Social diversity & economic growth

Social and economic differences along communal and caste lines have led to a lopsided growth in India which favours the higher castes and fails to unlock the tremendous potential of labouring classes from communities that are discriminated against.

Published : Jan 01, 2020 07:00 IST

A Muslim fruit vendor near Charminar in Hyderabad, a file photograph. Muslims constitute the largest minority in India accounting for a 100-million-strong labour force.

A Muslim fruit vendor near Charminar in Hyderabad, a file photograph. Muslims constitute the largest minority in India accounting for a 100-million-strong labour force.

I ndia’s accelerated economic growth largely depends on the value added from the current and future generations of youthful labour force, and this is termed as the “demographic dividend” (DD). This segment of the population is also the dominant segment of the Indian consumer (middle) class. The DD gets generated only if appropriate human development investments are made accessible to all and the per capita value added of the individual labourer is enhanced. Given an opportunity, a larger share of the working-age population (15-64 years) as compared with the non-working population has the potential for a greater economic achievement. Having a favourable demographic age structure alone does not necessarily guarantee an economic boost for a country, and historically there are possibilities of missing this chance (Citation UNFPA\l 16393)1.

To obtain a demographic dividend strategic investment, decision-making in the areas of human development is required along with the creation of economic opportunities. A “dividend” is lost if a country’s young population is not educated, healthy and properly skilled. Quality public allocations and private investments favouring sectors that generate immediate and sustained human and economic gains are essential. Investing in the youth takes a long-term understanding of sustainability of the labour force and economy with the precondition of prudent use of new technology.

The Economic Survey 2016-172 predicted that India was likely to experience a peak in demographic dividend in the early 2020s. At a time when the world is ageing fast, the number of young Indians is rising. Is India ready to reap its demographic dividends? Is the young population equipped with the required education, health, skills and employment that are essential to generate demographic dividends? There are new reports about the redundancy of the youth labour in India (John Bluedorn 2019)3 and increase in unemployment rates to levels hitherto not seen in independent India. All these worries get compounded in a situation when the national gross domestic product (GDP) growth has spiralled down to about 4.5 per cent in 2019.

Against the backdrop of the demographic dividends, this article highlights the social constraints that favour certain communities over others and why it is so. The focus will be on Indian Muslims, the largest minority: just about 190 million people accounting for about a 100-million-strong labour force. The article discusses the latest data on education, employment, job contracts and poverty to highlight deep and wide differentials among India’s socio-religious communities.

Muslims constitute a young and youthful population with a relatively higher share in the under-15 age group. Can one sit back and allow this young Muslim population to be fed just on story after story of setbacks, impediments and despair? This, however, is not to suggest that there is no element of veracity in such stories. But, for how long should this single perspective be allowed to overwhelm the community? Is it possible to understand the situation differently? There is a need to dismantle many assumptions and notions that are hurting the country’s social and economic domains.

Educational Issues

The social group differences in enrolment and educational outcome measures are striking (Sachar Report 2006). Children from the Scheduled Castes (S.Cs), the Scheduled Tribes (S.Ts) and the Muslim community are far less likely to enrol in school and are slightly more likely than others to drop out. It is particularly worrisome to note that Muslim children are as disadvantaged as Dalit and Adivasi children, although little attention has been paid to religious background as a source of educational disadvantage. There is wide divergence in the three R’s (reading, writing, and arithmetic) by social and religious background—children from all the communities cited above lag behind. Not surprisingly, this educational deficiency is reflected in lower access to the modern sector and salaried jobs among these communities (Human Development in India, 2010)4.

It is startling to find tthat compared with their respective share in the 15-29 age group, the S.Cs, S.Ts and Muslims have proportionately higher illiteracy. Forty per cent of S.C. and S.T. labourers are illiterate compared with their 28 per cent share in the population. Similarly, almost one-fifth of all illiterate labourers are Muslims while the community’s share in the workforce is only 14.5 per cent.

The modern sector employs better educated and skilled personnel. Only 14 per cent of S.Cs and S.Ts and 7.5 per cent of the Muslim labour force is educated above the higher secondary level.

