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—Inscription on the National Archives Building, Washington, DC, from The Tempest, Shakespeare
Past may be prologue, but which past?
—Henry Hu, quoted from Lowenstein (2000: ix)
A Macroscopic View
India transitioned from a slow-growing to a decently growing (about 5 per cent per annum) economy in the second half of the 1970s but was temporarily pulled down by the devastating drought of 1979–80, an event that pushed the annual growth rate of the GDP 5.2 percentage points below zero. This severe external shock has influenced the break-point analysis of growth regimes. The 5-year moving average growth rate picked up in the next three years to reach the level achieved before the shock, and over the following three decades the average fell only narrowly below 5 per cent level in just two short stretches of three and two years respectively in the mid-1980s and early 1990s (Figure 2.1 in Chapter 2). But there were prolonged phases when the average remained above 6 or even 8 per cent; these phases were located in time after the big comprehensive reform of 1991. Naturally, much of the attention of observers is focused on this phase. The present study, however, concentrates on roughly three decades since 1978–79. The study exploits the rich information contained in the input–output transactions tables (IOTTs) of the Indian economy, apart from data available from other official sources; the IOTTs are available roughly at quinquennial intervals and our reference dates are often based on their availability. In 1980 sectoral relative shares were in conformity with the stylized facts of economic growth (as discussed in Chapter 3). The relative share of the manufacturing sector reached a peak in 1979–80, which, frustrating expectations, has not been surpassed in the subsequent decades. Also, from about that time onwards the country was on the lookout for new policy directions. So, from the point of view of analysis of structural change, the turn of the 1970s provide a vantage point in time.
Some observers maintain reservations regarding the reliability of the IOTTs of the Indian economy as these are produced after adjustments for statistical discrepancy between production and expenditure sides, though sources of data are the same for the IOTTs and the National Accounts Statistics (NAS).
‘What would life be without arithmetic, but a scene of horrors?’ To Miss… , 22 July, 1835
—Rev. Sydney Smith, Holland (1855)
The manufacturing sector of the Indian economy has been widely held to be an underperformer, defying the traditional idea contained in stylized facts summarized by Kuznets (1971) and Chenery and Taylor (1968) (henceforth, K-CT) regarding the evolving pattern of sectoral shares in GDP in the development process of an economy. The World Bank (2004) has described India's recent experience as a services revolution. In more informal discussions, this development is often viewed with some degree of reservation – the feeling is that services are fleeting while material goods last; therefore, growth with a declining share of the secondary sector in GDP is not considered as solid growth. Even if one does not subscribe to this idea (we have discussed the point in detail in the next chapter), it still remains an interesting question from the point of view of structural changes. In this context we discuss the question: what really is the share of manufacturing or industry in Indian GDP and how should we regard it?
The K-CT line of thinking would suggest that the trend of industry's share in India should have been rising and placed at a higher level than what it is now. Comparison with China makes the point particularly stark and this point has appeared time and again in the literature (Bosworth and Collins, 2007; Kochhar et al., 2006). We raise some pertinent questions here regarding data and methodology in use, because underestimation in one case and overestimation in the other would make comparison very hazardous. Then, keeping these points in view, we proceed to evaluate India's standing with regard to levels and trends of relative shares of industry, manufacturing and services in the context of recent development experience of countries above a minimum size.
In the following section we take a hard look at the Chinese data on sectoral shares in view of wide misconceptions that prevail and take a quick look at the Indian data with respect to its nature and appropriateness for comparison with other nations.
No power on earth can stop an idea whose time has come.
—Manmohan Singh, quoting Victor Hugo, in his budget speech on 24 July 1991
The Historical Background
At Independence in 1947, India was a laggard by far, more than a hundred years, compared to the advanced countries of the time, led by the United States and the United Kingdom. The preindustrial level of per capita income of the developed countries was several times higher than that of the mid-twentieth-century underdeveloped countries, of which the classic examples were India and China. These great old civilizations remained unaffected by the reverberations of economic and technological revolutions that started in the late eighteenth century in Europe – changes that define much of the content of modern economic development. Almost two centuries of subjugation by an aggressive Western power distorted the country's internal organization, both economic and social. However, it did leave a heritage of having sown the seeds of a democratic political system, complete with an entrenched legal framework and a structure for modern education. This brought India to the moment ‘when the age ends, and when the soul of a nation, long suppressed, finds utterance’. What was the state of the Indian countryside at that time? A picturesque description is given by a British civil servant E. H. H. Edye for the period between the two world wars: ‘Bicycles appeared in every village, electric torches and cigarettes; it became a custom to drink tea, a thing unknown among the peasants before 1914. This was material progress’ (Mason, 1985: 278). Three-fourths of the labour force was engaged in agriculture, but the country's social milieu had a fine upper crust of extremely well-educated Indians while the illiteracy level was 83 per cent.
