風蕭蕭_Frank
以文會友
Why has China developed so much faster than India?
Author: Jason Szeftel
In the first few decades after WW2 India was actually more developed than China. This changed in the early 1980’s when China revved up the largest growth miracle in world history.
Now India would have to hit 6% growth for the next 25 years to match current Chinese per capita income.
Is this likely?
I’m going to try to answer by looking at two broader questions:
(1) Why did India not have a “growth miracle” like China?
(2) Is India likely to have one in the future?
TLDR: India did not experience a growth miracle in the late 20th and early 21st century because internal structural factors made it impossible. India is not going to experience a growth miracle in the future because these factors (as well as novel ones) persist and the external conditions necessary for strong Indian growth are disappearing.
(Get ready because this is honest rather than a typical feel-good answer. It’s around 12k words and goes through Indian geography, demography, agriculture, development, infrastructure, investment, and future prospects. Enjoy!)
An Incomplete Geography
We are going to start with pure geography.
For the moment forget the cultural, ethnic, religious, political, and historical divides that characterize the region.
No Territorial Integrity: The first thing to know about India as a country is that it does not map directly onto the whole of the Indian subcontinent. From a physiographic perspective the Indian subcontinent has three states where one would be optimal. It is similar to what might have happened if the United States did not control the full Mississippi Basin and adjacent regions or if China did not (at the moment) control the entirety of the Yangtze and Yellow River Basins. This lack of full territorial integration across the Indian subcontinent creates enduring development challenges. It is also promotes conflicts similar to the state of affairs in northern Europe.
Two river basins share one large agricultural plain. The subcontinent’s northern (and largest) agricultural plain is split between three political states.[1]
The Indo-Gangetic Plain: The Indian subcontinent is carved up along South Asia’s equivalent to these core regions of North America, Europe, and East Asia. The Indo-Gangetic plain is split between the three nations of India, Pakistan, and Bangladesh. Pakistan has the Indus River, India the main part of the Ganges, and Bangladesh the Ganges Delta. Together these three regions are as far from peripheral territory as it gets: the Indo-Gangetic Plain is the core geographic, economic, political, military, and demographic region on the subcontinent. Dividing this region up ensures numerous fault lines, insecurities, and instabilities between these nations. Without control over the full length of the Indo-Gangetic plain, ocean access to the river, or Tibetan headwaters, India lacks full control over the resources, inputs, key transit nodes, and other important factors that sustain and stabilize its portion of the subcontinent’s most essential region.
India’s population is centered on this northern plain. Note that this population merges into the densest populations centers of both Pakistan and Bangladesh as well.
Tension Not Unity: Most of India’s territorial, political, and military objectives are an attempt to better buffer and secure its precarious position in this fractious region. Both of its border conflicts with China could be easily resolved by aligning political boundaries with watershed ridge lines. Instead India prefers its northernmost extension (Kashmir) to push as far into the Himalayas and upper regions of the Indus River as possible. Conflicts in the east are also related to a desire (whether practical or not) to push as far into the Himalayas and to control as much of the territory that drains water into the Ganges Delta as possible. As the political borders on the subcontinent are based on expediency, it is little surprise that from an economic development and security perspective they are incoherent and produce inherent insecurity. They push the Indian subcontinent towards conflict and creates very high local security expenses. Whether this is better than self-contained conflicts (or if that is even possible) is another question.
Some bends in the upper reaches of the Ganges River are vulnerable to military attack. The idea is a bit sensationalist/apocalyptic but it illustrates the widespread fears that accompany the systemic vulnerability felt by the vast population of the region.
Conflict or Subordination: The demographic core of India is coextensive with the demographic cores of two other nations. On the subcontinent this piles on tensions that essentially guarantee one of two outcomes: conflict between the neighboring states or subordination to the largest one. Bangladesh shares the same river basin as India and has no choice but subordination. For various reasons, it does not get the luxury of being like the Netherlands. Pakistan has a ‘choice’ between conflict and subordination since it inhabits a separate river basin. Nonetheless, the Indus is an adjacent, more resource constrained, militarily vulnerable, and significantly smaller river basin than the Ganges. Absent a doomsday scenario Pakistan inevitably loses any actual conflict with India. Nonetheless the mere threat of conflict creates enormous security costs for India.
- Don’t underestimate how bad conflicts over the control and security of valuable river systems, fertile food production areas, water resources, or port access can get. They are the origins of many wars and recurring regional conflicts.
It is About Costs Not Missed Opportunities: The political division of the subcontinent produces economic inefficiencies as well as obvious political-military costs and conflicts. For the purposes of this answer we are mainly going to focus on the economic side of the equation. While these political divisions impose significant, structural economic development constraints and costs on India even if the whole subcontinent were unified it would still have problems. Greater political consolidation is no panacea. Based on the heterogenous make up of the region’s population it would mean a shift in security costs, in essence a transformation of external security matters to internal ones, and an indeterminate do-over of the decisions of partition. Adding over 350 million people with major ethnic and religious divisions would not make India’s development situation any better. Questions like these mirror those faced by countries such as Israel only on a much larger scale.
India’s development situation is negatively influenced by the particulars of partition but not defined by them. In general, the primary consequence of partition are not missed opportunities so much as a reconfiguration of a structural set of costs.
The Eternal Problem of Absent Capital
The Land’s Greatest Misfortune: The reason why comes down to the level of aggregate economic opportunities on the subcontinent. The hard truth is that aggregate economic opportunities on the Indian subcontinent are limited regardless of whether the territory is unified or not. It has nothing to do with politics. It would be the same whether it was one state or twenty, whether the political system was changed or if different parties were in power. While a bigger, more efficient state allows the country to better pool together the available capital of the region, larger state can do little if there is simply not much capital in the first place. Today it can seem like many, many factors from labor force participation by gender, to literacy, to governance structures, to legal systems, to linguistic variation, to cultural mores all help influence capital generation and availability. Go back far enough, however, and the primary explanation for the hierarchical distribution of global capital (and its absence in India) becomes clear.
This is an oddly beautiful drainage basin map of the US. The US’ twelve navigable rivers, as well its lakes and barrier islands, are the largest inland waterway system in the world. Together they are 70x greater than India’s.
Capital and Its Discontents: A high level of capital is, like credit, originally a byproduct of agriculture. High sustainable stocks of capital emerge from the labor and productivity benefits of marrying high quality farmland to navigable waterways. It accumulates as a result of efficient, consistent food production, trade, taxes, and associated market and skill development, differentiation, and transformation. The highly unequal distribution of these essential natural features, and the even greater disparity between them, produces a power law distribution in the wealth, power, and potential of nations. If a nation lacks these basic geographic features (as well as a number of others) its economic problems stack up, whereas countries that have these features accumulate growing benefits and efficiencies across every dimension of society. The (regionally) rich do indeed grow richer.
