Professional Documents
Culture Documents
1, January-June 2008
I. INTRODUCTION
Economic growth of a nation is assessed in terms of gross domestic product (GDP),1 as this
measure encompasses the performance of all economic activities undertaken in the country.
The GDP represents the unduplicated sum total of all goods and services produced within the
geographical boundary of the country. It also represents the value addition done as a result of
various economic activities carried out during a given period; say for a quarter or annual GDP.
In the recent past, the surge in the GDP growth rates of India (and China, as well as those
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of Russia and Brazil, the four countries together being termed as BRIC countries) has made
India as one of the fastest growing economies in the world. The GDP in the first two quarters
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of 2007-08 has logged 9.3 per cent and 8.9 per cent. These follow a sequence of 15 successive
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quarters of high growth rates, beginning with Quarter ending September of 2003. In terms of
annual numbers, the GDP growth for the year 2007-08 is currently assessed at 8.7 per cent,
following the 9.6 per cent growth rate in 2006-07 and 9.4 per cent in 2005-06, 7.5 per cent in
2004-05 and 8.5 per cent in 2003-04. The average growth of the economy in the Tenth Plan
now stands at 7.8 per cent, very close to the targeted 8 per cent.
The objective of this paper is to assess the structural shift that has taken place in the Indian
economy since the 1950s. The analysis has been carried out using the data available on GDP
(both by economic activity and its expenditures) in four different periods, namely, 1950-80,
1980-92, 1992-2002 and 2002-08. The choice of the periods has been to identify the structural
shifts in the economy since Independence, namely, the period of stagnating economic growth,
initiation of first set of economic reforms, the post 1991 reform period of 8th and 9th five year
plans and the high growth phase of the 10th plan period. The paper also tries to assess the
Indian economy, from the demand side in terms of GDP expenditures, namely, the
consumption expenditure, capital formation and net exports, to see whether the growth is
driven by consumption or investment or exports.
per cent and 7.8 per cent, respectively, indicating a steady pattern of progress in the
performance of economy over the years, which as we see subsequently due to the structural
shifts.
The pattern of growth before 1980s revealed that the GDP growth had been stagnating at
around 3.5 per cent, which led to the famous phrase coined in mid 70s for the Indian economy
by late Prof. Raj Krishna ‘‘the Hindu rate of growth’’. The phrase reflects an apparent
disappointment of the country’s planners as to why the economy was unable to grow beyond
the 3.5 to 4.0 per cent on a sustained basis, despite the green revolution and initiatives on the
industrial front, particularly the thrust given to the public sector (Second Plan) in the initial
plans.
Table 1
GDP Growth Rates in Broad Sectors of the Economy
Industry Growth rates in GDP at constant prices (%)
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2. Mining & quarrying 4.6 6.2 3.1 4.6 8.4 3.9 5.7
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If we look at the sectoral break-up during 1950-80, the agriculture and allied activities
were growing at an average of 2.2 per cent, the manufacturing at 5.3 per cent and the
electricity at 9.6 per cent. The services sector, however, was growing at a moderate, but
relatively higher growth rate of 4.5 per cent, which was more than that in the agriculture
sector but less than that of industry. This was also the period, when agriculture contribution in
the GDP was very high,2 and thus, influencing the overall GDP growth rate (please see Table
2). It is evident from here that there were sectors (particularly in the industry and services)
which were showing robust growth even before 1980s and the momentum had built up in the
economy for higher achievements in the next two and half decades.
