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Flip side of growth

Print edition : Mar 14, 2008 T+T-

The majority of Indians have been left out of the glorious growth of the economy as capitalism and the market function on the principle of exclusion.

MARCH, in India, is the month that glorifies growth. The trumpet is blown by the Finance Minister on the last day in February. Whatever else has happened or has not happened in the country, its economy has grown at a rate soon to reach two digits that few other countries in the world can claim certainly not those that used to say, not long ago, that poor countries, by definition, cannot achieve high rates of growth. And, says the Finance Minister, our fundamentals are sound, and those who manage them know how to keep them so. The Band of Globalisers joins in. Let the credit go to opening up, capital inflows, liberalisation and privatisation. The pundits too are there. The Indian economy has taken off into self-sustaining growth, they chant. From now on, it will be growth and more growth.

Comes economist S. Mahendra Dev playing a jarring note. There is a flip side, he says. With higher growth rate there is growing inequalities, too, which can be measured as precisely as the growth rate itself. He says that only some people have benefited from the high growth. Others, possibly the vast majority, have been left out, only to watch these few moving up the ladder.

Sure enough, the Indian economy has grown, but millions of people in India have been left untouched; some may have even been made worse off. So, do we celebrate or be warned? That is the issue.

First some facts that Dev puts forward poverty of the people, to begin with. Poverty eradication has been one of the most publicised policy objectives of independent India. In spite of the rapid growth of population, the proportion of people below the poverty line has been coming down over the decades. Growth of the economy, certainly, has been one of the factors responsible for it too, particularly the impressive increase in the production of foodgrains after the Green Revolution became widespread. The critical question, then, is whether faster growth (claimed to be the result of the economic reforms started in the early 1990s) has led to faster decline in the proportion of the population below the poverty line. Relying on published official data, Devs finding is: Poverty declined by 8.9 percentage points in the pre-reform period and 7.8 percentage points in the post-reform period. That is, Total poverty declined at a rate of 0.85 percentage points per annum in the pre-reform period while the corresponding figure for the post-reform period was 0.7.

In terms of absolute numbers, those below the poverty line declined from 324 million in 1993-94 to 315.5 million in 2004-05. But over a third of the population still remains in poverty in spite of growth rates that are claimed to be spectacular.

The per capita availability of foodgrains has increased only about 10 per cent in the 50-odd years since 1950. Ironically, in 2005, right at the zenith of the glorious era of high growth, it was only 422 grams a day, one of the lowest in recent years. The per capita availability of pulses, which was over 60 gm in the early 1950s, came down sharply to about 30 gm in the present decade. True, on the average the food basket today is more diversified than it was in the middle of the past century to include milk, eggs, fruits and the like, but averages can be terribly deceptive. The poor still depend largely on cereals, and these are less available and accessible to them.

The percentage of children affected by malnutrition declined steadily from 61.5 in 1975-79 to 47.7 in 2000-01, and yet almost half of the children in this land basking in high growth rate is malnourished. Add to it another fact: half of the women in the country and 70 per cent of the children suffer from anaemia.

Other indicators can be given to supplement this flip side of the growth story. Dev goes into several of them at the all-India level and the States, education and health in particular, as also the more comprehensive human development indices. Some international comparisons are also provided. The rate of decline in infant mortality was much higher in Bangladesh than in India during 1990 to 2004. Except Pakistan, other South Asian countries have done better than India in health indicators. Indeed, the rate of progress in health indicators is higher even in Nepal when compared to India.

There is more statistical information in this book on different aspects of the life of the people, gathered from different primary sources and from the studies of other scholars. Dev has processed them, presented them in tabular forms and provided detailed explanations. He delves into policy issues as well. The book serves as a ready reference on data pertaining to the past two decades as well. As inclusive growth has become the current slogan, Devs critical study deserves attention.

But why is it that high growth rates fail to be inclusive? There is a general and a specific answer to this question. The general one is that though growth rates are presented as numbers with every decimal considered to be significant, the fact is that growth is not just a number, but a combined index of many other numbers. For, what grows, after all, are the wide range of things produced in the country, from wheat and rice, pulses and oilseeds, milk and eggs, fruits and vegetables, cotton and jute, timber and rubber, just to pick a few from what usually get summed up as agricultural products. Then there are the bewildering variety of things produced that get clubbed together as manufactured goods. And so on.

The increase in the quantity of each of these produced in any given year over what was produced in the previous year is what goes to compile the much-tossed-about growth rate. That being the case, it must be obvious that the composition of the annual produce will have different impact on different sections of society. It is not difficult to infer who the beneficiaries will be if the output of paddy increases. Compare that with a list of beneficiaries of the increase in the production of fighter aircraft, and the differential impact of the composition of output on people will become fairly obvious.

To feature this general problem of the composition of what is produced in understanding the differential impact of growth rate on people, it is common to divide output into three broad groups: agriculture (and allied products), manufacturing (or industry), and services. A comparison of the outputs of these sectors (and their growth) along with the proportion of workforce engaged in them is one of the standard procedures to scan the single number that represents the economys growth rate. Dev points out that the share of agriculture and allied activities in gross domestic product (GDP) declined from over 57 per cent in 1950-51 to 25 per cent in 1999-2000 and to 20 per cent in 2004-05. The share of this sector in total workers, however, declined only from 76 per cent in the early period to around 57 in 2004-05 a clear signal of the lower productivity of those engaged in agriculture.

Combine it with the more disturbing fact that the growth rate of the agricultural sector has been coming down too. During the Seventh Plan period (1985-90), when the overall growth rate of GDP was 6 per cent, the agricultural sectors growth rate was 3.2 per cent. The corresponding figures during the Eighth Plan period (1992-97) were 6.7 per cent and 4.7 per cent. During the high growth period of the Tenth Plan (2002-07), the GDP growth rate moved up to 7.6 per cent, but the growth rate of agriculture came down to 2.3 per cent. These figures provide a crucial clue as to why large sections of the population do not get included in the economys commendable growth rate.

The second and more specific answer to the question why high growth rates do not become inclusive is related. The high growth regime since the early 1990s has been driven by the service sector. Its share in GDP now is well over 50 per cent (compared with agricultures 20 per cent) and its growth rates too tend to exceed the overall growth rates.

The service sector is an exceptionally heterogeneous one with wide variations in skills and earnings (all the way from the petty street vendors to the newsmaking corporate personnel, for instance). While the majority in the sector are low earners, there is a minority of exceptionally high earners. It is the latters earnings that inflate the share of the sector in GDP and correspondingly in growth rates. This segment also has a high propensity to generate others of its kind. For instance, highly paid executives give rise to equally highly paid auditors, lawyers, doctors and so on. Their productivity and contribution to GDP is what they earn! A self-generating high valued service sector thus forms a major component of self-sustaining growth with a built-in tendency to perpetuate, if not accentuate, inequalities.

In turn, it will raise questions of how quantities produced get valued (for growth is the index of values), the role of the market forces in this valuation process, the strength of resource power, especially its distribution that drives markets, the mandate of the state in a democratic set-up to ensure equitable growth and to protect the weak, and many more issues. This is not the place to go into them. However, it may be pointed out that the strengthening of the market forces and the corresponding tendency of the state to withdraw from its social roles, both of which are complementary aspects of the capitalist globalisation that we now experience, make it not easy to achieve inclusive growth because capitalism and the market under capitalism function on the basic principle of exclusion.