DELIVERING PROMISES
India Eclipsed
KK Srivastava, Consulting Editor, The IIPM Think Tank New Delhi 3/1/2011 1:35:31 AM
In 2011 we complete two decades of economic reforms. And the mid-year analysis of the finance ministry projects the growth rate to cross nine percent this fiscal, supported by the robust agricultural growth. India has indeed come a long way in terms of economic growth. This, however, at best calls for only a cheer and a half. Softer indicators — literacy, health, aspirations — all are registering good progress. This is a generation of relative abundance. Ignore the statement of Obama about India being an emerged economy; it was more loaded with public relations nuances. But ours is an emerging young nation with two third Indians being below 35 years of age. While the west faces a chilly demographic winter, we are on the cusp of a cheerful demographic spring.
What’s the Good News?
It is an India full of goodies — better consumption and lifestyle, spending power, opportunities, and the proclivity to splurge. The growth is spreading to smaller towns as well. The remix generation networks socially, yet continues to draw inspiration from Mother India — Ayurvedic massage in a premier spa and Paani Puri with Vodka in them. There is reason to be optimistic.
As a nation and a society, we are undergoing huge social and political change. New generation of young educated Indians are entering public life in every sphere — government, business, academic and media. These youngsters have grown up in a liberalised economic environment. They have seen information flows and communication channels multiply exponentially. In this brave new world, individuals have become zealous and protective of their individual rights. There is greater demand for openness, transparency, honesty of purpose, and accountability. Business has found the courage to fight back against the government as the media has collected its wits to expose the misdeeds of both the government and the business. Free markets for profit seem to have delivered, perhaps?
And Beyond the Smokescreen?
Well, poverty ratio has gone down. Poor, the value conscious bottom of the pyramid consumers, can be simultaneously converted into resilient and creative entrepreneurs so that they can fend for themselves with dignity. The argument is rather intoxicating. Alas, but, it is actually only a very romanticised view of poor and their poverty. 80 percent of Indian population has access to merely 20 percent of healthcare, 17 percent of Indian villages do not have even primary schooling facilities, 200 million people in India lack access to safe drinking water, and 33 percent Indians suffer from lack of sanitation. So while India has witnessed unprecedented economic growth since the mid–nineties of the previous century, it is trailing on essential social parameters of development. Inclusive growth remains elusive.
Addressing social issues will require mainstream intervention models that will need to be implemented on a gigantic scale. The key to inclusive growth and social cohesion is creating millions of productive jobs at adequate wage levels. Taking shelter behind vacuous figures like 9.4 percent labour force is unemployed in India is like living in a make believe world. The traditional Western notion of unemployment is of only limited use in India. The Govt. survey that reported 9.4 percent unemployment figure also tellingly reported that 436 out of 1000 persons were either only seasonally employed or in ad-hoc type of enterprises. Clearly the percent figure failed to capture intermittent unemployment and seasonality.
More Government, or Less?
The current phase of better economic performance is the appropriate time for the Government to put in place effective social protection measures. One of the positives of state led programs such as MGNREGS is their potential to serve as building blocks for a comprehensive social protection framework. A basic social protection floor, including monetary support for the unemployed and the low paid will be a critical state intervention to create fairer and better functioning labour markets.
Addressing social issues will thus require mainstream intervention models that need to be implemented on a large scale. Each year for the next three decades nearly 16 million will enter Indian labour force. But without a commensurate increase in education and training aimed at the acquisition of skills relevant to future job markets, Indian growth will not be inclusive. These potential job seekers will face a labour market where 94 percent of employment is in the low productivity informal sector.
Poor are actually vulnerable consumers who need social, regulatory, and legal mechanisms to protect themselves. By excessively emphasizing on micro enterprises perhaps the state is simply trying to abdicate its responsibility towards poverty eradication. While not for a moment advocating a return to the statist policies of the 60’s and 70’s, what we are suggesting is that the market has to be supplemented by conscious workings of the visible hand. An unaffected play of the market, as we witnessed recently, led to October 2008 like events.
Out of all the major roles normally assigned to the state — planning, producing, facilitating and regulating — the Government cannot afford to excuse itself from any of these. Indicative planning, public and merit goods production, support to market forces, and tighter (not slacker) regulating regime must remain the state preserve.
And Let the Market Forces Help
On the other hand, for inclusive growth the poor must be connected to the market through suitable infrastructure. Universal access to quality basic services — education, water, health, and sanitation — is essential to include all Indians in the growth story. In the past govt. and Non government organisations have contributed to formulating and implementing solutions to some of these issues. But due to many reasons, success has eluded them in significant measure. Why not tread an alternative path then?
For a continental size country like ours, inclusive growth is a good business opportunity actually. Private enterprises should serve under-penetrated markets with customised and cost effective solutions, leveraging the potential of untapped resources while enhancing social benefits. While the Government will be required to play a key role in broadening access to economic opportunities and build resilience of the most vulnerable against economic shocks, the market driven forces of growth should be able to access the social sector through marketisation of these activities.
The Government must also realize that India’s subsidy architecture promotes fiscal recklessness, waste, and corruption to a greater degree than it does social good. Redistributive disbursal of state largesse largely misdirects resources that are better spent on building schools, hospitals, irrigation, and the like. Social funding, which more than doubled between 2004-10, needs funding less through borrowing — which crowds out the private sector — and more through revenue efficiently mobilised. The less the Government hampers or presides over marketed economic activity, the more it can fulfil its real brief: delivering education, health, infrastructure, and equal opportunities. Else, the HDI score for India will remain depressingly low (119, currently), illiteracy at 30 percent and 77 percent of the population having per capita consumption of less than Rs. 20 per day.
Remember, India’s HDI value of 0.519 when adjusted for inequality becomes almost 30 percent lower. While you are having your caviar, throw some crumbs in my direction too, please!
Will our budgeting exercise ever tilt in this direction? Well the sense of sceptism is rather overbearing for this author.
(The views expressed in the write-up are personal and do not re?ect the official policy or position of the organization.)
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