Deep into the heart of economics

This magnum opus is the fruit of years of painstaking and thorough research by Siva Sivasubramonian on Indian national income statistics.

Sivasubramonian first researched the subject back in 1965 before spending thirty years as an advisor to the United Nations, developing the national income statistics of Middle Eastern and African countries.

After returning to India in 1995, Sivasubramonian revised his earlier work, and then, till his death in 2002, worked on this book.

The author has built on the work of earlier authors on growth accounting, such as Bakul Dholakia's 1974 study, and has integrated data from various sources to arrive at a comparable time series on Indian national income and its components.

He has used the growth accounting approach developed by Edward Denison, and has been inspired by the work of Angus Maddison.

Three quarters of the book is composed of tables and data that will be invaluable to the research student, and there is no doubt that it will serve as a very useful reference book for scholars across the world.

The book is about analysing the national income data from the years of the First Plan with a view to determine the sources of economic growth in India.

But first, he considers the rates of growth. The author points out that aggregate real GDP doubled in the 19 years starting from 1950-51, doubled again in the next 18 years from 1969-70, and then accelerated to double further in 12 years from 1987-88.

GDP growth was 3.91 per cent from 1950-51 to 1960-61; 3.70 per cent from 1960-61 to 1970-71 fell to 3.08 per cent in the next decade, picked up speed to 5.62 per cent during 1980-81 to 1990-91 and moved up further to 5.81 per cent from 1990-91 to 1999-2000.

The growth rate of the non-agricultural sector has been consistently higher than growth in agriculture, with non-agricultural growth accelerating to 7.14 per cent during 1990-91 to 1999-2000, compared to 2.97 per cent for the agricultural sector.

Another feature is that the share of labour income has declined from 58.69 per cent of the net domestic product in 1950-51 to 51.78 per cent in 1999-2000, and in fact it declined dramatically after 1992-93, when it was 61.60 per cent of NDP.

On employment, Sivasubramonian points out that the annual rate of growth of employment, which was as high at 2.37 per cent during 1970-71 to 1980-81, fell to 2.02 per cent in the next decade and to 1.43 per cent during 1990-91 to 1999-2000.

There was a further deceleration during 1994-2000, when the rate of growth in employment fell to 0.82 per cent. Liberalisation has clearly done precious little for employment growth.

Moreover, while the share of the agricultural sector in total output dropped by 34.4 percentage points from 1950-51 to 1999-2000, the drop in agriculture's share of total employment fell by only 15.8 percentage points.

But while employment growth is slowing down, fixed capital formation has certainly improved after reforms.

Gross fixed capital formation in the non-residential sector during 1990-91 to 1999-2000 was 6.62 per cent, compared to 6.54 per cent in the preceding decade.

So what are the sources of India's economic growth? Sivasubramonian's findings show that capital accumulation has been the most important source of growth for the period as a whole, at 1.67 percentage points, or 38 per cent of the total growth rate.

Next in importance is total factor productivity, which accounted for 32.3 per cent of the total growth rate. Labour input accounts for only 28.2 per cent of the growth.

He points out that most of the contribution of labour has come from larger numbers employed, and that "the role of education has been rather unimpressive, being only 3.6 per cent of the GDP growth rate. This is in sharp contrast to the experience of the USA where 15 per cent of the growth rate in national income during 1929-69 was accounted for by education."

Sivasubramonian also finds that the relative contribution of capital accumulation to GDP growth in the non-residential sector has gone up from 37.45 per cent during 1980-81 to 1990-91 to 49.06 per cent during 1990-91 to 1999-2000.

But the share of total factor productivity declined from 36.73 per cent of GDP growth to 34.07 per cent during the same periods. However, the contribution of advances in knowledge has improved.

To sum up, Sivasubramonian concludes that "the contributions of education, which reflects the possible improvement in the quality of labour input, and that of machinery and equipment, which reflects the adoption of modern technology, have not yet become as important as they should be in a rapidly growing economy."

THE SOURCES OF ECONOMIC GROWTH IN INDIA 1950-1 TO 1999-2000

S Sivasubramonian
Oxford University Press
Pages: 353
Price: Rs 695