70 THE JOURNAL OF INCOME AND WEALTH
Table 2
Share of Different Sectors in GDP
Industry Sectoral Share in GDP at current prices (%)
1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2007-08
1. Agriculture and allied 56.9 46.7 46.1 38.9 31.3 23.4 17.6
2. Mining & quarrying 0.8 1.1 1.1 1.7 2.7 2.4 2.6
3. Manufacturing 10.6 13.8 13.8 16.3 17.1 15.6 16.5
4. Elect. gas & water supply 0.2 0.6 1.1 1.7 2.1 2.4 1.8
5. Construction 2.7 4.1 4.7 4.8 5.6 5.8 8.5
6. Trade, hotels & restaurants 6.3 7.6 8.5 11.6 12.4 14.6 16.8
7. Transport,storage & comm. 3.4 4.1 4.2 4.5 6.0 7.7 8.6
8. Financing & business servs. 10.3 12.3 10.4 9.1 10.4 13.2 14.3
9. Community, social
& pers. servs 9.8 10.3 10.6 11.5 12.3 14.9 13.3
BY BROAD GROUP
1. Agriculture and allied 56.9 46.5 45.9 38.9 31.3 23.4 17.6
2. Mining, manufacturing,
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electricity and construction 14.3 19.4 20.6 24.5 27.6 26.2 29.4
3. Services 29.8 34.1 33.5 36.6 41.1 50.5 52.9
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41
39
40 37
34 34
31 1. agriculture
30 29
30 28 26 2. industry
25 23
19 21 3. services
20 18
14
10
0
50-51 60-61 70-71 80-81 90-91 00-01 07-08
Year/Sector
The initial years after Independence saw the policies of Government towards heavy
industrialisation and emphasis on agriculture and self-reliance. Public Sector and public
investment in industry were the main focus, while private sector was somewhat constrained.
The period prior to 1980s witnessed as many as 5 Five Year Plans (51-56, 56-61, 61-66, 69-
74, and 74-79) charting the course for the progress of Indian economy. The five year plans are
formulated by the Planning Commission with the objectives of effectively utilising country’s
resources. While the First Plan focused on agriculture, power & transport, the Second Plan 3
(which was a turning point in many ways in defining the future of Indian economy) focused
on industry - more specifically on the heavy industry. In this Plan, the domestic production of
industrial goods in the public sector was encouraged. There was also some shift in the basic
emphasis from agriculture to industry. Unfortunately, this period saw the price level
increasing by 30 per cent, against a decline of 13 per cent during the First Plan. The Third
Plan, however, saw some setbacks due to severe drought (1965-66) and two Wars in 1962 and
1965. The Fourth and Fifth Plan4 brought back agriculture as main focus areas and also
witnessed the program “Garibi Hatao”.
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industry resulted in the industry sector increasing its share in the GDP from 14.3 per cent to
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24.5 per cent by 1980-81, while the share of agriculture sector declined from 56.9 per cent
to 38.9 per cent in the same period. The service sector, however, increased its share
marginally to 36.6 per cent from 29.8 per cent. Within industry broad group, the
manufacturing sector raised its share significantly from 10.6 per cent in 1950-51 to 16.3 per
cent in 1980-81. The government policies and plans clearly boosted the industrialisation in
the country.
Table 3
GDP Expenditures (% of GDP)
(at current prices) (%)
Expenditure Aggregate 1950-51 1960-61 1970-71 1980-81 1990-91 1999-00 2006-07
1. Private final
consumption expenditure 86.1 84.3 76.9 77.0 66.2 64.2 55.8
2. Government final
consumption expenditure 5.6 6.8 9.3 10.0 11.7 12.9 10.3
3. Gross capital formation 8.4 14.0 15.1 19.9 26.0 25.9 35.9
4. Exports 7.3 4.5 3.8 6.2 7.1 11.7 22.1
5. Less Imports 7.0 6.9 3.9 9.4 8.5 13.6 25.1
6. Gross domestic saving 8.6 11.2 14.2 18.5 22.8 24.8 34.8
● Household sector 5.7 6.5 9.5 12.9 18.4 21.1 23.8
● Private Corporate sector 0.9 1.6 1.5 1.6 2.7 4.5 7.8
● Public Sector 2.0 3.1 3.3 4.0 1.8 -0.8 3.2
7. Net capital inflow -0.2 2.8 0.9 1.4 3.2 1.1 1.1
8. Gross capital formation 8.4 14.0 15.1 19.9 26.0 25.9 35.9
● household sector 5.1 3.9 6.5 7.0 9.7 10.5 12.5
● private corporate sector 2.2 3.3 2.4 2.7 4.5 7.4 14.5
● public sector 2.9 7.2 6.7 8.9 10.0 7.4 7.8
Source: National Accounts Statistics, various issues.
72 THE JOURNAL OF INCOME AND WEALTH
Another way of looking at the structural shift in GDP composition is to examine the
economy from the demand5 side. Table 3 below presents the composition of GDP
expenditures at different points of time.
