Hindu rate of growth
Topic: Economic Planning in India: Goals, Models and Import Substitution · NCERT: Beyond NCERT
Meaning
The Hindu rate of growth is a term coined by economist Raj Krishna in 1978 for India's long spell of slow growth: GDP (the total value of goods and services a country produces in a year) grew at only about 3.5% a year from the 1950s to about 1980. Because the population also grew about 2% a year, per capita income (average income per person) rose only about 1.3% a year.
It matters because it sums up the planning era's weak growth record in one phrase. It is also the benchmark that the faster growth of the 1980s and the 1991 reforms are measured against.
Approximate link: per capita income growth ≈ GDP growth − population growth
Explanation
What the term describes
- Slow GDP growth: about 3.5% a year, from the 1950s to about 1980.
- Even slower growth per person: about 1.3% a year, because the population grew about 2% a year.
- Plan targets missed: before 1980, most Five Year Plans fell short of their growth targets. Only the First and Fifth Plans beat them [1].
- Third Plan (1961–66): target 5.6%, actual 2.8%. MoSPI called it a "thorough failure" [1].
- Fourth Plan (1969–74): target 5.7%, actual 3.3%. MoSPI called it a "big failure" [1].
Worked example: why per capita growth is so low
- GDP growth 3.5% − population growth 2% ≈ 1.5%. NCERT's more exact figure is 1.3%.
- Rule of 70 (years for something to double ≈ 70 ÷ growth rate):
- At 1.3% a year, per capita income doubles in 70 ÷ 1.3 ≈ 54 years. That is roughly a whole working life before the average income doubles.
- At 5.7% a year (the 1980s rate), GDP doubles in 70 ÷ 5.7 ≈ 12 years.
Why the label is misleading: the real causes
- The name suggests that religion or culture caused the slow growth. That is wrong.
- The real causes were policy choices:
- Controls: the "permit licence raj", where a business needed government permits to start, expand or import.
- Low productivity: in 1990–91 agriculture had 66.8% of workers but produced only 34.9% of GDP.
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An inward-looking economy: firms produced for the home market behind trade walls instead of competing in world markets.
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IMF researchers describe India's strategy after 1947 as "import protection, complex industrial licensing requirements, financial repression, and substantial public ownership of heavy industry" [2].
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Financial repression: the government controlled interest rates and told banks where to lend.
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Import substitution means making at home the goods a country used to import, protected by tariffs and import bans. Because of this protection, firms had no reason to improve quality, and India never built a strong export sector.
The growth model behind the Plans
- The First Plan used the Harrod-Domar model: g = s / v [1].
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g = growth rate, s = savings rate, v = capital-output ratio (how many rupees of capital it takes to produce ₹1 of output a year).
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Worked example: s = 10% of GDP and v = 3 → g = 10 ÷ 3 ≈ 3.3% a year. This is close to the Hindu rate.
- Lesson: to grow faster, a country must save and invest more, or use its capital better (lower v). Controls and protection kept v high, which pulled growth down.
How India moved out of it
- In the 1980s growth rose to about 5.7% a year (1980–90).
- Both Plans of the 1980s beat their targets [1]:
- Sixth Plan (1980–85): target 5.2%, actual 5.7%.
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Seventh Plan (1985–90): target 5.0%, actual 6.0%. MoSPI noted the economy was moving out of the "Hindu rate of growth" [1].
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Partial policy shift in the late 1980s [2]:
- Policy moved from import substitution towards export-led growth.
- Import and industrial licensing were eased.
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Tariffs (taxes on imports) replaced some quantitative restrictions (direct limits on how much can be imported).
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But this growth was built on borrowing:
- External debt rose from about $35 billion (end 1984–85) to $69 billion (end 1990–91) [2].
- This led to the 1991 crisis and the New Economic Policy of 1991.
In India
- Planning setting: India's growth was steered through Five Year Plans run by the Planning Commission. It was set up on 15 March 1950 by a Cabinet Resolution and replaced by NITI Aayog on 1 January 2015 [1].
- Who judged the record: MoSPI's Statistical Year Book rates each Plan against its target. It links the Seventh Plan (1985–90, actual 6.0%) with moving out of the "Hindu rate of growth" [1].
- Different growth measures across Plans: Plans 1–3 set their targets in National Income, Plan 4 in Net Domestic Product, and later Plans in GDP [1]. Keep this in mind when comparing Plan figures.
- What slow growth meant for jobs (1950–51 → 1990–91):
- Agriculture's share of GDP fell from 59.0% to 34.9%, but its share of workers fell only from 72.1% to 66.8%.
- Agriculture's relative productivity (GDP share ÷ workforce share) fell from about 0.82 to 0.52.
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Slow, capital-heavy growth did not pull workers out of farming. This is linked to disguised unemployment: more people work on farms than are needed, so removing some would not reduce output.
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Outcome: the Hindu rate of growth, the licence raj and the 1990–91 crisis together led to the New Economic Policy of 1991.
Don't confuse with
- Harrod-Domar model: a growth model (g = s / v) used in the First Plan [1]. The Hindu rate of growth is only a label for the growth India actually achieved. It is not a model.
- Per capita income growth: the Hindu rate of growth usually refers to GDP growth of about 3.5%. Per capita growth in the same period was only about 1.3%. Exam options often swap the two numbers.
- Plan holiday (1966–69): a break with three Annual Plans after the 1965 war, drought and devaluation [1]. It was one event inside the slow-growth period. It is not another name for the Hindu rate of growth.
- The growth of the 1980s (about 5.7%): this was the exit from the Hindu rate of growth, not part of it. It was also financed by costly external borrowing [2].
Prelims Hooks
- Coined by Raj Krishna (1978). It is not an official Planning Commission or RBI term.
- Figures: about 3.5% GDP growth and about 1.3% per capita income growth a year, with population growing about 2% a year (1950s to about 1980).
- Trap: the word "Hindu" does not mean religion or culture caused slow growth. The causes were policy: controls, low productivity and an inward-looking economy.
- Seventh Plan (1985–90): target 5.0%, actual 6.0%. This is the Plan linked with moving out of the Hindu rate of growth [1].
- Third Plan (1961–66): target 5.6%, actual 2.8%, the widest gap between target and actual of any Plan [1].
- First Plan used the Harrod-Domar model (g = s / v); the Second Plan was the Mahalanobis Plan, focused on heavy industry [1].
Mains Points
- Policy, not culture: use the Hindu rate of growth to show that institutions and policy decide growth. Import protection, industrial licensing, financial repression and public ownership of heavy industry [2] kept growth near 3.5%. After the 1980s and 1991, the same society grew much faster. (GS-III: growth, liberalisation)
- Growth quality, not just speed: growth was slow, and it did not move workers out of farming. Agriculture's GDP share fell about 24 points, but its workforce share fell only about 5 points (1950–90). This supports today's push for labour-intensive manufacturing to create jobs. (GS-III: employment)
- How India escaped matters: the 1980s exit (about 5.7%) was financed by commercial debt and NRI deposits. External debt rose from $35 billion to $69 billion between 1984–85 and 1990–91 [2], and this ended in the 1991 crisis. Use this to argue that faster growth must come with fiscal discipline, a controlled current account deficit and enough foreign exchange reserves. (GS-III: external sector)