Why is India so poor?

When I ask educated people in India why is the country poor, the response I receive is either we are such a large population or that we were ruled by an imperial power.  Both these answers are wrong.  Examine another Asian country, South Korea which gained it’s independence from an Imperialist power a year after India in 1948.

South Korea has also had to manage constant animosity with it's neighbour North Korea, as India has had to with Pakistan.

South Korea has a population density of 505/sq.km while India has 385/sq.km.  Which make South Korea 31% more populated then India in terms of land recourses.  India also has the world's second most cultivated farm land just behind the USA at about 1,535,063 sq.km where South Korea has 18,254 sq.km.  Which as a ratio to population gives India 1 sq.km per 788 people and South Korea 1 sq.km per 2,810 people, meaning India has about 350% more cultivated farm land per person.

In 1961 India had a GDP per capita of $121.70 a little more then South Korea’s $105.13.  However, in 2013 India’s GDP is just at $1,498.87 per capita while South Korea has boomed to $25,976.95.  That is a big difference. (see chart 1 below)

Why has India performed so badly?  One thing that India did and still does differently from South Korea is trade.  In 1960 total trade was 11% of GDP for India and 15% for South Korea.  India kept trade around 14% till 1990.  After the collapse of India's main trade partner the Soviet Union in 1991, India's trade eventually rose to 53% of GDP by 2013.  South Korea’s trade was around 55% of GDP through the 1970s to the 1990s and by 2013 it was at 103% of GDP. (see chart 2 below)

Prior to 1991, the Indian government policy was to close the economy.  The Indian Rupee could not be converted freely, while foreign imports were restricted by high tariffs and import licensing.  Central govenment planning controlled what sectors would receive investment as opposed to allowing markets to determine the flow of resources.  Business had to acquire licenses and approval to invest and develop. This could mean satisfying up to 80 agencies prior to approval of a licence and with the government deciding on what could be produced, price point, quantity and source of capital.

However in 1991, India's attempted protectionism and self sufficiency failed miserably, and the country was facing bankruptcy as a result of a balance of payment crisis.  India sought assistance from the IMF (International Monitory Fund).  In order to receive a bailout, India was forced by the IMF to make economic reforms.  India complied with the IMF's conditions to receive the bailout and trade tariffs were lowered, government monopolies were broken, private sector and competition found started to find some basic beginnings.

Yet the pace of reforms is painfully slow and 24 years on there are several barriers to trade, capital and business in the country.  It is embarrassing for a country like India with a population of 1.2 billion people that it’s largest trade partner in 2014 was the UAE with a population of 9 million.  Not that India should decrease it’s trade with the UAE, but it should seek to increase trade with larger partners like the EU, China and United States.

The paranoid control of trade, farming and foreign investment restrictions, have certainly contributed to India’s poverty.  Too much government control of businesses both at an international level and locally have deprived the Indian people of opportunities and a dignified standard of living.

It is a real shame that 40% of children under 5 in India suffer from malnutrition when we have so much farm land, especially when considering that India’s per capita arable land is roughly comparable to that of Italy or Germany.

This is the direct fault of constant poor leadership since the 1950s, and their total failure to understand and search for the best possible economic and agricultural policies for a developing nation.  Not just relying on polices that seduce an uneducated, uniformed and desperate majority in the short term. (I will cover Indian agricultural issues in a future article).

Instead of creating conditions which create more competition, modernisation, efficiency and opportunities, these failed leaders have been pushing over centralised paranoia and fear mongering protectionist garbage that has devastated India.

India got it's independence in 1947, but almost 70 years later our children are still slaves to hunger.  I hope that our people will finally get their economic freedom now.

 Chart 1: India vs South Korea: GDP per capita from 1960 to 2013.

Chart 1: India vs South Korea: GDP per capita from 1960 to 2013.

 Chart 2: India vs South Korea: Trade, sum of exports and imports of goods and services measured as a share of gross domestic product.

Chart 2: India vs South Korea: Trade, sum of exports and imports of goods and services measured as a share of gross domestic product.