Is the Indian Economy Returning to the Much Dreaded Hindu Rate of Growth Trap?
What is the Hindu Rate of Growth Mean and why is it so dreaded by Capitalists?
After Independence, the Indian Economy was famously thought to be growing at a measly Two to Three Percent until the 70s.
This abysmal rate of growth was dubbed the Hindu Rate of Growth as the then leading economists felt that the Indian Economy was not structurally suited to higher growth rates.
This is because a Century of Subjugation by the British had left India poorer and without much Physical or Social Capital.
Moreover, the Socialist policies followed during the Nehru and Indira Gandhi years meant that the Indian Economy was shackled and fettered in layers and layers of complex bureaucratic rules that made Indian Capitalists weary of expansion and Foreign Investors to avoid investing in the country.
Not that the former lacked the capital or the latter the enthusiasm, but, the plain fact that the Indian Ruling Dispensation made it clear that they considered Profit as a Dirty Word and hence, subjected the Industrialists to Stratospheric Income Taxes and dissuaded them through the Infamous License Raj and the Inspector Raj wherein the State planned everything and the Entrepreneurs had to literally run Helter Skelter to even survive.
How Liberalization Unshackled the Indian Economy and Freed the Caged Elephant
All this changed with the Liberalization of the Indian Economy in the 1990s and for the first time, there were open cheers for what the Indian Economy likened to a Caged Elephant that was set free could do.
Indeed, in the heady days of Liberalization, the Euphoria about the Indian Economys potential was so high that the Indian and Foreign Media soon started talking about how it was the next China and how the 21st Century belonged to India.
Of course, there were murmurs here and there that Liberalization was benefiting a few at the expense of the many and that unless India undertook Structural Reforms, the Debt Fuelled Economic Binge would come crashing sooner or later.
Moreover, the focus on the Equity Markets meant that there was a Disconnect between the Booming Stock Market and the Suffering Real Economy due to Excessive and Risky Speculation without being backed by Real Reforms and the Real Economic Growth.
In addition, the stupendous success of the IT or the Information Technology Industry was taken as a sign that India had arrived on the Global Stage and nothing or no one could stop it now. This heady feeling lasted well into the 2000s.
How Successive Governments Dealt with the Boom and Bust Cycles of the Indian Economy
The Great Recession of 2008 was the first warning signs that Not All Was Well with the Indian Economy.
However, instead of addressing the Structural Problems, the Business as Usual approach meant that the Indian Economy never really went through the Painful Process of Deep Reforms and the Debt Binge continued along with the Speculative excesses.
Of course, this is not to say that there were measures to address this and the Dream Team of Economists in the UPA or the United Progressive Alliance during 2004-2014 enacted some tough measures that checked the above mentioned problems and ensured that there were no systemic crises.
However, the Demonetization of the Indian Currency in 2016 and the subsequent Botched Rollout of the GST or the Goods and Services Tax meant that a Healthy Economy was subjected to Shock Therapy leading to falling growth rates.
Moreover, just when it seemed that we were recovering our poise, the Pandemic struck and the subsequent Chaotic Lockdowns meant that the Nascent Recovery was stymied and the Indian Economy is now in the Throes of what is known as Stagflation and Stagnation where Demand is Weak, Consumers hoard Cash, and Industrialists are unwilling to expand as well.
Are We Going Back in Time and What Can Be Done to Avoid the Trap of Stagnation?
This begs the question as to whether India is harking back to the growth rates of the post Independence years despite some good reforms undertaken by successive governments?
There are many who feel that this Slowdown and Depression would certainly drag the Economy down to the Much Dreaded Hindu Rate of Growth of the Sixties and the Seventies and just when China is bouncing back again, India seems to be entering the Cyclical Trap.
Indeed, along with the prevailing winds of nationalism and religious chauvinism, we seem to have got the Hindu Rate of Growth as well.
While there are some attempts to remedy the situation and rectify the problems, the fact remains that much is to be done before the Structural and the Cyclical Factors Dragging down the Economy can be made to weaken.
Indeed, it goes without saying that the Pandemic is the Last Straw that Broke the Back of the Indian Economy and the time is now ripe for some serious course correction.
However, any reforms undertaken now should balance the Capitalist Desire for Profits with the Masses yearning for Working Wages and the like. Otherwise, we would witness more protests such as the Farmers agitation.
Is it 1991?
Last, extrapolating the present trends, it is clear that there would be a year or more of acute pain with job losses, unemployment, weak demand, and to top it all, a banking system in coma.
Therefore, it is time for the Indian Policymakers to adopt a Do or Die approach and go in for some serious reforms addressing the systemic and the structural problems that are aimed at the middle and lower layers of the income pyramid.
To conclude, the present situation would lead to the crisis of the year 1991 when India nearly defaulted and pawned its gold reserves.
Authorship/Referencing - About the Author(s)
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