Indian Economic Growth & Changes – MBA Finance
Indian Economic Growth & Changes – MBA Finance
Introduction
Economists excel at conceptualizing abstract economic models and applying them empirically. This also applies to growth models. The most basic interpretation of growth is that capital investment is what matters: more capital per worker means more output per worker, which is what economic growth is all about. This viewpoint underpinned the “Mahalanobis model,” which influenced Indian policymaking and implementation in the years following independence. The public sector had to lead the process of increasing investment, which was the key conceptual driver in putting the abstract ideas into practice. There is some agreement among economists that this approach was not optimal in a variety of policy dimensions, with evidence for sub optimality including high incremental capital-output ratios or, equivalently a low marginal productivity of capital.
Changes in human capital can be captured in growth accounting exercises to the extent that they are measured by educational attainment. However, human capital is a broad category that includes not only the skills of industrial and clerical workers, which may be peroxide by education levels, but also managerial skills. India has produced a well-known elite of managers, some of whom have demonstrated their abilities outside of the country, in premier US firms such as Alphabet (Google), Microsoft, MasterCard, and Pepsi, attracting the attention of Chinese policymakers in this regard.
Conclusion
Growth accounting by economists takes a different approach than Sen's econometric analysis, attempting to measure the contributions of labor, capital, and other inputs to output growth using national income accounts. In these calculations, the quality of inputs is adjusted so that labor input, for example, can account for education levels – what economists refer to as human capital. Total Factor Productivity (TFP) is the portion of output that cannot be explained by quality-adjusted inputs and is thought to reflect factors such as innovation and input efficiency.
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