Of course, with the great changes that have taken place in India in the past 20 years, this cliche has gradually been abandoned. Since 1980, India's per capita economic growth rate has more than doubled, from 1950- 1980 to 1.7% to 1980-3.8% in 2000. In the past, under the constraints of socialist policies and licensing and quota systems, India was often regarded as a negative textbook for the wrong development strategy. Now, India has become a model student. People take her as an example to show how much economic growth potential we can bring into play if we turn to free market and free trade. Although India's economic growth rate is not as high as China's (and its income level is not as high as China's), due to its reliable democratic system and strong performance in the field of information technology, in the eyes of many observers, this country is increasingly posing a strong challenge to China, even if it cannot replace China's position.
India's economic progress is the gospel of its 654.38 billion people. Equally important, this change has also brought hope to other poor countries. She has shown the world that rapid economic growth can be achieved if appropriate policies are adopted.
But what is the "appropriate" policy to produce the Indian miracle? There are many answers to this question in policy reports and newspapers. The traditional and general view is that before 199 1, India's economy was isolated from the outside world, and the industry established under the guidance of the state was very inefficient. Excessive regulation hindered the development of the private sector, and government regulation and bureaucracy stifled the vitality of the private economy, but these conditions occurred in 199 1. Stimulated by the balance of payments crisis, Indian policymakers use experts like Manmohan Singh to govern the country. Singh soon began the process of economic liberalization, trade barriers were removed, foreign direct investment was encouraged, the licensing system was abolished and privatization began. Driven by software export and call center business, India's economy began to take off.
Like all simple descriptions, the above views do have some truth. The Indian economy used to be one of the most tightly controlled and closed economies in the world, and this situation has not changed until recently. Indeed, the economic liberalization in 199 1 year can be said to be a watershed in India's economy. However, what the above viewpoint fails to realize is that the accelerated growth of Indian economy began as early as 199 1 year ago. A cursory observation of India's economic growth history shows that India's accelerated economic growth started around 1980, and this growth trend did not change much after 199 1 year. In fact, some indicators, such as social total factor productivity, even show the opposite characteristics after 199 1 year, and the growth rate decreases. Therefore, the good performance of Indian economy after 1980 cannot be attributed to the reform of 199 1. The reform in 199 1 may have played a role in maintaining and accelerating India's economic growth, but we need a broader perspective to understand the changes in India's economic growth. A related argument is that some recent phenomena, such as the rise of IT industry and related services, are not the source of India's economic growth.
This paper will provide different explanations for India's economic growth. We believe that the driving force of India's economic growth comes from the attitude of the central government to support the private sector 1980. Prior to this, the ruling Congress Party pursued the policy of socialism and poverty alleviation. When Indira Gandhi regained power in 1980, she adjusted her political allies, united with representatives of the people, and began to abandon the previous flashy policies. The attitude of the central government towards enterprises has changed from hostility to support. From 65438 to 0984, after rajiv gandhi came to power, Indira Gandhi's policy was further promoted and strengthened, not as subtle as before. In our view, this is a key shift in releasing the vitality of India's private sector in the early 1980s.
It is very important to correctly describe this attitude change of the Indian government. Here, we distinguish between pro-market and pro-business. The former focuses on removing market obstacles and is committed to economic liberalization to provide benefits for newly established enterprises and consumers. Promoting enterprise orientation focuses on improving the profitability of existing enterprises, which is beneficial to existing enterprises and producers. Policies to promote enterprise orientation include reducing the expansion restrictions of existing enterprises' production capacity, abolishing price control and reducing corporate tax (all of which occurred in the 1980s) and so on. A typical example of promoting market-oriented policies is trade liberalization (this policy change did not make progress until the 1990s). By comparing the reform methods in East Asia and Latin America, we can understand the difference between promoting market orientation and promoting enterprise orientation. South Korea's reforms in the 1960s and 1970s were basically enterprise-oriented rather than market-oriented, while those in Latin America in the 1990s were basically market-oriented.
