DP12581 Falling Behind and Catching up: India's Transition from a Colonial Economy

Author(s): Bishnupriya Gupta
Publication Date: January 2018
Keyword(s): colonial history, Long-run development, Service Sector led growth
JEL(s):
Programme Areas: Economic History
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12581

India fell behind during colonial rule. The absolute and relative decline of Indian GDP per capita with respect to Britain began before colonization and coincided with the rising textile trade with Europe in the 18th century. The decline of traditional industries was not the main driver Indian decline and stagnation. Inadequate investment in agriculture and consequent decline in yield per acre stalled economic growth. Modern industries emerged and grew relatively fast. The falling behind was reversed after independence. Policies of industrialization and a green revolution in agriculture increased productivity growth in agriculture and industry, but Indian growth has been led by services. A strong focus on higher education under colonial policy had created an advantage for the service sector, which today has a high concentration of human capital. However, the slow expansion in primary education was a disadvantage in comparison with the high growth East Asian economies.