Bharat Rakshak

Starting this thread to move debates that have landed up in other threads jeopardizing OT self-regulation.

In particular : The Controversy around the so-called Sterling Balances of India. Disputed claims are as follows:

(1) There was no manipulation of the Sterling balances to reduce/take away/limit the access and use of the balances by post-war Indian governments [ this includes the Gov of British India/the transitional government and the gov of Republican India].

(2) The Sterling balances were freely available for the GOI to draw freely as and when they wanted. In particular it has been claimed that the full amount could be drawn upon/encashed with a cheque if the GOI wanted to.

(3) Manipulation or no manipulation, the Sterling balances had no real negative effect on immediate post-war growth and had no long term consequences for supposed stagnation that has been given the name of one particular community of India [which is a strange attribution by an academic community that prides itself on sound nomenclature and it is also demanded that anyone who questions such naming must be having a huge bee in his bonnet].

There are other related but important claims in their own right.

(4) Nehru and Mahalanobis' economic policy in the 50's was unexceptionable [ interpretation of the word - no fault can be found/given the circumstances this was an optimal feasible policy, i.e no other policy could better this] and the staganation named after one particular community of India started suddenly as a "rot" in the 60's, most likely after and because of - among other factors - the 1962 war with China. This rot was so powerful that it intensified under Indira Gandhi and continued into the 1990's.

There are of course many "disputes" and controversies that can be found in the economic history of India, and I propose that posters can take up such material here.

Here is an extract from a House of commons debate on 15th July, 1948.

July 1948 → Commons Sitting
INDIA (STERLING BALANCES)
HC Deb 15 July 1948 vol 453 cc1404-10 1404

§ The Chancellor of the Exchequer (Sir Stafford Cripps)

The negotiations with the Government of India on the subject of the sterling balances were concluded last week and the texts of the letters exchanged between the two Governments are being published today in London and in New Delhi. Copies will be available in the Vote Office this afternoon. It was not possible in the existing circumstances of the two countries to come to any final conclusions as to the balances and both parties agreed to settle the position for three years only on the basis of a continuing temporary arrangement based on the agreement entered into last year and published in Cmd. 7195.

The negotiations covered three main points. In the first place, it has been agreed that India should pay the United Kingdom on behalf of herself and Pakistan a sum of £100 million in respect of defence stores and fixed assets taken over by the Government of India before partition. The Government of Pakistan have concurred in this settlement which I am satisfied is fair and reasonable. The sum of £ million will be found from the joint sterling balances of India and Pakistan.

1405 There has been outstanding for some time the question of the balances due from the United Kingdom under the normal working of the Indian Defence Expenditure Plan. Opportunity has been taken of this occasion to settle this matter and a payment of £55 million has been agreed to be due from the United Kingdom and this will be made from Army Votes. Supplementary provision, so far as may be found necessary, will be made later in the financial year.

Second, it has been agreed that a capital sum in sterling should be paid to purchase an annuity which will be used exclusively to cover India's liability for pensions paid in sterling. A similar arrangement is being made with Pakistan. Under this arrangement the Indian and Pakistan Governments will pay to the United Kingdom Government a sum of 176¼ million out of their sterling balances, against which we have undertaken to provide from U.K. Revenues tapering annuities, covering a period of 50–60 years, to be used for the purpose of the payment of pensions issued in sterling. This arrangement will cover both Secretary of State's and non-Secretary of State's Services and Provincial as well as Central Government pensions. The annuities are calculated, so far as available data permit, to fit the Pension bill in each year: If the actual amount required to pay pensions in any year exceeds the sum provided for by the annuity in that year, the difference will be found by release from the blocked sterling balance accounts, and similarly credit will be made to these accounts in any year in which the sum required is less than the annuity figure.

For the next three years, the present machinery for disbursement of individual pensions will continue, namely, the Commonwealth Relations Office will deal with military pensions which are the great majority, and the Dominion High Commissioners with civil pensions. Before the end of the three years, consultation is to take place as to the arrangements to be made after that period.

The third subject covered was releases from the sterling balances and the limitation on hard currency expenditure. Under this heading I am dealing today only with the settlement reached with the Government of India. I hope next week to make a statement on the negotiations with the Government of Pakistan.

1406 The arrangements already in force with India regarding the control of the sterling balances have been extended for a further period. [the following arrangements are reflective of what had gone before and not a new invention] Experience has shown that inconvenience is caused to both the Government of India and ourselves by short-term settlements and the agreement is therefore to run for three years from 1st July, 1948, but it does not deal with the question of the final disposal of the remaining sterling balances. While we are prepared to contemplate, if necessary, a certain amount of flexibility between one year and another no release is provided for from the No. 2 to the No. 1 Account in the year from 1st July, 1948, to 30th June, 1949. In 1949–50 and in 1950–51 there are to be releases of such amounts, not exceeding a total of £40 million in each year, as are required to prevent the balance on India's No. 1 Account falling below £60 million. The form of this provision provides safeguard against any unnecessary accumulation of sterling in the No. 1 Account.

As regards hard currency, owing to the uncertainties of the world situation, the arrangement made is limited to the twelve months ending 30th June, 1949. In that period, India agrees so to limit her expenditure in hard currency areas that her drawings on the central reserves of the sterling area do not exceed the equivalent of £15 million. This figure has been agreed in the light of India's needs for supplies necessary for the maintenance and development of her productive capacity and it represents a further contraction in the Indian drawings on our central reserves. In 1947, those drawings were of course very heavy, while the agreement for the first six months of 1948 envisaged drawings of £10 million in the half year.

----------------------------------------------------------------------

This should give us some idea of the free drawability of the balances.

Further about the "agreements" for free drawing of the balances. Shannon writes :

The Indian and Pakistan agreements [5] illustrate the technique of settling and gradually releasing or offsetting accumulated sterling balances. They were agreed upon at £1,160 million for India as a whole. Under the main agreement, a "No. 1 Account" was to carry sterling currently earned and certain transfers from a "No. 2 Account" which carried the main blocked balances. Sterling in the first account was (originally) made freely available for current purposes in any currency area and for any purpose in the sterling area. This account was credited with £35 million transferred from the second (blocked) account and with a further £30 million transferred as a working balance. Further debits and credits between the accounts could also arise from military and war matters and from pensions.

Following the partition of India, the independent governments of India and Pakistan came to a mutual agreement as to existing balances, and agreed that, from January 1, 1948, each country would retain its own foreign earnings [6] and be debited with its own foreign expenditure; and that each would negotiate separately with the British Government as to further sterling releases. Accordingly, Britain transferred a further £18 million to India's current account,[7] and India agreed not to draw on the central pool for more than £10
million worth of certain hard currencies. Britain also transferred £6 million to Pakistan's current account, together with a further £10 million as a working balance. Pakistan agreed not to draw on its sterling by more than £3.3 million worth of the same hard currencies.
The latest agreements free £40 million a year for India from 1949 (hard currencies being £15 million) and up to £12 million for Pakistan from 1948 (hard currencies being £5 million). In
addition, £100 million was written off the blocked balances against British military stores transferred, and £176.25 million for commuted pensions now taken over by Britain.[8] These last offsets amount to about a fifth of India's old sterling balances.

The British Payments and Exchange Control System: H. A. Shannon, The Quarterly Journal of Economics, Vol. 63, No. 2 (May, 1949), pp. 212-237, MIT Press.

Brihaspatiji,

You are finally down to showing some references for your claims...Thats a good start..

Here is the entire compendium of "negotiations" between India and Britain on the usage of sterling balances...

http://rbidocs.rbi.org.in/rdocs/content/PDFs/90037.pdf

If you read through the whole document, you will find that despite whatever negotiations we did, and whatever "limits' various tacit/explicit agreements set, we went about spending it in our merry ways...Which is why D Deshmukh made that famous comment..

