Independence Day

Fifteenth August comes and goes. The Prime Minister speaks from Red Fort which
hardly anyone listens to. Some of the very old lament for the good old bygone days
of British India. Others question whether people really got independence from
poverty, illiteracy, sickness. People complain about rampant corruption by
politicians of every hue. The new middle class is more positive. They drive cars,
albeit small, eat out, take vacations -- sometimes outside India, buy apartment and
claim that India is shining.

What is the truth? Let us look at some numbers either recorded or projected using
methodical research. Prof. Maddison has done extensive work on estimating
economy of various nations in different centuries.

In 1700, the GDP of both India and China exceeded Western Europe. This was a
time when Aurangzeb was ruling India. However, estimated per capita income of
India and China was about half of Western Europe. India and China each had more
than 20% of world’s GDP. The United States was not born yet. The French traveler
Tavernier wrote around 1650 that in every village in India rice, flour, butter, milk,
beans, vegetables, sugar and sweetmeats were available in abundance.

In 1772, Clive recounted his experience in Bengal at the House of Commons: “The
country of Bengal is called, by way of distinction, the paradise of the earth. It not only abounds
with the necessaries of life to such a degree, as to furnish a great part of India with its superfluity,
but it abounds in very curious and valuable manufactures, sufficient not only for its own use, but
for the use of the whole globe.”

By 1820, Western Europe’s total estimated GDP doubled while India’s grew by
20%. British were in full control at this time and imposed huge duty on exports
from India and practically none on imports from Britain. From 1820 to 1880, the
per capita GDP remained about the same while Europe grew much richer. Even
later, the income grew slowly. The per capita income went up and down but
remained within a small range until 1960. Only after 1960, the income grew every
year. From a quarter of world GDP in 1700, India’s share came down to 7.5% in
1913. In 1950, soon after independence the share was 4%.

Although the British introduced English education and built schools, colleges and
universities, the literacy rate in 1881 was 3.2% which went up to a majestic figure
of 12% in 1947. That was an interval of about 65 years. In next 60 years,
independent India saw a rise in literacy from 12% to estimated 70% today.

In 1931 India’s life expectancy was a miserable 23 years. In 1947 when the British
left, it rose to 28 years. Today, the estimated figure is 68.5.

During the 200 years of British rule, some estimates claim that nearly 50 million
people died in various famines. In 1943-44 Bengal famine, the total death toll was
estimated to be 3 million. In contrast, there was no famine in independent India.

In 1973-74, 55% of all Indians were below poverty level. In 1987-88, it came
down to 39%. Today it is somewhere between 21 and 27%, based on which
estimate you look at. In spite of rising inequality, Gini index which measures
degree of inequality, in India is much lower than China or the USA. A higher
value of Gini index indicates higher inequality between rich and poor.

Politically, in spite of all shortcomings, India remains a thriving, stable if chaotic

democracy. In 1970, there were only three true democracies in Asia. They were
Israel, India and Japan. It was probably Nehru’s insight, vision and modern, liberal
outlook that was the single most significant reason for creation of a democratic
India. After independence, India could have ended up like Pakistan, Bangladesh or
other Asian and African countries which have intermittent periods of democracy.
This has made India’s democratic institutions far better, robust and reliable than
those in other new nations. It must be admitted that India still needs much
improvement in this area to reach the standard of western nations.

Long way to go
Should India rest on its laurels? The criticism that India did not do as well as it
should have, is partially true. In 1962, the per capita income of South Korea ($103)
and India ($87) were comparable. In comparison, in 2007 India had a per capita
income of $2700 while Korea had $24800. Both are measured on purchasing
power parity (PPP). Most economists attribute this huge Korean success to its
government’s priority given on human development. While in 1945, Korea’s
literacy rate was only 22%, in 1970 it jumped to 87%. In contrast, India’s literacy
rate grew from 12% in 1947 to only 34% in 1971. While both countries were
almost equally poor, Korean government invested a huge percentage of the annual
budget toward literacy and education compared to its Indian counterpart. The result
shows.

The story of license-permit raj holding back India’s growth until 1991 is well
known. After independence, the first five-year plan followed a liberal model and
the growth rate exceeded the planned growth. But the second five-year plan was
the brainchild of statistician Prasanta Mahalanobis , when many of the government
controls superseding free market were imposed.

The huge investment in higher education and public sector heavy industry at the
cost of school education and basic healthcare for all is also highly questionable.
The investment in higher education and heavy industry directly created jobs for
and benefitted the tiny middle class at the expense of the huge, rural poor.

The conventional wisdom is that a major problem in India is corruption. Is there a

gene particular to Indians that cause corruption to happen? It seems that corruption
is a symptom of a deeper disease. It is excessive government control and mistrust
in free market that resulted in corruption. If such laws are imposed in any low-
corruption modern, western nation, it will show equally strong proclivity toward
corruption. Gold smuggling was rampant in the 1970’s and some Hindi movies of
that time also were based on such gold smugglers. After the government changed
laws that allowed low-duty import of much larger quantity of gold, the smuggling
and associated murder and other crimes evaporated overnight.

One major reason that India is being held back is due to its enormous workforce
engaged in low productivity agriculture. It is estimated that 60% of the total
workforce or over 300 million workers are employed in agriculture. Their per
capita income is much lower than those employed in industry or the service sector.
The nation needs to urgently figure out a policy to divert most of the workers in
agriculture sector to other sectors. In a highly mechanized industrial sector, it is
hard to create massive employment. But a service sector is growing exponentially
and can employ many agricultural laborers with little training. It is construction
and infrastructure development. Over the next decade or two, India needs to reduce
farm employment from 60% to around 6% as productivity in agriculture increases
with increased mechanization. The excess labor force can be employed in
construction and other areas. This will also cause urbanization in an unprecedented
scale.

In order to have uniform development of all, India needs to drastically reduce its
600000 villages and allow rural folks to migrate to cities and towns for better life.
The infrastructure in cities and towns are usually much better than most villages
with electricity, running water, cable TV and so on. As development in western
nations has shown, there is no alternative to urbanization.

India needs to handle mechanization of farming, urbanization of rural population

and construction of houses and infrastructure simultaneously. In fact, these can
complement each other. Unless this is done, the affluence of India will bypass
many uneducated rural persons.