Can India grow faster? Answers from history

The Indian economy has grown at an impressive pace of late.

It can do even better if India receives more foreign direct investment and world-class skills. Opening up the economy further to enable more inflow of capital and knowhow is hindered by nationalistic sentiment. This essay concludes that India can grow faster if Indians can sort out their troubled relationship with the idea of globalisation.

The anti-globalisation sentiment has support from some businesses. But it is also ideological and derives from a reading of history.

Indian nationalists hold that the British Empire, which ruled between 1858 and 1947, impoverished the region by imposing an open economic system upon it. This, however, is a misreading of history. In fact, openness helped private enterprise grow in these years by making use of free trade, the inflow of capital, and the knowledge brought in by skilled migrants. Average standards of living did not rise greatly. The obstacle was the low and stagnant yield of agricultural land. Colonialism did not create the problem, but it failed to deal with it.

After independence in 1947, India succeeded in implementing a Green Revolution but, by closing the economy, hurt private enterprise outside agriculture.

After the economy opened up again in the 1990s, India saw a big growth in private enterprise. Openness helped enterprise again as in the past. But now there was a difference. Borders opened to trade, but did not open enough to capital and not at all to skilled services. If India is to grow faster, it needs to create the conditions to attract more capital and more skills. It will be helped in doing that if it can also develop a sense of history free of nationalist sentiment.

This is the third briefing paper in the Global Perspectives series which is a new collaboration between the SMF and the University of Warwick’s centre for Competitive Advantage in the Global Economy (CAGE).

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