Before we get into the details, let’s get a macro-view of the Indian economy over the past 2000 years, as per Angus Maddison – a mainstream British economist.
Here’s a chart that sums up Maddison’s PPP-adjusted PCI estimates for India in 1990 international $
Here’s an examination of Maddison’s chart in more concrete terms using precise numbers, in a table (which I have updated till 2017). It is one little excel table that is more provocative than most tables on India –
So we know that Maddison’s view corresponds to the “Mainstream” view we outlined at the start- India was not much richer than a subsistence economy from 1AD right up to 1973. Its share of world GDP was merely a reflection of its population share.
But Maddison is not stating this about India per se. His view that right up to the Industrial Revolution, GDP shares merely reflected the Population share, is held across all geographies. It is in line with the orthodox Malthusian perspective. Let’s examine more…
We all know that back in the year 1AD – North America was a wilderness, and a hunter gatherer society India was a society with large empires, considerable urbanization, copious literature, among other things Western Europe : Was a part of the massive Roman Empire!
Yet as per Maddison, Western Europe, India and China (three very advanced societies in many ways) were only marginally richer than the hunter gatherers in North America! It seems incredible, yet nobody has challenged Maddison sufficiently on this yet.
Will a society close to subsistence have the surpluses necessary to produce – Mahabharata Ramayana Manu Smriti Arthashastra Aeneid Homeric epics and numerous other Latin / Greek works? Question worth asking…
Back in 200CE, the Population of the city of Rome was estimated to be 1MM inhabitants. The population of Pataliputra at the height of the Gupta period circa 400CE is also estimated to be several hundred thousands… These were very very large cities
Yet Maddison regards India, China and Western Europe to be not much richer than the hunter-gatherers of America 2000 years ago! This suggests a somewhat slavish adherence to the Malthusian maxim, that appears to be in defiance of historical records and memory
While Maddison may have good reasons for his numbers, they do need to be challenged more by economists, and it probably doesn’t deserve to become the mainstream unchallenged orthodoxy that it has become in our times
So we have discussed how the mainstream Maddison view is clearly at odds with the understanding of the past that many Indians have. Now let’s turn to more recent history…or to be more specific the past 500 years. Here Maddison has infact been challenged by other historians
Let’s compare the estimates of Braoadberry, Bishnupriya and Custodis (2014) with those of Maddison. Their paper can be accessed here –
Here’s the comparison. As you can see the narratives of the two papers are vastly different. This is a major challenge to the Maddisonian narrative on medieval / modern Indian history (published in 2014)
As per Broadberry / Bishnupriya, there was quite a significant decline in Per-capita GDP between 1600 and 1800. And this was the period of Mughal zenith! So clearly the numbers here don’t speak too well for Mughal India.
1600 PCI : $682 (this was when Akbar ruled over North India, but not the South) 1700 PCI : $622 (clearly a decline….a period when Mughal empire covered all of India) 1800 PCI : $569 (after a century of anarchy and Mughal decline, but still preceding pan Indian British rule)
So clearly the decline of the Indian economy started long before the establishment of British Raj, and coincides with the heyday of the Mughal Empire. In fact it is striking that PCI in India in 1600 (at the start of the decline) at $682 was higher than the PCI in 1950 of $619!
Also when we discuss India as a whole – the regional variation is something to be borne in mind. Circa 1800 while Indian PCI is estiamated to be close to $500, the PCI of Mysore was estimated to be well in excess of $1500 and close to $2000 (by Sashi Sivaramakrishna)
So what this means is – Mysore at the beginning of 19th century was almost on par with UK and Netherlands whose PCI was circa $1800, in contrast to India as a whole that languished at $500
There has also been another view from economic historians like Parthasarathi Prasannan, that the Indian per-capita GDP is most likely underestimated by both Maddison and Broadberry / Bishnupriya.. Let’s discuss some numbers from Parthasarathi
Here’s a comparison of Britain, South India and Bengal (two commercially advanced regions of India) circa 1750
The source for Parthasarathi’s numbers comes from this book linked to below (for those interested) – Why Europe Grew Rich and Asia Did Not
This is a huge riposte to both Maddison and Broadberry! As it suggests that wages in two very large parts of India (the South and East) were on par if not higher than the wages in Britain at the middle of the 18th century
Parthasarathi’s numbers are at odds with Maddison’s estimates that British PCI in 1800 were at $1707 and hence over 3 times the Indian PCI of $533.
