Getting India wrong
by Partha Dasgupta
Critics and supporters of the country’s economic liberalisation make the same error-they forget about pollution and population
A central message of modern development economics is the importance of income growth. By this, economists tend to mean growth in gross domestic product, or the market value of what a country produces (including services). In theory, rising GDP creates employment and investment opportunities; and as incomes grow, both citizens and government are increasingly able to set aside funds for the things that make for a good life. One of the tasks of government is to establish conditions that encourage this kind of economic development. Its role should thus be active (protecting the rule of law; investing in infrastructure, health and education) and passive (permitting markets to operate). Of course, GDP growth in itself doesn’t guarantee an equitable distribution of incomes, but that problem can be offset by government taxes and transfers. Or so the argument would have it.
But this account is inadequate, as the experience of India shows. In the early 1980s the government of India initiated a programme of economic liberalisation. It is now widely acknowledged that the resulting structural reforms led to the impressive economic growth of recent years. Since 2000 GDP has grown at an average annual rate of 7.6 per cent and been accompanied by improvements in a number of other economic indicators. The proportion of people whose incomes are below the country’s official poverty line declined from 45 per cent in the early 1980s to 28 per cent in 2005. The decline is impressive, but the latter figure tells us that the country still harbours widespread deprivation.
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