Equity in Growth
The clichéd slogan of “inclusive” growth is taking a beating. We need a more credible story about “Incredible India”. The disempowered and the weak are being invited to the party when it is convenient to the host. But, they remain uninvited most of the time. It is not their party. The poor and the tribal population of India do not believe that they have been “included” in the feast of growth. While they have been politically included because of constitutional compulsions, they are excluded economically. Paradoxically, while the stated intent is to include them, the resultant outcome is to exclude them substantially.
A famous economist had once said, “The outstanding faults of the economic society in which we live are its failure to provide full employment and its arbitrary and inequitable distribution of wealth and incomes.”
That assertion rings so true even in today’s context. The economist who asserted this home truth was Lord Keynes. He said this way back in 1936.The economic policies that we have recently pursued have been designed to contain inflation and reduce fiscal deficits. They are not resulting in stronger growth or greater equality. We may blame Greece or Iceland for our woes, but, it is time to look inward and grasp the nettles of low growth and inequality.
We are a young nation. Large numbers of young people are coming into the job market every year. We brag about our demographic bulge. But we fail to thoughtfully plan to provide employment for them. The central focus of our economic policies is not full employment. We are justifiably worried about vegetables and fruits rotting in the farm in the absence of post-harvest infrastructure and an effective cold chain management. And yet, our intent to provide skills to people and near full employment is wilting on the vine.
The most perishable commodity in the world is a man-hour. If you have a young individual sitting idle without any work, the hours are wasted without any addition to the GDP. If we have widespread unemployment, the social environment will be one of despondency and depression. The unemployment rate of India is the highest among the BRIC countries. According the economic and financial indicators published by The Economist in the July 2 issue, China’s unemployment rate is 4.1 per cent, Brazil 5.8 per cent, Russia 5.4 per cent and India 9.8 per cent. If you wanted to spell BRICK correctly by including Korea, the unemployment rate in that country is only 3.2 per cent. Our youth expects much more from us than this dismal picture.
The prescription of a small government and low taxes can be harmful for a developing nation like India. We are lacking in infrastructure. We are underinvesting in education, vocational training, technology and healthcare. At the same time, we have millions of Indians who are unemployed or underemployed. Why are we not able to devise smart strategies that can bridge the two — deploy the unemployed people to productive use in construction of hard infrastructure like roads, ports, housing, power plants, dams and water reservoirs?
Can we not employ them for enhancing our social infrastructure?
The Nobel-prize winning economist Paul Krugman prescribes exactly this medicine in his new book, End This Depression Now! Krugman believes that the inability of the US economy to use productive human assets is not only causing immeasurable social misery, but also, resulting in huge losses in output and GDP. He says, “These aren’t paper losses like the wealth lost when the dot-com or housing bubble collapse. We are talking here about valuable products that could and should have been manufactured, but weren’t, wages and profits that could and should have been earned, but never materialised. And that’s $5 trillion or $7 trillion or may be even more that we will never get back.”
Why shall we not get it back? Because unutilised man-hours lost in unemployment never come back. They perish without a trace. That is more than a third of the US’ annual GDP of $15.09 trillion.
We have one big illusion in India: GDP growth is the best measure of progress. And we have one great delusion: wealth created will automatically trickle down to the bottom. Despite the impressive growth in GDP, India’s overall poverty, according to planning commission data, declined by 1.48 per cent a year in the five-year period to 2009-2010, compared with 0.8 per cent in the 10 years to 2004-05.
It is an improvement, but not enough. The 2009-10 numbers are based on a new poverty line defined by a per capita monthly consumption level using a formula prescribed by the Suresh Tendulkar Committee: Rs 672.80 in rural India and Rs 859.60 in urban India. At this pace, it will take more than two decades to eradicate extreme poverty.
Joseph Stiglitz, another Nobel-prize winner in economics, believes that the cocktail of low taxes and austerity can be lethal for a nation. We should do the opposite as Keynes had suggested. According to Stiglitz, “If the government simultaneously increases taxes and increases expenditure — so that the current deficit remains unchanged — the economy is stimulated.”
The biggest source of poverty is unemployment. The most perishable commodity is man-hours. India is at the cusp of a demographic advantage. Let us not squander it by taking our eyes off the issue of the right of young Indians to work. And, let us stop talking about inclusive growth. Let us focus on growth with equity and near full employment. If we focus on these two goals, we will radically alter the policies of ivory tower economists who are completely out of touch with Bharat that is not yet India.
(The writer is managing director of Deloitte Consulting, India. These are his personal views)