Non-Navigable India: As a result the single most important geographic fact influencing Indian economic and political history is the fact that none of the major rivers of the Indian subcontinent are navigable.[2]This enormous problem is not one that can be overcome through technology diffusion, infrastructure engineering, education, industrialization, or any of the other marvels of modernity. It is possible to expand the navigability of already navigable rivers, but turning a non-navigable river into a navigable one is usually impossible. Hydrological, climatic, and geographic realities just make it too difficult. No country has tried harder to engineer its rivers than China and while it has had some success expanding the Yangtze, it has had zero success with the Yellow River. That river remains a catastrophe.[3]
Lack of river navigability is reflected in low freight transportation numbers. This is a symptom of a major underlying development limitation.[4]
Life on the Ganges: India’s primary navigability challenge comes from the monsoon system
. A monsoon is a seasonal change in the direction of sea breezes. It appears as a result of a shift in the temperature differential between the sea and the land. This seasonal change may include heavy rain. In India, the prototypical monsoon region, it means an enormous amount of rain. The southwest summer monsoon concentrates 80% of the total yearly flow volumes of Indian rivers into just four months.[5]This turns the rivers into rainy, unnavigable torrents for a third of the year and historically made coastal navigation seasonal as well. It also leaves large sections of rivers like the Ganges wide, flat, and shallow during the dry months and frequently fills them up with shifting sand banks. Unfortunately, hundreds of years of ecological degradation and neglect conspire to make all this even worse.[6]
Above is a region in Southwest India before the monsoon. Below it is the same region three months later during the monsoon. The monsoon is, and has always been, the difference between life and death on the subcontinent.
No Engineering A Way Out: This extreme variance in flow rates is not the sort of thing that encourages reliable, year-round river transportation and commerce. It is also a major reason why major ancient hydraulic engineering systems such as canal infrastructure, floodworks, and irrigation systems are not as extensive in India as they have been in China.[7]India has sought reliable river navigability for thousands of years. It is just very, very hard to design systems that can deal with the complex, ferocious, volatile, and often unpredictable Indian monsoon.[8]India’s erratic hydrology was more than old school bouyage, bandalling, and other tactics could handle and modern solutions are no better. Current efforts
to engineer the Ganges into a more navigable river are very expensive (and dubious). India’s great river is really only navigable for the 250 mile stretch from Farakka to Haldia.
The great tragedy of economic development is its Catch-22 nature: The serious money and engineering required to generate developmentally significant and self-reinforcing transportation efficiencies is almost always something only capital rich countries (which already have navigable rivers) can indulge in over the long term.[9]
Splintered Identities and Limited Capital - Make no mistake that navigable rivers are the major source of natural economic efficiency in a developing nation. As we’ll go over later, countries that don’t have them require the resources of those that do. These rivers produce benefits whether they are called the Rio de La Plata, the Yangtze, the Mississippi, the Rhine, or the Elbe. Economic reality without cheap river navigation is a world where everyone does the same thing (farming) and all output is consumed. Production is also often volatile and vulnerable to disruption. River navigation lowers transportation costs by orders of magnitude, making possible the sophisticated labor differentiation of a population. Without this natural transportation infrastructure regional linkages and interdependencies remain limited, brief, or nonexistent. Over time this tends to produce significant cultural, ethnic, linguistic, and political differentiation. No navigable river means no money and a lot of people with different identities, beliefs, and behaviors.
Don’t Confuse Population or Output With Wealth: The permanent challenge of low local capital generation in India needs to be separated from India’s high population and high agricultural output. “Historical” measures of GDP like the one below seriously confuse these. Production, output, and income in large agricultural societies was a function of population and food production. “Wealth” in anything like the modern sense is a result of labor differentiation, productivity improvements, and the efficient provision of a wide variety of goods and services. Yet India lacked the natural features that generate economic efficiencies and open up capital and labor resources. This is part of the reason why India had to impose a rigid, artificial labor classification scheme on its enormous population. Using GDP as a measure for the wealth of ancient agrarian civilizations is absurd.
Ignore measurements like these.[10] ‘GDP’ before modern agricultural efficiencies was based almost entirely on population and agricultural output. It was a time when ‘wealth’ meant poverty.
A Pre-Industrial Demography: In fact the large population needed for that high agricultural output combines with limited capital to virtually guarantee poverty. Historic and current lack of capital is actually made much worse by the huge Indian population. Indian demography is typical of countries that have not experienced industrialization. It reflects how children (and people more generally) were seen prior to the Industrial Revolution. At the individual or familial level Indians saw, as in China, more children as more labor to help increase agricultural output while at the aggregate, government-bureaucratic level the population was often seen as a problem to be managed rather than a resource to develop or cherish. Since India is not even close to being fully industrialized it retains a pre-industrial demography. It is pyramidal in structure with lots of youth, many young adults, fewer mature workers, and few old people. This demography has always further limited capital generation in India. There are always too few mature (capital-rich) workers for the massive scale of the population. New citizens can add some extra food output but they also require food and many more expensive things if they are to reach high levels of productivity.
If China[11] is rapidly becoming too old, then India is still too young. This makes money tight and hard to come by.
A Complex Disunity: The twin issues of limited capital plus an enormous population have forever stymied economic differentiation, political consolidation, and cultural convergence in India. Over time this has produced an extremely diverse demography in terms of ethnicity, language, religion, and culture. India has more than 2000 ethnic groups and 780 languages. It is the birthplace of four major world religions. The lack of navigable rivers, and the mountainous geography characteristic of most of India south of the Ganges region, encourages cultural, linguistic, ethnic, and even political fragmentation. It also opens up the subcontinent to foreign powers, peoples, products, markets, and ideas. When fragmentation happens from the inside-out, consolidation often happens from the outside-in. This grants non-Indian elements a large historical (and contemporary) influence and in fact changes what ‘Indian’ actually means in the process.
All this makes India a very complex disunity at almost every level of analysis.
The Primacy of the Primary Sector
Now we’re going to build up our understanding of India from the bottom up.
Huge Ag Output Means A Huge Population: Lets start with why India has an enormous population in the first place since people often throw out a lot of inaccurate reasons. The fundamental reason why India has a large population is the region’s astronomical agricultural potential. This potential is concentrated in the 1 million sq km Ganges River Basin that stretches in a horizontal band east from New Delhi to its delta in the Bay of Bengal. No other alluvial basin in the world can compare to it in terms of size, fertility, acreage, and topography.[12] It has extremely long growing seasons and basically no winter. It is filled with rich alluvial soils pulled down from the Himalayas over thousands of years. It is constantly rejuvenated by the waters, floods, and runoff that accompany the monsoon. This has allowed for reliable, large scale food production for thousands of years. Reliable, large scale food production is the factor underlaying all others.
The Ganges is the ancient and modern core of India because it is a flat, well-watered region with the highest agricultural potential in the world.
India Has Had A Large Population For A Long Time: Other factors such as the early domestication of certain crops and animals and improved agricultural tools and techniques helped give India a high population baseline over 2000 years ago. A large ‘starting’ population combined with a very fertile region placed India on an upward population growth trajectory. The basket of factors that contribute to India’s high recent population growth rates generally bunch together into the category of “pre-industrial family formation patterns”. Add in modern industrial agriculture methods to these patterns and this results in an explosion in food production and population size. India, like China, had a high enough agricultural potential to support large populations before industrialization revolutionized agriculture. Today with industrial methods the combined population of India and China is larger than the world population of 1950. This is why, as we’ll see later, the agricultural system in both countries is in such dire straights.
