Falling behind and catching up: India's transition from a colonial economy

Abstract

AbstractIndia 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 rise of the textile trade with Europe. However, the fortunes of the traditional textile industry cannot explain the decline in the eighteenth century and stagnation in the nineteenth century as India integrated into the global economy of the British Empire. Inadequate investment in agriculture and consequent decline in yield per acre stalled economic growth. Modern industries emerged and grew relatively fast. The reversal began after independence. Policies of industrialization and a green revolution in agriculture increased productivity in agriculture and industry. However, India's growth in the closing decades of the twentieth century has been led by services. A concentration of human capital in the service sector has origins in colonial policy. Expenditure on education prioritized higher education, creating an advantage for the service sector. At the same time, the slow expansion of primary education lowered the accumulation of human capital and put India at a disadvantage in comparison with the fast‐growing economies of East Asia.