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