The “All Others” category, which mostly comprises upper-caste Hindus, has a share of 42 per cent in the group with education above the higher secondary level, which is almost double their share in the population (22 per cent). Accessibility to university level education is far too minuscule for the above-mentioned deprived communities. It is obvious the Central and State governments need to invest much more than what they do now to enhance access to higher-level learning for the S.Cs, S.Ts and Muslims and eliminate the growing political and social hurdles in accessing education. The disparity among the social groups not only adversely affects the Indian economy’s ability to reap the benefits of demographic dividends but it also enhances social inequity and disparity in income levels, which hurts social cohesiveness and leads to social instability.

Employment Issues

The case of Muslim employment and income vulnerability in the context of demographic dividends emerges from the fact that the community’s representation in traditional services and industry has been disproportionately high. Muslims in industrial employment are mostly engaged in unskilled manual labour and work as low-paid and temporary daily-wage earners. Historically, Muslims are not landed and therefore their share in agriculture is rather low. Most Muslims in agricultural employment are wage labourers.

Regardless of the sector, upper-caste Hindus and members of other minority religious communities have better access to salaried jobs than do Other Backward Classes (OBCs), Dalits, Adivasis, and Muslims (HD India, 2010)5. While Muslims are less landed historically, their share in modern services is the reflection of not only low levels of education but also reservation-based employment, which is highly discriminatory, almost eliminating the poorest Indian Muslims from quota benefits.

Employment Security

In a fast-growing economy, the type of job contracts highlights stability of paid employment and associated economic benefits. The data suggest that Muslims work under highly vulnerable situations; over 90 per cent undertake paid employment with no written contracts.

Members of the “All Other” category have the most secure jobs; over one third of the workforce from this category has written contracts, suggesting employment in the modern organised sector. The job vulnerability of members of S.C. and S.T. communities and OBCs is high. Most members of OBCs are farmers, often undertaking the most exploitative jobs and occupations.

Poverty Measures

Poverty rate distribution according to social religious groups is estimated for two time periods (2004-05 and 2011-12). Overall poverty has declined from 37.7 to 22 per cent, a drop of 15.7 percentage points. All groups show a decline in poverty over this period. However, the extent of poverty decline among S.Cs/S.Ts and Muslims, in particular, is below average at 19.9 and 18.2 percentage points respectively. Both deprived groups remain at the highest level of poverty. Poverty decline in the “All Others” category is low, but the absolute levels of poverty are also low: 16.7 per cent in the earlier period and only 9 per cent in 2011-12. This implies that about half of the population of high-caste Hindus living in poverty in 2004-05 escaped poverty by 2011-12. That is not true of other social groups such as S.Cs/S.Ts and Muslims. The respective poverty rates for the two periods are 53.8 and 43.6 in 2004-05, and 33.8 and 25.4 in 2011-12, which are on top of the poverty measures of all communities.

Labour Efficiency Quotient

It is useful to highlight one positive labour market trait of Indian Muslims. A unique set of data, which explains how and how much the Indian GDP will get affected if the Muslim labour force takes a hit, emerges from computation of the “labour efficiency quotient” (LEQ)6. Muslim labour, on an average, contributes higher value added to the GDP compared with other socio-religious categories (SRCs). In fact, at the lower levels of education, and even if they are illiterate, the relative (labour productivity, value added) contribution of Muslims to GDP is better than that of other communities, except the high castes and other minorities. The LEQ for higher levels is not computed owing to labour market imperfections and biases in the formal sector employment issues in India. There is a strong indication from data that access to higher education and skills for the Muslims in fact consistently contributes to GDP with greatest levels of efficiency. They are the most productive, although at very high levels of education they sustain high levels next only to the H-General (Hindu General) and the Other Minority categories.

India’s efforts to race towards a five-trillion-dollar economy to find a place in the league of the economically developed and politically mature countries of the world look somewhat premature. There is a lot of hype, mostly emerging from relatively consistent positive levels of growth rates during the last decade and a half. This happened partly because of low absolute levels to begin with (see the GDP growth trend line). The large population count is a basic multiplier that leads to grand GDP estimates, while the per capita income remains far too low. Real opulence occurs when the economy generates sustained consumer demand, enhances private consumption expenditure and promotes wide-ranging economic activities, spiralling up further growth. At best, the consumer-heroes of India are people of the middle and lower middle classes who must engage the market to meet their basic needs such as food, energy, transportation, education, health and technological essentials. While affordability and appropriate technology are still the issue, the relatively higher inflation will create an unexpected race to achieve affordable living. In the last two years or so (2018-19), India has seen a sharp economic spiral downward to levels not experienced in 20 years. Most estimates and projections suggest 4 to 4.5 per cent GDP growth rates; is this the return of the “Hindu Rate of Growth”?7

