Now, let's talk about India's growth inflection,
the period of time when India started growing much more rapidly
and why that happened when it did.
The key issue, sometimes considered a paradox,
has to do with the timing of when India started growing more rapidly.
So, for instance, the key economic reforms came in the early 1990s,
and we have a separate video on those.
Yet, here's the thing.
In the post-reform decade,
India had an average rate of growth of about 6%.
But in the pre-reform decade,
India had an average rate of growth of about 5.7%,
so it would seem that the reforms barely mattered.
That's inconsistent, both with the stories you usually hear about India's reforms
and with basic economic theory.
Just to show you that same fact in the form of a picture;
this is a log scale,
but there's a cut-off point at around 1980.
And what you can see is that after 1980
the rate of economic growth is fairly robust.
Before 1980, the rate of economic growth is much lower.
Yet, what exactly is it that happened around 1980?
And in this picture, if you compare the 1980s to the 1990s,
there doesn't really seem to be a significant difference.
The way a log scale is interpreted,
that just seems to be a fairly steady rate of economic progress.
I don't consider this a fully settled question,
but let's consider some possible views.
One is that many of the real reforms came earlier
than the 1991-92 period often cited.
For instance, something called the open general licensing list
which made it easier to have international trade;
that list was steadily expanded in the late 1980s.
Also in the late 1980s,
foreign exchange constraints were relaxed,
capital good imports were eased, and India move toward having
a more realistic and indeed lower exchange rate.
If you look at when information technology companies in India
really started to make some progress;
that too was in the late 1980s
and in part that was able to happen because of these general improvements.
A different kind of class of explanation looks at the 1990s
and tries to explain why the 1990s weren't better than they were.
One factor that decided is that India, over this period and still to this day,
has had lower savings and investment than a lot of the East Asian Tigers.
Also in the 1990s,
China was doing extremely well in industrial areas and manufacturing,
there was a lot of competition from China,
and what's striking about the 1990s,
the one area where India seems to be underperforming,
it is exactly that, namely, lackluster industrial growth.
A related tack is to look at the growth in the 1980s
and ask why that growth was as high as it was.
Keep in mind that the Indian reforms of the early 90s;
they came about precisely because
India had met a financial crisis
which came about from too much borrowing and unsustainable public finances.
So arguably, the growth of the 1980s was itself not sustainable.
So, the 1980s are looking artificially good
because it's based on pumping up the economy
in a number of unsustainable ways,
and in part, the 1990s don't look quite as good as the otherwise might
because then time has come to pay that bill
and make some of the necessary adjustments.
Keep in mind that the decade of the 1980s
often had fairly high variance in growth rates,
that the strongest performance in economic growth
was toward the end of the period.
Part of that may have to do with the information technology companies,
which were getting started.
In the early 90s, that really did cut down the budget deficit
and move India toward a sounder footing.
But we know from experience with other countries,
when you institute good reforms,
it really can take a number of years before you reap
all of the benefits of those reforms, sometimes up to a decade or more.
Another factor is that the late 1990s saw slower economic growth
for a lot of Asia and a lot of developing economies.
Some of this may have come from the East Asian financial crisis,
even though India was relatively insulated from that crisis.
It may have increased uncertainty
and simply slow down economic growth somewhat.
This is a very complex topic and it really does force us to rethink:
Just what were the important Indian reforms?
When did they start to matter
and through what channels did they start to matter?
As I've mentioned, we probably should not consider this a fully settled topic.
One possible lesson is simply that it can be very difficult
to tell exactly what is driving a particular episode of economic growth
or a particular upward or downward movement in rates of change for economic growth.
Anyway, to read more on this topic,
I would recommend these four pieces,
they're all online.
I would think of these as really being especially deep
and especially thoughtful concerning the larger issues surrounding
Indian reforms and Indian economic growth.