Until 1949 India had, to quote the Governor, C.D. Deshmukh, spent its sterling
balances 'as if there was no tomorrow'. These balances fell sharply from £1,254
million at the end of 1945 to £621 million at the end of 1949. More than half
the fall was accounted for by the cost of the pension annuity that India bought
from Britain, payment for surplus stores, the transfer to Pakistan of that country's
share of sterling assets, and capital outflows.

Now if your argument is we should not have bought pension annuities or the surplus military stores, then,well...

Since 1949, it was the RBI that talked of a more "regulated" rate of spending in order to faciliate the "convertibility" of the Sterling (India was in the sterling area)...

So I am still not clear where is the "manipulation" of the balances to the detriment of India..Where is the evidence that our actions on sterling balances cause the "hindu rate of growth"...In fact large parts, almost the entire economic community of the time wanted India to remain in the sterling area, and hence all our policies and negotiating positions were linked to getting a best deal around that...

So I am yet to see:

1. How the sterling balances were "manipulated" out of us..
2. How the above manipulation was responsible for the hindu growth rate..
3. How the same manipulation cause a devaluation of the rupee..

Once again, I think from your "secularist" viewpoint, you should use the term "Indian rate of growth" and the term "Hindu rate of growth" is highly objectionable and should be dropped from usage on consideration of rational nomenclature. It becomes a case of "community bashing" while pretending neutrality on your part.

Alright, from the RBI version,

Until 1949 India had, to quote the Governor, C.D. Deshmukh, spent its sterling balances 'as if there was no tomorrow'. These balances fell sharply from £1,254 million at the end of 1945 to £621 million at the end of 1949. More than half the fall was accounted for by the cost of the pension annuity that India bought from Britain, payment for surplus stores, the transfer to Pakistan of that country's share of sterling assets, and capital outflows. But thanks to substantial food, and capital and intermediate goods imports, India ran large trade deficits during these years, financed mainly by its sterling drawings. To some extent, no doubt, these expenditures were also motivated by fears for sterling stability and misgivings about Britain's commitment to honouring its debt.

Surely you have the exact amounts spent on the annuities [which was indicated in the refs I provided], surplus stores [~100 million] and the amount transferred to Pak. What about the capital outflows? Data must be available on that flow and as to who sent it where?

Actually, 1254 was in 1945, and already in 1948 this had been whittled down. Even in 1946 this had gone down a bit - before the transition gov started working. Deshmukh's comments - as repeated by you - that India spent like there was no tmrw needs to be explored.

Half of this spending was essentially payment to the British, a net transfer of capital from Indian side to the Brits side, and are you claiming that the Indians did it willingly and joyfully? These transfers were part of the conditions of negotiations over the balances, and as Churchill's statements on this count are available [even if he was not any more a part of the gov with many others inside and outside the government expressing similar ideas] the brits made no secret of willing to renege on or repudiate the debt. These transfers were not therefore free of "manipulation" aspects.

As to the capital flows, that would be even more interesting! There are two aspects to this : and before claiming that spending was like as if there was no tomorrow, we need to check whether the Indian side had any option not to spend whatever they spent after half of the total expenditure was approximately already technically speaking "enforced" by the conditions of the agreements.

The capital goods needs had to be met, and the food scarcity scare had to be met. Are you saying that spending on these two sectors could be skipped? Given a choice between buying British sterling pensions supporting annuities, surplus military stores, and securing basic food security and immediate capital goods needs [partly created by the systematic removal of raw material and goods from India by the brits during the war] which one should have been seen as "unwarranted spending"?

Moreover, the agreements still show blocks on accounts, transfers, and limits. So how exactly was the over spending of the balances managed? Securing net transfers into Brit accounts/and getting India to "buy" "surplus stores" [which itself is interesting - for we do not have in the public domain the details of the stores and who paid for them originally. There was a nice agreement between the Home gov and the GOBI about wartime military spending and funding. So it is entirely possible that these stores were actually paid for by India twice over.] under a media as well as commons-debates campaign holding the threat of repudiation - is not manipulation for you?

By the way, if you do not stop using the term "Hindu rate of growth" there will be no further discussions with you.

Brihaspatiji,

brihaspati wrote:you should use the term "Indian rate of growth" and the term "Hindu rate of growth" is highly objectionable

First, and I am saying this for the umpteenth time, I didnt bring up the term, Ramana did (Brit perfidy on sterling balances causing hindu rate of growth) - I was merely responding..That said, I dont see why it should be so "insulting" - as we speak I see a comment on my bloomberg messenger from someone discussing India's 2012 GDP growth numbers - nothing "derogatory" about it, the chap is talking about a 9.5% prediction (7.5 is the "new hindu" growth rate + 2% EM froth)..Why dont you focus on the matter rather than on the semantics?

brihaspati wrote:Half of this spending was essentially payment to the British, a net transfer of capital from Indian side to the Brits side, and are you claiming that the Indians did it willingly and joyfully? These transfers were part of the conditions of negotiations over the balances, and as Churchill's statements on this count are available [even if he was not any more a part of the gov with many others inside and outside the government expressing similar ideas] the brits made no secret of willing to renege on or repudiate the debt. These transfers were not therefore free of "manipulation" aspects.

Why dont you go through the RBI paper (and Patrick French's Liberty an Death) fully? the Brits did ask for a repudiation of the balances, but Indians (esp Patel) asked them to bugger off..Which is why I ask you - which part of the payments - pension annuity, military stores, food, capital goods - seem "manipulated" to you...Pension annuity? Had to be bought as a large segment of the civil services (inclued imporantly the military - the KCIOs) had to be paid sterling pensions...Military stores had to be bought immediately, thanks to the war in Kashmir...Cpital goods and food anyway have to be bought...There is no mention anywhere in he RBI paper that these were bought at levels that were "manipulative"..Does Aditya Mukherjee say that? Maybe you can reference which book/publication he uses that in..

brihaspati wrote:There was a nice agreement between the Home gov and the GOBI about wartime military spending and funding. So it is entirely possible that these stores were actually paid for by India twice over.]

And you think people like Patel, Menon and CD Deshmukh would have allowed that to happen? Where is any econimc historical record of such a claim?

and before claiming that spending was like as if there was no tomorrow, we need to check whether the Indian side had any option not to spend whatever they spent after half of the total expenditure was approximately already technically speaking "enforced" by the conditions of the agreements

Well, there are discretionary expenditures and non-discretionary ones - and they have to be met, as simple as that...The Indian govt of the day spent it the way they thought best, and no one's argued that the spending was under duress...The fact is that we found out ater the initial burst of spending that it is in our interest to regulate the amounts we draw down every year - and our negotiating position was accordingly positioned...

It would be useful for you to do a simple thought experiment. How much of the "sterling balances" do you think was mnipulated out? 20%? 30%? 50%? 50% would mean about 500 million pounds...700-800 crores..Take that as a ceterus paribus condition..That would be ~ 7% of GDP of the early '50s...Say we utlised it fully over 5 years...Our actual performance on GDP in the early '50s was about 3-3.5% on an average SAvings base of ~8-9% of GDP, imlying an ICOR of 2.5-3...Adding an incremental 1.4% of GDP each year (7%/5) to savings rate and extrapolating the same ICOR, one woul get an incremental growth of .4-.5%...Is that the difference between "Hindu growth rate" and "Asian Tiger" growth rates? So even at the limits of "imaginary manipulaion", the numbers arent ll that material..

Of course, the xiom of manipulation itself is not proven!

And yes, how did any of this affect rupee depreciation?

There will be no response and no discussion from my side until the term "Hindu growth rate" is withdrawn from this discussion, and any use edited out.

