Sustained growth in India since the 90s
According to the neo-classical theory, growth is only sustainable if it is driven by technological progress or productivity growth. Innovation and incentives to innovate are therefore essential. In order to increase incentives, some institutions and/or policies should be put in place. Firstly, well established property rights create incentives for innovation through increased returns mainly because investors can keep a bigger portion of the profit they make. Secondly, an effective education system increases efficiency of technologies and investment and reduces cost of skilled labour which in turn increases return of innovation. Thirdly, macroeconomic stability and consequent low interest rates encourage entrepreneurial behaviour. Another important factor is the access to credit and a sound financial market, which makes it easier to borrow money for projects. Lastly, higher competition among incumbent firms and higher entry threat will encourage innovations by incumbent firms close to the technological frontier. In what follows, we try to provide an answer to why the "take-off growth" in the 80s is not considered as sustainable and what the factors of the sustained growth in the 90s m
Although the liberalization reforms in the 80s contributed to a long-run productivity growth, it is argued that the accelerating growth of the 80s was not sustainable, mainly because the government boosted demand through domestic expenditures (Panagariya, 2004). These were financed through internal and external borrowing, wich worsened the balance of payments and increased government debt to gdp ratio, eventually leading to the crisis of June 1991. A quick look at the data tells us that economic growth in the '80s was not just more fragile than the '90s but also showed higher variance and lower average growth. Moreover, the highest growth during