Introduction
Competitive drive in
economic evolutionary history is perhaps the oldest and most continuous
characteristic of social structures, fundamental economic institutions and
mechanisms in the process of achieving economic prosperity. Systems that are more
open to the outside world have done better and are postulated to do better relative
to less competitive societies (Smith 1776). It is argued in this paper that
Vedic, Sanatan Dharma or Hindu (hereafter used interchangeably) culture has
expounded and exhibited this critical characteristic of openness in thought and
practice over several millennia. (Sri
Aurobindo 1959). Further, Hindu society has sustained itself at a steady rate
and is expected to continue to do so despite suffering deprecating comments on its
so-called low rate of growth by its own economists who have made the Hindu Rate
of Growth synonymous with low rate of growth and low rate with Hinduism
(Ahluwalia 2005). In this chapter we discuss key drivers in the Hindu system to
support the hypothesis and view that the Hindu Rate of Growth is sustainable as
the long-term global rate of growth.
The Hindu Rate of
Growth as the Sustainable Growth Rate for the World Economy
Hindu value system is, perhaps the oldest,
certainly among the oldest value systems in the settled societies and economies
(Kesavan 1997, Srinivasan 1997) in the world. The Hindu Rate of Growth
corresponds to a low rate up to 3 percent experienced by India’s
post-independence economy roughly from 1950 to 1980, as made famous by the
Indian economist Raj Krishna, albeit with a condescending view. It is also a
good proxy for the long-term rate of growth of the Indian economy over several
thousand years. Thus the low rate of
growth was a reality before and after the British Raj in India. The low rate continued in the post-colonial
period from 1947 to 1997. In the short-term, the rate has doubled exceeding six
percent in recent years.
The Turkish, Persian,
Afghan, and Mogul invasions and their subsequent rule over parts of India from
the tenth to the eighteenth century had considerable economic, social and
cultural interaction and assimilation in the local people and in Vedic India. Eighteenth
century had a considerable adverse economic and an anti–Vedic impact on the
native population along with a forced assimilation of some of the elements of
diametrically opposite cultures.
Trading between India
and the Near East as well as Europe goes back to antiquity. The British had
gone to India as East India Trading Company chartered for the purpose of
trading with India by Queen Elizabeth I in 1600. Their success allowed Britain
under the then Prime Minister Disraeli to take governance of India from the
Company. Queen Victoria became the
Empress of India in 1858. The British brought considerable Western influence
for some 350 years on modern India. Other Europeans from Alexander the Great to
the French, Portuguese, and Germans have also invaded, traded with, and
impacted India over the millennia.
India had the highest
income among all countries up to about 1500 CE when China emerged as the
richest country followed by European powers, followed by the United States
(Maddison 2003). China is again among
the largest economies in the world along with the US and EU and to be perhaps
number one in terms of GDP in a few years.
In terms of per capita income, however, China is still only one-fifth of
the US average. India is around one-tenth of the US real per capita income in
2011.
The Hindu Rate of
Growth (HRG) is a controversial and derogatory expression used to
refer to the low annual growth rate of the
socialist economy of India before 1991, which was around 3.5
percent from 1950s to 1980s, while per capita income growth averaged 1.3%
(Chart 3).The average US nominal GDP growth rate at that time was 6.2 percent
while the real GDP growth rate, at 2005 prices, was 3.4 percent a year from
1930 to 2010 (Chart 1). India’s growth rate for the most recent thirty year
short-term period from 1980 to 2010 by comparison is 6.11 percent a year (Chart
2). Perhaps it is not a coincidence that
the US rate of growth over the first two and a quarter centuries since 1776 is
essentially the same. It is a remarkable similarity of growth rates.
Given the physical, and
human resources and environmental constraints, it is most likely that the world
economy will regress back to the sustainable HRG of about 3 to 4 percent a year.
The potential productivity gains from
technology, better human capital and more financial capital may make a more than 2 percent plus annual per
capita real growth possible after allowing for a 1 to 1.5 percent growth of population.
We are not advocating low rates for
India, the US or the world. Rather, our focus is on reality and not empty
dreams, not to mention destructive parts of high growth rates on the
environment, quality of life and indeed the sustainability of life on earth
because of CO2 and other threats to the planet. India is not going to
have China's high growth rates for any significant period. Even China is
projected to have less than 6 percent a year in the next 30 years versus the 10
percent in the last 30 years. The Hindu Rate and Irving Fisher’s 3 to 4 percent
real sustainable long term rate is most likely to prevail over the long haul. The Hindu Rate is not bad notwithstanding the
desire to grow faster and achieve higher living standards similar to the West
sooner. The Hindu Rate has made America
what it is with growth at 3 to 4 percent a year for a very long period of 300
to 500 years since perhaps Columbus, certainly since 1776 as far as recorded
numbers show, of course with very different market basket and technologies overtime.
India has also experienced low growth rate for a
long time. India’s per capita income was Rs. 168 in 1857 and Rs. 187 in 1900.
Thus, there was hardly any change over a period of more than 40 years while the
British government directly ruled India. The per capita income fluctuated
between Rs. 168 to Rs. 205 but it had a mere 10 percent or 0.25 percent growth
a year over a 43 year period (Chart 3).
