Growth and inclusion

Growth and inclusion
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First Published: Wed, Feb 21 2007. 12 11 AM IST
Updated: Wed, Feb 21 2007. 12 11 AM IST
These days, India’s economic growth rate invariably elicits comparison with China, and with good reason.
This growth is more evenly spread across sectors. Until very recently, the spurt in India’s growth was driven by the service sector, particularly its unorganized segments such as transportation, personal and community services and trading. Since 2003-04, there has been a steady acceleration in industrial growth, particularly manufacturing.
Some raise caveats: such as the fact that the World Bank-IFC report on “Doing Business in 2007—How to Reform”, although characterizing India as the leading reformer in South Asia, still ranked it 134 out of the 175 countries surveyed; the stagnation in agriculture; and the ubiquitous infrastructure constraint.
Yet, GDP growth is only one of several indicators of human welfare. On several other indicators, the Indian economy’s performance has been lacklustre. I discuss three such areas: poverty, unemployment and malnutrition. A difficulty with discussing these factors is that statistics on them are gathered at best annually (through the National Sample Survey), with large samples being available only once every five or six years, whereas GDP figures are computed quarterly.
A recent research which I have been involved in, based on the latest household survey (60th Round of NSS for 2004) indicates that poverty fell only modestly between 1999-00 and 2004, although mean consumption grew significantly. In 2004, the national rural headcount ratio of poverty using the combined 30 and seven-day recall method was 20.6% , with substantial spatial variation—some areas of India still have a high incidence of poverty, in some cases in excess of 50%. Both interpersonal and inter-regional inequality rose sharply between 1999-00 and 2004. Persistent and increasingly concentrated rural poverty will reduce political consensus for the economic reforms that have made the acceleration in growth possible in the first place.
India’s performance in relation to unemployment has been disappointing. NSS data for 2004 indicate that unemployment, according to the current daily status, went up for both males and females in both rural and urban sectors from 1993-94 to 2004. In the rural (urban) sector, male unemployment went up from 5.6% to 9% (6.7% to 8.1%) and female unemployment from 5.6% to 9.3% (10.5% to 11.7%). Youth unemployment (15-29 years) was 10.5% in 2004 (ILO estimates). Surely this is a massive wastage of resources that India can ill afford.
The latest National Family Health Survey (2005-06) showed that almost a third of Indian children under three are underweight—one of the most reliable measures of child malnutrition. India’s share of malnourished children, already among the worst in the world, declined only marginally since the last national survey seven years ago, notwithstanding high GDP growth.
Much has been made of India’s demographic dividend—the high proportion of the population that is young. But for a country with nearly 40% of the population below 18, high child malnutrition could have serious implications including the stunting of mental and physical growth. The World Bank estimates that malnutrition in India led to productivity losses of $2.5 billion in 2005.
Inclusive growth has been associated with grassroots development schemes. While these schemes are well-meant, their limited efficacy, considerable wastage and inordinate capture by vested interests are well-known. Such schemes could obscure from view the primary viable means to attain inclusive growth—increasing the demand for unskilled and semi-skilled labour.
While the expansion of growth impulse from services to high-value-added manufacturing is welcome, this has largely increased the demand for skilled labour. With agriculture’s stagnation showing no signs of ending, growth of low-value-added manufacturing is critical to expanding demand for unskilled and semi-skilled labour. Sustained rapid economic growth in China and the tiger economies of Southeast Asia was accompanied by rapid expansion of employment in low-value-added manufacturing. This ensured better utilization of resources and political support for a programme of rapid liberalization and international integration.
After decades of high per capita GDP growth, the Chinese and Southeast Asian economies have high enough wages to enable India to assert its comparative advantage in low-value-added manufacturing. Else, countries such as Vietnam would be the natural beneficiaries.
Raghbendra Jha is professor and executive director of Australia South Asia Research Institute at Australian National University. Your comments are welcome at
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First Published: Wed, Feb 21 2007. 12 11 AM IST
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