Parthasarathi’s views are backed by the research of another historian – Sashi Sivaramakrishna who has studied the travel writings of Francis Buchanan in South India circa 1800, and estimated that Mysore incomes in that period were 5 times the subsistence level – i,e close to $2K
So while this research is specific to a part of India, it does suggest that even if Maddison and Broadberry may be right about the general squalor of late Mughal India, there does appear to be considerable regional variation Mysore was probably on par with Britain circa 1800
But what’s undeniable however is that all data points to a decline starting 1600 and continuing unabated till 1870s… And we must be careful to note that the first part of this long period of decline actually corresponds to Mughal heyday and precedes the Empire’s decline!
But the Indian economy did arrest this decline and it started growing again. That happened circa 1870. That’s when growth resumed after 3 long centuries.. So let’s study the period post 1870
So here’s the table. We are on firmer ground here, as there is less contention on PCI estimates post 1800. As you can see growth resumes circa 1870. But then this is also the period of the Industrial Revolution, when the gap between the West and the rest massively widened –
The numbers above are partly drawn from Maddison and partly from the Worldbank site linked below –
Clearly what we see is that while growth did resume circa 1870 – it was much too slow relative to the West, In fact the gap between India and the West was way bigger circa 1998 and even marginally bigger in 2017 than in 1870 – the heyday of the British Raj.
In fact the gap between US and Indian per-capita incomes was much wider in 1998 than in 1950! And it is almost twice as wide in 2017 as it was in 1870!
THis helps us understand why there is so much rage against the era of Nehru-Gandhi rule from 1950 till 1990. Sure, the “Nehruvian” growth rates were higher than growth rates at any point in Indian history Yet they were awful relative to the growth rates in the rest of the world
So while India did start growing post 1870, we have only regressed in a relative sense, because we have been totally out of step with the pace being set in much of the developed world.
Now why was this the case. It has a lot to do with the economic policies pursued, and the arbitrary restrictions placed on economic activity. But here again we need to make the distinction between the Nehruvian era and the Indira Gandhi era – two distinct periods
The Nehruvian period is best described as “License Raj” – a planned economy set-up where companies needed as many as 80 licenses often to produce something. While the activity remained in private hands to a significant extent, those hands were chained and hobbled by the state.
The term License Raj was actually coined by the great statesmen C Rajagopalachari in his magazine. In the late 50s, he wrote this
“I want the corruptions of the Permit/Licence Raj to go. I want the officials appointed to administer laws and policies to be free from pressures of the bosses of the ruling party..I want real equal opportunities for all & no private monopolies created by the Permit/Licence Raj”
But this was different nevertheless from the Indira Gandhi era, when state control went beyond the granting of licenses. Instead the state got into running business. A period when large parts of the economy, including the banks were nationalized, arbitrarily.
So let’s study how the three major sectors of the economy have fared in the 70 years since independence across 3 eras… Nehruvian period Indira’s period Post Indira period
Here is a sectoral view of the growth rates –
What is important to note here is the massive decline in the growth rates of the Industrial sector during Indira’s long reign – a much lower CAGR for the sector than what was achieved in the Nehruvian years.
Now why do we harp on the Industrial sector? This is because the Indira era growth rates look slightly better than the Nehruvian period due to the impressive performance of the Agricultural sector – which had everything to do with a black swan event – The “Green revolution”
So the overall growth rates can be misleading. It is the industrial sector’s growth which tells you how bad the Indira years were.
Also there was a big recession during 1965-66 (Lal Bahadur’s premiership) in the immediate aftermath of the Indo-Pak war, which makes the Indira years look a little better relative to the 50s-early 60s than they would otherwise be
The growth rates have been relatively impressive post 1980s, but yet high growth rates in excess of 6-7% have been achieved only in a few select years, and not consistently for 20-30 years as was the case with China Even the process of economic reform has been in fits and starts
The first major round of reforms was in 1991 under Narasimha Rao when India did away with much of the old License Raj, reduced tariffs on many goods, liberalized trade, and also allowed FDI in many sectors.
The second round was during the early 2000s under Atal Vajpayee, when the focus was more on reducing state control of businesses – Disinvestment and privatization were high on the agenda in these years.
But since then the reform process has stalled for the most part under UPA rule, with lukewarm efforts by the Modi govt that succeeded it.
The growth rates of India are much more impressive than in the 50s-70s, but the fact remains that they seldom cross 8%. Growth has averaged between 5 to 7% for most of the past 30 years
As we look ahead into the rest of the 21st century, we are humbled by the thought that India today is still poorer relative to the rest of the world in 2017 than it was in 1820 In fact the gap vis-a-vis US is wider today than it was in 1913! Let’s conclude on that sobering note