As can be seen in table 1, growth rates in the world
and the developed countries also converge towards the Hindu Rate of Growth in
the long run. It is quite understandable
that impatient economists and others would like to have developing countries
grow at a faster rate to catch up to the income levels of developed countries
that they would find India’s
post-independence rate of growth to be inadequate. The cultural connection is
not inappropriate, but judgments such
as like Raj Krishna’s were hastily made. He and his contemporaries confused
income levels and the desirability of achieving those levels with rates of
growth. Here and now of Ram Das (Dass 1971) and Paul Sartre (Sartre 1943) gripped them as they Westernized
themselves in Boston, London, Paris, Chicago, New York and Washington,
D.C. Had the impatient Westernized
Indian scholars conducted analysis of long term growth rates in the United
States and other developed countries, they would have been more modest in their
criticism of Hinduism and India.
There are sound reasons for the long-term similar low
rates of growth in India, the United States and Europe. Every American textbook
makes reference to the 3 percent real rate of return (or GDP growth rate) that
is based on a study of returns on investment in American industry from 1870 to
1900 by Irving Fisher (Fisher 1930). He found the 3 percent real return in his
empirical studies published early 1900s.
His work and analysis had made an implicit forecast which has generally
held up from 1900 to 2011 with regard to the annual growth rate of American GDP
at about 3. GDP can be interpreted as
the return on the total capital stock, as the marginal efficiency of capital or
the internal rate of return, of the United States (Fisher 1930). The stability
of this low number at 3 percent, in the context of remarkable innovations
increasing productivity of labor and capital over the last one hundred years
and more, can also be termed the HRG as there are many similarities in business
and cultural context in India and the United States.
Chart 2: India Growth Rate
|
Chart1: US Growth Rate
|
Table
1: GDP Growth Rates in the World Economy
1996
|
1997
|
1998
|
1999
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
2008
|
2009
|
2010
|
|
World
|
3.7
|
3.9
|
2.2
|
3.9
|
4.8
|
2.2
|
2.6
|
3.4
|
4.8
|
4.5
|
5.0
|
4.9
|
2.4
|
-1.1
|
3.9
|
Advanced
Economies
|
2.9
|
3.4
|
2.3
|
4.2
|
4.2
|
1.5
|
1.7
|
1.9
|
3 .1
|
2.7
|
3.0
|
2 .7
|
0.2
|
-3.5
|
3.0
|
Emerging and Developing Countries
|
5.1
|
4.9
|
2.0
|
3.5
|
5.8
|
3.6
|
4.2
|
6.1
|
7.5
|
7.4
|
8.1
|
8.5
|
6.1
|
3.2
|
...
|
Developing
Asia
|
8.4
|
6.1
|
2.7
|
6.2
|
6.6
|
5.9
|
6.6
|
8.6
|
8.5
|
9.6
|
10.3
|
11.1
|
7.7
|
7.2
|
...
|
Europe
|
0.8
|
3.0
|
-1.0
|
2.6
|
7.6
|
2.4
|
4.7
|
6.5
|
7.4
|
6.3
|
7.3
|
6.8
|
4.2
|
...
|
...
|
Middle East and north Africa
|
5.2
|
3.7
|
4.0
|
1.8
|
4.9
|
3.1
|
4.0
|
6.7
|
6.0
|
5.5
|
5.8
|
6.1
|
6.2
|
...
|
...
|
Sub-Saharan
Africa
|
5.1
|
3.6
|
2.8
|
4.0
|
3.9
|
4 .4
|
4.1
|
3.7
|
6.1
|
6.4
|
5.7
|
6.0
|
4.6
|
-0.1
|
...
|
Western
Hemisphere
|
3.4
|
5.2
|
2.2
|
0.4
|
4.1
|
0.6
|
0.1
|
2.0
|
6.1
|
4.6
|
5.6
|
5.7
|
4.2
|
-2.0
|
...
|
Source: IMF Data: Chart 4: USA GDP Growth Rate
http://elibrarydata.imf.org/DataReport.aspx?c=1449326&d=33061&e=169393
Chart 4: US GDP Growth Rate
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
http://www.indexmundi.com/g/g.aspx?c=in&v=66
GDP growth on an annual basis adjusted for inflation
and expressed as percent.
http://www.indexmundi.com/india/gdp_real_growth_rate.html
|
http://www.indexmundi.com/india/gdp_real_growth_rate.html
Chart
6: India-China GDP (per capita) 1950-2003
GDP development
trends of China and India. GDP per capita (in 1990 dollars), Geary-Khamis data
range 1950-2003.
The
world as a whole and the advanced economies group reinforce the long-term
growth rates in the United States
and India
as well from 1996 to 2010, as reported by the International Monetary Fund. The
emerging markets and developing markets (including Brazil,
Russia, India, and China) have higher rates in the
same period. It remains to be seen whether 6 to 10 percent rates
can be sustained over 30 to 50 years and longer. We are more hopeful of a 6
percent growth, and doubt a 10 percent growth.
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