This use of Hindu Growth rate is a delibate insulting terms. We all know that the economic policies of relavent time are basically communist/socialist in India. I dont know any reason for naming like this.

brihaspati wrote:There will be no response and no discussion from my side until the term "Hindu growth rate" is withdrawn from this discussion, and any use edited out.

Thats a good ruse! Most academics I know of (in fact none) dont use such excuses.But your case is anyway special!!!

sure somnath ji,
you know a lot about ruses - probably an expert. So you loudly and sarcastically decided that I knew nothing about the "sterling balances" and that your repeated claim was - that the GOI could encash a cheque for 1.3 billion if it wanted to anytime.

From that the smooth scaling down was - yes there were some retsrictions- and in spite of what was written or stated in documents there was still nothing that prevented the GOI from spending it like there was never tmrw. Then the "like there was never a tmrw" turned out to be a third party quote which again was originally not credited! Then it turned out that half of that "spent like there was never a tmrw" was actually a part of negotiated payments to the Brits in the form of annuities and "surplus military stores" which according to you was required for the Kashmir war.

When you make an error of quoting the wrong economist - it is not really your error - but it is the fault of economists who have similar names! That is the academic purity of you! Do you ever realize that you constantly shift and twist and turn and never acknowledge your own errors and mistakes? You always start the casting aspersion game on others and then when people pay you back in your own coin you start putting twists/sarcasms?

You have consistently tried to utter or place the word "Hindu" in each and every negative context possible - and what reminds me of illustrious Congressmen, quite bluntly refuse to use similar associations for Muslims or Christians or Left and Congress. You twisted away from even spelling out the word Congress in association with Congressmen who were implicated in rioting against the Sikhs - you had to highlight their supposed "Hinduness" and when cornered you still refused to utter the word Congress - saying you never said that one party had monopoly over looniness! You never say a lot of things - especially you never ever criticize/cast aspersion on/or attach the word loony to Muslims/Christians/Congress and the Left.

Thank you for so shamelessly batting for the Congress, and proving your loyalty and integrity by never acknowledging that you claim things [like encashing the Sterling cheque] and then quietly- oh so quietly - move from there to passing over the fact of blocked accounts/restrictions on hard cash withdrawals/limits on draws - and never even own up that you insisted that it was all fully liquid, and since I did not know about that liquidity I had no knowledge about how such "things were done".

Dishonesty and dissimulation - somnathji? learnt from the Congress and the Left?

It was a mistake on my part to engage with you in any discussion at all. You are a quoter of quoters of quoters all the while claiming to be the practitioner - the expert - and you don't have access to the full text of the agreements between UK and GOI over the Sterling balances - and your only access is through the RBI "full compendium" and Deshmukh's comments?

There are limits to compromises. Your "academics" might have no problems in bandying the "Hindu rate of growth" for poor economic performance of 60's - because they belong to your club of leftist/Congressites - and the only time you can feel proud of yourselves is when you can publicly bash the "Hindu" or "Hinduism". I have a problem, with your slimy insistence on use of the term - the only time when you acknowledge the importance of "Hindu" in your otherwise impeccably "secular" insistence on absolutely no role/claim of the "Hindu" in the modern rashtra! In your typical politically driven tactics you pretend that - it should be seen as a neutral term - but it is obvious, that you insist on using it because that is one more opportunity for you to mock the "Hindu".

Sorry - after what you have revealed yourself to be - there is no point in arguing with a committed Congressi or Leftist intellectual bully, whose main agenda is needling or mocking or denigrating under pretension of "neutrality" - the "Hindu". If you refuse to apologize for having used the term, there can be no discussions with you. There are limits to compromises.

actually somnath ji,
it seems that my insistence on withdrawal and editing out the term was a heaven-sent for you - becuase by insisting on continuing to do the "hindu-bashing" you could divert attention from your own arrogant bluster about instantaneous liquidity of the sterling balances and the fact that your claim was a lie! [Just as the Congress does to avoid the 2G scam!] But then the great somnath ji cannot ever acknowledge that he lied can he? That too when the lie was the basis for declaring someone else having no knowledge about how things were "done"? So I did give you a life line in not having to argue, eh!

^^^ Brihaspatiji, just a limited point on the "encashability" of sterling balances...By your quite incredulous references to "terms of repayments" etc..Seems that you have NEVER seen a bilateral obligation document or even a bond prospectus! Covenants on repayments are standard...Maybe I should have known better when I saw your references to "hard cash, owed money etc" but I didnt - apologies! India govt owes 75 billion to a bucnh of creditors - they can all technically "encash" (I was trying to use an everyday word to adhere to your standards) that debt anytime..the question is, do they think it neecssary? What are the costs, commercial, economic and bilateral of doing that? Which is why detailed agreements are drawn up - and they are negotiated..similar happened in the case of the sterling balances..the RBI compndium is an official source (which also quotes CD Deshmukh, not "third party terms") of the whole process - you havent come up with anything that proves YOUR contenion...Thats typical isnt it, like your assertion on european ccy peg, and yen-peg (!!!!!) of east asian ccies?! What is a result of? Typical "hindutva" intellectual? I dont think so though - there are tons of useful guys on the "right", just that they dont have fetishes on semantics...

About my error of names (Raj Krishna and KN raj), I admitted mea culpa immediately - no shame in admitting when one is wrong...But its a bit diffcult to expect the same of the hindutva types, is it

What's wrong with the Hindu Rate of Growth ? Like Hinduism, it too has evolved. Currently the Hindu Rate of Growth is 8.5-9% per year

I've never been one to waste my energy b*tching about terminology I can so easily use against the user

Very interesting set of documents by the way, brihaspati.

somnath ji,
the problem with your statemenst is that you keep things deliberately vague, not spelling out the details so that later on you can state, "oh shame on you - I thought you understood - that I meant this - its all common knowledge".

Your docs do not give any additional details to the relevant question and period - I repeatedly asked you for details of amounts fixed/ascribed/ even for the interim agreements - because they spelt out the restrictions on flows and liquidity.

But what is even more important to see - is that, even the amount of the debt was subject to negotiation - and here it starts to differe fundamentally from the "common international debt servicing norms" you refer to. In those common cases - the amount itself is not a subject of debate to start with. There is usually no talk of possible repudiation going on about them in the legislature and government circles of the debtor nation. And the debt amount fixing is not set in the backdrop of negotiations for transfer of sovereignty from the debtor to the creditor nation which haas not yet fully come into being.

You should not make the statement that what the "balances" meant was that the creditor nation go up to the Bank of England any time it wanted and encash a cheque for 1.3 billion. If that is not what it really means in practice - why claim so loudly that that was what it really meant? The statement as you made it is evidently false. If there was complete agreement as to the amount even - then they would not have had to run a media and gov tussle to even get the Brits to start negotiating about it.

Anyway, knowing your habits of not spelling out the details - I asked you specifically questions that have very simple answers, yes or no and cannot later on be denied or obfuscated. Like whether you are aware of any rupee devaluation before 1966 and post WWII. That requires a very simple answer and has no chnaces of obfuscation later on claiming that - you meant something else, and shame on anyone's intelleigence who did not get that esoteric personal meaning. I repeatedly asked you for details in docs about the actual amounts transferable/drawable in theinterim agreements. You did not put up anything until I gave docs stating actual amounts and details of the blocked account structure. In your typical style - you would then come jumping up and down claiming oh - everyone knows that "immediate encashability - to which the debtor bank could fail" means actual restrictions and blocks. So you kept silent on simple questions!