At that time, India had a small but eminently capable and spirited group of entrepreneurs. However, central planning, in one way or the other, caught the fancy of many, including the new government of independent India, with its strong inclinations towards Fabian socialism. A few initial years post Independence were spent in bringing the house to order after the terrible events and all-round mess created by the partition of the country. The real development efforts started with the Second Five Year Plan. The spirit underlying the strategy had a link to the idea of swadeshi, which was the rallying cry of the Independence movement in the early decades of the twentieth century and, thus, ingrained in the national mindset.
I WILL add one Thing although it be a little out of Place; … But my Caution is occasioned by a Lady of your Acquaintance, married to a very valuable Person, whom yet she is so unfortunate as to be always commanding for those Perfections, to which he can least pretend.
—Swift, ‘A Letter to a Young Lady, On Her Marriage, 1723’, in Rawson and Higgins (2010: 269)
The manufacturing sector has traditionally been the main theatre of technological progress. This sector constantly upgrades the existing products and creates new ones that are, unlike agricultural products, demanded more and more, apparently without a limit, as income rises. That is the amazing ability of the capitalist civilization to enlarge the sphere of its needs indefinitely. Yet, as per national product data of a typical modern economy, the manufacturing sector gradually gets eclipsed by service production. This has stirred the interest of many an observer. A simple hypothesis of differential productivity growth across sectors with competitive factor rewards, elaborated in the previous chapter, leads to the conclusion that the relatively technologically non-progressive activities, which are typically to be found more in the service sector than in manufacturing, will experience above average cost and price increases paving the way for increase in value added faster than output. The reverse narrative holds for the more progressive sectors, particularly for manufacturing. This idea has being churned ever since it was propounded though much has changed on the technological front with revolution in information technology that has kept the service sector on the boil in recent times (Triplett and Bosworth, 2003).
We have indicated in the last chapter that the Indian economy shows strong evidence of changes consistent with the above observations. It is of natural interest to ask, precisely how relevant the cost (and value added) adjustment have been in the context of stagnant relative GDP share of the manufacturing sector and rapidly rising share of services since the turn of the 1970s. The present discussion takes lead from the last chapter to obtain more specific answers to the question of GVA adjustments.
Do you anticipate sentiment, and poetry, and reverie? … Calm your expectations; … Something real, cool, and solid, lies before you; something unromantic as Monday morning, when all who work wake with a consciousness that they must rise and betake themselves thereto.
—Shirley: A Tale, Charlotte Bronte (1888: ch. 1)
The literature on the strategy of economic development initiated by Hirschman (1958) can be viewed as the primary inspiration for attempts to measure the pattern of industrial interlinkage. Hirschman advocated unbalanced growth to incentivize investment into areas served by strong demand or supply linkages, in the absence of serious structural rigidities like shortages, bottlenecks, low elasticities of demand and supply, and so on. The underlying assumptions were encouragement to private enterprise and responsiveness to market signals. Interindustry linkages have been studied with the objective of identifying pivotal industries in the sense of those having strong interrelations with other industries by way of being a key source of either demand for their products or supply of crucial intermediate inputs for production. Such industries, with maximum potential for being a spur to the system, are central for industrial development through their demand and supply interrelations. The present chapter is an exercise in the applicability of input–output based linkage measures in an analysis of interdependence in the Indian economic structure. Though the chapter follows linkage specifications within the Hirschman- Rasmussen tradition, it ventures into the supply-side model proposed by Ghosh (1958) for what is supposed to be a better measure of forward linkage.
In the next section, we discuss the intricacies of the relations between output on the one hand and final demand or value added on the other. The discussion helps explain interrelations that do not show up on the surface to final users, paving the way for classification of backward and forward linkages. The next section defines the concepts of linkages based on Leontief and Ghosh inverse matrices while the estimates of the linkage indices are presented in the appendix to the chapter. The subsequent section concludes the chapter by arranging the different sectors of the Indian economy according to the linkage intensities, by identifying the key sectors. The conclusion brings to sharp focus the justification of our division of services into two separate parts – Service-I and Service-II in the entire discourse.
