It is ironic that the commencement of this blog coincides with the freefall of INR vs. USD that is being witnessed. Also the state of economy is fragile with bond yields at a 5 year high, Current account deficit (which showed signs of narrowing last quarter) has again increased to 4.8% and GDP growth rate at sub 5% levels. The wider stock market is also looking bearish with about 140 stocks hitting their 52 week low today, although the large CAP NIFTY and SENSEX have been holding up as opposed to mid caps and small caps that have lost much more market value. Economic times reported that out of 2415 stocks on BSE more than 55% were trading at prices below their book value.
Cutting back from the current to the historical, this post seeks to address two questions. Questions which inadvertently crop up in my mind, whenever I observe and experience the disparity in the development and standard of living in India as compared to the west.
So, two questions:
1. Has India been historically poor or is that a recent phenomenon?
2. Has population got anything to do with it?
Method: Macro level analysis and trends of GDP , GDP growth rate , GDP per capita , percentage salience of County out of overall GDP and GDP per capita.
Data source: All the data was extracted from the Angus Maddison project. Relevant links and citation is at the end of the article.
Note: All figures are standardized to 1990 USD as per PPP multipliers. Details can be found at source
Ok, so to keep things simple the data is being shown as a single graph below. The same concerns India alone and does not touch how other economies have performed (To come later)
The data , especially the per capita income is not very reliable till 1500. The absolute figures of Population is in ‘000 000.
The data points are only for the years mentioned above and thus they may or may not be absolute lows/highs.
1) India was rich , very rich in absolute terms and in a way dominated the world economy till about 1700 AD when it commanded a share of 24% of World’s GDP. But when we look at the per capita incomes , it was just about average till 1500 , peaking to about 128% of the world's average income per capita in 1600 and then going on a free fall to reach as low of 14% in 1970's .
Historically , India did well till end of Mughal empire (1707). Its decline seems to coincide with the increasing prominence of east India company , Company rule , British Raj and finally till 1991 pre liberalization era. Thus the average Indian has never been rich , might have just been about average for a brief period of 100 years in he 17th century. A point to note is that the decline of India’s absolute GDP share of the World GDP coincides with the advent of industrial revolution which started around the mid of the 18th century.
2) It would appear from a simple glance that the increase in population has had a direct negative correlation with India’s share of world GDP but with the lack of a credible sample set it would be wrong to infer that. Rather when we look at the population vs per capita income there seems to be a positive correlation (with coefficient of 0.9, again with the statistically dubious sample set). Thus the increase in population has in a way increased per capita incomes.
Rather than population as a factor in understanding India’s poverty and stagnation post 1700 it would be prudent to look at factors like plunder by the British rule, late adoption of modern manufacturing process by India et al. Post independence we should look at factors like opening the economy et al which was done by other colonial/poor Asian economies like China and Korea who have done exceedingly well (More on that later).
Bottom line: Right Policy (with proper execution) , in the broad sense , is probably the most important driver to growth.
Update : The above is not an attempt to make a full fledged economic growth model. I am not sure if that is even a good idea for such a long period with numerous possible variables.
Source:
Citation:
Bolt, J. and J. L. van Zanden (2013). The First Update of the Maddison Project; Re-Estimating Growth Before 1820. Maddison Project Working Paper 4.
Links:
http://www.ggdc.net/maddison/maddison-project/home.htm
http://www.keepeek.com/Digital-Asset-Management/oecd/development/the-world-economy_9789264022621-en
Cutting back from the current to the historical, this post seeks to address two questions. Questions which inadvertently crop up in my mind, whenever I observe and experience the disparity in the development and standard of living in India as compared to the west.
So, two questions:
1. Has India been historically poor or is that a recent phenomenon?
2. Has population got anything to do with it?
Method: Macro level analysis and trends of GDP , GDP growth rate , GDP per capita , percentage salience of County out of overall GDP and GDP per capita.
Data source: All the data was extracted from the Angus Maddison project. Relevant links and citation is at the end of the article.
Note: All figures are standardized to 1990 USD as per PPP multipliers. Details can be found at source
Ok, so to keep things simple the data is being shown as a single graph below. The same concerns India alone and does not touch how other economies have performed (To come later)
The data points are only for the years mentioned above and thus they may or may not be absolute lows/highs.
1) India was rich , very rich in absolute terms and in a way dominated the world economy till about 1700 AD when it commanded a share of 24% of World’s GDP. But when we look at the per capita incomes , it was just about average till 1500 , peaking to about 128% of the world's average income per capita in 1600 and then going on a free fall to reach as low of 14% in 1970's .
Historically , India did well till end of Mughal empire (1707). Its decline seems to coincide with the increasing prominence of east India company , Company rule , British Raj and finally till 1991 pre liberalization era. Thus the average Indian has never been rich , might have just been about average for a brief period of 100 years in he 17th century. A point to note is that the decline of India’s absolute GDP share of the World GDP coincides with the advent of industrial revolution which started around the mid of the 18th century.
2) It would appear from a simple glance that the increase in population has had a direct negative correlation with India’s share of world GDP but with the lack of a credible sample set it would be wrong to infer that. Rather when we look at the population vs per capita income there seems to be a positive correlation (with coefficient of 0.9, again with the statistically dubious sample set). Thus the increase in population has in a way increased per capita incomes.
Rather than population as a factor in understanding India’s poverty and stagnation post 1700 it would be prudent to look at factors like plunder by the British rule, late adoption of modern manufacturing process by India et al. Post independence we should look at factors like opening the economy et al which was done by other colonial/poor Asian economies like China and Korea who have done exceedingly well (More on that later).
Bottom line: Right Policy (with proper execution) , in the broad sense , is probably the most important driver to growth.
Update : The above is not an attempt to make a full fledged economic growth model. I am not sure if that is even a good idea for such a long period with numerous possible variables.
Source:
Citation:
Bolt, J. and J. L. van Zanden (2013). The First Update of the Maddison Project; Re-Estimating Growth Before 1820. Maddison Project Working Paper 4.
Links:
http://www.ggdc.net/maddison/maddison-project/home.htm
http://www.keepeek.com/Digital-Asset-Management/oecd/development/the-world-economy_9789264022621-en
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