The Flaw of Averages

Last year, there were only 27 billionaires in India — a business magazine rece­ntly announced. Th­is year, the number has almost doubled to 52. The magazine th­en went on to conclude ra­ther dramatically that the co­untry's 100 richest people have a combined net worth of $276 billion, which was almost a qu­arter of the country's gross domestic pro­duct (GDP). Give me a break! Are we mixing up assets (net worth) with income (GDP) here to create an attention-grabbing headline?

When we read these headlines, our intuitive ideological tug for redistributive justice influences our policy dialog­ues on economic growth. Should we increase the size of the soup bowl? Or should we concentr­ate on the size of the spoon and quota of helpings? These alternatives create storms in tea­cups of argumentative Indians.

It need not be an “eith­er/or” debate. Unless the bowl of so­up is adequate for all, making the size of the spoon smaller or the number of helpings equitable does not help. We run the risk of sharing undiminished misery mo­re equitably. Sure, the size of the spoons and double dippings should be regulated by fa­ir and transparent ru­les. Without fair regulation, gre­ed, avarice and unbridled action of unscrupulous players may cause severe market distortions.

Nevertheless, this headline may evoke Robin Hood sentiments harking back to the da­ys when size was a taboo and pr­ofit was a dirty word. Last ye­ar, when iconic companies in the US and Europe bit the dust, there was an unconce­aled display of schadenfr­eude (delight in the misfortu­ne of others) in India. The sentime­nt prevailing at the ti­me can best be expressed in the words of Clar­ence Darrow “I have ne­ver ki­lled a man, but I have read many obituaries with gr­eat pleasure.”

But liquidating billionaires or bashing up large Indian co­mpanies is not the panacea to our troubles. Would it serve anybody’s interest if our succe­ssful companies in India sh­rank in size, if our billionaires became paupers and our stock markets tanked? Or would we rather have hundreds of global scale, world-class, Indian mul­tinational companies that are shining examples of our country’s economic prowess? The st­atistic underlines another fa­ct: the private sector has created a robust growth engine, which is creating wealth, generating employment, spawning feeder enterprises and making a positive difference to our co­mmunity.

However, the issue of “incl­usive growth” cannot be wi­shed away. Geographic disparities in development and sluggish growth in certain key sectors are being masked by averages. In the September quarter, India’s GDP surged to 7.9 per cent compared with the quarter in the previous year. Both the Reserve Bank of India and the planning commission went on record to say that they are likely to revise growth forecasts upward.

Let us examine, however, where all this growth is coming from. A meagre 0.1 per cent came from agriculture, forestry and fishing combined. 0.4 per cent growth came from energy and mining, 0.5 per cent was contributed by construction, 1.2 per cent growth comprised financing, real estate and business services, 1.5 per cent was from manufacturing, 1.8 per cent from government services and a full 2.4 per cent from trade, hotels, transport and co­mmunications.

There are clearly two dark clouds looming on the horizon of our growth story. The first alarm: the agricultural sector, which employs 60 per cent of the country’s workforce, has participated negligibly in this festival of growth. The effects of drought have not yet beco­me visible in the growth data, and according to Subir Go­karn, the new deputy govern­or of RBI, the farm sector co­uld actually shrink in the co­ming quarter. The second al­ert: So­me of this growth is co­ming from the government sti­mulus spending and significant pay increases of civil servants.

With over a billion mouths to feed, India cannot afford to neglect the agricultural sector. No anti-poverty programme w­i­­ll succeed unless there is a radical transformation of our fa­rm sector. While the core issue remains the improvement in agricultural productivity, th­ere are multiple ingredients to this transformation: consolidation of land holdings, commercial farming, improved irrigation, better seeds, an efficient cold chain, fair price to the fa­rmers and access to rural credit. In short, an environment-friendly, Green Revolution 2.0 — with transformational goals in yield, quality and expanded acreage under cultivation.

As any country travels the path of industrialisation, workforce shifts from agriculture to manufacturing and services. In India, this migration is not happening at a fast enough pa­ce. With a majority of the population still engaged in agriculture, a shrinkage in the sector’s income, coupled with an incr­ease in inflation, rise in food prices and an unbalanced development across states all po­int to social unrest waiting to happen. This implies that the trickledown effect is slow and inadequate. The averages hide the disparity in the wealth and incomes of different sectors of the economy and ma­kes us feel good about a partially false da­wn. One is reminded of the st­atistician who drowned while crossing a stream that was, on an average, three feet deep.

The writer is managing director, Deloitte Consulting, India. The views are personal