SPEAKING
FREELY India's paradox of
growth By Durgadas Roy
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India's
gross domestic product (GDP) is estimated to grow by 8
percent in 2003-4 - the highest since economic reform
began in 1991. Most research organizations have revised
their estimates of GDP growth upwards following a
turnaround in investment cycles, sustained buoyancy in
consumption demand and supportive macro fundamentals.
Emboldened, the government's Planning Commission now
expects to achieve its GDP growth target for the 10th
five-year plan (2002-2007).
Whether India can
sustain its growth rate is debatable, but what is
disturbing is that in the quest for higher GDP growth,
the Planning Commission has become increasingly
insensitive to the distribution aspect of growth. In the
new era where competitiveness is the key parameter, the
capacity and willingness to grow will decide the growth
pattern of the country's states. And this is exactly
what has happened.
India's prosperous states
have prospered further, while poor ones have become
poorer. The growth rates of the domestic product of
major states have witnessed wide fluctuation. It is a
truth universally acknowledged that growth for a single
year looks good when it is on a low base. To that
extent, advance estimates by the Central Statistical
Organization, suggesting a heady, fast-paced 8.1 percent
GDP growth for the current fiscal, need to be seen in
the right perspective.
However, the latest
figures do suggest not just a welcome turnaround in
agriculture, but a greatly encouraging trend in both
services and industry as well. The latest figure for
agriculture, an estimated 9.12 percent growth, needs to
be seen against an actual decline of as much as 5.2
percent in 2003. But growth drivers do seem to be more
widespread across sectors this time.
Apart from
buoyant farm output, there is sustained growth in such
high-income services as trade, hotels, transport and
communications. The handsome growth in commercial
services is doubly fortunate. For one, it is much more
sustainable. For another, it is much more growth
enhancing. The last time the economy notched 7 percent
growth, the massive hike in bureaucrats' pay and hence
the heightened contribution of the public administration
did shore up fiscal figures. Besides, the spurt in
credit off-take, the runaway growth in the Sensex index
and the primary market now back with a bang, should all
boost banking and broking services. So the sector as a
whole does seem headed for the fast lane, what with
telephone connections to continue to grow at
unheard-of-rates, and much better traffic growth in
ports, railways and by air.
It is good that
industrial growth seems to be gathering momentum as
well, after years of modest growth. It remains to be
seen if there is sustained pickup in investments. The
rise of capital goods output and the surge in imports do
suggest much improved investment demand. The bottom line
really is much improved investment rates for the economy
to traverse a new high-growth path. Year-end
stock-taking is invariably Janus-faced: whether the
focus is on the life of the individual or the state of
the economy. This time to look ahead is also the time to
look back.
But even this dualism can only
explain partly why opinion about the Indian economy will
remain somewhat divided as we head into the year 2005.
India is no doubt shining, as the buzz word goes these
days, but is it shining as brightly for all of its
billion-plus people? The economy is in the middle of a
great expansionary phase, but is this boom sustainable
over the medium term? On the positive side, the
macroeconomic climate has not looked better for years.
While concerns about the fiscal deficit remain, interest
rates have touched a new historic low, triggering a
consumer boom, but also a significant reduction in the
debt burden of corporates.
With a little helping
hand from the weather gods, the prospects of the farm
sector, too, have improved, raising hopes of more than 7
percent annual growth. But there are the downsides. For
one, the paradox of India's "jobless" growth. Over the
past few years, employment in India's organized sector,
public or private, has come to a virtual standstill,
causing millions of youth to join the jobless list every
year.
For another, there has been a secular
long-term decline in investment in agriculture, which
has resulted in stagnant farm output and falling
productivity. As a recent survey shows, India is today a
divided country, of prosperous cities and poor villages,
with a large and growing gap between consumption levels
in urban and rural areas. No economy can afford such
stark divides.
Modern growth processes leave
large segments of the population completely untouched.
Former World Bank president Robert McNamara estimated
that about 40 percent of the developing world's
population did not benefit at all from the economic
growth of the 1950s and 1960s. Even other studies of the
1960s did not support the hypothesis that economic
growth raises the share of income of the poorest
segments of the population. Irma Adelman and Cynthia
Taft Morris revealed in their studies that the poorest
60 percent group benefited only when there were
broad-based efforts to improve the economy's human
resources.
The policies of the state in these
countries should be oriented towards poverty
alleviation, employment generation, satisfying basic
needs of the people and reduction in income inequality.
Dr Amartya Sen has cautioned policy-makers that reform
must be person-related and driven by ethical goals.
While markets, GDP growth and technological change are
the focus of most reform, it is important to ensure that
reform advances the cause of life and freedom,
particularly of the deprived. Taking birth expectancy at
birth and the infant mortality rate as two basic
measures of the quality of life, Sen brought out some
features of the Chinese reform experience that are not
as bright as the rapid material progress that has caught
everyone's attention around the world.
Anyone
who looks at India's post-liberalization period must
admit that the country's employment growth rate, with a
rising population, only worsened the situation. Warning
bells have been sounded by the International Labor
Organization (ILO), which has pointed out that the
economic reform process initiated in the 1990s may not
have generated enough employment opportunities.
Employment growth has decelerated in the past five to
six years. According to ministry of labor data, for the
very first time, employment in the organized sector
actually fell in 2001-02. During 1990-96, employment in
the public sector increased by 0.58 percent per year,
but during 1996-2003, it has fallen steeply to a
negative 0.50 percent; and during 1990-96, employment in
the organized private sector increased by 1.56 percent
per year, but during 1996-2003, this growth rate
declined dramatically to just 0.11 percent per year.
Whenever a conflict between growth and
employment is unavoidable and optimization of one
results in a setback to the other, employment ought to
be given priority over output in India due to the
following reasons. First, the life of the unemployed,
particularly those belonging to the lower strata of
society, is very miserable. Keeping the pitiable
condition of the unemployed in view, the need for social
security measures for them is felt in all egalitarian
societies. However, there are no social security
arrangements for the unemployed in this country.
Unemployed persons in India either survive on the
support they sometimes get from other members of the
family or they fall back on their meager savings, if
any. Therefore, employment generation in Indian
conditions must receive overriding priority.
In
the past five years, even after taking into account the
"feel good" and shining of 2003-04, real GDP growth
would have averaged around 5.7 percent per year, as
compared to 6.7 percent per year during 1992-96. Perhaps
no single piece of economic data is awaited and examined
more eagerly than that on growth of real GDP. A host of
business houses, banks and international organizations
such as the World Bank and the International Monetary
Fund, not to speak of governmental agencies, report
quarterly appraisals of India's economic growth. These
reports are preceded and followed by guesstimates of
expected short-term prospects for GDP growth.
Traditional students of economics would find
this emphasis misplaced since they have been trained to
believe that economic growth should be assessed in the
longer term when both cyclical and seasonal effects on
GDP have been smoothened. Analysis of quarterly GDP
growth, they would argue, mixes up the role of seasonal,
cyclical and trend factors. The traditional theory of
economic growth concentrates exclusively on the long
term and emphasizes only trend factors. Such an analysis
would invariably lead to what might be called the
"paradox of growth".
Durgadas Roy was
a professor of economics at the State University of New
York and is now director, Indian Council for Economic
Research, India.
Speaking Freely is an
Asia Times Online feature that allows guest writers to
have their say. Please click hereif you
are interested in contributing.