The Great Indian Downturn

India has been facing an unprecedented and rather long bout of slowdown since early 2018 and is moving towards a downturn in the economic growth. The economy grew at 4.5 per cent in the second quarter (July-September) of 2019 compared with the same quarter last year. This is the sixth consecutive quarter when India’s GDP has shrunk. One more quarter, which seems likely, of continued decline will make it the longest spell of decline in over two decades since the time quarterly GDP data started being computed in the country.

Broadly, the GDP has two components: government expenditure and private consumption expenditure. Private consumption, which has a weight of just about 60 per cent in the GDP, grew at 2.7 per cent during the third quarter of 2019, which is abnormally low. Often, government expenditure and the associated stimulus is considered a catalytic factor, facilitating growth, but this has its own limits. Only about 13 per cent of the entire GDP is what the government collects, owns and spends. The limitation of the government expenditure is also linked, besides the fiscal (current account) deficit issues, to the “debt to GDP” ratio, which is close to 70 per cent during mid 2019 and is likely to increase further in future.

Note also that one quarter of the annual national budget is spent as interest payment alone, and this is done by taking fresh loans from the national and international market. Growth revival, therefore, is possible only when private consumption grows, for example through reforms in agriculture, manufacturing, small business, human capital formation and global market integration.

Another dynamic in the economy is emerging from the social and ideological baggage that has sprung up since the Bharatiya Janata Party (BJP) assumed power, which has the potential to pull down and derail economic growth and social development prospects of India. India has come a long way by overcoming the drag of the “socialistic ideology”, since about 1985 (beginning of economic reforms), with the GDP growing to increasingly higher levels until now.

In fact, India was the only large economy that registered a growth rate higher than 6-7 per cent during 2016 and 2017. Yet, the economic mismanagement (demonetisation, goods and services tax, corporate tax and interest rate manipulations, large corporate bailouts and pegged currency exchange controls), coupled with the global downturn now accentuated by tariffs and irregularities in global trade, has depressed India’s GDP growth during 2018-19.

India’s higher rate of growth should have been sustained for a decade or more, but 2018 and 2019 have experienced an extreme downturn with a possibility of negative growth during 2020-21.

Adding fuel to the fire, so to speak, all over India there are now social tensions that will disturb production and supply chains, leaving indelible adverse marks on the GDP growth story. What then are the necessary economic and social conditions for India to register a sustained higher growth rate during the immediate to medium term?

Sources of growth stimulus

Three broad conditions are elaborated below that can help India rebound its economy from the lower-middle income trap and get back on track to its “five trillion-dollar” dream.

1. In the absence of limitations on augmenting private consumption expenditures and enhancing government expenditure, India will do well if it plans for cost-efficient and globally competitive exploitation of its vast human and natural resources. This can only happen when investible funds and appropriate (green) technologies become available. Both these inputs are available to India from abroad through the process of foreign direct investments (FDI) and foreign institutional investments (FII). Despite the government’s efforts to enhance foreign investments, new data suggest that FDI inflows have slowed down to a trickle, at $8 billion in the last nine months. This is the lowest FDI seen during comparative months since 2015. Further, despite improving its standing in “ease of doing business” indices, India has failed to attract international investors mostly due to “institutional” failures. Global investors are wary of unstable policies in banking, international financial flows8; legalities of business contracts; land and property acquisitions; and politically biased judicial pronouncements.

2. India’s relative advantage of having a youthful population, which will continue for at least another three decades, will help boost production and sustain growth. But it can only happen when this population is properly educated and skilled. Improving the human social capital in tandem with increased investments generates enhanced rates of return through increased productivity in essential sectors such as manufacturing, services and agriculture.

3. Last, but not the least, India must exhibit social cohesion and societal peace in the manner that inspires confidence in foreign investors and turns the country into the preferred destination for investments and technological inflows. This will assist the economy to progress through improved financial efficiency and reduced cost of production. Note that certain foolish and discriminatory financial policies of the national government and the central bank will constrain the remittances that are a dominant part of FDI, especially from Indian Muslims working in West Asian economies. Some of these economies can also consider retaliatory employment policies, pushing Hindu workers to return to India.