Observation and description, definition and classification are the preparatory activities. But what we desire to reach thereby is a knowledge of the interdependence of economic phenomena.… Induction and deduction are both needed for scientific thought as the left and right foot are both needed for walking.
—Quoted from Economic Generalizations Or Laws (Marshall, 1961: 24)
Input–output transactions tables (IOTTs) provide a very convenient tool to understand an economy's sectoral interconnections. It provides both the production and the expenditure sides of the economy in a compact form and is a very practical way of presenting national accounts that must show a balance between the two sides for conceptual accuracy. We had a glimpse of the importance of this balance for economic analysis in the previous chapters and we will continue to exploit the interindustry relations in the rest of the book. However, since our experience concerns a multidimensional reality, capturing it in single or in two dimensions inevitably means a constrained view; but that serves to show how constrained we are.
What readily comes to mind is adding a time dimension to the two dimensional picture presented by the IOTTs. Just as a three dimensional object is sought to be understood by taking multiple slices – what can be thought of as two dimensional – of the object, we seek to understand an economy over time using multiple IOTTs at, more or less, regular intervals of time. While an IOTT may be viewed as a snapshot of the economy, it really represents an interval – a year, collapsed to a single point. In computing the input (or technical) coefficients we divide the specific input required to obtain a quantity of output over a year, by the output quantity. Thus we compute the average, and in this sense, representative coefficient for the year. One seeks to visualize a rule that explains movement from one observation to the next. Since reality is extremely complex, specification of a simple rule seems silly but its utility lies in generating an insight. In a simple dynamic analysis one may add a time dimension with a rule in the form of a fixed parameter, say, a uniform rate of growth of a variable per year to see its impact on some other variable under focus.
I only took the regular course … different branches of Arithmetic – Ambition, Distraction, Uglification and Derision.
—‘The Mock Turtle's Story’, in Alice's Adventures in Wonderland (Carroll, c. 1930)
Sustained and rapid growth of GDP with a steadily declining share of agriculture and a stagnant share of manufacturing inevitably draws one's attention to the service sector. Our discussion in Chapter 3 has shown that given the state of development of the Indian economy in 1981, the performance of the service sector, when judged by gross value added (GVA), was quite below the average by the yardstick of the global development experience. However, the sector subsequently performed well so that in the course of the next two decades it surpassed the K-CT norm1 by far to become an outlier, and thereafter further strengthened its position as a super-performer in 2011. Just the reverse is true of the industry sector by the same yardstick. The manufacturing sector, which is supposed to be the mainstay of industry, did not show a spur; the rising trend of the past decades of its relative share flattened out after the turn of the 1970s. By the global standard, the sector’s performance judged by GVA was far below the norm insomuch as it qualified as an underperforming outlier in 2001 and almost so in 2011. This has been the case in spite of all product market reforms, discussed earlier, aimed at boosting the sector. Since manufacturing ability is a reflection of the stock of productive knowledge amassed by a country, the apparent stagnancy in manufacturing has caused some dismay and serious reflection. In this backdrop, the rapid growth of the economy has been judged to have been made possible by the impressive growth of the service sector; the observation is statistically incontrovertible.
But what were the services that grew and what were the more dynamic components of the sector? A fundamental question is about the relevance of gross value added (GVA) as a measure of the level of activity in a sector. Value added is a monetary measure and it has a lot to do with the movement of relative prices, which may be caused by either the demand side or the supply side.
When you have mastered numbers, you will in fact no longer be reading numbers, any more than you read words when reading books. You will be reading meanings.