An analysis of Table 3 shows that the GDP during 1950-80 period was primarily driven
by investment, which in turn was the result of higher levels of saving done by the nation from
its disposable income. 6 Between 1950-51 and 1980-81, the rate of saving went up substantially
from 8.6 per cent to 18.5 per cent of the GDP, with corresponding increases in the investment
from 8.4 per cent to 19.9 per cent of the GDP. On the other hand, the consumption expenditure
of households (which is represented by the private final consumption expenditure or PFCE)
has slipped from 86.1 per cent to 77.0 per cent of GDP. Another interesting observation from
this Table is the rise of government final consumption expenditure from 5.6 per cent to 10.0
per cent, which underlines the increasing role of government administration7 in the Indian
economy in the period of 1950-80. The government was spending much more on social
sectors.
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Despite the surge in investment during the 1950-80 period, the exports as a percentage
of GDP declined from 7.3 per cent in 1950-51 to 6.2 per cent in 1980-81. However, due to
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the emphasis on industry sector, imports have gone up in this period from 7.0 per cent to 9.4
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per cent.
Examining the more specific role of public sector in this period, the investment rate as a
per cent of GDP of public sector has gone up significantly from 2.9 per cent in 1950-51 to 8.9
per cent. Thus, out of the total investment done in the country during this period, bulk of the
investment came from the public sector underlining the emphasis put forward by the
government planners in this period. Against this background, the investment done by private
corporate sector stagnated at 2.2 per cent in 1950-51 to 2.7 per cent in 1980-81. In terms of
Savings, the households contributed 12.9 per cent of GDP, much above the contribution of 1.6
per cent by the private corporate sector and 4.0 per cent by the public sector. Thus, households
provided necessary resources to the public sector for investment purpose.
the agriculture sector and its performance was attributed to better terms of trade for the
farmers and explicit incentives given to the agriculture sector.
The 1980s growth was led again by the investment, with private corporate sector showing
significant higher levels of investment with 4.5 per cent of GDP in 1990-91 as compared to the
2.7 per cent in 1980-81. As against this, the public sector investment increased only to 10.0 per
cent in 1990-91 from 8.9 per cent in 1980-81. As in the case of pre-1980s, the consumption
expenditure of households declined in the 1980s as well and households saved more in this
decade with their saving rate touching 18.4 per cent of the GDP. The Government final
consumption expenditure, however, rose only marginally to 11.7 per cent in 1990-91 from
10.0 per cent in 1980-81, indicating a relatively lesser government role in this decade as
compared to the earlier years. The net capital inflow 8 from abroad was also high at 3.2 per cent
in 1990-91.
The above analysis shows a surge in the momentum in the economy thereby showing high
GDP growth. In fact, there have been arguments that the economic reforms in India were
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started in the beginning of 1980s.9 With the liberalisation of industrial licensing regime, the
private sector started to emerge very strongly. The IT industry made its beginning in the early
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1980s. The hallmark of 1980s industrial reforms was the encouragement and support given to
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about 24 per cent was resorted to in July, 1991.11 Gradual disinvestment in public sector units
to the extent of government retaining 51 per cent was the public sector policy. The financial
sector too underwent several reforms, with changes in SLR (statutory liquidity ratio) and CRR
(cash reserve ratio), rationalisation of interest rates, access to international capital markets
through Global Depository Receipts and setting up of Debt Recovery Tribunals. Alongwith
these, reforms were also carried out in agriculture sector and labour market.
These measures coupled with other initiatives during the decade, resulted in the GDP
growth increasing to 6.1 per cent during the period 1992-2002. A significant feature of this
growth was agriculture and allied sectors showing an impressive growth rate of 3.4 per cent,
continuing with its performance in 1980s. The services sector emerged as a key driver of
growth of Indian economy, with a growth rate of 7.9 per cent, led by communication sector
(18.1%), financial and business services sector (8.1%) and trade and hotels (8.3%). In this
period, both software and communication services have become the emerging economic
activities and sunrise industries.