Even though you have cast aspersion on my comprehension/knowledge in the area/etc right from the beginning - I do think that you are a practioner in the field of financial investments desicions or advising, because you have this professional habit of keeping important areas vague and open so that you can later on claim something convenient to save your own skin. Here skills of aggressive discrediting of opposing doubts/challenges/queries is a must, usually takes a direct insult/provocation/attribution to the person route and does not know how to stop with refuting an argument only - and is what distinguishes "successful" bankers [those who manage to make money even out of destroying the fruits of others labours] from the not-so-successful. So many of your kind responsible for destroying lives and homes of smallfry investors or even just surviving workers - have been re-employed by banks in the west.

Suraj ji,
I see no economic or rational justification in calling it a "Hindu rate of growth". In science [well for long economics was not considered a science by many unis] nomenclature has to have some real basis. Why should apparent slower growth of a economy be tagged with a particular community or faith-system unless you can show the specific connections between that faith/community with that slow growth! I find it slimy and academically dishonest that somnath ji insists on throwing it around when he does not similarly associate Nehru or Congress with it - which would make more sense, because they had direct bearing on economic policies! In fact he is so much aware of the possible links to Nehrus's policies on this supposed slow growth rate that he has to make it external and outside of Nehru's active political life. And something which even according to him probably was instigated by the Chinese attack and "intensified" under IG - is still a "Hindu" growth problem. His consistent pattern of negatively associating the "Hindu" or using any expression taht originated in deliberate denigration of the "Hindu" - is what is galling! He refused to call non-Hindus loonies even if they showed loony behaviour, and so on - hence the problem.

brihaspati: I'm fully aware of the negative ramifications surrounding the term, and am aware that it's an intended slur no matter how much the user intends to tap dance around it. My approach is to not waste time boring people with long lengthy arguments about why it should not be used. I'll just manipulate the term to my own ends and and throw the new version in their face; if they respond that the current rate of growth is not 'Hindu' because India has Sikhs, Buddhists, Muslims, etc, I'll just call them right out on the original. Mao's loud fart vs long lecture dictum, if you will

Brihaspatiji , Perhaps we can start terming the slow economic growth rate as nehruvian Growth rate.After all it was Nehru who started the strangulation of Indian economy through his socialist/leftist policies.

Brihaspatiji,

If you are intellectually honest (and more importantly, intellectually curious), you would focus on educating everyone on the crux of the assertions you made:

1. There was "perfidy", or manipulation in honouring of sterling balances to India - preferably a peer-reviewed source or official document..

2. the above perfidy caused the "unmentionable" rate of growth

3. The same perfidy cause the devaluation of the rupee (whichever "devaluation" you want to pick - even if you want to pick devaluation caused by sterling devaluations for a GBP-pegged ccy - over the years)..

The RBI compendium, the Cambridge Economic History of India or any other publication referenced by me do not have any of the above conclusions..You claimed Aditya Mukherjee has said so - maybe you could tell us where...I havent found anything of that sort in ditya Mukherjee "India's struggle for independence"...Here is a lecture by him in the History Congress..

http://www.scholarswithoutborders.in/Pr ... format.pdf

As strong a critique of colonial rule as possible - he covers the issue of sterling balances (AND the unconscionable manner of its accumulation during a famine in India, as well as attempts to default), but NO reference to any perfidy in the actual honouring of those balances...

about the rest sir, unfortunately in standard finance, terms like "hard cash" and "owed money" are not used, hence its a bit difficult to answer in those terms..And frankly, there is less merit in point scoring compared to substantive discussions...

About the hindu rate of growth, there are tons and tons of people who disagree with Prof Raj Krishna's formulation, but no one I know ever jumps up and down at its reference...Its a term whose usage has been creatively adopted in numerous different ways, and hence bceome "immortal"! Here is one such example...

http://www.icrier.org/pdf/wp122.pdf

Note the shift from hindu to "hindu socialist" rate of growth! I would prefer the "hindu market" rate of growth to the "bharatiya rate of growth" Arvind Virmani uses..

Lastly,

So many of your kind responsible for destroying lives and homes of smallfry investors or even just surviving workers - have been re-employed by banks in the west.

Well sir, at least some of us got fired...Merton Miller, Bill Sharpe and Harry Markowitz didnt lose their Nobels, did they? Nor did they get fired from their uni chairs..We were merely "following" their advice.. Persnally I have no issues with them, at least they sai what they believed in, and properly referenced and peer-reviewed their claims, repeatedly...Unlike some other "academics"!!

The problem is what is the relationship with Hindus and the ecomomic policies of the Nehru and his comunist gang. If there is none then why we are using that word. The fact is this word was always used in a insluting way to show that we are not capable of more than 1%-2% growth.

Yes words do not matter. But indian econamic policy then and now has no relation to the Hindu civilisations to call it Hindu. Then why call it.

why so much takleef over a word? is it insecurity? i prefer to turn it on its head and say i may be SDRE dhoti shivering in your collective memory, but now when my dhoti shakes your buildings collapse...

http://en.wikipedia.org/wiki/Hindu_rate_of_growth.

I wish to throw my hat in the ring.

The abysmal rate of growth, also pejoratively referred to as the “Hindu rate of Growth” must be rechristened as “Nehru rate of Growth”

Here is the reason why:-

• The first five year plan was predominantly a confluence of Gandhian philosophy and a logical follow-through from the understanding of the Production- Possibility Frontier(PPF).

o In lay terms it meant that federal investment must be allocated in such a manner that macro-sector with most efficiency in producing goods must invite maximum allocation. Thus, agriculture sector emerged as the major beneficiary of the resource allocation in the 1st five year plan, while the industry and the private sector activity were left largely for the private sector.

• Story changes around 2nd five year plan. With leading Nationalist/Conservative leaders in Congress party dead, the governance polices under Nehru, a patrician socialist (oxymoron, I know), had begun to swing left.

• In the understanding of all the global pinkos of that time, the gestation period needed for a country to evolve from being a predominantly agrarian, to industrial, to post-industrial society (per the PPF) meant a wait of atleast three generations, which implied an inordinate delay in the arrival of the Marx predicted “communist society” – (a hallelujah land for pinkos, much like utopia)

• Therefore, like all the "progressive" nations of the world at that time (Stalinist USSR, Maoist China, kimmian North Korea), a desi version of ‘Giant Leap Forward’ was considered necessary.

• The Nehruvian socialism, and the morass that Indian economy became for next 4 decades, were an outcome of this thought process. It was envisaged that for a revolutionary socialist society, a severe investment push to the industrial sector was necessary (which bypassed the predominant sector-agriculture, and the majority of people who depended on it) so that the efficiency frontier of the industrial sector would overtake that of agri-sector. Well so much for the good intentions.

• A certain set of recommendations were made in order to achieve this. Industrial monopolization by PSU, Gargantuan Deficit financing, restriction of private enterprise, licensing, and many many many additional revolutionary changes were recommended in this 2nd five year plan.



But the question was : How? at what cost? Who may benefit from this? What could be the social, political, economic and environmental implications? What may become of India that would remain untouched by such policy? What may become of India itself? All these legitimate issues where brushed under the carpet. It wasn’t that nobody discussed this. A towering economist, who was also the member of the 2nd five year planning committee raised a lone dissenting voice, but his opposition was unheeded, and his career and credibility sabotaged in India:- Prof B R Shenoy

Here is the link to his official dissent note on the 2nd five year plan which among its enumeration of the risks to the Indian economy, also pointed out the implication the plan would have on Indian polity, society and Institutions.

http://indiapolicy.org/debate/Notes/shenoy.PDF


Unfortunately, the plan went through and the following plans too remained seeped in this voodoo economics.

His forewarning eventually came true to the last detail. Intense bureaucratization, stifled economic environment, wasteful expenditure, rampant corruption, high inflation, social incohesion, curtailment of individual liberty and democratic rights, a creation of an extremely privileged class, and sluggish economic growth, all were pointed out.

Waise Chaha economist spearheaded this plan. Therefore, I fail to understand why he shouldn’t be given the credit for its outcome. Over and Out.

