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Prime Minister Narendra Modi recently, denounced attempts to link India's past economic slowdown with the Hindu faith, calling the “Hindu rate of growth” label a deliberate distortion.

What is meant by “Hindu Rate of Growth”?

• The phrase refers to India’s persistently low real GDP growth of about 3–4% per year from the 1950s to late 1970s, before growth accelerated in the 1980s and later reforms. It described long-run macroeconomic performance, not any religion-based economic model.
• Coined by: Economist Raj Krishna (Delhi School of Economics) in the late 1970s (often dated to 1978). He used it as a polemical device to highlight how India’s growth appeared stuck at a low, stable trend.

Key Characteristics of the Period

• Low & Persistent Growth: GDP hovered near 3.5–4%, while population growth ~2% kept per-capita income growth modest.
• Stability Across Shocks: Growth changed little despite wars, droughts, political shifts—suggesting a structural equilibrium.
• Licence–Permit–Quota Raj: Extensive industrial licensing, high tariffs, import substitution, and a dominant public sector curbed competition and productivity.
• State-Led Mixed Economy: Planning, public control of core sectors, and tight trade/FDI policies limited private dynamism.
• East Asia Contrast: Economies like South Korea and Taiwan grew 7–10%, underscoring India’s relative underperformance.

Was it “Cultural”?

Later scholarship clarified that “Hindu” was not a technical or religious category. It reflected Krishna’s rhetorical framing about the embeddedness of low growth across decades, not a claim about faith-based behavior. Contemporary debates have criticized the label as misleading or colonial in tone.

Growth Before and After

• Colonial Benchmark: Estimates place late colonial GDP growth near ~1%; early post-Independence growth rose to ~4% in the 1950s–early 1960s, indicating capacity building in heavy industry, power, transport, and basic chemicals.
• 1980s Acceleration (Pre-1991): Evidence shows growth rose to ~5.6–5.8% in the 1980s, before the 1991 liberalisation.
  • Attributed to within-system reforms: selective de-licensing, technology imports, export incentives, and fiscal/credit easing.
  • Scholars like Baldev Raj Nayar, Arvind Virmani, and Arvind Panagariya highlight the 1980s as a turning point.
• Post-1991: Broad liberalisation deepened competition, trade openness, and private investment, sustaining higher trend growth.

Policy Drivers of the Low-Growth Phase

• Import Substitution Industrialisation (ISI): Protected domestic industry but reduced export competitiveness.
• High Effective Protection & Quotas: Limited scale and innovation.
• Financial Repression: Directed credit and administered interest rates distorted capital allocation.
• Public Sector Dominance: Efficiency varied; crowding-out and soft budget constraints emerged.

What the Term Does Not Mean

• Not a religious doctrine or a formal macroeconomic theory.
• Not uniform stagnation: agriculture, services, and specific industries saw episodic gains; human capital and infrastructure bases expanded.