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In terms of structural shift, this period saw the contribution of industry sector to the GDP
falling for the first time since Independence, from 27.6 per cent at the end of 1990-91 to 26.2
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per cent at the end of 2000-01. The share of manufacturing sector alone reduced from 17.1 per
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cent in 1990-91 to 15.6 per cent in 2000-01. On the other hand, the services sector exceeded
the half-way mark in terms of contribution to the GDP.
As in the previous periods, the consumption expenditure of households has fallen in terms
of percentage to GDP from 66.2 per cent in 1990-91 to 64.2 per cent in 2000-01. The
government expenditure, however, rose to 12.9 per cent of GDP in 2000-01, as against 11.7
per cent in 1990-91. Although, there is an increase in the rate of saving to 24.8 per cent in
2000-01 from 22.8 per cent in 1990-91, the corresponding investment rate was more or less at
the same level. The fall in investment was mainly due to net capital inflow becoming negative
on account of current account balance being positive for the first time in this period.12
falling to below the 20 per cent level. Even in agriculture sector, the horticulture and other
commercial crops are providing new impetus for the sector. The horticultural crops, livestock
products and fisheries are growing at about 4 per cent every year, and are responsible for the
positive growth rates in agriculture sector.
If we see the period 2002-08 in totality, the average economic growth has been about 8 per
cent, with construction (at 12.4 per cent), transport, storage and communication (at 15.4 per
cent) and financial sector (at 9.9 per cent) recording almost double digit growth rates. The
manufacturing sector too has recorded an average growth rate of 8.8 per cent in this period.
Agriculture, however, is performing at an annual average growth rate of 2.5 per cent, against
the government’s plans to raise it to 4 per cent. However, with population growing at about 1.5
per cent per year, the agriculture growth of 2.5 per cent is still encouraging. Within the
agriculture, however, there are areas of concern, particularly with respect to the production of
rice, wheat, pulses and oilseeds. Rice production which was 93.34 million tonnes in 2001-02,
is still at 94.08 million tonnes in 2007-08. Production of wheat which was 72.8 million tonnes
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in 2001-02 is now estimated at 74.8 million tonnes. Production of pulses was 14.91 million
tonnes in 2003-04, but is lower in 2007-08 at 14.35 million tonnes. Production of oilseeds too
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rose marginally between 2003-04 and 2007-08 from 25.2 million tonnes to 27.2 million
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tonnes.
Examining the economic performance from the demand side, one can clearly see that
the growth in this period is completely driven by investment, with the rate of saving and
investment jumping to 34.8 per cent and 35.9 per cent, respectively during 2006-07, as
against their respective rates of 24.8 per cent and 25.9 per cent in 1999-00. The jump of 10
percentage points in the investment rate in a span of 8 is phenomenal. If we examine this
sectorally, we find that it is the private corporate sector with an investment of 14.5 per cent,
emerging as the leader. The private corporate sector which used to be the third best investor
in the country till about 1999-00 (behind public sector and household sector), has emerged
as the leading investor, with public sector trailing at 7.8 per cent of GDP and household
sector at 12.5 per cent in 2006-07. What is important to note that the investment by all the
institutional sectors has come from the saving of each of these sectors, as compared to the
earlier periods when household sector was the main saver and public sector was the main
investor. While the saving of household sector is still high at 23.8 per cent of the GDP in
2006-07 (against 23.5 per cent in 1999-00), the public sector savings rose sharply to 3.2 per
cent in 2006-07 from (-) 0.8 per cent in 1999-2000, and that of private corporate sector to
Table 4
Implicit GDP price deflators (%)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
1. agriculture and allied 0.9 1.9 4.6 2.6 3.8 5.2 8.8 5.8
2. mining, manf, elec.
and construction 4.8 2.6 5.2 3.6 10.4 5.5 6.1 4.3
3. services 3.6 3.7 2.6 3.7 3.5 2.8 4.1 3.2
TOTAL GDP 3.3 3.0 3.8 3.4 5.5 4.1 5.5 3.9
76 THE JOURNAL OF INCOME AND WEALTH
7.8 per cent in 2006-07 from 4.5 per cent in 1999-2000. The spurt in public sector saving
was due to lower revenue deficits in respect of centre and states, which in turn was due to the
adoption adherence to FRBM Act.