Nice one Inderji.

The word "Hindu Rate of growth" was specifically intended to insult Hindu civilisation as a whole.As other posters have suggested it should be called "Nehruvian rate of growth".

It is small surprise that the commie drone insists on using the insulting word,he is well aware of the offence it causes.

Words do mean a lot in this world and hence the amount of Takleef we feel on hearing such nonsense from deracinated drones.We delude ourselves by thinking that the words can be turned around and suddenly used to our advantage.When you fight a battle on the enemys terms and with the weapons he agrees to "give" you,is it wise to expect the tide to suddenly turn in your favour?

Brihaspati ji could you explain the basics of "The Controversy around the so-called Sterling Balances of India" ? in very simple words how the theft was done? It would be very helpful for me to understand the basic mechanism of the theft.

Please ignore the commie drone,his intent is to derail the thread.
.

Inderji,

Call it whatever rate of growth, but the history of economic policy planning in India isnt a function of simple "Gandhian" or "leftist" views..

Go back to the national planning commission set up in 1938 to look development strategies for independent India...Or refer to the Bombay Plan of 1944 (?) - what the private sector was saying about both their own capacities as well as what was required for development...Add to that available savings rate (6-7% of GDP) - the opportunities of a "higher level equilibrium" without significant intervention was hard to assume...

And then refer to the axiomatic development paradigms globally - not just in the "communist bloc", but also in other newly independent countries in Asia and Africa...A public sector-led investment was de rigeur, whether Korea or China....

The first plan had to focus on agriculture because of the food shortage and inflation problem...Thanks to good harvests in 2/3 years of the plan period, the agri targets were seemingly met, and an industrial strategy was drawn up for the second plan...There wasnt much "gandhian" thought behind either the first or second plans...

It is popularly believd that the first plan was based on Harod-Domar model, but that was most likely a "force fitting" exercise, as the first plan was barely little apart from consolidating pre-existing programmes..But if one looks at even the "force fit - the model was an apendix to the plan document - the limitations were evident...A savings rate of 6-7%, ICOR of 3, would yield GDP growth of 2%...This was lower than the population growth furing the time..

So obvioulsy something else had to be done to a) enhance the saving/investment rate, and b) get into sectors where there would be "super multipliers"...Which is what led to the second plan effort, largely theoretically based on the mohalanobis-Feldman model...Shorn of the maths, the political direction was to get a larger portion of national savings to be reinvested, so as to "let the cake grow", in words of an economist (forget the name now!)..As savings could not be jacked up instantly, a larger effort for foreign aid was also envisaged...

This was when efforts on the large steel planst, the fertilizer planst, BHEL etc started in a big way..India was hardly Robinson Crusoe in that respect...Korea set up its large public sector at the same time - POSCO comes immediately to mind...And across the rest of asia well...

The issue with the strategy wasnt the strategy itself, or the policy formulation, but execution...Whil the large planst came up, there wsnt enough managerial expertise to run them efficiently enough..A generation (maybe two) of personnel got trained "on the job"...Now that can be deduced as an investment for fututre generations, for the time it meant that despite increased investments, the ICOR jumped up, an avarege growth did not exceed the first plan by much...

The strategy itself started to go wrong from the third plan period, when the whole licensing bit started being adopted as an ideological dogma - it was orginally a tool for enhancing resource allocation to "super multiplier" sectors..Which is when things started going bad and rent seeking became the issue...Two quick wars added to the problem..And somehow, harder the resource position became, more stringent the ideological position went...There was no looking back (or front!) thereafter...

jambudvipa wrote:Nice one Inderji.

The word "Hindu Rate of growth" was specifically intended to insult Hindu civilisation as a whole....

OK....now that the Hindu civilization as a whole has been insulted, can you do anything about it besides become apoplectic on an online forum? The far better thing to do would be to turn this *insulting word* around on its head just as once upon a time *Made in Korea* was trash and long before that *Made in Japan* was also considered trash.

Also instead of wallowing in the past and plotting and planning imaginary revenge against all those who have sinned against you for the past 1000 years ever since 1054 Somnath (not you Somnath you are single handedly doing a herculean job) why not plan for a better future. A better future based on India's effort rather than waiting for some doomsday to befall all these other *civilizations*.

Just a suggestion

Interesting thread.

Coming to 'Hindu rate of growth' my stance on this would be the same as the barometer I would apply to any other issue - use or non-use of the term per-se is not important. What is important is that reciprocity be the key factor for deciding.

If the decision is to go ahead and use 'Hindu rate of growth' as valid terminology then lets not be chary of using Christian rate of growth, Confucian rate of growth et al in our discussions....Currently Hindu rate of growth is > Christian rate of growth (since Christianity does claim to be the bedrock for Western civilizations, therefore Christian growth rate would be the weighted aggregate Western growth rate), but < Confucian growth rate.

Alternatively, the decision could be to stop usage of all such terminology.

Hindu rate of growth was actually marred by commie rats for growth. See, when they were sidlined the original hindu rate of growth is visible now.

Bji, I also propose a discussion on this thread on what possible economic steps India could have taken that could have led to India supplanting China as the global challenger to the US by this time.

As context, I present a comment from Narayana Murthy made a few days ago, on SC Bose...

Describing Netaji as the most courageous leader of his time, the iconic corporate leader said that his presence would have spearheaded India to become the second most powerful economy of the world ahead of China.

India really started liberalization only when it was forced to in the early nineties. Would greater vision on the part of Nehru and Indira in the sixties and seventies have led to India taking the lead over China? What were the missed opportunities?

Don't have all the answers myself - but hoping a discussion will shed light.

In acceptance of an Honorary Degree from Oxford University on 8 July, 2005.


Mr Chancellor, Excellencies, Ladies and Gentlemen,
I must, at the outset, express my deep sense of shock and anger at the terrorist attacks in London yesterday. On behalf of the people of India, and on my own behalf, I convey sincere condolences to the families and friends of the deceased and the injured. I also extend the sympathy and solidarity of the people of India to the people of the United Kingdom, in particular the citizens of London.

I arrived here in the U.K. after dealing with the aftermath of yet another terrorist attack in India. It is clear once again that terrorism is a global threat. Terrorism anywhere is a threat to peace, freedom, human dignity and civilisation everywhere. Terrorism is cowardice aimed at the innocent. It is fed on hatred and cynicism. Every time terrorists strike anywhere, all of us who believe in democracy and the rule of law must stand together and affirm our commitment to fight this scourge resolutely and unitedly.

I sincerely hope that all those who cherish and value open and free societies will join hands in the war against terrorism, wherever it is fought. I wish the people of London well. I pray that their lives will soon return to normalcy and they can resume their celebrations for having been chosen as the venue for the 2012 Olympics.

Mr Chancellor, Excellencies, Ladies and Gentlemen,

This is an emotional moment for me. Oxford brings back many fond memories that I cherish. For this reason, as much as for the intrinsic value of the honour you bestow upon me, I am truly overwhelmed. I am grateful to you, Mr Chancellor, and to your colleagues, for this honour. I have had the good fortune of receiving several honorary degrees. However, there can be nothing more valuable than receiving an honorary degree from one's own alma mater. To be so honoured by a university where one has burnt the proverbial midnight oil to earn a regular degree, is a most fulfilling experience. I thank you for it. This is a day I will truly cherish.

The world has changed beyond recognition since I was a student here. Yet, some age-old problems endure. Developing countries have found a new voice, a new status and have acquired a new sense of confidence over the last few decades. As an Indian, I see a new sense of hope and purpose. This new optimism gives us Indians a new sense of self-confidence and it shapes our world view today. It would be no exaggeration to suggest that the success of hundreds of young Indian students and professionals in Universities like Oxford, and elsewhere across the world, has contributed to this renewed self-confidence of a new India.