India is Defined by Its Agriculture: People sometimes talk about ‘agriculture’ like it means the same thing everywhere. It does not. Indian agriculture defines India. The specifics of a region’s agriculture are determined by cultural, technological, and geographic factors particular to the region. For example, India’s very high agricultural potential and its very low capital generation potential exist together because of the factors mentioned earlier. Other regions have different combinations along these and other dimensions. How these systems interact with population, trade, and other economic factors complex. The next section will describe some of the particulars of modern Indian agriculture but first we have to talk about some principles and elements of agriculture that are essential to developing a modern society.
Agriculture is the core technical, cultural, and economic behavior that links a country to its past and to its potential futures.
Agricultural Efficiency Is Everything: In general, the first place to look to when analyzing a country’s economy and development prospects is its agricultural system. The basic concepts to keep in mind are agricultural productivity, efficiency, and competitiveness. The most important of these three is agricultural efficiency. There are three types of efficiency but the most important one to keep in mind is technical efficiency.[13] Think of it as the quality of the farming production context. It is the ability of a farm to either decrease or hold inputs constant while also growing or at least keeping output stable. High or improving technical efficiency in agriculture is the basic ingredient to an efficient farm sector. It is necessary for large-scale industrial modernization.
While modernizing Indian agriculture is essential to development not every agricultural region benefits equally from modern agricultural technologies.
Free The People: The most important agricultural input to stabilize and then decrease is labor. All the various forms of agricultural productivity improvements like mechanization, high yield seeds, or fertilizers are most important (especially early on) for their ability to free people up to do other things besides farming. In the modern world the result of decreased farm labor and sustained or growing output is mass urban life. Giant urban cities only form when people can leave the fields. This happens when the output of those who remain in the fields is sufficient to feed themselves as well as all the new urban residents. Therefore any possibility of true urban life, industrial production, and a varied service economy depends on efficient agriculture. This cannot be overstated nor can an inefficient farm sector be ignored, faked, or covered up.
- Developing countries are often described as having a ‘rural economy’. This emerges from the sometimes useful but more often unhelpful binary set up between rural and urban life. Especially in a place like India this “binary” is really a continuum and the major shift along the distribution is a function of improvements in agriculture. Most urbanization is messy and China’s development has brought way too much of an emphasis on urban and mega-urban areas. Even ancient walled cities were more dependent on peasants in the fields than anyone within the walls.
Agriculture Comes First: It is smart to think of agriculture (more broadly “resource extraction” but basically agriculture) as the primary sector. Agriculture is the primary sector because it comes first:
- It comes first temporally as the natural first stage in the development of a country.
- It comes first conceptually when attempting to induce development in a country.
- It comes first physically because a failing agricultural system inevitably leads to population decline and a (negative) transfiguration of the economy.
The primary sector is the foundation for the rest of the economy. Neglect the primary sector and your country will devolve into a subsistence economy.
What it Means to Be Primary: The phrase primary sector comes from the three-sector (or four or five , soon probably six sector) model. This model usefully describes major stage shifts in economies based on the distribution of workers in the primary, secondary (industrial), and tertiary (service) use sectors for labor. It presents economies as walking through a stage transition where the percentage of labor participation shifts alongside economic development. This isn’t wrong but it ignores how underlying agricultural factors impact the nature and extent of the transitions. It implies economic development is a movement away from agriculture when the possibility of the other sectors emerging at all in fact depends on improvements within the primary sector. Development is about an internal transformation of agriculture rather than a transition away from it. A lot of freed up labor is a consequence of this transformation. As a result, the agricultural sector always remains primary.
This Is Often Forgotten: Go back to any time in the last 12,000 years and anyone you spoke to could quickly tell you that a major disruption or impairment of agricultural production meant his or her people were about to get savaged. A lot of the motivation for time keeping, calendars, and astronomical (or astrological) systems was to avoid the famine and disaster attending crop failures. The basic task of early states was to insure the security and stability of agricultural inputs and outputs. A good part of modern meteorology is a result of British efforts to predict the Indian monsoon. There is still some background understanding of this reality, that nothing is more important than the reliability, stability, and security of food production, but it is far hazier than it has ever been, especially in places like the US.
Less than 7% of the average American’s labor hours go to procuring food for him or herself. Elsewhere in the world 100% effort might still result in malnourishment or even starvation. US agriculture is singular and assuming it is the same other places is major impediment to understanding how other countries might or might not develop.
- US industrial agriculture is so efficient, with so much agricultural efficiency and abundance, that the permanent functional primacy of the primary sector is forgotten. Vast, efficient agricultural production is taken for granted. From a pure calorie output perspective this is actually pretty reasonable. The continental US has never experienced a famine. It can produce substantially more food than its population requires. As a result people in the US have the freedom to care about things like sustainable, farm-to-table, ethical food production instead of more prosaic aspects of food production, such as: will we starve next year?
The Way Out of Subsistence: Meanwhile in places like India this remains crystal clear for all but the ideologically possessed. India has engaged in mass agriculture with a large population for thousands of years and experienced recurring famines for just as long. Parts of the subcontinent were often one bad monsoon or extended drought away from widespread undernourishment or famine. The transition away from this awful reality demands increased agricultural efficiency (as well as resilience). However, to not result in tragedy, this transition must maintain a careful balance between attempting to increase agricultural efficiency and maintain ongoing agricultural stability. Every Indian governments wants to increase agricultural efficiency, free up the labor force, and enhance the complexity and sophistication of its economy. At the same time all sane governments avoid deliberately introducing instability into the primary sector.
People are not the same when there is not enough food to eat. Few things are as sobering as reading first-hand accounts of famines and their effects on human psychology and behavior.[14]
Agricultural Stability Is A Matter of Life or Death: If something destabilizes the primary sector (at any point in a country’s development) then the entire socio-economic structure of a country will be reconfigured. National demography is necessarily altered until there is a match between calorie output and calorie intake. This can mean cities depopulate and people move back to the fields. It can mean that the population shrinks through starvation, emigration, or interpersonal violence. Somehow the scales of food and people get re-balanced. To make matters worse instability is already built into agriculture because it relies on so many natural inputs and demands precise geographic and climatic conditions. There are innumerable sources of potential instability such as water shortages, changing in seasonal winds, diseases, climatic shifts, labor shortages, input shortages, or any number of other events. Any of these by itself could easily result in disastrous problems for a country.
But Wealth, Power, and Growth is Enticing: Countries are nonetheless always demanding changes from their primary sector (whether this is explicit or not) since there can be no industrial development if everyone is in the fields. Sometimes disaster is avoided such as occurred in Britain. Britain’s industrial revolution would not have happened if it had had to provide for its new industrial workforce on its own agricultural surpluses. 17th and 18th century agricultural improvement lead to a population boom that by the 19th century required grain imports from the American Midwest to make it a reality. Other countries like China and the Soviet Union
enacted tragic agricultural ‘grand strategy’ policies that left millions dead. Even if it is incredibly inefficient, cumbersome, and limiting to industrial development, it is often disastrous to tinker around with the primary sector. Governments are almost always biting off way more than they can chew with such schemes. Truly mismanaged agriculture almost inevitably cause mass devastation and can wipe out whole populations.[15]
And Inefficient Agriculture Precludes All of The Above: A sufficiently inefficient primary sector means no sustainable development at all. Inefficient agriculture basically mandates something approximating a subsistence economy. It ties people down to the land rather than freeing them up to do various other productive things. Since agricultural output is immediately consumed no systemic or expansive value-added benefits accrue throughout the economy. Efficiencies in the primary sector determine the number of people that can be put to work doing anything else in the economy. It actively determines the scale and scope of the industrial and service sectors. This is not a just a matter of missed opportunities but accumulating costs and inefficiencies as well. Countries try to break their inefficient agricultural systems because they are a a cap on the overall developmental potential of a country.