India's policy changes in the early1980s can be described as promoting enterprise orientation rather than market orientation. At that time, real liberalization was basically unpopular for existing enterprises. Compared with the political support of existing enterprises, Indira Gandhi is relatively uninterested in opening to the outside world and eliminating competition barriers. Rajiv gandhi himself prefers liberalization, but because he went too far, the Bofors scandal damaged his prestige and he had to go back again. Therefore, the beneficiaries of the reform in this period are mainly existing enterprises and original businesses, not new enterprises and new businesses. However, we think it is very important to change policies to promote enterprise orientation during this period, which is a basic factor to promote rapid economic growth in the 1980s. We say this because we find that the real liberalization after 199 1 year has not improved the overall economic performance. Obviously, although there are price distortions and other market distortions, the change of government attitude during this period is a powerful driving force for economic growth.
The reason why the change of government attitude can have a great impact on economic growth is related to India's initial reform conditions. Compared with countries with the same income level, India has a good political and economic system. She is a democratic country with extensive rule of law and fully protected property rights. According to the standards of other similar countries, India's income level should be several times that of today. The implication behind this is that small changes in the policy environment may have a huge impact on economic growth. We can regard the government's cancellation of hostility to the people as one of the changes, which has little change in actual policies, but has an important impact on investors' psychology.
This paper will first introduce India's economic transformation in the 1980s, and make corresponding comparisons. We believe that this transformation is based on the great progress of productive forces (rather than the accumulation of factors). We also believe that India has changed from a laggard before 1980 to a winner.
Then, we will provide a series of explanations for this change and point out why they are not satisfactory. There were not many liberalization policies in India in the 1980s, and a few of them occurred in the late 1980s. During this period, the Indian economy was still isolated from the outside world, and even increased the degree of protection in some aspects. The green revolution can't be the source of the development of non-agricultural sectors, because we haven't found the necessary changes in the internal terms of trade. The demand factor is not enough to explain the increase in productivity. Unless we make a lag hypothesis, public sector investment cannot provide a complete explanation.
Subsequently, we put forward our own explanation and provided some empirical data to support it. We especially emphasize that the economic growth after 1980 is stronger in some specific areas of economic activity and specific regions. These areas of economic activity are most likely to benefit from the change of government attitude, that is, the formal manufacturing sector established under the previous policy system. Therefore, to a certain extent, the knowledge generated under the previous policy system and the foundation of modern manufacturing industry provide a good environment. Once the policy environment changes, it will be conducive to the transformation of the private sector and the economy can take off smoothly. Therefore, where the previous investment occurred, the economy achieved rapid growth.
The analysis of this paper mainly focuses on the transformation of India's economy to high growth in the 1980s, and seldom involves the reform in 199 1 year and the experience in the 1990s. We believe that starting economic growth and maintaining economic growth are completely different challenges and need different policies and methods (Rodrik, 2003; Hausmann et al., 2004). This paper mainly studies the challenge of starting economic growth and the relevant experience of India.
I. Facts
A key fact on which this paper is based is that the turning point of India's economic growth occurred around 1980, not in the 1990s as most people think. It was from 1980 that India began to wave goodbye to the "Indian growth" in the past. In fact, we are not the first to realize this: Delong (2003), Williamson and Zaha (Williamson and Zaha, 2002) all emphasized that the doubling of India's economic growth rate occurred as early as 199 1 year before the reform. However, we haven't found any documents that use standard policy-oriented factors to analyze India's rapid economic growth, and all the explanations give people the impression that the reform in the 1990s led to India's outstanding economic performance (Ahluwalia, 2000; Srinivasan and Tendulkar, 2003).
Figure 1 depicts three indicators related to the overall economic performance: real GDP per capita, real GDP created by each worker and total factor productivity. From 1980, these three indicators showed a rapid upward trend, but remained basically stable in the first 20 years. The table 1 also shows that the growth rate of labor productivity and total factor productivity in the former is about 3 percentage points higher than that in the 1970s. Despite the strong economic growth in11990s, the growth of various productivity indicators showed a downward trend, which was 0.3 to 0.6 percentage points lower than that in11990s. Regardless of whether the 1990s is slightly worse (or better) than the 1980s, the data have fully proved that India's economic growth has improved greatly since around 1980.
