Rainfall and India’s economic evolution

Sustainable agricultural economies needs about at least 400 millimeter of annual rainfall. However, India’s economy have difficulties to evolve to the next level.

To maintain an agricultural economy a region need about 400 millimeters of annual rain. In our previous article, we noted that people want to live where they can eat. The simple thinking goes; if you can’t eat, then everything else becomes secondary.

Rainfall is, therefore, the key to a successful agricultural economy. The most productive croplands are in India, eastern China, Europe, Russia and North America. The Green revolution, between the 1930s and the late 1960s, put the agricultural economy on steroids. This has had great effects on population- and economic growth. (Nevertheless, the population growth is slowing and soon reversing in some parts of the globe. This will put large economic strains in the affected regions due to the fact that capitalism assumes population growth and cheap labor. Additionally, when a larger portion of the population is 65+, there will be much harder to generate consumption-, investment- and export-led growth.)

In addition to providing water for crops, rainfall also forms rivers. Rivers makes it easier to move food and people around, which stimulates capital generation. India has had huge problems with this due to the fact that they have only a navigable river (the Ganges, see map below) and the river meets the ocean in Bangladesh. (Comparably, the length of navigability is about the same as Canada’s or Turkey’s.) Because the mouth of the river Ganges is in Bangladesh; it makes India somewhat dependent on its smaller neighbor. More examples of this dependence are the United States and Cuba (Mississippi river) or Russia and Ukraine (Dnieper river). The incentive is, therefore, to protect the ocean access to protect trade. The United States were prepared to go to nuclear war over this issue because Cuba had an outside patron. The constraints on Russia , with a pro-western government in Ukraine, have forced them to move positions around in eastern Ukraine and annex the Crimean peninsula. How far will New Delhi go? Only time will tell.

Prime Minister of India, Narendra Modi, have focused on manufacturing during his term in office with mixed to poor results. His idea was to boost manufacturing to 25% of GDP with his ‘Make in India’ project, however, there have been problems with land, labor and tax laws reforms that hinders progress. India has a federal system with a tradition of strong states, due to geography, that splits 1 billion people into groups with different languages, religion, ethnicity and caste. This has made India into several mini-countries that prioritize their own incentives and investments.

India has also tried to jump direct to a service economy, but this demands skilled labor and therefore education that needs capital that New Delhi doesn’t have too much of. The result is, therefore, still, after seven decades after independence a 50% workforce in the agricultural sector that gives about 18% of GDP. New Delhi’s economic challenge is, therefore, a large portion of unskilled labor and transportation costs due to the lack of navigable river. I believe that India needs to focus on low-end manufacturing in the coastal areas and in the Ganges river up to the head of navigation. The government needs to focus on railroad infrastructure in the interior together with fiber optic internet cables. A railroad is the cheapest alternative after rivers and the internet economy is by definition without transportation or transaction costs.

My forecast is that India will not change due to internal conflicts and a weak federal government. It is good news for the businesses that ‘makes it in India’ today. Yet, the economic growth will not reach double digits. Nevertheless, India’s net exports are growing and accounts for about a quarter of GDP. The incentive is, therefore, to secure the sea lanes in it’s near abroad by participating in naval exercises with the US and Japan. India has today a limited navy, however, if New Delhi show interest in its new friends maybe they will help you in the future. Only time will tell.