BackGrowthwallahs need to pause and reflect
The solutions to India’s growth problems require a more holistic approach
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Whether rightly or wrongly, there is a growing critique of India’s current development strategy: of a top-down, trickle-down theory that rides on an extraordinary growth momentum. They are disparate, but when the dots are connected they do present a coherent reminder that this strategy may not be the best and, worse, it is not sustainable.
To a large extent this critique has always been around. However, as a result of the strident manner in which the defenders of the growth-based development strategy have attacked the counter view, we have rarely got a chance to hear out the other side—it has also not helped that often the critique has been steeped in rhetoric, precluding the scope for a sustained dialogue.
Part of the problem so far has been that the defenders of the current strategy have framed the debate in the style of former US president George W. Bush: with us or against us. As a result, any criticism is construed as anti-growth. If someone raises concerns about environmental degradation, it is considered anti-growth. Similarly, raising concerns about the poor and thereby demanding greater government social sector spending is once again seen as frittering away precious resources that could have been deployed to pursue growth. Or, if evidence suggests that growth is not generating jobs and, hence, is not inclusive, it is once again perceived to be anti-growth. In short, it is a hegemony of the so-called growthwallahs (if one can cannibalize from Hindi).
The point is very simple. Nobody is less patriotic—neither those propounding pro-rapid growth or those arguing for a rejig. Both sides want to see the country grow and seek its legitimate spot in the global hierarchy.
The good news is that increasingly the issues that the critics have sought to highlight are getting traction internationally and, hence, the attention of multilateral institutions such as the International Labour Organization (ILO) and the World Bank. Given their third umpire status, the arguments are couched in reason and devoid of rhetoric and, hence, more acceptable.
The latest is the findings of the report of ILO, the Global Wage Report 2012-13, published by Mint on Friday. It revealed that, as in the rest of the world, India’s real wages fell 1% between 2008 and 2011, while labour productivity grew 7.6% in the same period. What is worrying is that, as Mint columnist and Jawaharlal Nehru University assistant professor Himanshu has pointed out, in the last 10 years the share of profits in value added in output has more than doubled compared with the share of wages. The essential surmise, shorn of jargon, is that the benefits of the country’s economic growth are being inequitably distributed among the two key factors of production—labour and capital.
Similarly, the World Development Report is devoted to what the World Bank believes is the new big problem: jobs.
It doesn’t mince words: “High unemployment and unmet job expectations among youth are the most immediate concerns. But in many developing countries, where farming and self-employment are prevalent and safety nets are modest are best, unemployment rates can be low. In these countries, growth is seldom jobless. Most of their poor work long hours, but simply cannot make ends meet," before concluding, “therefore, the number of jobs is not all that matters: jobs with high development payoffs are needed."
Once again, it is an issue that has already been flagged in India by the latest data on employment released by the National Sample Survey Office. It showed that between 2004-05 and 2009-10, when growth averaged nearly 9%, the economy added 200,000 jobs every year compared with an average of 12 million in the previous five years. However, when this vexing trend of jobless growth was raised it was met with a fierce reprimand from the establishment, both within and outside of government.
Taking the issue of jobs with the squeeze on real wages, it is obvious that inequality would be another key issue. In India so far, whenever the issue of inequality has been raised it has been promptly dismissed as an exaggeration or fear mongering. Yet anecdotally, all around us the stark inequalities are very visible. Over the last year, several institutions, including the World Bank and the Organisation for Economic Co-operation and Development (OECD), the think tank for the club of rich countries, have begun to take cognizance of this as a worldwide phenomenon.
An OECD study published last December found that all emerging markets, including India, were seeing an increasing trend in inequality. In the case of India, it disconcertingly observed that not only was spending on social sector programmes the lowest, the tax-to-gross domestic product ratio—a good measure for redistribution of wealth in the economy—was way below that of other emerging economies.
It should then be apparent that the concerns expressed about the nature of India’s growth process are legitimate. Instead of doing more of the same thing to revive growth, it may be worthwhile delving deeper into these concerns, especially when the Indian economy is undergoing a structural shift. All the more so as these issues also seem to be dogging other countries; the solutions for one country may stir up problems for another.
The political economy of this problem is that the solution requires a more holistic approach, whereby addressing inequality, environmental degradation, creating jobs and fighting poverty are part of a solution that is sustainable and keeps society cohesive; for example, liveable cities for all instead of exclusive preserves of gated communities.
It is time, therefore, the growthwallahs paused, reflected and joined forces with their critics.
Anil Padmanabhan is deputy managing editor of Mint and writes every week on the intersection of politics and economics. Comments are welcome at capitalcalculus@livemint.com
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