Economic Growth in India: History and Prospect by Pulapre Balakrishnan

Author:Pulapre Balakrishnan [Balakrishnan, Pulapre]
Language: eng
Format: epub
Publisher: OUP India
Published: 2010-08-04T00:00:00+00:00

Source: Author's calculation from National Accounts Statistics data presented in Economic and Political Weekly Research Foundation (2006).

Notes: Rate of gross capital formation is the ratio of investment to output at constant (1993–4) prices. Double deflation was adopted.

Among the early observers of economic growth in the mid-1960s was Jha (1980). For Jha, the year 1966–7 marks a decisive turning point when a ‘healthy, if modest’ economic growth turned into a prolonged economic decline and ‘the cut in public investment was only the beginning of the slide backwards’ (Jha 1980: 67). While in his account the author appears to conflate the economy with manufacturing industry, his exposition of how public investment impacted on manufacturing output is persuasive. It is pointed out that as the public sector provided the bulk of the demand for the output of private industry, with a decline in public investment, profitability in the private sector was struck a blow and excess capacity emerged. As a temporary disincentive now emerged for private investment, it lowered the demand for capital goods produced in the public sector. As an indicator consider the following: ‘The total sales of machine tools in the country declined from Rs. 54.16 crores in 1965–66 to Rs. 5.42 crores in 1970–71, the second year of the Fourth Plan’ (Jha 1980: 67). As the public sector's investment was at least partly dependent upon its operating surplus, its investment outlays were to shrink further, thus completing the cycle.

Take the case of the government-owned Hindustan Machine Tools. It went from a comfortable surplus in 1965–6 to heavy deficit (Jha 1980: 67) in 1967–8. This is significant as we know that in the very recent past it had actually financed its own expansion.51 No longer able to fund the plan, the government announced a Plan Holiday which lasted for the period 1966–9 during which the annual average investment outlay was less than in 1965–6. Excess capacity was to proliferate in manufacturing for the next five years and even leading manufacturing firms were to go into liquidation.52 The plausibility of a public investment—driven decline in industrial growth from the mid-1960s is reflected in the composition of industrial production at this time. While the average annual rate of growth for ‘All Industries’ had only declined, indicating a slowing of production increase, the counterpart figure for ‘Machinery and Equipment Manufacturing Industries’ was actually negative during 1965–71. No other industry group turned in lower output, though the growth rate declined in all cases.

As evident for the data in Table 3.3, after almost a decade of decline commencing 1966–7, public investment begins to rise from the mid-1970s to levels comparable with those achieved in the mid-1960s. From then on it remained buoyant till the end of the period that we are concerned with in this chapter—the year 1991. To run ahead a little, this is a vital clue to the growth process in India in the last quarter of the twentieth century. But to return to the explanation of cyclical growth in manufacturing industry, which is

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.