From Hindu Growth to Productivity Surge: The Mystery of the Indian Growth Transition,” Working Paper

This paper explores the causes of India’s productivity surge around 1980, more than a decade before serious economic reforms were initiated. Trade liberalization, expan-sionary demand, a favorable external environment, and improved agricultural per-formance did not play a role. We find evidence that the trigger may have been an attitudinal shift by the government in the early 1980s that, unlike the reforms of the 1990s, was probusiness rather than promarket in character, favoring the interests of existing businesses rather than new entrants or consumers. A relatively small shift elicited a large productivity response, because India was far away from its income-possibility frontier. Registered manufacturing, which had been built up in previous decades, played an important role in determining which states took advantage of the changed environment. [JEL O11, O47, O53] India’s economic performance during the first three decades after independencein 1947 was christened the “Hindu ” rate of growth, a term connoting a disap-pointing but not disastrous outcome and the acquiescence in the present that the religion supposedly imbues, because of its greater emphasis on the hereafter. This term is gradually lapsing into disuse thanks to India’s remarkable trans-formation during the past two decades. Since 1980, its per capita economic growth *Dani Rodrik is a professor at Harvard University, and Arvind Subramanian is in the IMF’s Researc