Competitive Exams: Growth and Structural Change in the Indian Economy

Introduction

In this chapter you will study the growth of and structural change in the Indian economy in the last fifty years since 1950 − 51 for which data on most of the macro aggregates are available on an annual basis. We shall concentrate on the growth of gross domestic product at factor cost valued at 1993 − 94 prices. We shall consider the growth of per capita national income, also valued at 1993 − 94 prices, which can be taken as the simplest indicator of the level of living or development.

In an earlier chapter, one of the notions of development was posed in terms of structural change along with growth. What do we mean by structure? Most people mean by it production structure, that is, composition of output produced by the economy. Some would like to find out how and where our labour is absorbed. Other factors such as land and capital are not given equal importance. Some would also like to find out how the production of output is divided between rural and urban areas of the country or between public and private sectors of the economy or between organised and unorganised sectors. We shall discuss all of them. But we can appreciate developments since Independence better once we have a little hint about the scene on the eve of Independence.

Economy on the eve of Independence

We had inherited an economy, which was basically geared to the interest of our colonial masters. The rate of growth of per capita income during the hundredyear period before Independence, from whatever scanty information is available, was just 0.5 per cent per annum. It has further been noted that there were long spells when the economy actually stagnated or declined.

In the past, we were known for producing fine cotton fabric, handicrafts and other merchandise. Even during the early British Raj, that is, before the onset of industrial revolution in Britain, our economy was an industrial economy by the standards of those days whereas the European economies had yet to usher in modern civilisation. Yet, by the time we got Independence, our economy was primarily reduced to an agricultural economy and we used to export mainly raw materials and minerals for the British industries and even foodgrains while we might have been hungry ourselves.

In 1950 − 51, our per capita income was no more than Rs. 3, 700 at 1993 − 94 prices (while in 1999 − 2000, it is a little more than Rs. 10, 000). The contribution of agriculture sector (including animal husbandry and livestock) to the GDP was around 54 per cent by current prices and 50 per cent by constant prices of 1993 − 94. If we include forestry and logging and fishing in this sector, then the contribution turns out to be 57 − 58 per cent. And, if we add mining and quarrying and call the combined sector as primary sector, the contribution of primary sector is found to be about 60 per cent. Manufacturing contributed only around 10 per cent. Contribution of the service sector was thus around 30 per cent. Most of the people were engaged in agriculture as cultivators on their own tiny holdings or as wage labourers on others'fields.

Growth of GDP since 1950 − 51

Growth of an economy is reckoned with growth in its GDP at constant prices. We have now a complete series of gross domestic product at 1993 − 94 prices from 1950 − 51 onwards but we give here the GDP series at five yearly interval (see above table).

However, in order to give you a feel about the general tendency of rise and occasional decline in a few years in comparison to their respective preceding years, we give here a graphical presentation of the whole series. We notice from the graph that there were occasional drops in the GDP which we do not notice in the abridged Table presented here. But, generally it has been rising. Over the period of last fifty years, it has increased more than eight times. But we are and should be more interested to know whether growth rate itself has risen over time.

We can also calculate rates of growth for different plan-periods or different decades or for periods divided by significant events. All such breakups have been used by scholars. We shall calculate growth rate per annum by decades only. We shall use two popular methods of calculation of annual rate of growth for long periods, viz. Average annual growth and compound annual growth rate.

Growth of Per Capita Income

Per capita income is the ratio of net national product to the (mid-year) size of population. Net national product is likely to follow the pattern of gross domestic product, as the component of net factor income from abroad is small in comparison to the total. Population has been secularly rising in the last fifty years though, of late, the rate of growth of population has started declining. We can remember that, in the case of population, we have only decennial figures and, therefore, can calculate only a single rate of growth of population. Using this technique, population size for each mid-year is interpolated. Dividing net national product by the size of population, per capita income is calculated. Annual per capita income has risen a little less than three times from a little less than Rs. 3, 700 in 1950 − 51 to over Rs10, 000 in 2000 − 01, at constant prices of 1993 − 94. In none of the years shown here, there is a decline over the year in the previous row. But, one can notice that there is hardly any rise in 1965 − 66 over 1960 − 61, that is, after a gap of five years. Generally, there is some rise in normal years. It means that 1965 − 66 was a particularly bad year. In fact, 1965 − 66 and 1966 − 67 were years of severe drought, though they gave us green revolution. However, with a view to giving you an idea about the wider fluctuations in case of per capita income, we give here the graphical presentation.