A big part of the reason why the Ganges Plain is so heavily populated is because it is the only sizable lowland plain in the entire country.[16]
India’s Situation is Particularly Precarious: India has unique challenges as a result of its uniquely large, compacted yet at the same time extremely varied and heterogenous population. Nearly 1/3rd of India’s population lives in the Ganges plain. Today it is the densest population concentration anywhere in the history of the world. Low capital generation also gives it the highest density of poverty anywhere in the world. This makes it very fragile. The effects of widespread famine conditions in this region would be biblically terrible. Under no circumstances can Indian agriculture be allowed to fail. Government officials who take this perspective may not be mavericks supercharging development outcomes but they are definitely prudent officials avoiding disaster. No one said development was easy.
The Basics of Indian Agriculture
Probably the most important thing to remember from this answer is that a country’s agricultural system plays a huge role in determining the character of its development.
A good understanding of Indian agriculture goes a long way to understanding its development trajectory and prospects.
Indian agriculture is similar to Chinese agriculture in some important ways but also very different in others. I’ll put a link to my answer on Chinese agriculture at the end of this section for those who are interested in comparing the two.
Compare this map with the one above. India’s agriculture is concentrated in the Ganges, along the coasts, and up a few minor rivers. The rest occurs at high elevations.
Land to Population: India has 2.5% of global land and 17% of the world population. It has approximately 140 million hectares of cultivated land. This absolute number is second only to the United States’ total, however, in individual terms India only has .12 hectares per person, less than two-thirds the world per capita average. Modern India has the same challenge feeding its population as ancient India or ancient Chin had. Today it just appears as malnourishment rather than famine. 15% of India’s population, or around 200 million people, are undernourished. This is a quarter of the world population of hungry human beings. There are only 7 countries in the world with more total people. This enormous number is a direct result of various problems and inefficiencies in the agricultural system as well as a reflection of its natural limits.
A horrifying percentage of Indian children suffer from the effects of malnutrition. This has terrible and long-lasting effects.[17]
Quality and Extent of Agricultural Land: There is always some uncertainty about the exact amount of arable land in a country. This is especially true for a country as discontinuous as India. Regardless, conversations about ‘agricultural land’ quickly get out of hand. A lot of ‘agricultural land’ is incredibly marginal and requires substantial inputs and subsidies. It is much better to focus on high quality agricultural land. This is the land likely to have the best technical efficiency. It is the most naturally productive land and requires the least amount of inputs. It is the most sustainable from a comprehensive, energy, environmental, and economic perspective. The key fact to know is that all of India’s large, contiguous high quality land is concentrated in the Ganges Basin.
Agricultural Labor Force: India retains an enormous agricultural labor force. Around 50% of the Indian population is still involved in agriculture. In absolute terms India has over 600 million people, or twice the US population, involved in agricultural work. On a percentage basis the US had a similar farm labor share of its population in 1870. China currently has twice the proportion of its (at the moment) larger population available for non-agricultural labor. This means only 50% of the Indian labor force is available for non-agricultural work. Underneath this obvious statement lurks the reality of how limiting and inefficient the Indian farm labor force is. This is important because, as mentioned earlier, labor is the most important resource to free up. It doesn’t matter how much food you produce if it takes that many people to produce it.
- The goal is to get this farm labor percentage as low as possible without producing various negative externalities that destabilize the economy. This is easier said than done. There is more to it than just the balance between agricultural efficiency and stability. The capacity of the other sectors of the economy to absorb the new laborers is important. This means jobs but also education, health, housing, and every other type of good and service. Huge inflationary or deflationary price shifts are almost guaranteed and these produce development bottlenecks.
High Output: That being said, the good thing about Indian agriculture is that it does have high output (as it always has) in a number of agricultural products. With such an enormous agricultural workforce it would be crazy if it didn’t. It is important to realize that this is still a major feat in of itself. India may not be able to do it in an efficient manner but it has at least been able to meet the demand of its growing population for the last few decades. It feeds, by itself, a population that many in the middle of the 20th century thought would be impossible to feed. The ‘green revolution’ increased output on high quality agricultural land and expanded cultivation on previously marginal land. It let many countries, such as India and China, finally resolve the dilemma of agricultural efficiency and stability without immediate disaster. However, ‘immediate disaster’ is the operative phrase. As in China, increased agricultural output is almost entirely a result of increased agricultural inputs such as fertilizers. Extended use of these fertilizers has created a massive, destabilized agricultural system disproportionate to available systems and resources and very dangerous to long-term production.
(Purely For Fun) India is the largest producer of:
- spices
- pulses
- milk
- tea
- cashew
- jute
India has a north/west and south/east split in its cereal consumption and production patterns. This mirrors a similar, and very ancient, split in China between wheat and rice.
India is also the second largest producer of:
- Wheat
- Rice,
- Fruits
- Vegetables
- Sugarcane
- Cotton
- Oilseeds
Grain Self-Sufficiency: In particular, India has a very high cereal grain output. It produces around 280 million tons of food grains each year. A main reason for high Indian cereal output is the national policy goal of grain self-sufficiency. Indian calorie intake is very grain-heavy. Wheat and rice account for 78% of the food grains produced in India and close to 50% of calories. Like China India is simply too large for it to realistically depend on other countries to feed it. It also can’t fail to feed its population for all of the negative reasons outlined above. This requires policies to ensure that enough food gets produced. The answer has been to require grain production. This also ensures economic distortions, less efficient production, and a less flexible and dynamic sector on the whole. As with cash crops, which are seen as worth it to export in exchange for foreign capital, these trade-offs are seen to be worth it in exchange for high, local supplies of needed calories.
The Indian diet is still very grain-heavy. This makes self sufficiency in calories and population growth easier to handle but all bets are off if there are increases in meat consumption.
Inefficient Production: This high output in cereal grains is fed by mass cheap labor and a government focus on high, stable production of basic foodstuffs. Again, behind these high output numbers is a very inefficient production system. Indian yields in basic cereals are around half that of the USA or China. Its farm labor productivity is a third that of China’s and less than 1% that of the United States’.[18]A number of factors go into this inefficient system including: small and shrinking farms, declining land fertility, overuse of fertilizers, reliance on the monsoon, limited credit, poor farm income, lack of technology, lack of capital, lack of education, age of the farming workforce, and so on.[19]A few of these, those that impact future output potential and potential productivity gains, are worth going more in depth on.