The economics we learnt at Oxford in the 1950s was also marked by optimism about the economic prospects for the post-War and post-colonial world. But in the 1960s and 1970s, much of the focus of development economics shifted to concerns about the limits to growth. There was considerable doubt about the benefits of international trade for developing countries. I must confess that when I returned home to India, I was struck by the deep distrust of the world displayed by many of my countrymen. We were overwhelmed by the legacy of our immediate past. Not just by the perceived negative consequences of British imperial rule, but also by the sense that we were left out in the cold by the Cold War.

There is no doubt that our grievances against the British Empire had a sound basis for. As the painstaking statistical work of the Cambridge historian Angus Maddison has shown, India's share of world income collapsed from 22.6% in 1700 (the hindu rate of share in world business), almost equal to Europe's share of 23.3% at that time, to as low as 3.8% in 1952. Indeed, at the beginning of the 20th Century, "the brightest jewel in the British Crown" was the poorest country in the world in terms of per capita income. However, what is significant about the Indo-British relationship is the fact that despite the economic impact of colonial rule, the relationship between individual Indians and Britons, even at the time of our Independence, was relaxed and, I may even say, benign.

This was best exemplified by the exchange that Mahatma Gandhi had here at Oxford in 1931 when he met members of the Raleigh Club and the Indian Majlis. The Mahatma was in England then for the Round Table Conference and during its recess, he spent two weekends at the home of A.D. Lindsay, the Master of Balliol. At this meeting, the Mahatma was asked: "How far would you cut India off from the Empire?" His reply was precise - "From the Empire, entirely; from the British nation not at all, if I want India to gain and not to grieve." He added, "The British Empire is an Empire only because of India. The Emperorship must go and I should love to be an equal partner with Britain, sharing her joys and sorrows. But it must be a partnership on equal terms." This remarkable statement by the Mahatma has defined the basis of our relationship with Britain.

Jawaharlal Nehru echoed this sentiment when he urged the Indian Constituent Assembly in 1949 to vote in favour of India's membership of the Commonwealth. Nehru set the tone for independent India's relations with its former master when he intervened in the Constituent Assembly's debate on India joining the Commonwealth and said:

"I wanted the world to see that India did not lack faith in herself, and that India was prepared to co-operate even with those with whom she had been fighting in the past provided the basis of the co-operation today was honourable, that it was a free basis, a basis which would lead to the good not only of ourselves, but of the world also. That is to say, we would not deny that co-operation simply because in the past we had fought and thus carry on the trail of our past karma along with us. We have to wash out the past with all its evil."

India and Britain set an example to the rest of the world in the way they sought to relate to each other, thanks to the wisdom and foresight of Mahatma Gandhi and Jawaharlal Nehru. When I became the Finance Minister of India in 1991, our Government launched the Indo-British Partnership Initiative. Our relationship had by then evolved to a stage where we had come to regard each other as partners. Today, there is no doubt in my mind that Britain and India are indeed partners and have much in common in their approach to a wide range of global issues.

What impelled the Mahatma to take such a positive view of Britain and the British people even as he challenged the Empire and colonial rule? It was, undoubtedly, his recognition of the elements of fair play that characterized so much of the ways of the British in India. Consider the fact that an important slogan of India's struggle for freedom was that "Self Government is more precious than Good Government". That, of course, is the essence of democracy. But the slogan suggests that even at the height of our campaign for freedom from colonial rule, we did not entirely reject the British claim to good governance. We merely asserted our natural right to self-governance.

Today, with the balance and perspective offered by the passage of time and the benefit of hindsight, it is possible for an Indian Prime Minister to assert that India's experience with Britain had its beneficial consequences too. Our notions of the rule of law, of a Constitutional government, of a free press, of a professional civil service, of modern universities and research laboratories have all been fashioned in the crucible where an age old civilization met the dominant Empire of the day. These are all elements which we still value and cherish. Our judiciary, our legal system, our bureaucracy and our police are all great institutions, derived from British-Indian administration and they have served the country well.

Of all the legacies of the Raj, none is more important than the English language and the modern school system. That is, if you leave out cricket! Of course, people here may not recognise the language we speak, but let me assure you that it is English! In indigenising English, as so many people have done in so many nations across the world, we have made the language our own. Our choice of prepositions may not always be the Queen's English; we might occasionally split the infinitive; and we may drop an article here and add an extra one there. I am sure everyone will agree, however, that English has been enriched by Indian creativity as well and we have given you R.K. Narayan and Salman Rushdie. Today, English in India is seen as just another Indian language.

The idea of India as enshrined in our Constitution, with its emphasis on the principles of secularism, democracy, the rule of law and, above all, the equality of all human beings irrespective of caste, community, language or ethnicity, has deep roots in India's ancient civilization. However, it is undeniable that the founding fathers of our republic were also greatly influenced by the ideas associated with the age of enlightenment in Europe. Our Constitution remains a testimony to the enduring interplay between what is essentially Indian and what is very British in our intellectual heritage.

The idea of India as an inclusive and plural society, draws on both these traditions. The success of our experiment of building a democracy within the framework of a multi-cultural, multi-ethnic, multi-lingual and multi-religious society will encourage all societies to walk the path we have trodden. In this journey, both Britain and India have learnt from each other and have much to teach the world. This is perhaps the most enduring aspect of the Indo-British encounter.

It used to be said that the sun never sets on the British Empire. I am afraid we were partly responsible for sending that adage out of fashion! But, if there is one phenomenon on which the sun cannot set, it is the world of the English speaking people, in which the people of Indian origin are the single largest component.
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http://www.hinduonnet.com/thehindu/nic/ ... speech.htm

(Doctor's knife cuts both ways, in the later part of his speech he sings paens but the above is enough, that a PM in the land of former colonoial oppressors talks about the plight of indian economy, blaming them openly that India turned into poor country due to British oppression and misrule.)

I don’t wish to go into the pedantic mode to assert why 1st 5 yr plan was or wasn’t Gandhian. The point remains that plan was devised predominantly in giving impetus to the social and agricultural sector.

Point two, as you rightly pointed out, the socialization of the economy was indeed axiomatic rather than based on factual evaluation. Which is why, I used the word global pinkos, not just Indian.

But the fact remains, that a highly credible and an elaborate explanation on the unviability of the plan was on the table. And it exactly point out the untenablility of the 2nd V yr plan for the reasons you have suggested. The execution of such a plan requires severe curtailment on the individual liberty and political & economic rights, which nations like Stalinist USSR, Maoist China, the Koreas could manage, but not India, since that would damage the social and political fabric.

Not to forget, the financing tools necessary for the requisite execution of the plan would in itself be potentially hyper-inflationary; and would reallocate the national resources away from the multitudinous-poor to the privileged-few. Also, the rise of the omnipotent corrupt bureaucracy would harshly curtail the private enterprise. And the beauty is, we would achieve all this without and significant delta in economic growth. Woozaaa, ain’t it.

Therefore, notwithstanding what the dogmatic priests of economics preached and believed, (both in India and abroad), the truth was Copernicus had warned the pope that world was round and markets tended to be more efficient, yet he was burnt at stake.

If anybody is genuinely interested in the dissection of India’s modern economic blunders, the core disputes and their long-standing political implications, this is the point to begin:

http://indiapolicy.org/debate/Notes/shenoy.PDF

Murugan wrote:As the painstaking statistical work of the Cambridge historian Angus Maddison has shown, India's share of world income collapsed from 22.6% in 1700 (the hindu rate of share in world business), almost equal to Europe's share of 23.3% at that time, to as low as 3.8% in 1952.

Doesn't seem to have been very drastic improvement in the share of world income over the last 6 decades.