Since this period was led by investment, it is natural to see that the consumption
expenditure of households and government, reducing substantially to 55.8 per cent and 10.3
per cent of GDP respectively in 2006-07, from the earlier respective rates of 64.2 and 12.9 in
1999-2000. Both exports and imports also doubled their share between 1999-2000 and 2006-
07, with exports rising from 11.7 per cent to 22.1 per cent of GDP and imports rising from
13.6 per cent to 25.1 per cent. The period also saw significant rise in foreign exchange
reserves.
Another notable feature of this recent high growth period is the moderation of inflation
levels to around 5 per cent, although prices of food products is a concern, showing a
significant deceleration from relatively higher levels in the earlier periods.
The implicit GDP price deflators13 which represent inflation levels in the country (Table
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4), indicate that during 2000-2008, inflation has been moderate, excepting the industry in
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Table 5
Contribution of public and private sectors in the GDP (%)
1980-81 1990-91 1999-2000 2004-05
Total GDP 100.0 100.0 100.0 100.0
1. Public Sector 19.6 22.0 25.6 24.0
1.1 Public authorities 10.6 11.2 15.0 12.2
1.2 NDCUs 9.0 10.7 10.6 11.8
2. Private organised Sector 10.4 14.2 13.3 18.0
3. Private – unorganized sector 70.0 63.8 61.1 58.0
Source: National Accounts Statistics, various issues.
2004-05 (mining, manufacturing and construction had high price increases) and agricultural
commodities in 2006-07. Almost all the years in this period recorded inflation levels of less
than 4 per cent, with the exception of 2004-05, 2005-06 and 2006-07. The period also saw
prices of services falling significantly, particularly in respect of communication sector. The
inflation levels in services sectors are generally hovering at around 3 per cent per annum.
Table 6
Growth rates of selected items-non-government non-financial public limited companies (%)
Item 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05
Value of production 12.0 9.7 -2.2 10.0 15.3 24.6
Manufacturing expenses 12.9 9.6 -7.0 11.7 15.8 27.1
Remuneration to employees 7.9 9.0 8.3 9.1 13.9 16.3
Gross saving 15.2 8.0 -4.3 32.7 27.3 41.7
Gross value added 9.3 8.3 7.5 9.0 16.7 23.8
Inventories 8.5 6.8 -1.2 10.8 8.9 17.6
Source: Reserve Bank of India
PARADIGM SHIFTS IN GROWTH PERSPECTIVES OF INDIAN ECONOMY 77
Profit before dep, int, tax and EP 62212 69287 89550 101691 127320 142554 141951
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From Table 5, it is also evident that the private organized sector (which is close to the
private corporate sector) is emerging as a key driver of economic growth. The private
organized sector’s share in GDP has gone up from 10.4 per cent in 1980-81 to 18.0 per cent in
2004-05, showing a steep rise, particularly in the recent years. The last few years (after 2001-
02) have particularly shown outstanding performance by the corporate sector, as visible from
Table 8
Proportion of workers in agriculture sector (%)
Year Proportion of workers in agriculture sector
1987-88 64.9
1993-94 63.9
1999-00 59.
2004-05 55.8
Source: National Sample Survey Organisation
about 2.8 per cent of GDP during 1980-2005 period (Table 7). The turnover of central public
sector enterprises (CPSEs) in 2005-06 was Rs. 8,32,584 crore. The growth rates in the
turnover since 2000-01 have been impressive, with the average growth during the first four
years of Tenth Plan being 14.9 per cent, against 16.6 per cent in the case of private corporate
sector in the first three years of Tenth Plan. There is also a significant increase in the capital
employed over the years, with growth rates in the capital employed touching 11.5 per cent in
2004-05 and 15.2 per cent in 2005-06.
As a consequence of the emergence of private corporate sector and the NDCUs of the
government, the share of unorganized sector is reducing over the years, from about 70 per cent
in 1980-81 to about 58 per cent in 2004-05. This is not surprising, considering that the
agriculture sector is predominantly in the unorganized sector15 and its share is steadily falling.
Table 7
Per Capita Income and Average Growth in GSDP
State\UT Per capita income (Rs.) Average Growth
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in GSDP16
2002-03 2003-04 2004-05 (1993-2005)
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Even the workforce dependant on agriculture sector is gradually reducing over years (Table 8).
