Columbia Business School recently published an article on its blog that sheds light on India’s rapid economic growth and how the country will continue to prosper.
Dale Jorgenson, whose book The World Economy: Growth or Stagnation? surveys India’s KLEMS (Capital, Labor, Energy, Materials, Services) data to reveal that reforms precipitated “a sharp acceleration in investment [that] made up the predominant source of growth, led by the emerging markets of China and India.”
Jorgenson gave a talk co-sponsored by the Raj Center for Indian Economic Policies and the Chazen Institute in which he explained how “India’s efforts are achieving ‘the great escape’,” as the World Bank “calculated India to be the No. 1 in the world in liberating people from extreme poverty” between 2008 and 2011.
Investment in India got a shot in the arm in the early ’90s when the “IMF forced a reduction on import tariffs and taxes and market deregulation to allow greater foreign investment.” Jorgenson explains that India managed to overtake China because “India’s more favorable demography pushes up the hours worked and productivity growth.”
If the country can handle on the following four policies, Jorgenson predicts that India will continue to grow at an annual rate of 6.5 percent through 2024, “largely because the populace recognizes progress has already occurred and is motivated to build on the reforms.”
- Create a single national market for goods and services that replaces “the Byzantine maze currently in place” throughout India’s “loose affiliation of states with a tax system that discourages commerce across state borders.”
- Privatize public enterprises and “discard the red tape.”
- “Reform monetary policy and the regulation of financial services.”
- “Reduce the elaborate system of employment protections to encourage job creation. Efficient labor markets will be essential for realizing the benefits of favorable developments in India’s demography.”
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