The Hindu Business Line : Gears that move the innards of growth

Three books by Indian writers chart the course of economic growth in the country, looking at it from various angles — the sources of growth, growth theory and macroeconomic policy. Interesting and informative reads, says D.MURALI.

Our GDP growth rate is making global waves. "The fastest pace in more than two years," says www.businessday.co.za. At 9.3 per cent in Q4, the vault beat "the 7.9 per cent forecast of a Bloomberg News survey and is the fastest after China among the world's 20-biggest economies," writes Cherian Thomas, in that report dated June 1.

"Economic growth in India last quarter compares with a 10.3 percent pace in China's economy, which is almost three times larger, 3.6 per cent in the US and 2 per cent in the dozen countries that share the euro," informs a May 31 posting on www.siliconindia.com.

"India and the resurgent export powerhouses South Korea, Taiwan, Hong Kong and Singapore are unlikely to be able to sustain such growth in coming quarters, as soaring energy and commodity prices dampen consumption and stoke inflation, forcing central banks to raise the cost of money," alerts Rajat Bhattacharya, citing analysts, in a June 1 story on http://money.inq7.net.

Putting aside those fears, we can afford to bask in attention, but it helps to dip a little deeper into the innards of GDP (gross domestic product) and study the gears of growth. "Indian research in national accounts started in the 1860s with the work of Dadabhai Naoroji," writes British economist and economic historian Angus Maddison in his foreword to The Sources of Economic Growth in India, by S. Sivasubramonian, from Oxford (www.oup.com), the first for this week's selection.

The author, who died in August 2002, "first made his mark in 1965 with a significant study of Indian national income for the years 1900-46," remembers Maddison. The current work looks at the period from 1950-51 to 1999-2000. Chapter 1, titled `rate of growth of GDP' recounts how the Indian economy was in `a state of near stagnation under colonial rule during the first half of the twentieth century.' Post Independence, the second half of the century saw `an impressive annual rate of 4.39 per cent', though there were uneven patches due to border conflicts, severe drought, and oil shocks.

Factors that contributed positively were massive public investment, the Green Revolution, and radical reforms after 1991.The decade 1970-80 recorded the lowest growth rate, "with GDP per capita and per worker growing at less than one per cent".

It would also help to know the different abbreviations used in the context of growth and its measurement. Such as CE (compensation of employees), CFC (consumption of fixed capital), FCS (fixed capital stock), FISIM (financial intermediary services indirectly measured), GFCF (gross fixed capital formation), GVA (gross value added), n.e.c. (not elsewhere covered), NNP (net national product), PAD (public administration and defence), PIM (perpetual inventory method), TFI (total factor input) and WPR (worker-population ratio).

The author adopts a simple style to explain the massive crunching that national numbers undergo. For instance, he notes: "The sources of growth are divided into two broad groups: changes in input and changes in output per unit of input. The study of the former requires quantities of inputs, viz. labour, capital, and land, and their relative marginal products for use as weights."

Of immense value are the scores of tables included in the book. One such, titled `worker-population ratios by sex and rural-urban residence,' shows how the all-India figure hovers around 40; the ratio for males is about 50, which is almost double of what it shows for females.

There are surprising statistics, too: "According to the data for 1996-97, land use statistics are available for 93 per cent of the geographical area. Nearly 73 per cent of the non-reporting area is in occupied Jammu & Kashmir and the rest is covered by forests, barren mountains, and the hilly tracts of Himachal Pradesh."

One of the insights that Sivasubramonian offers is that during the transition from stagnation to moderate growth, TFP was the most important factor. "Labour input played a more important role than capital input during deceleration and the reverse was seen during acceleration of growth," he observes. "The contribution of education, which reflects the possible improvement in the quality of labour input, and that of machinery and equipment, which reflects the adoption of modern technology, have not yet become as important as they should be in a rapidly growing economy." Detailed study.

Knowledge, the ultimate vehicle

The purpose of learning is growth, and our minds, unlike our bodies, can continue growing as long as we live, assures Mortimer J. Adler. So, to learn further about growth, let's delve into Dipankar Dasgupta's Growth Theory.

Intro concedes that per capita GDP growth is `an imperfect indicator of welfare improvement'. What matters a great deal is the distribution of GDP. Growth economics, as a field of study, aims at explaining `the factors that boost or inhibit growth in particular societies.'

Demand and supply are key factors, as in other branches of economics. For instance, practitioners of growth economics would tell you that if demand could be stimulated to rise over time, producers will produce more, and that supply will go up and along with it the GDP. "If the population does not grow faster than the GDP, then per capita GDP will register an increase."

In the maze of models and formulae that populate the pages, you'd find enlightening lines on how knowledge, `the most abstract of resources created by economic agents', can be `the ultimate vehicle for breaking through the barriers of diminishing returns'. According to Dasgupta, this thought of growth economists constitutes "the crowning refinement in the concept of capital, the only form of capital that is not subject to the laws of natural scarcity."

His book is for serious researchers who can breeze through passages like this: "The lure of profits affects labour input into research positively, while the risk of survival implied by future competition exerts a negative pressure on research. The equilibrium employment of research labour is determined in standard neoclassical manner by balancing the pain against pleasure." Perhaps, you know which is which. "Once this is known, the probability of success is solved for using the distribution governing the arrival rate of ideas and this in turn determines the expected growth rate of the economy."

Pangs of growth!

Creditable growth for a diverse society

Move on to Shankar Acharya's Essays on Macroeconomic Policy and Growth in India, for a ringside perspective of the theme. The author's focus is on the period since 1991, so the thrust is on how reforms made a difference. "Quality of economic outcomes depends crucially on the quality of economic laws and their administration," he writes in the chapter that discusses the consequences of reforms. "Even when the laws are adequate the legal and judicial processes for dispute settlement and contract enforcement leave much to be desired," he adds. Tactfully, though, he chooses to be silent on the impact of reforms on politics.

A massive chapter on `macroeconomic management in the 1990s' lists the challenges ahead, viz. problem of fiscal deficit, weak and inefficient financial sector, sluggish industrial economy, disturbing signs in the external sector, and so on. "There is urgent need to recapture the growth momentum of the mid-1990s, not only in industry but in all sectors of the economy," urges Acharya.

He revisits growth prospects in the final chapter and assures, "Even a 5.5 to 6 per cent average growth is quite creditable for such a large and diverse society and it implies quite healthy per capita income growth at around 4 per cent a year."

Noam Chomsky would agree; for, he holds that unlimited economic growth has "the marvellous quality of stilling discontent while maintaining privilege."

Growth reads to while away the weekend with.

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