The share of unorganized sector in the total domestic product is still considered to be high
in other sectors. This sector’s share is 7.9 per cent in mining, 32.8 per cent in manufacturing,
62.1 per cent in construction, 80.6 per cent in trade, hotels and restaurants, 63.7 per cent in
transport, storage and communication, 71.3 per cent in real estate, and business services and
46.2 per cent in other services. While the contribution of unorganized sector is decreasing in
almost all the sectors, it is increasing in the sectors of construction, and other services.
Table 8
Growth Rates in GSDP at Constant Prices
2000-03 2003-06 2000-06 2000-03 2003-06 2000-06 2000-03 2003-06 2000-06
agriculture and allied industry services
1. Andhra Pradesh 1.3 8.5 4.9 5.7 7.0 6.3 7.2 8.0 7.6
2. Arunachal Pradesh 2.4 1.1 1.7 18.6 22.4 20.5 6.6 5.8 6.2
3. Assam -0.3 3.7 1.7 9.1 9.7 9.4 5.3 5.3 5.3
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4. Bihar 13.3 -4.4 4.4 1.3 9.5 5.4 6.5 5.3 5.9
5. Jharkhand 3.5 8.3 5.9 -1.3 18.8 8.8 2.9 10.3 6.6
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6. Goa -3.1 5.6 1.3 6.2 7.9 7.1 1.1 8.7 4.9
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7. Gujarat 4.1 19.4 11.7 2.5 11.9 7.2 5.8 8.7 7.2
8. Haryana 0.8 3.1 2.0 7.8 11.3 9.5 12.2 10.9 11.5
9. Himachal Pradesh 9.0 6.7 7.8 5.9 8.8 7.4 3.2 8.3 5.8
10. Jammu & Kashmir 2.7 5.1 3.6 2.2 10.1 5.4 4.9 3.1 4.1
11. Karnataka -4.2 4.8 0.3 7.6 9.2 8.4 7.4 8.6 8.0
12. Kerala 1.8 3.7 2.8 5.0 8.6 6.8 6.9 7.8 7.3
13. Madhya Pradesh -7.1 13.1 3.0 -0.2 5.9 2.9 2.6 5.4 4.0
14. Chattisgarh -2.0 19.9 9.0 5.4 13.4 9.4 4.0 8.8 6.4
15. Maharashtra 1.4 2.3 1.9 -0.4 8.2 3.9 4.9 9.7 7.3
16. Manipur 1.4 9.0 5.2 2.5 37.6 20.0 -1.7 5.9 2.1
17. Meghalaya 5.2 4.0 4.6 6.7 9.3 8.0 4.7 6.0 5.3
18. Mizoram -0.8 1.5 0.1 11.3 1.1 7.2 8.9 5.0 7.4
19. Nagaland 18.3 8.9 14.6 15.7 6.3 11.9 8.3 8.7 8.4
20. Orissa -2.8 9.3 3.3 1.6 13.6 7.6 5.2 9.3 7.2
21. Punjab 0.3 3.3 1.8 2.8 6.2 4.5 5.6 5.6 5.6
22. Rajasthan -4.5 19.5 7.5 1.7 9.7 5.7 2.1 7.3 4.7
23. Sikkim 18.2 10.7 14.4 6.6 6.0 6.3 4.2 7.2 5.7
24. Tamil Nadu -5.5 8.5 1.5 2.0 7.2 4.6 4.5 8.7 6.6
25. Tripura 3.7 3.9 3.8 23.7 7.4 15.6 7.3 9.2 8.3
26. Uttar Pradesh 0.8 1.1 1.0 2.7 9.4 6.0 4.2 5.4 4.8
27. Uttaranchal 1.1 3.9 2.5 20.2 13.1 16.7 8.5 8.3 8.4
28. West Bengal 2.2 2.6 2.4 7.0 11.1 9.0 5.9 7.4 6.7
29. A & N islands 0.0 -6.3 -3.1 12.8 29.6 21.2 3.8 4.3 4.0
30. Chandigarh -0.2 2.2 1.0 7.5 15.9 11.7 12.0 12.3 12.1
31. Delhi -4.3 -2.5 -3.4 9.3 10.2 9.8 5.0 8.7 6.9
32. Pondicherry -2.3 -0.9 -1.6 15.6 -1.8 6.9 6.4 3.1 4.7
80 THE JOURNAL OF INCOME AND WEALTH
Table 8
Contribution of different sectors in GSDP
1999-00 2005-06 1999-00 2005-06 1999-00 2005-06
Agriculture & allied industry services
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In terms of recent performances, the highest average growth rates achieved during the
period 1993-2005 are Pondicherry, Chandigarh, Delhi, Nagaland, Tripura, Goa, Gujarat,
West Bengal, Karnataka and Rajasthan. These states showed growth rates of over 7 per cent on
an average per year in this period. On the other hand, Maharashtra, Tamil Nadu, Bihar, Orissa,
Manipur, Jammu and Kashmir, Chattisgarh, Madhya Pradesh, Punjab, Uttar Pradesh,
Arunachal Pradesh, Assam and Andaman and Nicobar Islands registered growth rates of less
than 6 per cent.