Farm Structure: The number and size of farms is a major challenge for Indian agriculture. The number of farms in India has doubled from 1970 to today. At the same time India’s ~145 million farms have shrunk dramatically. 86% of Indian farms are less than 2 hectares. 67% are less than 1 hectare. On average they are half as big they were 50 years ago. This is a result of rural population growth and distributed land inheritance, so Indian farms will not be expanding any time soon. Indian private property rights are creating farms that promote even greater inefficiency, requiring more labor for less output. In the US these forces are pushing in the opposite direction, towards larger, more integrated farms. Permaculture enthusiasts will cringe but large, consolidated farms are a privilege afforded to very few countries. Over 80% of farms worldwide are less than 2ha.[20]Hundreds of millions of Indians would have no employment or income if Indian agriculture consisted of large land extensive, capital intensive, and technologically advanced farms.
India [21] and China both have problems with small farms. India’s problem, however, has been getting worse. Increasing farm number and decreasing farm size is the opposite of the US trend and far worse for India than large farms are for the United States.
India[22] also has less variability in farm size. China has more variability primarily as a result of the larger farms in the Northeast China Plain.
Political Economy of Farm Structure: A comprehensive economic analysis of optimal farm size across the entire range of countries (in terms of population size and development level) is tedious and not very illuminating. For India, and China, however, small or declining farm sizes are an obvious problem. A huge population with an enormous number of tiny farms implies a large agricultural labor population and limited scale efficiencies, hampering the broader economy. Private property rights and democratic processes also make farm size a major issue in Indian politics. Politicians are motivated to give the many extremely poor farmers (who are also voters) with little or no land some land, or greater subsidies or both, and to set limits on excess land acquisition by the wealthy. This helps manage political conflicts but does not aid Indian agriculture. Bigger farms are a key factor in achieving agricultural efficiencies.
Where To Find Agricultural Efficiencies: Many Americans really dislike modern agro-industry and for some good reasons. Disappearing family farms and the consolidation of agricultural land is seen as symptomatic of industrialization gone awry. Leaving that aside, what large farms allow for is the efficient deployment of land, capital, and technology. They are far more likely to have the capacity to deploy new technologies, update systems, and achieve newer and larger efficiencies. At the extreme, oligopolistic end of the spectrum this can turn into a bad thing but land size is something people and governments actually have a degree of control over. Many of the other factors resulting in agricultural efficiencies are natural factors that cannot be changed. India will find it hard to uncover many new efficiencies if it is moving in the direction of smaller farms.
This chart shows the technologies that lead to the astronomical output increases and labor hour decreases on American farms over the last 170 years. Unfortunately, India’s geography does not allow it to use these same technologies to anywhere near the same effect.
Hilly Land Means Small Farms: The biggest natural impediment to the consolidation of agriculture into large farms is the terrain. Very hilly land is incredibly hard to consolidate into large farms. It is not hard to do in a bureaucratic or legal sense, instead it usually just does not make economic sense. Very hilly land cannot make good use of mechanization. It does not gain the same sort of labor efficiencies as large farms on flat land. It also often does not have the best nutrient profiled due to its geological history. Therefore, even if the right transactions or authoritarian government interventions could impose this reality on India’s primary sector it would make little difference.
- India is in a bind with regards to its terrain. It has a lot of people in the flattest part of its land, the Ganges plain, where it might make the most sense to consolidate farms. This is the most naturally productive region (hence the high population) but the large population with property rights makes this exceedingly difficult to do. Of course even if the government had the power to impose consolidation, industry could not metabolize all the new workers.
Overloading the Land: Leave the Ganges Basin and a lot of Indian agriculture is confined to small micro-regions where the soil quality, water availability, and elevation work out to allow for some amount of agriculture. These regions are often not naturally contiguous. They require higher inputs and capital to sustain their high output. This in turn compromises their long term viability (this applies to the Ganges as well). To sustain output India, like China, has been injecting unsafe levels of chemical fertilizers into its land for many years. A good analogy for what is going on is a bodybuilder taking steroids. Both bodies and fields can only take so many injections over so long. There are optimal ratios that can be safe but incentives, ease of use, and the desire for quick gains quickly push things to unsafe levels. Government subsidization of, control over, and provision of nitrogen fertilizers has lead to a major imbalance in the nutrient ratios of major Indian agricultural areas. Beyond just fertilizers India is seeing a widespread, general decline in its water, soil, and land quality with very serious impacts for its agriculture, economy, and society.
India and China have taken the same route to feeding their populations. Greater yields come from greater fertilizer use. Correcting the externalities and imbalances of this method of production is basically impossible when over 1.3 billion mouths now rely on it.
Thirsty Dirty Farms: Water is the fundamental agricultural input and India has the largest freshwater demand of any country on earth. Over 90% of water use in India is used for agriculture,[23]compared to around 66% in China. Indian farms are only about 30% to 35% efficient in water usage[24]and over 50% of food grain land is irrigated. Everything but water availability is conspiring to push that number higher. 40% of cultivatable Indian land (and growing) lays in drought-prone regions.[25]On the whole Indian irrigation is a dirty, imprecise operation with wasteful water use mixing with actual waste. India is overusing and seriously polluting its surface water while also draining its groundwater. Depleting and polluting water resources will not only lead to declines in output and higher costs but serious water scarcity at all levels of society.
Return of the Monsoon: 70% to nearly 90% of India’s water comes from the monsoon so a short, weak, or mistimed monsoon has always meant a quick road to disaster. Unfortunately, the spatial distribution of the monsoon is becoming more erratic just as India is experiencing a growing reliance on the monsoon: 2019 was the second-driest pre-monsoon season in the last 60 years.[26]Already over 50% of India faces high to severe water stress, over 100 million people live in areas of poor water quality, 600 million people face acute water shortages, and over 200,000 people a year die from scarcity or poor quality water - and these problems are getting worse.[27]India’s distributed land ownership and inheritance, suboptimal terrain, weak governance, hotter and drier weather, and high calorie needs make it very hard to get ahead of any of these issues.
This is a global map of overall water risk. It is frightening to see that all of India is as bad as northern China.
Pollution and Scarcity at Ecological Scale: India, like China, has such a large population condensed into such a small piece of land that its ‘environmental’ problems are better thought of as ecological challenges. The causal factors, the damage, and the scale of what would be required to reverse the trends are all an order of magnitude greater (at least) than almost anywhere else. India’s widespread land degradation is the result of typical human activities such as over-cultivation, overgrazing, water mismanagement, urbanization, and deforestation as well as changing climatic factors. It comes in the form of desertification, salinization, micronutrient deficiencies, soil toxicities, macronutrient imbalances, eutrophication and a number of other growing ecological challenges across India. It is emblematic of an economy that is extremely resource inefficient while also resource constrained. This is important to keep in mind as we shift from talking about agriculture to the rest of the Indian economy.
Red indicates where road construction would benefit agricultural output (relative to environmental costs). Basically all of India would benefit. Why? Transportation infrastructure is weak and underfunded.
A Hard Ceiling For Indian Agriculture: India lacks enough flat, well-watered land with high quality soil and navigable rivers to support the number of people it is trying to support without adverse long term consequences. A huge amount of Indian agriculture is wasted or goes bad. Lack of navigable rivers means major costly infrastructure challenges everywhere. A large percentage of Indian agriculture is in a sub-optimal production, transportation, distribution, and storage situation. Many of the problems throughout the production and consumption system appear insoluble and are getting worse. These factors collude to usurp the potential for the region to pool together the capital, government capacity, national identity, natural agricultural efficiencies, and sustainable agricultural efficiencies needed to support the productive, durable transfer of another quarter of more of its population to other sectors of the economy.