The Sociology of “Hindu First” Growth

The structure of modern labour supply in India is uniquely lopsided, favouring the high castes that are socially and economically better off. High-caste Hindus are disproportionately represented in organised-sector jobs, both in the government and private sectors, and in higher-level education. The system has kept away large proportions of S.Cs and S.Ts, Muslims and certain OBCs from the modern labour market. This situation needs to be transformed towards a more socially inclusive labour market, which amounts to a major paradigm shift.

India’s ultra-right-wing groups, which identify themselves as a form of social-civil society (which are often supported by the ruling party), fantasise about India as a Hindu state. Recent interferences by these groups have thrown off-gear the policy frameworks, legal and civic institutions regulating economic and social domains of millions of citizens. They can influence policy reversals in select States and even at the Centre, such as withdrawal of quota reservations to Muslims (it has happened in Maharashtra), banning the culling and consumption of livestock, altering personal laws of specific communities, and even stalling and reallocating budgetary programme funds meant for social and economic development of the minorities.

Many compelling legal cases with respect to police excesses and motivated political threats are being withdrawn. There are changes and revisions being made in school curriculums promoting right-wing Hindutva ideology. Unsubstantiated beliefs are used as citations and theories, to the dismay of modern thinkers and practitioners of reason and science. More recently, some States are exhibiting authoritarianism in confiscating properties of the members of the minority communities for having participated in the protests against the Citizenship (Amendment) Act. The present regime’s blatant majoritarianism and impositions of the “Hindu-first” ideology, notwithstanding India’s pluralist ethos, will have an adverse impact on the lives and liberties of ordinary Indians and their capacity to contribute to India’s GDP.

Labour-Market Interdependence

Establishing links between religion and levels of GDP across the nation is a taboo in India. Yet it is argued that the mutual interdependence of labour between Muslims and Hindus matters in India. The Muslim population of India will be around 190 million at the beginning of 2020; of this, just about one half, 95 million, are in the labour force. Note that most Muslim workers employed in self-employment, businesses, manufacturing, and manual labour—each will have work and employment-related contacts with at least one other Indian who is non-Muslim, mostly a Hindu. Therefore, any social, bureaucratic and politically motivated policy that affects the Muslim labour force will also affect their non-Muslim counterparts, at least doubling the impact to about 190 million workers all over India. This converts to about 32 per cent of the overall labour force and therefore affects the GDP directly to the tune of 32 per cent. The overall transformative reduction (say about 10 per cent decline in labour productivity) will amount to a huge decline (about 1 per cent) in the nation’s GDP, compounding the momentum of future growth retardation.

Global associations between religion and GDP

It is instructive, however, to learn that, unlike Christians, Muslims and Buddhists, who constitute much of the population of the globe and are spread around a large number of countries across continents; the Hindu religion is confined within the shores of India from three sides and the imposing Himalaya in the north. Note also that over 95 per cent of Hindus live in India and only small numbers in Nepal, Bangladesh and Pakistan; all these countries have registered low levels of per capita GDP of less than $2,000, India being on the top.

Over 61 per cent of the Buddhists, on the other hand, domicile in countries which have high levels of GDP including Japan, South Korea and China. Incidentally, it is a matter of historical fact that Buddhism emerged in the Indian subcontinent. Yet, only about 2 per cent of India’s population is Buddhist.

Similarly, practically Christians everywhere, except in Congo and Ethiopia (about 124 million out of 1.5 billion), live in countries with very high levels of per capita GDP, such as the United States and most European nations, Brazil, Mexico and Russia.

Over 55 per cent of Muslims live in countries that have relatively higher per capita GDP. Muslims are the most numerous in India, Pakistan and Bangladesh, countries with low GDP. This simple association between religion and GDP summarises the broad parameters of religiosity and culture and their influence on the economy. Hindu radical groups need to be better informed about this association.

Abusaleh Shariff was Member-Secretary of the Rajinder Sachar Committee, which was appointed by the Union government in 2005 to study the social, economic and educational condition of Muslims in India. He is now associated with the U.S.-India Policy Institute, Washington, D.C. The views expressed in this article are his own.

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