If the above statistic for 1952 was based on PPP figures, India's share has gone up to ~5.5%
If it is non-PPP, the share has actually fallen to around 2%

Inder Sharma wrote:the socialization of the economy was indeed axiomatic rather than based on factual evaluation...

...But the fact remains, that a highly credible and an elaborate explanation on the unviability of the plan was on the table.

That is not what I said, and I dont think the approach was completely ideological either, though ideology had its (important) influences..the important question to ask is - was there an alternative strategy to pull the economy up to a higher level equilibrium there? The mathematics are telling..With a 7% savings rate, even with a very low ICOR (typically not possible while industrialising heavily), the equilibrium rate of growth would be 2-3%, which is what got panned out...Exports as a way of growth became fashionable MUCH later, not until the '60s - and even then it required a reasonably well developed industrial base...The Bombay Plan is a revealing document - laid down exactly the level of confidence of the private sector to boost economic growth on its own (which was exactly zero for those who are not aware of the document)...

Prof Shenoy made some good points, but if you go through his many references (including the paper you posted), his prescription was not one of boosting growth, but of "rationalisation", "stability", inflation control" and preserving liberal values...Among the things he opposed (for the same inflation issue) was price support to agriculture - which in fact was a key determinant to the success o the Green Revolution, as YK Alagh and many others have written about...If the objective function defined is of hastening growth, Prof Shenoy's prescription really does not address the issue..Of course, he wasnt the ONLY person in policy-making then, there were others as well, who were looking at it without the beneft of hindsight..

So the question really is, was there a viable alternative of faster growth articulated? John Galbraith wasnt a commie, was he? The World Bank was not "commie", was it? Even with the benefit of hindsight, given the situation in the '50s, was there an alternative course of action? Maybe there was, but it wasnt so evident in the political/economic/academic circles of the day, not in India, not even in the "West"...

Which is why IMO the policy-making really deteriorated in the '60s...This is the time when the initial pain had been incurred, industrial capacity of some significance had been set up, and a generation of managers and engineers had been trained..Parallely, the concept of export-led growth was coming into play - starting with Japan, then South Korea and then all across East Asia...But instead of loosening controls then, the license permit-ism became dogmatic...

As context, I present a comment from Narayana Murthy made a few days ago, on SC Bose...

With respect to Narayana Murthy, Netaji had not, in his stint in the Congress shown any specific capacity on economic thinking..If at all, his limited interventions on economic policy were a bit of a socialist-communist amalgam..Frankly, dont thiink he put all that much thought behind it...

India really started liberalization only when it was forced to in the early nineties. Would greater vision on the part of Nehru and Indira in the sixties and seventies have led to India taking the lead over China? What were the missed opportunities?

The whole of the '60s, '70s and '80s would be missed opportunities...Indira Gandhi, for all her reputation as a decisive leader, pulled back on going whole hog on numerous occasions..The rupee devaluation in the '70s was one such opportunity - while the ccy was devalued, the rest of the policy framework remained stuck in antediluvianism...Rajiv Gandhi made some noises, but very little otherwise, whatever the current congress dispensation want to convey...

An important note about the '90s reforms..Whle part of it was forced by the IMF conditionalities, the extent of the reforms was a case of a conviction-led strategy at key levels to break away from the past...PVNR/MMS and a few key policy makers went about dismantling the old regime in a manner that went beyond loan conditionalities...And the frenetic pace continued for a good 2 years as PVNR managed the party..Before the fateful 6dec 1992 event, when the "event" lost PVNR enormous political capital...After that, reforms took place only through stealth most of the time..But at least, the narrative was set......

somnath wrote:Which is why IMO the policy-making really deteriorated in the '60s...This is the time when the initial pain had been incurred, industrial capacity of some significance had been set up, and a generation of managers and engineers had been trained..Parallely, the concept of export-led growth was coming into play - starting with Japan, then South Korea and then all across East Asia...But instead of loosening controls then, the license permit-ism became dogmatic...

Ok, agreeing with your thesis that the 50s were a time to build up capacity - but 60s, 70s and 80s (an entire generation) represent a time when India regressed economically in comparison to other Asian powers. Even if one makes an allowance for the sixties on account of wars and change in leadership - seventies and eighties are inexcusable. In particular, IG was at the peak of her political capital post the Bangladesh war - and frittered away through ill-advised moves.

Would be useful if we could have an enumeration of the specific measures that JN/IG could have taken, that might have unleashed the Indian tiger much earlier. I presume all of the PVNR steps - dismantling the license raj, enticing FDI, involving the private sector actively in industry could have been initiated a couple of decades earlier..?

It looks to me that in addition to the structural issues that India had in comparison with China (democracy and political compulsions vs. long-term vision possible under authoritarian systems) - there was failure on multiple fronts - leadership, economic strategy as well as execution.

With respect to Narayana Murthy, Netaji had not, in his stint in the Congress shown any specific capacity on economic thinking..If at all, his limited interventions on economic policy were a bit of a socialist-communist amalgam..Frankly, dont thiink he put all that much thought behind it...

Knowing Infosys and NRM's philosophy fairly closely - I presume he meant the leadership quality that Netaji could have brought to the table. While predilection in terms of the state's role in the economy is key - perhaps more important would be the ability to lead, articulate vision and direction, set goals, incentivize appropriately and monitoring to ensure execution is on track. One explanation often provided for China's growth is the decentralization of the state authority along with the right incentives, where the units were competing with each other to show higher growth and obtain rewards from the CPC.

Netaji's ability to lead and inspire is not in question. Also he would likely have brought in a larger degree of belief in Indian exceptionalism - perhaps resulting in a higher bar in terms of goals for the economy and Indian share of global trade.

An important note about the '90s reforms..Whle part of it was forced by the IMF conditionalities, the extent of the reforms was a case of a conviction-led strategy at key levels to break away from the past...PVNR/MMS and a few key policy makers went about dismantling the old regime in a manner that went beyond loan conditionalities...And the frenetic pace continued for a good 2 years as PVNR managed the party..Before the fateful 6dec 1992 event, when the "event" lost PVNR enormous political capital...After that, reforms took place only through stealth most of the time..But at least, the narrative was set.....

Seems like the maximum push to liberalization really happened under PVNR and NDA regimes, which have led to the current rates of growth. Given the lacklustre reform record of the UPA 1 and 2 governments - there is a strong possibility we are going to see some regressing on the rosier forecasts for the Indian economy.

Arjun wrote:Seems like the maximum push to liberalization really happened under PVNR and NDA regimes, which have led to the current rates of growth. Given the lacklustre reform record of the UPA 1 and 2 governments - there is a strong possibility we are going to see some regressing on the rosier forecasts for the Indian economy.

The macroeconomic figures that really matter are the savings/GDP and investment/GDP ratio - datapoints Theo_Fidel and I posted about at length within the last 1-2 months in the economy thread. As long as those two figures remain high, we will continue to grow fast. ICOR just translates the investment rate into growth rate, since it's a measure of incremental rate of return. An ICOR of 4 (around average) translates a 32% savings/GDP into 8% trend GDP growth. Low savings and few effective means of a meaningful rate of return means a high ICOR, which in turn means low growth, like somnath wrote. The reason we've sustained high GDP growth is the high underlying savings rate this decade - a mid-30% level we've never achieved in the past.

A country cannot grow at a fast sustained rate without a high rate of savings/GDP, so that those savings can be ploughed back into investment. The fundamental issue during the 40s-90s was we did not have sufficient savings. Take a look at col 5 and col 17 of this document. We did not even have a 25% savings/GDP rate ever, until 2002-03. We talk about how China and India had the same GDP back in 1990 and they are 4x better now. Why ? Because they were running a ~40% savings/GDP back in 1990 - a figure we have not even hit now. If we had a 40% savings/GDP rate then (and as the table shows, it was half that figure), we would have grown like China.

