Economic growth in India during 1950-2015: Nehruvian socialism to market capitalism

Comparisons of pre and postreform economic growth in India are widely researched in the literature. This paper adds to this literature, but with a sectoral growth accounting perspective. We compare the proximate sources of economic growth in India during the 1950-1980 periods, the so-called Nehruvian socialist regime, with that of the post-1980 period, which includes the pro-business reforms in the 1980s and more aggressive pro-market reforms in the 1990s. We document two important features of India's growth dynamics. First, the overriding importance of the services sector in India's growth is not new, but it has always been the case in independent India. However, there has been a major shift in the composition of service sector growth. While the socialist regime fostered more nonmarket services, including the government sector, the market services sector flourished in the market regime, in terms of labour productivity, TFP and economic growth. Second, the economic growth in the socialist period was substantially driven by capital accumulation, except in the nonmarket services, whereas the market regime sees a combination of both productivity and capital accumulation.