—W. E. B. Dubois
Production means activity by institutional units, as distinct from natural processes, intended to obtain a result in the form of goods or services. The process adds value to intermediate inputs with the help of primary inputs like capital and labour; this addition is gross value added. There was a time when agricultural activities were supposed to be the most crucial and there was a school of thought (the Physiocrats) that considered agricultural production alone to contribute to the national product. But this idea is not held by any significant group of economists today. Adam Smith distinguished activities in the categories ‘productive’ and ‘unproductive’ (Smith, 1776: 321). Most service activities, however lofty or revered (excluding those integrated directly with material production and distribution of the products), were classified as ‘unproductive’. The idea was that the level of material production determined availability of the basic necessities of life and resources needed for economic growth, while services were fleeting. The concept of net material product (Stone, 1970; UN, 1971) of the erstwhile socialist system, which counted only goods and (material) services directly associated with them, basically owed its construct to this idea. The broader concept of aggregate product, which has subsequently been formalized as the GDP, is now almost universally accepted as a measure of the extent of productive activity in a country (Beckerman, 1991; UN, 2009). Basically, GDP consists of gross value added (GVA) from activities of all kinds of institutional units resulting in production of goods and services using capital, labour and intermediate inputs of goods and services. This is identical to aggregate final expenditure in the absence of product taxes.
In the course of accumulation of knowledge manifested in technical progress, practically all productive activities undergo changes. Output per unit of labour increases, and over time this increment becomes phenomenal. Although production of most commodities increases in scale with growth of population, peoples’ consumption or other use (investment and export) of every commodity does not grow proportionately with income. This means the commodity composition of aggregate production changes.
The hallmark of a modern economy is technological change that continuously transforms the existing order. Measurement of economic variables in such a dynamic backdrop poses great challenge to the economic statistician. The nature of the product has been changing as has been the technique or the use of factors of production. That impacts prices of products, but not uniformly. The different sectors of the economy are interlaced but we have the concept of monetary value added by each sector. Value added is easy to measure, but does that quantity show the level of activity of a sector as reflected in its output? The question presumes that we know what real output is; apparently simple concepts with respect to a firm become quite tricky when applied to aggregates. Nevertheless, the question is important for understanding the changing structure of an economy, and that motivated the present study.
Economic growth is essentially a quantitative idea and growth comes hand in hand with changes in industrial structure. So, an analysis of structural change is inevitably data intensive. I have tried to be careful, taken care to go into the nature of data and its consistency with the overall national accounting framework. In a sense, the analysis in the book gives data precedence over prevailing ideas about the development of the Indian economy. Some simple frameworks have been devised to explain the observed trends; the findings, in large part, go against mainstream ideas. Further research will resolve any lingering doubts about my findings.
The basic results of the study have been published in several journals – Applied Economics, Money and Finance, Structural Change and Economic Dynamics (SCED) and Journal of Asian Economics. My teacher Mihir Rakshit read one of my core working papers and suggested a number of improvements that I have incorporated into the work. Improvements have also been suggested by some editors and anonymous referees of the above-mentioned journals and the Cambridge University Press. Soumyen Sikdar provided encouragement at different points in the course of my work. I am grateful to all of them.
The study started, without a conscious plan of a book, with a project and then carried forward by another project, both granted by the Indian Council of Social Science Research (ICSSR).
… to do development theory, one must have the courage to be silly, writing down models that are implausible in the details in order to arrive at convincing higherlevel insights.
—Krugman (1998: 15)
Stories abound about how India treated its private enterprise before the comprehensive reform was launched in 1991. Entrepreneurs, who were pioneers in their own fields, used to get the feeling that they were being treated as greedy pursuers of monetary gains; they had to run from pillar to post wasting time, energy and money, to get sanctions for crucial business matters. The public sector emerged to provide a good foundation of basic and heavy industries, but in this process, the animal spirit of the private entrepreneurs was caged in a network of license and permit legislations. Inadequacies of the public sector became increasingly evident as time wore on and presumably the first real step to break out of the public sector mindset was allowing the entry of Suzuki Motors in India in 1983, in an eloquent declaration of intent to let the caged animal spirits fly.
Development under successive Five Year Plans over the past decades was, however, quite significant though below potential. By the turn of the 1970s, the industrial sector achieved some depth by developing the basic and heavy industries, as is evident from their being comfortably placed by international comparison of sectoral weights (Chapter 3). The Green Revolution of the 1970s reduced the extent of agriculture's dependence on weather and resolved the problem of recurrent food crises. The service sector was not very dominant at this stage; rather, it was an underperformer by the K-CT norm, as already discussed. During the 1980s, the GDP growth shifted to a higher trajectory and the private sector started showing animation with signs of change in government attitude. The three-year averages of gross fixed capital formation (GFCF) as a percentage of GDP were similar for the public and private sectors during 1977–80 (a little below 9 per cent); but just before the reform, during the three years to 1991, the private sector investment surpassed that of the public sector by almost two percentage points (12.3 versus 10.5).
