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LATEST NEWS UPDATES | The Indian economy's changing growth constraints -Niranjan Rajadhyaksha

The Indian economy's changing growth constraints -Niranjan Rajadhyaksha

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published Published on Aug 6, 2018   modified Modified on Aug 6, 2018
-Livemint.com

The job of policy strategists is always to identify the binding constraints to growth and then try to figure out which policies will help ease them

Economists of a certain vintage will remember the old development models in which rapid economic growth was held back by three key constraints.

The first was the savings constraint. A poor country such as India could not save enough of its annual national income to sustain high rates of investment. The lack of domestic savings was without doubt the most serious constraint to economic growth in the early decades after political independence.

The second was the foreign exchange constraint. This lack of hard currency to import the capital equipment needed to build new industrial capacity led to the Nehruvian quest to build a domestic capital goods industry ahead of a consumer goods industry.

The third was the food constraint. The Mumbai critics of the Mahalanobis plans had warned that the impact of the lack of wage goods would be inflationary as money incomes went up. The mainstream plan models optimistically considered agriculture as a bargain sector in which production could be increased with minimal investment.

Each of these constraints has eased as the decades went by. India now has a savings rate that compares well with those in the East Asian economies during their economic accelerations. Foreign exchange is no longer scarce; the Reserve Bank of India has a huge pile of hard currency.

And what about the food constraint? In some of his recent writings in The Indian Express, Harish Damodaran has put forth a fascinating hypothesis that Indian agriculture has now entered a new era of permanent surpluses. He argues that new seeds plus faster diffusion of new technology has changed the traditional dynamics of production in crops ranging from pulses to vegetables to sugar to wheat. “The flip side of a more elastic supply curve, however, is that it makes gluts commonplace and shortages temporary”, Damodaran wrote last month.

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Livemint.com, 31 July, 2018, https://www.livemint.com/Opinion/IUIJ4SXcrWw0bX3XEXBRxI/The-Indian-economys-changing-growth-constraints.html


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