By Aparna Pande
This article appeared in Chowk on February 21, 2007
In 2005 the Asian Development Bank (ADB) had forecast that India could become the world’s third largest economy by 2015. For the last two years the IMF has praised the reforms of the Indian government and pointed out that the Indian economy was on a very strong footing. But the silver linings are not without a cloud.
Last week the Central Statistical Organization forecast a growth of 9.2% for the Indian economy in 2007. The manufacturing sector is expected to grow at 11.3% and the services sector at 11.2%. The Indian government is also focusing in a big way on building the infrastructure: the Golden Quadrilateral project and the renovation of the airports are some examples.
According to reports by global consulting firms like AT Kearney, India has already overtaken the United States as the second-best destination for foreign direct investment. In November 2005 the German auto giant BMW announced the initial investment of Rs1.1bn for the setting up of an assembly plant near Chennai and a sales subsidiary in Delhi. Michael Dell, founder and CEO of Dell Inc, personally inaugurated a new call center near Chandigarh in March 2005.
Indian companies have been able to not only compete with foreign firms at home but have also started venturing abroad. The recent successes of Tata Steel and Hindalco are examples. The protectionist state has also started moving back and adopting a more FDI-friendly approach. The recent successful bid of Vodafone for Essar is a good example.
Such good news should not blind us to persistent difficulties.
Out of a population of around 1.2 bn around 40% are under the age of 18. India thus boasts of a demographic dividend that can help its economic growth. Yet its child malnutrition rates place it on par with Burkina Faso and Bangladesh. According to the latest National Family Health Survey released last week nearly half of India’s children under the age of 3 are ‘clinically underweight.’ According to figures released by the UNICEF even Sudan fares better.
India’s GDP per capita at purchasing power parity rates is $3051 but more than 260 mn live on less than $1 a day. The services sector, which accounts for more than half the GDP employs only 1.3 mn out of a 400 mn workforce. 70% of India’s population lives in the countryside. Yet the agricultural sector has only grown at 2.7%.
Compounding this is the miniscule growth in employment of around only one percent. According to a former Planning Commission official this ‘jobless growth saga’ is reflected in the fact that the ‘trickle down’ approach is not working even when the economy is growing at 9.2% and not at the earlier ‘Hindu rate of growth’ of 3%.
For Jean Dreze, a leading economist this is “a measure of a completely lopsided pattern of growth in the country.”
The question to ask is whether economic growth has taken place at the expense of economic development.
Economic growth and economic development are not synonymous and one does not necessarily lead to the other. Economic growth is the increase in production or consumption of a nation or a region. Economic development means a sustainable increase in the overall quality of life and living standards, including per capita income, life expectancy, health and literacy.
The Indian model of economic expansion has been a more people-friendly model. This is because India relied on growth led by domestic market consumption and the services sector. The GINI index, which measures the income inequality on a scale of zero to 100, looks better for India than for many other countries. The index for India is 33 whereas that for China is 45 and for US 41.
For the last two years the IMF and the World Bank have been warning India about the dangers of inflation. The results are there for all to see in the soaring prices of vegetables, manufacturing products and daily commodities.
The Nehruvian ideal of Fabian socialism believed in both economic growth and economic development. Not having faith in the ‘trickle down’ approach trust was put in the state as the provider and overseer. Taken to an extreme this led to the ‘Inspector-license-quota-Raj’ of the 1970s-80s that ended up stifling entrepreneurship.
The unshackling of the Indian economy since the 1990s gave a boost to economic growth. The rising GDP and GDP per capita, the number of foreign-made cars on the streets, the massive growth in construction of housing complexes and malls all exemplify this.
Yet if allowed unchecked it is a skewed kind of growth. The government is investing in building highways and airports yet only 4% of its budget last year went for infrastructure in a country where one third of the population does not have all-weather roads.
Despite improvements in technology and a massive engineering talent in this country over half of the population does not have electricity connections and one third of power is still lost in transmission and distribution.
India boasts of numerous rivers, canals and dams yet agriculture is primarily rain-dependent. Also according to the World Bank and UN India is using its underground water twice as fast as it is being replenished. Rainwater harvesting is still in initial stages in India. This explains the rapidly growing drinking water problem and the sewage disposal crisis.
What the government needs to keep in mind is that without economic development economic growth will further compound the problems.
There is need for more labor-intensive growth which means more emphasis on the manufacturing and agricultural sectors than the service sector alone.
The Nehruvian model was to concentrate on building the universities and colleges as ‘centers of excellence.’ What is now needed is funding for elementary and secondary education so as to raise the literacy levels and have a more educated and literate population.
As Nobel Laureate Amartya Sen said in a public lecture recently, the solution is through government investment of the benefits of economic growth and the rising GDP in education, health care and other social sectors.
The aim of this article is not to say that the government has not done anything but to point out the need to combine economic growth and economic development.
This might be the time to recall Gandhiji’s Talisman. The founder of modern India said, “I will give you a talisman. Whenever you are in doubt or when the self becomes too much with you, apply the following test: Recall the face of the poorest and the weakes man whom you may have seen and ask yourself if the step you contemplate is going to be of any use to him. Will he gain anything by it? Will it restore him to a control over his own life and destiny? In other words, will it lead to Swaraj for the hungry and spiritually starving millions? Then you will find your doubts and your self melting away.”