Growth and Structural Change in the Indian Economy
A D V E R T I S E M E N T
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Growth and Structural Change in the Indian Economy
Introduction
In this chapter you will study the growth
of and structural change in the Indian
economy in the last fifty years since
1950-51 for which data on most of the
macro aggregates are available on an
annual basis.
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We shall concentrate on
the growth of gross domestic product at
factor cost valued at 1993-94 prices. We
shall consider the growth of per capita
national income, also valued at 1993-94
prices, which can be taken as the
simplest indicator of the level of living
or development.
In an earlier chapter, one of the
notions of development was posed in
terms of structural change along with
growth. What do we mean by structure?
Most people mean by it production
structure, that is, composition of output
produced by the economy. Some would
like to find out how and where our labour
is absorbed. Other factors such as land
and capital are not given equal
importance. Some would also like to find
out how the production of output is
divided between rural and urban areas
of the country or between public and
private sectors of the economy or
between organised and unorganised
sectors. We shall discuss all of them.
But we can appreciate developments
since Independence better once we have
a little hint about the scene on the eve
of Independence.
Economy on the eve of Independence
We had inherited an economy, which was
basically geared to the interest of our
colonial masters. The rate of growth of
per capita income during the hundredyear
period before Independence, from
whatever scanty information is available,
was just 0.5 per cent per annum. It has
further been noted that there were long
spells when the economy actually
stagnated or declined.
In the past, we were known for producing
fine cotton fabric, handicrafts and
other merchandise. Even during the
early British Raj, that is, before the onset
of industrial revolution in Britain, our
economy was an industrial economy by
the standards of those days whereas the
European economies had yet to usher
in modern civilisation. Yet, by the time
we got Independence, our economy was
primarily reduced to an agricultural
economy and we used to export mainly
raw materials and minerals for the
British industries and even foodgrains
while we might have been hungry
ourselves.
In 1950-51, our per capita income
was no more than Rs 3,700 at 1993-94
prices (while in 1999-2000, it is a little
more than Rs 10,000). The contribution
of agriculture sector (including animal
husbandry and livestock) to the GDP was
around 54 per cent by current prices and
50 per cent by constant prices of 1993-
94. If we include forestry and logging and
fishing in this sector, then the
contribution turns out to be 57-58 per
cent. And, if we add mining and
quarrying and call the combined sector
as primary sector, the contribution of
primary sector is found to be about 60
per cent. Manufacturing contributed
only around 10 per cent. Contribution
of the service sector was thus around
30 per cent. Most of the people were
engaged in agriculture�as cultivators
on their own tiny holdings or as wage
labourers on others� fields.
Growth of GDP since 1950-51
Growth of an economy is reckoned with
growth in its GDP at constant prices. We
have now a complete series of gross
domestic product at 1993-94 prices
from 1950-51 onwards but we give here
the GDP series at five yearly interval
(see above table).
However, in order to give you a feel
about the general tendency of rise and
occasional decline in a few years in
comparison to their respective preceding
years, we give here a graphical presentation
of the whole series. We notice from
the graph that there were occasional
drops in the GDP which we do not notice
in the abridged Table presented here.
But, generally it has been rising. Over
the period of last fifty years, it has
increased more than eight times. But we
are and should be more interested to
know whether growth rate itself has risen
over time.
We can also calculate rates of
growth for different plan-periods or
different decades or for periods divided
by significant events. All such breakups
have been used by scholars. We shall
calculate growth rate per annum by
decades only. We shall use two popular
methods of calculation of annual rate of
growth for long periods, viz. average
annual growth and compound annual
growth rate.