From Agriculture to Industry: India remains an agricultural country. Over 15% percent of GDP comes from agriculture compared to the world average of 6.4%. Around 50% of the population still depends on agriculture for their livelihood (and this livelihood is not seeing the welfare or income benefits associated with modernity). At the time of Indian independence over 50% of GDP and over 70% of the population tied to agriculture. So there has been relative progress but everything is still high in absolute terms. While agriculture is the original dynamo powering industrialization, Indian agriculture, like Chinese agriculture, is a sputtering car belting out black smoke. Marginal labor efficiencies, an enormous population, low capital availability, and intractable geographic limitations make the Indian primary sector a very, very shaky foundation for any future growth miracle.
All talk of Indian development miracles will remain a fantasy unless and until substantial progress is made in its agriculture system. The problem is that the political economy of Indian agriculture makes everything very hard to change.
Going forward the primary government concern will likely be agricultural stability rather than the pursuit of transformative efficiencies.
(As promised, here’s my summary of Chinese agriculture for comparison.)
India has not been able to move the needle on fundamental agricultural metrics even in the context of the capital-rich, globalized world following the end of the Cold War. That was the ideal development window.
Industrialization and Investment
A Decentralized Subcontinent: The Indian subcontinent has always been ruled in a decentralized manner. Its geography divides the region into many localities with different ethnicities, religions, languages, and states. There were neither existential threats demanding unity nor any astounding economic and social benefits to be gained from attempting unification. It was largely infeasible for more than a few generations. The regions’s greatest centralizers were foreign powers such as the British or conquering Muslim armies. Every real Empire was also administered in a de facto decentralized manner. The Maratha Empire, the final Indian state prior to democratization, was in fact a Maratha Confederacy, institutionalizing the reality that had unfolded on the subcontinent over the preceding millennia. Where China is ruled by a historical pattern of consolidation and fragmentation, India exists on a foundation of division and decentralization. This has consequences for the shift from pure agrarian life to industrialized life.
The Pre-Industrial Pattern: Indian political history patterned out this way because the natural equilibrium between regional capital, labor, land, and state capacity lead to distributed localities and multiple differentiated identities. Again, going a bit deeper, the reason why this happened was because there was no natural infrastructure to link the region together. A land of highlands, jungles, deserts, small coastal plains, and limited water connectivity does not lead to an ‘out of many, one’-type situation. China had far more of an endogenous (even existential) reason to try to consolidate. Yet even there practical challenges made this far less of a successful process than most people seem to believe. Nonetheless, the valiant efforts at least gave China a much longer history of political centralization than India. China’s schemes to try and overcome the geographic hand it has been dealt, though in vain, are legendary. Indian state capacity, by contrast, is perennially weak.
The southeastern port city of Chennai is the coastal core of Indian industrial exports, housing up to 40% to 45% of Indian auto parts and automotive manufacturing industries.[28]As a result it has a higher metro GDP per capita than nearby, and more famous, Bangalore.
Industrializing the Pieces: This is all relevant because it helps explain the fragmentary process of industrialization in India. India has a heterogenous geography filled with numerous small localities, with limited connections, limited capital, limited communication capacity, and separate identities. It was never going to industrialize en mass on its own using its own resources. No history of centralized rule also means no ability to pool together capital and impose economies of scale where natural linkages are absent. It was not going to happen from the bottom-up or the top-down. As a result Indian industrialization is something that had to happen from the outside-in. The most likely pattern was always industrialized enclaves near coastal trading centers, the same ones initially colonized by Europeans such as Goa and Chennai. Pushing this throughout the whole of the Indian subcontinent is a far more challenging prospect. This is not a situation where the beginning of British rule annihilated the possibility of a widespread, local Indian industrial revolution. India was not on track for anything of the sort.
Administering Industrial Devastation: Industrialization obliterates the prior, prevailing modes of production. The advent of industrial processes in the British textile industry wrecked havoc on Indian local, homespun, handicraft, and cottage manufactures, most notably in textiles. Textiles were important for early industrialization because back then everything was made from natural, grown fibers such as wool, cotton, hemp, etc.. This made textiles the natural manufacturing step out of agriculture. The higher, more efficient agricultural output of an improving British primary sector combined with better tools, machines, and processes for manipulating natural fibers to yield a production and productivity explosion. This spiraled into systemic improvements in power, metallurgy, chemicals, back into agriculture and textiles, and throughout the rest of the economy. The Indian pre-industrial textile manufacturing system had no chance.[29]
Gandhi[30] wanted self-reliance in manufactures. When pre-industrial methods compete with industrial methods, however, the long term outcome is certain.
No De-Industrialization of the Non-Industrialized: We need to be very clear about one thing: India did not experience ‘de-industrialization’ before 1900. It was not industrialized in the first place. Early Indian manufacturing did not use industrial products or processes so it is more confusing than helpful to call it industrial. What happened to Indian manufacturing was a case of the economic and technical implications of the European and North American industrial revolutions annihilating non-industrial production processes all around the world. India got hit particularly hard because it had such a large, highly-traded textile industry. While this was a big blow to many Indian states, and particularly the one administering Bengal, a real industrial revolution in India would have done the exact same thing just to greater local benefit. The fact it happened due to the actions of foreign powers during a period of colonial rule drags it into charged conversations about colonization.
What It Takes: Real industrialization is a process of transferring and organizing former agricultural workers as they to shift to non-agricultural work on a mass scale. India began industrializing in a serious way only after WW2, once it got access to industrial agricultural inputs (to finally boost farm efficiency) and industrial work processes and technologies, such as interchangeable parts, assembly lines, sources of dense energy etc., to make other forms of efficient production possible. Nonetheless the ruin that occurs when industrialization knocks out prior industries and ‘frees’ up agricultural labor is very often more a problem than a positive. As a new non-agricultural mass society emerges the economy must produce enough new work as well as new, effective methods of organization to support it. This requires effective governance, whether centralized or decentralized.
One of the most complicated things to organize is where people live and act. Once people leave rural life they bring future generations with them and managing that growth is extraordinarily difficult.
India will be dealing with this challenge for a long time to come. Indian political economy is simply not set up to deal with it.
Two big reasons why:
1. Industrialization requires the thoughtful use of large amounts of capital, as well as the education and re-organization of a whole population’s behavior, over a long time horizon. This is not easy in the context of mass democracy mass and poverty. Spontaneous self-organization of mass industrial society was not in the cards for India: it had no true national markets and Indian political authorities had no practice in centralized administration nor in high-productivity decentralized organization and no other organizations could naturally reach the scale and profitability needed to direct these resources on their own. Indian political and economic organizing systems push it in the other direction.
