Can the whole actually be greater than the sum of its parts? Lessons from India’s growing economy and its evolving structure

Reshad N. Ashad, Devashish Mitra

IIndia’s economy today is much larger than what it was half a century ago, with most of that growth occurring since the early 1990s—an indication that it has flourished in the postglobalization phase. Since 1991, GDP growth has averaged 6 percent, with the rate hitting close to 9 percent in recent years (before the recent slowdown in the last couple of years to roughly 5 percent). While some modest “business-friendly” reforms in the 1980s resulted in higher growth rates relative to the earlier years (Rodrik and Subramanian 2005), the big economic reforms were announced in 1991. What is behind India’s rapid growth in the past two decades? At the sectoral level, we see that, unlike emerging economies like China and South Korea, the big push in India has come from an expanding services sector, rather than an expanding (labor-intensive) manufacturing sector. Keep in mind that in the early 1960s, India and South Korea had similar growth rates. When India became independent in 1947, more than half of its GDP came from agriculture—a share that has dropped considerably over time to less than 15 percent today.