Friday, June 26, 2009

Growth, but still short of the Goals

Anniversaries are rarely the best occasions to make honest assessments. The spirit of the event can make you either indulge in celebration or sink into cynicism. There is, however, a strong case to make a broad evaluation of the Indian economic record since 1947 at this point of time.
The rapid pace of growth over the past four years, India being described as the new “poster boy” of the global economy, and the raucous celebration in the Indian (English) media, must compel us to ask one question. Can we at last see the “ending of poverty and ignorance and disease and inequality of opportunity,” which Jawaharlal Nehru placed as the agenda for the country exactly 60 years ago, on the midnight of August 14, 1947?
The nature of the question itself matters, since the headlines of the day — be they of India becoming the third largest economy in 2020 or of Indian corporates on the prowl overseas or, worst, of India adding the most number of new billionaires in the world — can make us forget what exactly the country set out to do on August 15, 1947: to provide all citizens a decent standard of living.
To begin at the end, any sober assessment of the Indian economy must conclude that we have, to borrow another of Nehru’s phrases from his midnight speech, only very partially “redeemed our pledge, not wholly or in full measure.”
Economic performance in 1950-2005, when compared to the first half of the 20th century (1900-1950) and if measured in very narrow terms, has been more than commendable: the per capita income hardly changed in the last half century of colonial rule, but it has grown by over 2 per cent a year since 1950. Any chosen indicator of the quality of life — education, life expectancy, housing, food consumption or any other measure — shows a substantial increase in independent India. That this has taken place even as the population has more than tripled over the past 60 years makes it an achievement that demands acknowledgement. Simultaneously, while at the time of Independence more than half of all Indians, perhaps even more, were living in starvation, only about a quarter of the population is now officially classified as poor.
Yet we know that what has been achieved has been far from enough. A number of other countries that embarked on the path of independent development around the same time or a little later — China is the most notable example, Malaysia and South Korea are two others — were able to achieve significantly more than India in providing economic opportunities, improving the quality of life, and making a dent in deprivation. It should be a matter of some shame for India that the number of people now living under the official poverty line — around 300 million — is not very much smaller than the total population of 360 million in 1951.
It is, of course, the received wisdom now to blame planning, the public sector, and state intervention for the failures in the first four decades of Independence. The list of errors, wrong turns, and failures on the path chosen were many, and progress in lifting India’s poor out of poverty certainly was excruciatingly slow. But to dismiss the era of planning (roughly 1951-1991) as the country’s “lost” decades is to offer a self-serving understanding of Indian economic growth. We cannot forget that there were strong economic and sound political reasons why Indian economic policy took the path it did. We cannot also overlook the fact that were it not for the foundations built during the era of planning, much of what has been realised after the early 1990s would not have been possible. In a sentence: If it were not for state guidance and investment, it would have been impossible in the new democracy for the backward, essentially agricultural economy with very low savings to turn, in a few decades, into a more diversified economy, with a degree of modern infrastructure, heavy industry, and technological capabilities.
Major failings
Two major failings of the planning era do need special mention, not the least because often they do not find place in critical appraisals. One was the half-hearted approach to land reform in rural India. This failure meant that the rural oligarchies remained in place, hampering both economic growth and social reform. The second was the indifference of both state and society towards illiteracy and the refusal to put in place a system of universal primary education. This can only be explained as callousness towards the citizens of the republic.
The economic performance in the more recent period has been remarkable. Over the past quarter century, India has been among the fastest growing economies in the world. And the record in the four years since 2003-04 has been exceptional. India’s savings and investment rates have crossed 30 per cent of the gross domestic product (GDP), a tripling of the 10+ per cent of the early 1950s. In foreign trade there is a new dynamism in both goods and more lately in services. The foreign exchange constraint that plagued the economy for decades has vanished and the problem now is the opposite, of coping with over-abundance. Where foreign companies were loath to invest in India, they are now falling over one another for “a piece of the India story.” (External resources still account for less than 10 per cent of investment, but their overwhelming influence on domestic money supply and the capital market now makes India very vulnerable to foreign investors.) On the ground we have had the remarkable achievements in the software and business process outsourcing sectors, the explosion in telecom services (though as yet still an urban phenomenon), and the growth of the pharmaceutical, engineering goods, and automotive industries.
Much of this reflects a new entrepreneurial dynamism in the private sector, which has made the most of a less deregulated environment. There is a negative side as well to this deregulation — a limited check on uncompetitive practices, the absence of comprehensive regulatory frameworks, the handing over of public sector spaces to private enterprise and a concomitant hollowing out of the public sector. But all that aside, the Indian economy is now in the midst of an investment boom.
The changes in the economy since 1991, and especially over the past decade, have made a major difference to the lives of a large number of people, not just to a thin sliver of the population. The opportunities that are available in certain sectors in urban India for work, enterprise and upward mobility are far greater than ever before. They are most visible in the IT and the “new” services (such as finance, tourism and retail trade) and are available to educated youth. But even these changes remain inadequate.
Even as we acknowledge the new dynamism of Indian enterprise brought about by deregulation, we cannot be blind to a larger and continuing failure. There is first the very slow pace of poverty reduction over 15 years of economic liberalisation. The official statistics tell us income poverty has been falling at a slower rate in the very years (1993-2005) during which GDP growth accelerated. So much for “India Shining.”
Public services
The second major failure has been the complete collapse over this very period of state provisioning of public services — in health care, school and university education, water supply, transportation, housing, and all manner of infrastructure services. The breakdown has hurt most the population that needs public services, since the well-off manage by turning to private providers.
The third and related failure is the inability of state and society to recognise and deal with the many sharp fissures that have either widened or appeared over the past 15 years.
We have historically been a highly unequal society. But the “non-inclusive” nature of the current phase of very rapid growth is worsening inequalities as never before. To list a few: There is the sharpening of the old divide between urban and rural India, with much of the rural population that is dependent on agriculture being increasingly left behind. There is the creation of a new geographical divide: the south, west and parts of the north are doing very well, while central, eastern and northeastern India (together home to the larger proportion of India’s poor) are not. There is the accentuation of the social divide with the Adivasis, in particular, being pushed over the edge as the valuable natural resources of their habitats are eyed by Indian and foreign corporates. There is the worsening of the divide within the urban centres themselves, with parts of cities becoming symbols of the new India, while the older areas are increasingly peopled by the marginalised.
No matter what the GDP growth rates say, India cannot possibly survive with an accentuation of such fissures. The unfortunate (perhaps inevitable) aspect of the current era is that even as the macro-economy is doing so well, those reaping the benefits are increasingly less concerned with the citizenry and worried only about appropriating larger gains. Witness the near opprobrium heaped on Prime Minister Manmohan Singh for mildly criticising the compensation chief executives give themselves. This is true of slogans like “aam aadmi” as well, brought out only at election time and forgotten soon after. If we forget what we set out to achieve in 1947 and focus only on “India Shining,” we will do so at our peril.
Dr. C. Rammanohar Reddy is Editor, Economic and Political Weekly, Mumbai

1 comment:

  1. First of all I'd like to thank you, Manishbhai, for starting this blog and moreover puting your efforts to keep it alive. keep it up.