A closer examination of recent growth rates among the States (Table 8), shows high
growth rates in industry and services. Within agriculture sector and among the major
states, Andhra Pradesh, Bihar, Gujarat, Himachal Pradesh, Chattisgarh, and Rajasthan
recorded high growth rates of over 4 per cent during 2000-06. On the other hand, Andhra
Pradesh.
Assam, Jharkhand, Gujarat, Haryana, Himachal Pradesh, Karnataka, Chattisgarh, Orissa
and West Bengal have recorded growth rates of over 6 per cent among the major states during
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2000-06. Among the services sectors, Andhra Pradesh, Gujarat, Haryana, Karnataka, Kerala,
Maharashtra and Orissa recorded high growth rates of over 7 per cent.
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In terms of shares of various sectors within the GSDP, most states have not increased their
services sector share in GSDP, between 1999-00 to 2005-06. In the agriculture sector and
among major states, Gujarat, Himachal Pradesh and Rajasthan have, in fact, increased their
contribution to GSDP, between 1999-00 and 2005-06 although their relative share is less than
20 per cent. In the industry sector, Assam, Karnataka and Orissa have raised their share
between 1999-00 and 2005-06. It is also interesting to see that shares of service sectors in the
GSDP in Himachal Pradesh and Rajasthan are at low levels.
(especially the IT exports) has helped Indian economy in enlarging the service sector in recent
years. There are also great opportunities in sectors such as ‘Tourism’, ‘Retail Trade’, ‘Health
and Insurance’, ‘Media and Education’ and ‘Micro Finance’. We need to put in place correct
policies to help these sectors achieve their potential.
50 47
41
Share (%)
38
40 agriculture
31 industry
28
30
services
18
20
12
10 5 6
0
Brazil Russia India China
Countries/Sectors
In terms of composition of GDP, industry accounts for about 47 per cent in Chinese GDP,
against India’s 29 per cent, while share of agriculture is 12 per cent in the case of China and
about 18 per cent in the case of India. Services sector contributes 41 per cent in the case of
China, but in the case of India, it is 53 per cent. This shows that while Chinese economy is
driven by industry that of India’s by the services sector. China’s manufacturing is nearly 6
times the size of India’s Manufacturing Sector in terms of saving, the rate of saving in China
is over 50 per cent, while it is about 35 per cent in India. Exports account for over 35 per cent
of China’s GDP, India’s it is 22 per cent. However, the exports as per cent of GDP is
PARADIGM SHIFTS IN GROWTH PERSPECTIVES OF INDIAN ECONOMY 83
increasing in the case of India in the recent years. China, however, contributes about 6 per cent
of World’s exports of goods and services while in the case of India, it is about 1 per cent.
Analysis of the composition of GDP of the BRIC countries (Table 9 and Fig. 2) also
shows that the share of service sector in Brazil and Russia also follow the same pattern as in
India. Only in the case of China, the share of industrial sector is way ahead of the service
sector. Perhaps, there is a need to understand the Chinese economy and its growth pattern.