2. Industrialization requires a reorganization of not just human activity but human space as well. Spatial reorganization comes about in the form of large cities layered on top of the old agricultural world. Applying industrial processes to the land creates multi-layered, interdependent systems providing for and enabling human activity in a very dense environment. Notably the patterning of these cities is often based on optimal pre-existing locations in the agricultural value chain, but before modern industrial transportation technologies cities were very small places, think a fifth the size of San Francisco, and well over 90% of every population lived in the fields. Managing hundreds of complex urban areas is more often that not beyond state capacity. No countries (besides China) has had to attempt it at anywhere near the scale necessary in India. If the urban environment cannot provide jobs or residences then a large informal economy and shantytowns around cities are only the most visible of many inevitable, negative results.
Without effective capital, labor, and land management policies India will become swamped by the diseconomies and dislocations of the agricultural transition rather than its possible benefits.
Managing this scale of spatial reorganization without central guidance or very compelling, strong, and capable local organizations is a permanent challenge.[31]
Limits to Indian Industrialization: Industrialization does not allow a country to surmount its basic economic geography even though it used to be sold that way, similar to how digitization processes are marketed today. Instead Industrialization demands more from every aspect of society, not less, and requires the country to come together (by building on top of industrial transportation and communication technologies)and achieve higher forms of integration while overcoming major growing pains. India’s poor economic geography, fragmented political geography, and diverse cultural and linguistic geography is a near hopeless challenge to widespread industrialization, let alone to a predominant service or knowledge economy. There is only one theoretical answer: investment. Investment in everything from literacy, education, healthcare, sanitation, medicine, legal systems, land ownership, to infrastructure and, well, everything else. Unfortunately, investment requires capital and India’s local stocks and flows of capital are limited. This is the same development Catch-22 mentioned earlier and the same one that has stymied so many countries from ever developing: almost invariably countries that need capital to develop are the same ones that don’t have it.
India needs larger systems than everywhere else but China. Trash is just one of the many pollutants and externalities that can choke and overwhelm urban areas, as well as air, water, and other types of land when they are inadequate.
Acquiring Necessary Capital: This truism lurks behind all development efforts of the post-WW2 era. It is also the reason why exports have served as the primary means of national industrial development for the big-name growth stories of the time period. Exports allow a country to receive reliable flows of foreign capital. Strange as it sounds humanitarian aid, development aid, and remittances work on the same principle. For India to acquire the external capital it needs to develop it has to extract it from consumers in capital-rich countries such as the United States (e.g. countries with naturally high capital as well as limited capital needs). Leaving aside any ideological aversions to this model of development, it is a crowded field. Every country with competent leadership is trying to develop this way if it has even a remote shot at it. Most fail. Success is a very intricate process of fostering an export-friendly environment, often one that receives serious FDI, while also over time developing diversified local competencies and self-sustaining economies. Doing all this while staying competitive, dealing with inflation/deflation, and piercing through developmental plateaus is as complicated and precarious as it sounds.
A Weak Export Machine: India has never adequately invested enough in its export sector to compete with the major players in this arena. It certainly did not do anything near what was required to compete during China’s heyday. Even today it is too little, too unfocused, too late. India is such a large country that it would need to dominate many export markets to accrue the high levels of necessary investment capital. Having an advantage in a few industries, particularly in some service industries, is not enough. India would need something of a similar caliber as China generate and sustain needed investment levels. That does not mean, however, that China’s rise drowned out any potential Indian growth machine. India simply did not have the right societal systems, the right sort of political-economic framework, to export, improve, compete, re-invest, re-tool, and re-develop the way other export-led economic development stories did.
Even more challenging is something like air pollution. The Ganges plain and Himalayas lower, trap and heat up pollutants. All ten of the most polluted cities in the world are in North India. [32]
Limited capital, limited state capacity, limited natural enablers, and multiple historical disadvantages make creating and sustaining robust levels of service/industrial work, organizing the evolving spatial and behavioral aspects of non-agricultural society, and directing it effectively towards the acquisition of necessary external capital beyond the ability of the Indian government or any other organizational systems present on the subcontinent.
As a country India is structured to manage chaos rather than to build higher and more effective forms of order.
India is not even one of the top 15 exporters in the world. Its top five exports are natural resources.[33]
Exporter Success and Failure: China’s long history of corralling capital and marshaling labor let it manage a complex capital-intensive and export-driven growth model for a very long time. Everything from landmasses to Chinese farmers were, and still are, unceremoniously removed to make way for government priorities. Japan, South Korea, Germany, Taiwan, Singapore, and Hong Kong all managed a similar delicate balance, albeit with less totalitarian means. Not so in India. In India no one is able to consistently pull together the needed levels of capital, labor, and land to address chronic deficiencies and develop new capacities. In 2020 the possibility of an Indian export and investment led growth model is long since past and was never really a possibility in the first place. Severe import dependence appeared before any export success. The country has far more capital and organizational needs just to develop its export sector, let alone a diversified economy, than it has local resources to accomplish the task. As a result, India has a declining export market share that has barely kept up with the declining growth in world exports.[34]
Infrastructure: Not industrializing through exports means India has never developed infrastructure comparable to other countries who relied on exports to succeed in global markets. Today India’s lack of quality infrastructure puts it at a massive disadvantage both relative to competitors and as a matter of internal development. Infrastructure is necessary to open up more of India to economic development, market growth, and greater economic interconnection. To the greatest extent possible, industrial infrastructure must make up for absent natural transportation infrastructure. However, most infrastructure development has been local and limited in ambition. Infrastructure bottlenecks choke the number of customers large Indian suppliers can reach at an affordable price, increasing costs across the board and further localizing and fragmenting different parts of the country. What this means is that as exporting industries continue to leave China they will not be moving to India. Or at least they will not be leaving for India on the scale the country would need. Growth won’t happen by accident and poor, costly infrastructure will be an increasing drag on local development as continues to lags behind increasing needs. The Indian infrastructure deficit is many trillions of dollars and growing.[35]
India needs infrastructure not just for exports and capital access. Whether symbolic or not, infrastructure is one of the few things that can better tie the country together.
Infrastructure Economics: Logistics account for up to 18% of Indian GDP[36]and India struggles to increase the efficiency, utility, and scale of basically every system in the country. It loses at least 2% of GDP a year to infrastructure deficiencies. Indian infrastructure does not do well in terms of quality, speed, reliability, efficiency, or cost. India has 1/20th the container traffic of China and a cost to export per TEU that is 75% greater than China’s. The ports are almost all government owned and run and in need of state support
.Indian road transport costs are 45% greater than rail costs yet 60% of Indian transport happens by road, compared to 30% in China or 36% in the US.[37]Its road system is huge on paper but 40% are unpaved rural roads, only 3% are highways and of these 75% are two lanes wide (one on each side).[38]A truck on an Indian highway covers less than 40% as much distance per day as a US truck.[39]The old, overburdened, and inefficient rail system is slow, half electrified, and 75% single track.[40]Freight costs are also inflated to make up for passenger subsidies. Meanwhile, the Indian power industry loses up to a quarter of all power generated during transmission and distribution and suffered the largest blackout in history.[41]
This is just a sample of basic, and growing, problems in energy and transportation systems that ripple throughout the economy and are likely to get worse without the necessary, but unaffordable, investment programs.
This is a pretty good representation of the transportation systems as a whole. It is also a reminder of how difficult it is to improve systems that already see very heavy use.