Many studies have provided evidence that the turning point of India's economic growth occurred around 1980. Firstly, using the method described by Bai Jushan and Perron (1998, 2003), we calculated the optimal single turning point, optimal two turning points and optimal three turning points of four growth rates. The basic indicators of these four growth rates are per capita GDP calculated at fixed dollar prices (World Bank), per capita GDP calculated at purchasing power parity, GDP created by each worker and total factor productivity (Bosworth). In all cases, we found that a single turning point occurred in 1979. Secondly, Osman et al. (Hausmann et al., to be published soon) used a large number of transnational data to analyze the transition to high economic growth and set the turning point of India's economic growth as 1982. Finally, wallach makes a node analysis of India's GDP and its decomposition projects. She found that India's GDP growth had a node in the middle and early 1980s. In 1980, the existing nodes have the highest F statistics (Wallack, 2003, page 43 14).
What is the reason for India's overall productivity improvement after 1980? Is it just the transfer of resources from low-productivity sectors (agriculture) to high-productivity sectors (manufacturing and service industries), or has the performance of the private sector improved? Great changes have taken place in the composition of the labor force in the three major departments. Most notably, the proportion of labor force in the agricultural sector decreased from 1975 to 1995, which was about 100%, while the proportion of labor force in the service industry and industry increased by about 7.5% and 2.5% respectively. However, this change can only explain a small part of the overall productivity increase (less than 10%). For example, when the fixed (base period) employment ratio is used to calculate the total labor productivity, the growth rate in the 1980s is 2.6%-2.9% higher than that in the 1970s, and the growth rate in the 1990s is 0.4%-0.6% lower than that in the 1980s (table 1).
Table 1 shows India's total growth and sectoral growth (average annual growth rate, unless otherwise specified)
period
1960- 1970
1970- 1980
1980- 1990
1990- 1999
Bosworth Collins ltd
output
3.84
2.98
5.85
5.59
Unit output of workers
1.87
0.69
3.9
3.27
Per capita capital of workers
0.83
0.6 1
1.06
1.32
education
0.29
0.58
0.32
0.34
Total factor efficiency
0.74
-0.5
2.49
1.57
International Monetary Fund
output
3.75
3. 16
5.64
5.6 1
Unit output of workers
1.77
0.86
3.69
3.3
Total factor productivity ①
1. 17
0.47
2.89
2.44
Total factor productivity ②
-0.94
-2.07
1.28
0.94
The growth rate of workers' output at the current employment rate
Agriculture ③
1.2
0. 13
2.57
1.29
Manufacturing ④
2
6.3
six
Service industry (B-C)⑤
2. 12
6.32
6.57
Service industry (IMF)⑥
3. 14
5.3
6.69
The total growth rate of workers' unit output measured by the employment ratio in the base period.
Bosworth Collins ltd
0.69
3.66
3.08
Total (IMF)
0.86
3.49
3. 1 1
Contribution of labor transfer to the total output growth of unit workers
Bosworth Collins ltd
not applicable
0.24
0. 19
Total (IMF)
not applicable
0.2
0. 19
employment rate
1975
1985
1995
agriculture
70.8
64.4
60.8
industry
12.4
15.2
15.8
service industry
16.8
20.4
23.4
Source: Bosworth and Collins (2003); ghose( 1999)； And the author's estimate.
① According to the labor force.
(2) Calculated by the average years of education of the population above 15.
③ According to the World Development Index of the World Bank.
④ The data of 1980s and 1990s were extracted from the working documents of the International Monetary Fund, and the data of 1970s were estimated according to Ahluwalia( 1995).
⑤ The surplus calculated by subtracting the average department productivity growth rate from the total growth rate of unit worker output in B-C. ..
The total growth rate of IMF unit workers' output MINUS the residual calculated by the average productivity growth rate of the department.
⑦ Obtained from Ghose( 1999). Among them, the figures of 1977 and 1978 are calculated by applying the trend of1977/1983 to 1975, while1975.
Authors: Danny Roderick, Abend Sublatt, Year of the Horse Source: Comparison No.1 14.