Rabindranāth's encounter with a larger world, beyond his own country, began at a very early age and continued all through his life. Hence the interrelation between his political thought and his view of the world is an exciting but challenging issue, for at least two reasons. First, Tagore was not a political activist, nor did he attach primary importance to politics in his thought. Hence apart from his lectures collected as Nationalism, delivered as the First World War was approaching its end, there is hardly any other text where he reflects exclusively on politics. The importance of this text notwithstanding, it is perhaps time to consider his political standpoint from other angles, by looking at many other sources that are not primarily political. Among these are his essays, mostly in Bengali, and his lectures and addresses delivered abroad in the period between the two World Wars. During this time he travelled extensively to both the East and the West, following the award of the Nobel Prize in 1913 and his desperate search for funds for his dream project of Visva-Bharati in Santiniketan.
Second, there is a methodological dimension to this exercise, which in turn is twofold. At one level, Tagore was a product of Indian and specifically Upanishadic tradition together with Western modernity, a mix that characterized the Tagore family. At another level, he was writing as a colonized subject in British India, experiencing colonial rule at first hand and the responses it evoked at various levels in his own country. He therefore had two rather easy options open before him. The first was to accept British rule in a spirit of servility like any ‘brown sahib’ of his day; the second, to completely reject the West, turning instead to nationalism or uncritical nativism. Tagore took neither of these two paths. His position on colonialism, more specifically on colonial modernity, was mediated through a total worldview evolving since his youth.
Tagore's contemporaries viewed India on an existential level through their lived experience of colonialism, and hence often resorted to nationalism by rejecting the West; but for Tagore the global citizen, the East–West binary was methodologically irrelevant.
Carbonated beverage consumption is associated with various adverse health conditions such as obesity, type 2 diabetes and CVD. Pakistan has a high burden of these health conditions. At the same time, the carbonated beverage industry is rapidly growing in Pakistan. In this context, we analyse the trends and socioeconomic factors associated with carbonated beverage consumption in Pakistan.
We use six waves of the cross-sectional household surveys from 2005–2006 to 2015–2016 to analyse carbonated beverage consumption. We examine the trends in carbonated beverage consumption-prevalence for different economic groups categorised by per capita household consumption quintiles. We estimate the expenditure elasticity of carbonated beverages for these groups using a two-stage budgeting system framework. We also construct concentration curves of carbonated beverage expenditure share to analyse the burden of expenditure across households of different economic status.
Nationally representative sample of households in respective survey waves.
We find that the wealthier the household, the higher is the prevalence of carbonated beverage consumption, and the prevalence has increased for all household groups over time. From the expenditure elasticity analysis, we observe that carbonated beverages are becoming an essential part of food consumption particularly for wealthier households. And, lastly, poorer households are bearing a larger share of carbonated beverage expenditure in 2014–2016 than that in 2006–2008.
Carbonated beverages are becoming an increasingly essential part of household food consumption in Pakistan. Concerns about added sugar intake can prompt consideration of public health approaches to reduce dietary causes of the disease burden in Pakistan.
Pressure and shear-driven flows of a confined film of fluid overlying a periodic one-dimensional topography of arbitrary shape are considered for prediction of the effective hydraulic permeability in the Stokes flow regime. The other surface confining the fluid may be a planar no-slip wall, an identically patterned wall, a free surface or a surface with prescribed shear. Analytical predictions are obtained using spectral analysis and the domain perturbation method under the assumption of small pattern size to pitch ratio. Using a novel decomposition of the channel height effects into exponentially and algebraically decaying components, a simple surface-metrology-dependent relationship which connects the eigenvalues of the effective permeability tensor is obtained. Two representative topographies are assessed numerically: the infinitely differentiable topography of a phase-modulated sinusoid which has multiple local extrema and zero crossings and the non-differentiable triangular-wave topography. Non-differentiability in the form of corners of triangular patterns and the cusps of scalloped patterns are not found to be an impediment to meaningful and numerically accurate asymptotic predictions of effective permeability and effective slip, contradicting an earlier suggestion from the literature. Several distinct applications of the theory to the friction-reduction and shear-stability performance of the recently developed lubricant impregnated patterned surfaces as well as to scalloped and trapezoidal drag-reduction riblets are discussed, with comparison to experimental data from the literature for the last application. Analytical approximations which have an extended domain of numerical accuracy are also proposed.