Wednesday, September 28, 2011

Mannish on India's Economic Performance from 1951 thorugh 1965

I highly recommend G. P. Mannish's very important article examining India's economic history from 1951 through 1965. Mannish goes behind the GDP numbers to see what was really happening in India's economy during the first three five-year plans after central planning was introduced by the newly independent Indian government. The article is entitled, "Central Economic Planning and India's Economic Performance, 1951-1965" and published in the most recent Independent Review.  The abstract reads as follows:
Many economists have hailed India’s economic performance under the country’s first three Five-Year Plans, a seeming exception to the rule that central economic planners do more harm than good. However, a close look at the neglected work of father and daughter economists B. R. Shenoy and Sudha Shenoy shows that despite impressive GDP growth, India under central planning suffered from both a stagnation in living standards and a massive malinvestment of resources in heavy industry.

As the abstract implies Mannish shows that, despite impressive looking aggregate statistics, living standards were stagnate. This was primarly due to massive malinvestment on the part of the central planners who wanted to grow via industrialization. Traditionally, India was a highly agrarian economy. The Indian state engaged in three five-year plans to forcibly industrialize the economy. Government planners then channeled investment so as to produce many more of many kinds of capital goods than needed.

The result was a huge amount of industrial over-capacity. There was 65% capacity utilization in capital goods industries in general. Only 27% capacity utilization in the heavy electrical equipment industry, and a measly 16% capacity utilization in mining machinery. Massive quantities of scarce factors of production were squandered producing capital goods that were unneeded and unused. In other words, they were wasted. The consequence of this forced industrialization was a stagnation in the standard of living. Mannish notes with some irony that, "the world’s largest agricultural nation, with nearly three-fourths of its vast population employed in agriculture, had to rely on food-grain imports to raise its level of food-grain availability per capita to minimal nutritional levels."

This paper is a triumph of economic history and well-deserved the Richard E. Fox Third Prize it won at the most recent Austrian Student Scholars Conference here at Grove City College.

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