The Sect oral contributions of the three sectors namely primary secondary and tertiary to the national income and employment hv changed over a period.

“The Sect oral contributions of the three sectors namely primary secondary and tertiary to the national income and employment have changed over a period.” Briefly explain the above statement in the context of structural changes in the economy.

Ans. In seeking to establish turning points in the performance of the economy, or structural breaks in the pace of economic growth, most studies focus on the period since 1950. However, according to Deepak Nayyar, any meaningful assessment of economic performance in independent India must situate it in a long-term historical perspective to provide at least some comparison with the colonial era. Therefore, it would be logical to consider the performance of the economy before and after Independence during the 20th century.

During the first half of the 20th century these was a near stagnation in per capita income while the growth in national income was minimal. There was a steady growth in both GDP and GDP per capita during the second half of the 20th century.
There are two sets of growth rates for the period 1900-01 to 1946-47 based on two different estimates of national income. The Siva Subramanian estimates suggest that, in real terms, the growth in national income was 1 per cent per annum, whereas the growth in per capita income was 0.2 per cent per annum. The Madison estimates suggest that the growth in national income was 0.8 per cent per annum, whereas the growth in per capita income almost negligible at 0.04 per cent per annum. The growth rates for the period from 1950-51 to 2004-05 provide a sharp contrast. In real terms, the growth in GDP was 4.2 per cent per annum while the growth in per capita income was 2.1 per cent per annum.

The magnitude of the increase over the entire period is also revealing between 1900-01 and 1946-47, at constant 1938-39 prices, national income for the undivided India increased from Rs 15.4 billion to Rs 24.9 billion by 60 percent, whereas per capita income increased from Rs 54 to Rs 60 by a mere 11 per cent, GDP increased by 1,000 percent, while GDP per capita increased by 250 per cent.



Rates of Economic Growth in India during the 20th century
(Per cent per annum)

A. 1900-01 to 1946-47
Primary sector
Secondary sector
Tertiary sector
National income
Per capita income

B. 1950-51 to 2004-05
Primary sector
Secondary sector
Tertiary sector
GDP total
GDP per capita Siva Subramanian Estimates

0.4
1.7
1.7
1.0
0.2


2.5
5.3
5.4
4.2
2.1
Maddison Estimates

0.8
1.1
0.8
0.8
0.04

Two phases of Growth:-

There are two discernible phases of economic growth in India since Independence 1950-1980 and 1980-2005.
During the period from 1950-51 to 1979-80, growth in GDP was 3.5 per cent annum while growth in GDP per capita was 1.4 per cent per annum. During the period from 1980-81 to 2004-05, growth in GDP was 5.6 per cent per annum while growth in GDP per capita was 3.6 per cent per annum. The sharp step up in growth rates, not only aggregate but also sectoral, suggests that 1980-81 was the turning point. This conclusion is reinforced by a comparison of growth rates aggregate and sectoral during the sub-periods 1980-81 to 1990-91 and 1991-92 to 2004-05. The growth rates were almost the same. In fact, during the period from 1991-92 to 2004-05, growth in the primary sector and the secondary sector was somewhat slower while growth in the tertiary sector somewhat faster in comparison with the period from 1980-81 to 1990-91. Growth in GDP was 5.9 per cent per annum as compared with 5.4 per cent per annum, while growth in GDP per capita was 4.1 per cent per annum, as compared with 3.2 per cent per annum. These was some acceleration in the rate of growth of GDP per capita which was largely attributable to the slow down in population growth.

Economic analysis of time series data on GDP and GDP per capita for the period from the early 1950’s to the early 2000’s establishes that the structural break in economic growth since Independence, which is statistically the most significant, occurred around 1980.
Assessment of Performance:-

An assessment of performance, in terms of economic growth, should address two questions: first, how does this performance compare with performance in the past? Second, how does this performance compare with the performance of other countries?

It is clear that the pace of economic growth during the period from 1950 to 1980 constituted a radical departure from the colonial past. For the period 1900 to 1947, there are two sets of growth rates based on alternative estimates of national income. If the economy had continued to grow at the rate based on the Siva Subramanian estimates, national income would have doubled in 70 years whereas per capita income would have doubled in 350 years. If the economy had continued to grow at the lower rate, based on the Maddison estimates, national income would have doubled in 1750 years. The reality in independent India turned out to be different. The growth rates achieved during the period from 1950 to 1980 meant that GDP doubled in 20 years. In fact, between 1950 and 1980, GDP multiplied by 2.86 while GDP per capita multiplied by 1.5.

Growth matters because it is cumulative. If GDP growth, in real terms, is 3.5 per cent per annum income doubles over 20 years, if is 5 per cent per annum income doubles over 14 years, if it is 7 per cent per annum income doubles over seven years. Of course, the complexity of economic growth cannot be reduced to a simple arithmetic of compound growth rates, for there is nothing automatic about growth. In retrospect, however, the cumulative impact of growth on output is a fact.

This growth was impressive with reference to the near-stagnation during the colonial era. It was much better than the performance of the now industrialized countries art comparable stages of their development. This growth was not enough to meet the needs of a country where the initial level of income was so low. For this reason, perhaps, it was described as the Hindu rate of Raj Krishna.

This phrase, which became larger than life with the passage of time, meant different things to different people. For some, it meant a performance that was disappointing but not bad.
It has been shown that, during this period, India’s performance in terms of economic growth was about the same as in most countries in world. It was certainly not as bad good as East Asia. But it was definitely not as bad as Africa. It was Average. In fact the actual rate of growth of output per worker in India was very close to the average across the world. What is more, the rate of growth predicted for India, based on its initial output per worker, its share of investment in GDP and its population growth rate, was also very close to the world’s average.It is close that there was a sharp acceleration in the rate of growth since 1980. it went almost unnoticed and India grew almost by stealth.

It came into the limelight in the early 2000s. Some analysis, as also many casual observes attributed this performance to economic liberalization which began in the early 1990. Discerning scholars recognized the reality that the structural break, which was a second turning point in the economic performance of independent India, occurred around 1980.
In comparison with the preceding 30 years, there was a distinct step-up in rates of growth for GDP and GDP per capita. The growth rates achieved on an average, during the period from 1980 to 2005, meant that GDP doubled in 12.5 years where GDP per capita doubled in 20 years. In fact, between 1980-81 and 2004-05, GDP multiplied by 3.81 while GDP per capita multiplied by 2.37. this growth was impressive, not only in comparison with the past in India but also in comparison with the performance of most countries in the world. Instead, in terms of growth, India, performed much better than the industrialized countries which experienced a slowdown in growth, the transition economics which did badly, and much of the developing world. And it was only east Asia particularly china, which performed better.

The phenomenal expansion of services worldwide led to services being regarded as an engine of the growth and even as a necessary concomitant of economic growth.