What is agreed by many is that China has become the industrial workshop of the world on
account of exporting manufactured products at lower costs to the rest of the world (including
to USA). A great many USA multinationals have made Foreign Direct Investments in China
and appear to be taking advantage of the lower costs, good infrastructure and good law and
order situation and are manufacturing goods in China. The Non-residential-Chinese (NRCs)
have also contributed in augmenting production in the small and medium enterprises. The
competitiveness of China has been further aided by emphasis on Research and Development,
since a much larger number of people are engaged in Research and Development activities in
China compared to other countries. India may also need to pay attention to these aspects.
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The various policies and initiatives taken by the Government over the years and the thrust
given in the Five Year Plans to improve the economic growth, resulted in India achieving high
GDP growth rates in the recent years. The current high growth rates are led by the services
sector, rather than the manufacturing sector, which was the thrust of government policies in
the initial fiver year plans. The economy also appears to be fairly insulated against the vagaries
of monsoon and performance of agriculture sector, although this sector continues to be the
source of livelihood for large number of people in the country. It is also a matter of concern on
the lack of sustainable growth in the production of food grains and oilseeds.
The Indian economic growth is also currently driven by investment, rather than
consumption expenditure. The saving and investment rates are almost touching 40 per cent
GDP, indicating potential to achieve high growth rates in future. Among the institutional
sectors, while public sector was making large investments earlier, it is the private corporate
sector which is substantially making investments now. Due to the implementation of FRBM
Act and adherence to it, the saving rates of public sector are now showing positive figures, as
compared to the negative saving rates earlier.
The recent years also witnessed significant fall in the inflation, which is now hovering
around 4 per cent on year-on-year basis. One reason for this is the continuous fall in the prices
of services, particularly those of communication.
Among the major States, Assam, Bihar, Jammu & Kashmir, Madhya Pradesh, Punjab,
Rajasthan and Uttar Pradesh continue to have high proportion of their economy in agriculture
sector. On the other hand, Maharashtra, Kerala, Bihar, Tamilnadu, West Bengal, Karnataka
and Andhra Pradesh have services sector contributing over 50 per cent of their GSDP. The
States Jharkhand, Rajasthan, Chattisgarh, Gujarat, Haryana and Tamil Nadu are relatively
more industrialized with high contribution of over 30 per cent to their GSDP coming from
industry sector.
84 THE JOURNAL OF INCOME AND WEALTH
Notes
1. GDP at factor cost at constant prices.
2. Agriculture and allied sectors contributed 56.9 per cent of GDP in 1950-51, 46.7 per cent in 1960-61,
46.1 per cent in 1970-71 and 38.9 per cent in 1980-81.
3. Also called Mahalanobis Plan, after its chief architect; its objective was rapid industrialization; also
advocated huge imports.
4. The fifth plan (prepared by D.P. Dhar) proposed to achieve two main objectives viz, ‘removal of
poverty’ (Garibi Hatao) and ‘attainment of self reliance’, through promotion of high rate of growth,
better distribution of income and a very significant growth in the domestic rate of savings.
5. Demand side GDP (also known as GDP expenditures) comprises, private final consumption expenditure
(by the households and non-profit institutions serving households), government final consumption
expenditure (by the administrative departments of government at centre, state and local levels), gross
capital formation, exports and (minus) imports.
6. Which is the sum of GDP, net factor income from abroad and net current transfers from abroad.
7. Consists of administrative departments of central government, state governments, local bodies and quasi
government bodies.
8. Net capital inflow from abroad equals the current account balance (with the opposite sign) in the external
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transactions account.
9. Dani Rodrik and Arvind Subramanian (2005) remark that “India’s growth transition began in the early
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Central Statistical Organisation, Ministry of Statistics and Programme Implementation, Government of India
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Central Statistical Organisation, Ministry of Statistics and Programme Implementation, Government of India
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Central Statistical Organisation, Ministry of Statistics and Programme Implementation, Government of India
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Department of Public Enterprises, Ministry of Heavy Industries and Public Enterprises: The Public
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Biswa Swarup Misra: Regional Growth Dynamics in India in the Post-Economic Reform Period; Palgrave
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Dani Rodrik and Arvind Subramanian: From “Hindu Growth” to Productivity Surge:The Mystery of the
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Montek Singh Ahluwalia: First Raj Krishna Memorial Lecture, 1995: Economic Reforms for the Nineties
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