India’s 1970s-1990s Step-wise Growth Acceleration: Causes and Impacts

To lower poverty and to raise living standards, many developing countries need to attain and maintain fast, pro-poor growth. Arguably the most important acceleration to occur over the last half-century has been India’s. The country had suffered both low average income and slow growth over most of its first three post-Independence decades. Unlike the short and clear-cut periods of “take-off†experienced by many countries, India’s appears to have been a two or three step process beginning in the 1970s and ending with the upward ratcheting of the early 1990s. A striking feature was the small increase in the (constant price) investment rate, implying that the dominant proximate cause of acceleration was increasing efficiency in the use of resources. Possible factors at work include the shift away from the Mahalinobis model, the liberalization and improvement in business atmosphere, the Green Revolution, and the creation of many new bank branches which raised national savings. Inequality appears to have changed little during the accelerations of the late 1970s and 1980s but it rose significantly during that of the 1990s. Even then, however, the income growth of the poorer groups, including agricultural wage earners and casual non-agricultural workers, was strong.