On the Sustainability of India’s Non-Inclusive High Growth

This paper examines the sustainability of the unprecedentedly high aggregate GDP growth witnessed in India from 2003-04 till the eruption of the global crisis. It argues that the post-liberalization highly non-inclusive and corporate-sector led growth trajectory in India suffers from a fundamental contradiction which renders it inherently unstable. This contradiction is between increasing dependence of growth on investment demand and the absence of a commensurate expansion of either output or employment in organized manufacturing, the main sector where rapid growth of capital formation tends to be relatively concentrated. This had already generated a collapse of investment and a manufacturing centered growth slowdown in the second half of the 1990s. The paper shows that high growth in India after 2003-04 did not eliminate this contradiction. Instead, the transmission effects generated by an exceptionally expansionary phase of the global economy enabled a sharp revival of investment which generated this growth, but in the process the contradiction started surfacing again. With the global crisis this phase came to an end, and in the post-crisis situation revival of that growth trajectory appears unlikely. In such circumstances even modest gains on the development front from via the positive effects of high growth on public revenues cannot be guaranteed.