WASHINGTON, March 26 (UPI) -- In 1500, India was wealthy, by contemporary standards, and an active participant in the world economy, with trade caravans heading westward to Arabia and eastward to China, and Indian products featuring strongly in European markets.
In 1913, India was still a big participant in the world economy, albeit primarily in the free trade yet ordered market of the British Empire -- exports in that year totaled the equivalent of $830 million.
In 1948, India's share of admittedly shrunken world merchandise exports was a still substantial 2.2 percent.
By 1985, that share had shrunk to 0.5 percent, and while it has since recovered, it languishes at 0.7 percent.
The Institute for International Economics on Monday launched a study, "Reintegrating India with the World Economy," authored by T.N. Srinavasan and Suresh Tendulkar, which looks at Indian economic policy since the 1980s and sets it in context. It makes interesting reading.
Before independence from Britain in 1947, India's economic performance had been solid but unspectacular. While population grew rapidly -- from 125 million in 1750 to 389 million in 1941, according to Srinavasan and Tendulkar -- real per capita income grew significantly, from an index value of 73 in 1868-69 (1920 = 100) to 104 in 1930.
Then, as in most countries, the economy was affected by the Great Depression and World War II, and the per capita income index fell to 101 in 1945.
At independence, therefore, India was a relatively open economy, poor but with a history of moderate growth that compared quite well with other countries at that economic low point, with trade at 15 percent of gross domestic product, fairly satisfactory for such a large country in that autarkic era.
Then came the rule of the Congress Party, led by Jawarhalal Nehru, product of the London socialism of the early 20th century, and heavily influenced by what it saw as the successes of Soviet economic planning. Nehru and his successors viewed international trade as a "whirlpool of economic imperialism" in Nehru's 1946 phrase, and sought by tariff and non-tariff barriers to close India off from its effects.
He sought state control over the commanding heights of the economy, reserving basic and heavy industries exclusively for public sector development, and mobilizing private savings for public investment by nationalizing life insurance companies in 1955 and commercial banks in 1969, and by extracting as much as 51 percent of deposits from the banking system through reserve requirements.
Five-year plans were instituted, with quantitative restrictions on private investment, capital issues and foreign joint ventures, as well as imports of technology, capital goods and intermediate inputs. Of course, the whole license system degenerated into a tool for patronage dispensation and corruption.
The rest of the world after 1947 enjoyed an unprecedented economic boom until the oil crisis of 1973, with world per capita income increasing 105 percent over the period, despite rapid world population growth.
India didn't share in this economic renaissance, in spite of the low cost labor and by world standards excellent education system with which it started the period. Instead, per capita income rose only 1.1 percent per annum, or 28 percent over the period, less than one third the growth of the world as a whole.
Even more damning, India's trade as a percentage of GDP over the period fell from 15 percent to 7 percent. While world trade increased by 7.9 percent per annum, India's trade increased by only 2.7 percent per annum.
For India, the autarkic, slow growth Great Depression never really lifted. No greater condemnation of democratic socialism can be imagined than this: in a period when the world was exploding into growth, India, run by devout disciples of the Fabian society with that group's fond regard for the Soviet experiment (remember the Webbs' notorious 1935 tome "Soviet Communism -- a new civilization") was retreating further into isolation and impoverishment.
India's desperate poverty in 1973 was in no way a legacy of Imperialism, except to the extent that the Empire, in its hurried and ill-planned departure, left the country to feckless rulers steeped in the perverse mythology of the early British Labor party.
After 1973, the iron grip of the Congress apparatchiks on every aspect of Indian life began to weaken, and economic performance began in consequence to improve. The oil shocks of 1973 and 1979 certainly helped, since they greatly increased employment opportunities for Indians in the oil-rich states of the Middle East, thus increasing remittances.
The Green Revolution, sharply improving the productivity of Indian agriculture, also helped. From Indira Gandhi's declaration of emergency in 1975, Congress' control was no longer monolithic, and so non-Fabian ideas could be tried, at the state level if not federally. Indian per capita growth, contrary to the trend in the world as a whole (where growth dropped by two-thirds to only 1.1 percent per annum) actually increased somewhat, to 1.9 percent per annum, faster than elsewhere.
According to Srinavasan and Tendulkar, reform at the federal level began hesitantly after the assassination of Indira Gandhi in 1985, and in earnest with the foreign exchange crisis of 1991 and the appointment as finance minister, still in a Congress government, of Manmohan Singh.
Economic growth rebounded, to 2.7 percent per capita in 1985-1992, and 4.1 percent per capita in 1992-2002. Structurally more important, foreign trade as a percentage of GDP, which had risen from 7 percent of GDP to 11 percent in 1973-85, began a new and sustained increase around 1985, passing 1948 levels and reaching 18 percent of GDP by 2002.
According to Srinavasan and Tendulkar, the pace of reform and growth slackened with the political confusion of the mid-1990s but reached new high levels following the election of the majority BJP government led by Atal Bihari Vajpayee in 1998.
The policy instruments used to effect this transformation are set out in detail in the Srinavasan/Tendulkar book. Basically, they comprise simply a return by India toward world norms in terms of the openness of the economy, the importance of the private sector and the welcome for foreign investment.
Srinavasan, speaking at the IIE presentation, was careful to emphasize that India has still not fully returned to Western norms of openness and remains significantly less open than China.
In 1999, for example, India's import-weighted mean tariff was 28.5 percent compared with China's 14.7 percent (several further Indian tariff reductions have taken place since then, however.)
Nevertheless, if present policies remain in place, Vajpayee, unquestionably economically a liberalizer, may perform the same function in India that the great Konrad Adenauer played in Germany after World War II, moving the economy to openness, competitiveness and prosperity in the world arena.
In that case, India may in this century finally return to the position of relative economic wealth and prominence that it held half a millennium ago.
