The India Model

Tuesday, June 27th, 2006

Gurcharan Das, former CEO of Procter & Gamble India, discusses The India Model and its history:

For half a century before independence, the Indian economy was stagnant. Between 1900 and 1950, economic growth averaged o.8 percent a year — exactly the same rate as population growth, resulting in no increase in per capita income. In the first decades after independence, economic growth picked up, averaging 3.5 percent from 1950 to 1980. But population growth accelerated as well. The net effect on per capita income was an average annual increase of just 1.3 percent.

Indians mournfully called this “the Hindu rate of growth.” Of course, it had nothing to do with Hinduism and everything to do with the Fabian socialist policies of Prime Minister Jawaharlal Nehru and his imperious daughter, Prime Minister Indira Gandhi, who oversaw India’s darkest economic decades. Father and daughter shackled the energies of the Indian people under a mixed economy that combined the worst features of capitalism and socialism. Their model was inward-looking and import-substituting rather than outward-looking and export-promoting, and it denied India a share in the prosperity that a massive expansion in global trade brought in the post-World War II era. (Average per capita growth for the developing world as a whole was almost 3 percent from 1950 to 1980, more than double India’s rate.) Nehru set up an inefficient and monopolistic public sector, overregulated private enterprise with the most stringent price and production controls in the world, and discouraged foreign investment — thereby causing India to lose out on the benefits of both foreign technology and foreign competition. His approach also pampered organized labor to the point of significantly lowering productivity and ignored the education of India’s children.

But even this system could have delivered more had it been better implemented. It did not have to degenerate into a “license-permit-quota raj,” as Chakravarthi Rajagopalachari first put it in the late 1950s. Although Indians blame ideology (and sometimes democracy) for their failings, the truth is that a mundane inability to implement policy — reflecting a bias for thought and against action — may have been even more damaging.

Leave a Reply