Systemic Inefficiency: All these sectors and more need serious capital and consistent investment. They are plagued by systemic inefficiencies. The Chinese answer to similar problems was the largest investment binge in world history administered by a relentless authoritarian state. Cheap labor, absolute control over land, markets flooded with credit, and very carefully controlled input production factors let China build up a growth machine. India doesn’t have this option. India lacks effective capital investment and technical management processes because its history was not defined by putting capital, labor, and expertise to work at scale and with speed. Its industry is dominated by large conglomerates, monopolies, oligopolies, and inefficient public companies without the right environmental pressures and incentives to becoming highly efficient and productive organizations. India is fighting a never ending battle against the decentralized ‘keep the peace’ legal, economic, and political mechanisms it has run for most of its history while envying the China-style mass capital expenditure campaigns its politicians lack the power to enact but see as emblematic of the caliber of effort necessary to overcome the investment gaps on the subcontinent.
Sustaining energy production on the subcontinent will be a major challenge as industrial, urban, and agricultural (irrigation) use grows.
An Unlikely Miracle: All of this is just an extended way of showing how the inefficiencies first seen in the primary sector appear throughout the rest of the Indian economy. They make it very hard for India to take advantage of the factors that contribute to growth miracles. India has a weak human capital equation, limited mechanisms to accrue large amounts of foreign capital, strained abilities to exploit the agricultural transition, issues re-investing precious capital into transformative projects, and major contradictions in how democratic politics and technical expertise play out in its development strategy. Anyone talking about an East Asian-style growth miracle in India is hoping for an actual miracle.
Trade, Security, and Capital Access
The World of Foreign Capital: India’s will never experience a growth miracle unless it can gain access to the capital needed to spur investments. As mentioned earlier the only way this can happen is through accessing external capital. Even then India has such a large population and its authorities have so little authority that just getting into the middle income levels on a per capita basis would be a major achievement. The population pressures that hamper China, in different ways and for different reasons, also impact India’s development. Having a lot of people makes many, many things difficult for a country. So long as India attempts to grow in a heavily capital constrained environment it should not get its hopes up for a major explosion in growth. The aperture will be even further narrowed as basic demographic changes in the capital-rich developed world make foreign capital even less available in the coming decade.
Today[42]more foreign direct investment goes to the developed world than to the developing world. In a shocking reversal for some the US now receives 2x China ’s inflows.
The Four Elements of a Growth Miracle: To summarize what we’ve gone over, there are four things needed for a growth miracle:
1. Favorable Demography: The country must be able to take advantage of demographic advantages.
2. Agricultural Transition: The economy must derive huge productivity and labor benefits from the agricultural transition.
3. Re-Investment: Government and industry must effectively re-invest new capital.
4. Stable Trade & Security Environment: A stable global trade regime ensures access to trade networks and international capital flows. A stable security environment limits the wars, mass refugee movements, and other destabilizing costs/problems associated with state breakdown or political conflict.
How India Fares on Demography: The most basic version of this simply means that a country filled with old, sick people will not develop. Young countries temporarily protected against the great costs associated with aging get a lot of work at a bargain price. There is no better example than China which had to pay little (in social terms) for the insane output of its 800 million period labor force during their prime years. While India has a young demography it doesn’t really have the best ability to martial this labor. It does not make effective use of its people. Education and gender stereotypes are a factor. Many of the country’s most educated citizens also leave the country or stay abroad once they have gained highly valuable technical skills. Finally the flip side of India’s young demography is its lack of mature workers. These established, competent, low debt, highly productive, high income workers are what feed the economy. India’s low numbers of them is another reason for the limited capital on the subcontinent and, when combined with underutilized youth, gives India a bad mark for this requirement.
On Agricultural Transition and Re-investment: We’ve already gone over in detail India why does not have what it needs in either of these categories.
Indian military expenditures are one of the top 5 in the world on an absolute basis. Again the huge US defense budget should not be used as a reference for what is or is not sustainable.
Security: The question of India’s security environment brings us back to where we started. The partition of the Indian subcontinent has always been a security problem. Just Bangladesh has a greater population than all of Germany’s neighbors, to give a relevant comparison to another historically conflict-prone zone where multiple nations share a single large agricultural zone. Bangladesh also has the highest population density in the world and over 50% of its population is a stone’s throw away from poverty, even before considering that it is among the most vulnerable parts of the world to any rise in sea levels. Pakistan is an obvious security threat. While the long term result of a conflict would be an Indian victory that does not mean the Indian economy would see high growth numbers before, during, or after.
Import Dependence: Beyond how local security situations might impact domestic or foreign investment, Indian growth is reliant on the free flow of all sorts of resources across the globe. Oil, gas, minerals, metals, electronics, and parts from all over the world are needed to keep everything in India running let alone growing. The more India develops the more it needs of all the things it doesn’t have.[43]The modern world creates conflicts over energy and other societal inputs that can be just as bad as the old battles over farmland. This insecurity can play out in political conflicts but more often than not it takes shape in crises and disasters on the balance of payments ledger.
Debts denominated in foreign currencies, trade imbalances in goods and services, growing development needs and goals, and unpredictable exchange rates are a famously volatile combination.
Monetary Management: Managing local and foreign currency levels amidst changing quantities and varieties of transactions is incredibly difficult and often especially so for large democracies. China has been able to avoid major currency problems with a very, very heavy government hand and high exports. Now that its current account is in the red this will not continue. The US, for all its import imbalances, has the global reserve currency. India has neither the global reserve currency, nor high exports, nor a technocratic or authoritarian government system. As a result India’s ability to effectively manage the monetary aspect of a growth miracle for over two decades is very unlikely. What is likely is that India would struggle to manage its growth, debt, currency, and trade portfolio. The recent demonetization attempt inspires little confidence and repeats of 1991 are not impossible.
Conclusion
India did not experience the same level of growth as China because it did not receive the same level of benefit from a demographic dividend, the agricultural transition, government re-investment, and a favorable international trade and security environment. The latter was an absolute revolution in Chinese history. India is also not going to see a convergence of those favorable factors in the coming years. Like China the country started out with too little capital and too many people to develop without also transfiguring the world in the process. Unlike China, however, neither government nor industry is able to organize the Indian people, land, and capital to highest advantage. India does not have the history of centralized administration needed to snowball any initial successes. Nothing on the horizon suggests this will change.
Indian politics are not becoming less fractious and governance systems don’t seem to be heading towards a happy medium of technical competence and democratic control. Many core societal systems such as agriculture, water use, power generation, transport infrastructure, air quality, and education are on a path to being swamped by the population pressures on the subcontinent. These systems are suffocating under the weight of the country’s needs rather than growing to meet them. There is simply not enough investment going on to maintain current levels of service let alone transform the country. A recent World Bank report[44]states that India needs at least 30 years of 8% or more growth just to get 50% of its population into the global middle class. This isn’t going to happen.
All that being said India is an amazing place. I recently dredged up this picture of me somewhere in Haryana province seven years ago. Thanks for reading!
Of course I also wouldn’t bemoan not developing like China.
The bills for attempting something that monumental eventually come due and they are almost inconceivable as the growth itself.
Hopefully this was interesting and informative. Let me know your thoughts in the comments!
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