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Building blocks

india Updated: May 30, 2007 23:20 IST
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By If there is a single clear economic yardstick by which one might wish to characterise the first three years of the UPA government then it would have to be the consistent high growth trajectory that the Indian economy seems to have hit upon. The average growth rate of GDP in the past three years has been around 8.6 per cent, and there would seem to be no serious reason to fear that the growth rate one might achieve in the remaining two years is going to dip below the 8 per cent mark. And this for the reason that gross domestic savings rate in 2005-06 was 32.4 per cent of GDP, the gross domestic investment rate for the same year was 33.8 per cent, and with a capital output ratio of somewhere around 4, one is broadly talking of a growth potential of 8 per cent-plus in the foreseeable future.

For any observer of the Indian economy, this should be a matter of no small comfort. But one must immediately qualify this by noting that while growth is important, growth alone cannot be the end-all of any developmental process. There has to be proper distribution and it is here that the shortfall is discomforting. There are alternative ways of computing the poverty ratio, but in terms of a major one among them, the National Sample Survey (NSS) 61st round for the year 2004-05 reveals that the ratio at the national level is as high as 27.8 per cent. After nearly 60 years of our avowed commitment to planned economic development, why the number of the absolutely poor in India should be so staggeringly high must remain a conundrum for any serious social scientist.

The single most troubling aspect of our recent growth experience after the onset of the reform process in 1991 is the dismal picture on the employment front. Many have described this as the phenomenon of jobless growth. With an economy expanding at an unprecedented rate, obviously some jobs are clearly getting created. But most of these are not in the formal organised sector. We have a situation where the vast bulk of the jobs that are getting created are typically in the urban informal sector. There is a massive increase in the casualisation of the work force even as jobs in the formal sector are not increasing quite as fast, or even possibly shrinking in some sectors.

The official figures corroborate the above account. The number of unemployed as per the usual principal status has increased from about 9 million in 1993-94 to some 13.1 million as in 2004-05. The unemployment rate as a proportion of the labour force has increased during the same period from 2.6 to about 3.1 per cent. It hardly needs belabouring that increase in unemployment has a direct impact on poverty and destitution.

It is in this context that the National Rural Employment Guarantee Scheme (NREGS) assumes a very special importance. This seeks to improve the lives of the rural poor by providing one member from each of the country’s 150 million rural households to get at least 100 days of employment at minimum wages. This may possibly be the single most profound piece of pro-poor legislation that has been enacted in post-Independent India. But this initiative of the UPA has had more than its fair share of naysayers from its very conceptual stage.

More than a year and a quarter after the implementation of the scheme from February 2, 2006, it is by and large having to put up with unenthusiastic public administrators who are not accustomed to any kind of empathetic public dealing. Any firm conclusion would be unwarranted, but the scanty evidence that is now available suggests that in those pockets where the administration is responsive to the needs of the populace, the impact of NREGS seems to be encouraging.

The posture of the influential tribe of well-heeled economists has almost uniformly been against the NREGS. The usual argument is that this would be a huge fiscal waste. Most of the proponents of this view are those who routinely subscribe to what is known as the ‘Washington consensus’. A myth has been created that the NREGS is a ‘demand-driven’ scheme relating to water conservation, land development, drought-proofing, rural connectivity in terms of all-weather roads, etc. The implication is that if there is low demand for this scheme then the government would need to make that much less allocation. Why all these activities cannot be considered under supply side management with firm governmental action is not clear. But the latter would require government officials in the districts to actually engage in developmental work with active public participation, which may be asking for too much from a class of babus only interested in pleasing their superiors.

Returning to the growth experience, much of the impetus for growth has emerged from the high growth rate being experienced in the services and industry sectors, which grew at 11.2 per cent and 10 per cent respectively during 2006-07. These sectors now account for 54 and 27 per cent of GDP respectively. Agriculture, which accounted for about 60 per cent of GDP just after Independence, now accounts for only around 19 per cent. It has lately been growing only around 2.3 per cent per annum, while it continues to be the mainstay of more than 60 per cent of the country’s population.

This has obviously contributed to a substantial accentuation of inequalities of income. On the one hand, there are the young and upwardly mobile market-savvy graduates from leading business schools who command huge salaries and are idealised by the upper middle-class globalised India. On the other, there are the surging masses of the less fortunately placed in remote drought- prone areas and tribal belts who are unemployed for long periods and many of whom are led to Naxalism. While globalisation might have brought in rewards to several classes in, say, the top end IT and banking sectors, there are also the unfortunate farmers in Vidarbha and in remote parts of Andhra Pradesh who, unable to repay paltry loans, are led to committing suicide.

The killing fields of Kalinganagar and Nandigram have once again raised the question of the inevitable tensions between a brutal and insensitive State determined to push the agenda of industrialisation at the cost of the aspirations of common village folk. Powerful ministers in the upper echelons of the UPA government still do not tire of yearning for the growth rate of the Indian economy to be pushed to double digit figures regardless of its social consequences. This proclivity needs to be checked.

The great advantage of the 8-9 per cent growth rate that the economy already seems to have achieved is that the government can now afford to be responsive to the bottom rungs of the population. Indeed, this is the imperative of the present day. The Prime Minister has very rightly emphasised the need to make economic growth more socially inclusive and regionally balanced. If in order to achieve this we have to accept the growth rate going down a notch or two, we should have the good sense to accept it.

Pulin B Nayak teaches at the Delhi School of Economics