Charts 4, 5 and 6 capture the relative role of the three principal sectors to the processes of acceleration and deceleration during these different sub-periods. Over the last three decades, while the primary and secondary sectors registered a rise in the rate of growth between the 1970s and 1980s, that rate of growth has remained relatively constant in the 1990s when compared with the eighties. It is only the tertiary sector that has seen a continuous rise in growth rates. However, when the rates of growth during the quinquennia beginning 1986-87 are examined, there is a sharp deceleration in rates of growth in the primary and secondary sectors, till 1999-2000. However, the tertiary sector, which experienced a fall in rates of growth between the second half of the 1980s and the first half of the 1990s, registered an increase in rates of GDP growth in the second half of the nineties relative to the first, influenced no doubt by the expenditure entailed in the Pay Commission award. Thus, the 1990s liberalisation has not been accompanied by any new dynamism in the commodity-producing sectors of the economy.

Chart 4 >> Click to Enlarge

Chart 5 >> Click to Enlarge

Chart 6 >> Click to Enlarge
 
Finally, a look at the annual rates of change of GDP is revealing (Chart 7). While annual growth rates seem to have been much more volatile during the 1980s, there have been individual years of relatively high growth both at the beginning and the end of the 1980s. During the 1990s, however, annual rates of growth, which rose slowly but consistently from the trough of the 1991-92, up until 1996-97, have fallen since then and continue to do so currently. Thus the overall picture is one in which a transition to a higher "trend" rate in the 1980s has clearly lost steam during the 1990s, especially its latter half.

Chart 7 >> Click to Enlarge

The investment ratio
Chart 8 explores the role that investment rates have played in ensuring the transition to the "new" trend rate of the 1980s and 1990s. The rate of Gross Domestic Capital Formation (or its ratio to GDP at market prices), which remained at around 20 per cent till 1987-88, set itself on a rising trend subsequently, and touched a peak of 27 per cent in 1995-96, before declining to 25 per cent and remaining at that level. Thus the acceleration in rate of growth during the latter half of the 1980s occurred essentially because the investment rate which stood at around 20 per cent at the beginning of the 1980s rose to around 25 per cent by the end of that decade. As compared to this we find that during the 1990s, barring three years around the middle of the decade of the 1990s, the investment rate ruled at or well below its end-1980s level. Clearly there is a link between the investment rate and growth, as is to be expected, and the current slowdown is the result of slack investment demand in the economy. Not surprisingly, the capital goods sector is the worst affected by the recession being faced by industry.

Chart 8 >> Click to Enlarge
 
Thus what seems to matter for growth is the rate of investment in the economy, and the acceleration in growth starting from the 1980s was essentially the result of India's ability to sustain a higher rate of investment. After the agrarian and balance of payments crises of the mid-1960s, investment and economic growth in India was constrained by the twin dangers of inflation and balance of payments difficulties. Any effort ot step up investment and growth either spilt over on to the external payments front in the form of a higher trade and current account deficit, or ran up against supply-side bottlenecks in the agricultural sector leading to inflation. The government walked the tight-rope between these two constraints, by cutting back on its expenditures, especially its capital expenditures. Real public sector capital formation that was growing at the compound rate of 13 per cent during the first decade-and-a-half of planned development, grew at less than 5 per cent in the subsequent 15 years. Growth was he casualty.