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"qubely_global_settings":"","qubely_interactions":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[2],"tags":[530,531,682,771,1083,1124,1290,1399,1597,1694,1727,1730,1878,2177,2925,2937,3162,3357,3419,3575,3629,3868],"qubely_featured_image_url":null,"qubely_author":{"display_name":"Vivek Kaul","author_link":"https:\/\/vivekkaul.com\/author\/vivekkaul\/"},"qubely_comment":0,"qubely_category":"Analysis<\/a>","qubely_excerpt":"Vivek Kaul Raj Krishna, a professor at the Delhi School of Economics, came up with the term \u201cHindu rate of growth\u201d to refer to Indian economy\u2019s sluggish gross domestic product (GDP) growth of 3.5% per year between the 1950s and the 1980s. The phrase has been much used and abused since then. A misinterpretation that…","jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/422"}],"collection":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/comments?post=422"}],"version-history":[{"count":0,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/422\/revisions"}],"wp:attachment":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/media?parent=422"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/categories?post=422"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/tags?post=422"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}