This thread lacks rigor as long as people just use it to b*tch about the British, Nehrus, socialists or Keyser Soze. How about this instead - what were the implication of these policies on aggregate savings/GDP and investment/GDP ? What policies benefited these metrics, and what hampered them ? Now that would be really beneficial in terms of understanding the effect of past economic policies in quantitative terms ? Would someone be willing to put the effort on characterizing policies in such quantitative terms ? How did Japan, Korea and China build such a big base of savings while - esp the first two - started out destitute and starved for capital ?

Trying to impute a future growth rate based on savings discounts the role of FDI. Is there any data to show what percentage of Indian growth has been due to FDI versus due to internal savings?

vera_k wrote:Trying to impute a future growth rate based on savings discounts the role of FDI. Is there any data to show what percentage of Indian growth has been due to FDI versus due to internal savings?

The difference between savings/GDP and investment/GDP is the external capital inflows. The table ought to make that easy to visualize. $25 billion in FDI is chickenfeed compared to a 33% savings/GDP rate, which translates to almost $500 billion @ the current size of economy.

With respect to the debate in the thread, it seems FDI would have played a more significant role in the early days when domestic savings were low.

Even now, it looks like foreign investment is really low when compared to other economies. I remember reading a while ago about how how the USA financed most of the last decade using foreign investment.

Please list the data for foreign investment of various countries by the metric you're referring to.

The US doesn't get foreign investment as such, in the general sense of the term - they hold the reserve currency, and they're the only place dollar holders can invest that money into.

This is what I was looking at. Note India's position on the list.

http://en.wikipedia.org/wiki/List_of_co ... ceived_FDI

A question I've been trying to answer is how much money did the East India Company and the Raj make
relative to how much was left to India at its independance ? Found this thread by accident while searching.
This discussion thread is very interesting. However instead of focussing on the options after independance,
let's look for a bit at the options at the time of independance and the size of the treasury India got and why.
Allow me to join the conversation by attempting to answer my own question and showing how it bears on topic.

Here's an estimate. Based on Romesh Dutt, by 1900, the Raj was making £65million annually by 1900,
and around £25million around 1850 according to Marx. Even without inflation or interest,
over a 150 year period, these would roughly sum to £5billion by 1947. With inflation and interest,
it would certainly be over ten times that amount, at least £50billion.

By what frame of reference was India left with merely £1.125 billion pounds at independance,
of which too the U.K. dramatically reduced their debt to nearly half with their expert negotiation skills (pensions ?).
This was about 3-4 pounds per head of the indian population. Certainly more could have been forthcoming
had it been demanded and appropriately structured.

At the time British GDP appears to be around £10billion which soon shot up to over £75billion by 1975 with
the help of american aid and their manufacturing base which they built at India's expense - see their table at
http://en.wikipedia.org/wiki/Economy_of_United_Kingdom .

In 1945, Britain was bankrupt because of the war. The power transfer from U.K. to U.S. was taking place.
U.S wanted the U.K to lose its colonies in India, Malaysia, Burma and Singapore so it could get those
markets for itself. U.S. was also much more open to financing Indian industrialization with a view to increasing
its purchasing power so it would be a better market for its own goods. U.S basically tripped the U.K over
convertibility (Indian debt was financed using non-convertible debt) triggering a crisis which I think is what
directly led to independance. Of course Indian resistance helped to drive up the cost of the empire to make
conditions unprofitable for the U.K to begin with but the final trigger was from this debt crisis.
Britain continued to try afterwards to regain its colonies in Burma, Malaysia and Singapore militarily
after 1945 but the native resistance was also too strong by then.

India may not have known of the debt crisis. Regardless, India should have used full bargaining
chips to get its fair dues from the U.K that had been sucked out of it - at least 10billion pounds over a period
of time should have been demanded. We got a pittance instead.

There were basically two ways for India to get additional capital - ask Britain for more, or ask the U.S for more.
Nehru could have used partition costs as a bargaining chip, or the haste in which the partition was forced,
or the destruction of manufacturing bases, or the promise of new industry and markets for british reconstruction,
for a larger and longer term payment to India from Britain. Both U.S and U.K wanted the Indian market, so he
could have played that as well to get a loan from the U.S. It was cold hard cash and technology that was
needed to rebuild the country after the war. China allied with Russia by cold calculation for that exact reason,
not for some native love for communism.

Even a billion extra pounds more could have drastically changed the weak outcome. That was the other
option on the table for high growth.

What happened was that India got too little capital which had to be divided preciously amongst the various
industries, leading to permits and the license Raj.

Because of the weak start India became insular, not asking the U.S for help either, because it
would acquire more a controlling interest (read Confessions of an Economic Hitman to see how bad
it could have gotten). One needs to be reminded that no other country - Korea/China/South east asia
had as much wealth sucked out it so systematically as did India. It was not just money, the entire
manufacturing base had been cut down in 19th century which forced dependance on agriculture,
which increased poverty to what we see now. In the 19th century while America grew in territory over
the American continent, British power grew in competition over the Indian subcontinent.
1849 is when California and Punjab were both acquired.

While America had free government and reinvested dividends, India had no representation and had wealth
sucked out never to return again and was denied access to manufacturing technology
which could have competed with the British. (See R.C.Dutt for his painful representation of the celebrations
of progress during the latter half of 19th century around the western world, while India weeped in famine).
By 1870, America had already surpassed Britain by in manufacturing capacity.

I think if you piece together the amounts lost from India, which went and triggered the industrial
revolutions in the west, then India certainly deserves to receive a lot more especially for its struggling
infrastructure and new industries. The benefit to India as well as to the world will be a stronger
economy which will help bring stability and prosperity. Question is do you think India deserves it.

I would appreciate any help in piecing together the entire British revenues from 1757 to 1947 as
R.C.Dutt has done. Thanks.

References
=========

Romesh Dutt's economic histories show blow by blow how the empire's administration, wars,
railways, canals, were entirely financed by Indian money and with zero political
representation (leading to immense waste and no accountability) while a huge surplus was sent to Britain,
while also Internal Tarrifs and other means were employed to destroy domestic markets and industry.
It deserves to be widely read by every Indian.

1767-1837
http://www.archive.org/stream/economich ... g_djvu.txt
1837-1900
http://www.archive.org/stream/ed2econom ... t_djvu.txt

Page from R.C.Dutt's book estimate outflow of 700million by 1830 -
http://books.google.com/books?id=h9ANAA ... &q&f=false

Anglo-American negotiations 1941-1946
Churchill: whatever else may happen, the balances of India and Egypt will certainly be greatly scaled down.
http://books.google.com/books?id=-K1NjF ... &q&f=false

Secretary of State for India Leo Amery says Indian debt repudiation would prompt the Indians to immediately shut down their war plants and the
British army would be denied a vital source of material.
http://books.google.com/books?id=-K1NjF ... &q&f=false

http://en.wikipedia.org/wiki/Anglo-American_loan

http://en.wikipedia.org/wiki/Second_ind ... revolution

"India, for example, held more than one-third of all sterling balances. Between 1945 and 1947 the Labour Government was conducting a series of extremely difficult negotiations with Indian political leaders, with the aim of giving the country its independence within a multiracial Commonwealth."
http://www.transatlantic.uj.edu.pl/uplo ... ing.MP.pdf

Nice post Walden.
Have a look at this book: "An Economic History of India: From precolonial times to 1991" by Dietmar Rothermund.see if you find what you are looking for there.

Have a look at William Digby's "Prosperous India" as well.its on internet archive.

A lot of the source material that RC Dutt used is availible online either thru free sources like Internet archive or thru paid ones like JSTOR and the like.It was difficult for the British to discredit him because he was using thier own statistics agaisnst them.