Expert Speak India Matters
Published on Jan 22, 2019
As India becomes 5th biggest economy, need for focus on development rather than growth

Soon this year, the World Bank will be announcing the good news that India will be becoming the fifth biggest economy in the world, surpassing the Britain’s economy. So, there is no room for complacency. The Indian economy is vastly different from the UK’s. The UK is an advanced country and its per capita income is ($44,177) much higher than ours ($2134). Besides, they have social security which provides good quality health services to every citizen. In school education, the standard is high in free state schools and the quality of teaching is not vastly different from private schools. The housing for low income groups is supplied by the government and Council flats accommodate thousands living in British cities. The public transport system is also good and efficient, catering to the general public’s needs. On the whole, life in Britain is not comparable to India where there are still pockets of stark poverty (22 percent of the population or 270 million people are poor) and huge inequality of income and wealth permeates the economy. India is one of the most unequal countries in the world.

India’s rich can afford the lifestyle of British rich but for the average British citizen, life is smoother, regular, more predictable and overseen by an efficient city government. The cities and villages are relatively clean and the environment is safe without pollution.

Prime Minister Narendra Modi tried to address some of the problematic issues in a fast-growing emerging economy like India. He started Swachh Bharat to clean up India, trying to stop open defecation. But there was much inefficiency in the programme execution and though the outcome is quite impressive in terms of the number of new toilets built, it is not perfect in terms of making India completely free of open defecation. Cities and towns remain dirty with exposed garbage. Solid waste disposal is a huge problem in all urban areas. Similarly, the problem of air and water pollution is unsolved, making other achievements look small and insignificant as it is extremely hazardous for health.

Regarding guaranteeing livelihood to workers, minimum wages have not been enforced universally and the progress has been scattered across states. In rural areas, there has been a decline in wages. With around Rs 8059 (according to NABARD) as average monthly income of a rural household, it is extremely difficult for families to make two ends meet. They incur expenditure on food, education, health, farm inputs and pay off debt to the moneylenders from it.

The urban scene is different and the average informal sector worker earns around Rs 10,000 to Rs 15000 a month in a city like Delhi. But in the same city, some people wouldn’t hesitate to spend Rs 10,000 for a family dinner. Private company executives get hefty salaries, specially the higher echelons. True, they are more qualified and speak better English and have the right connections, but it is not enough to justify this kind of inequality. In advanced countries like the UK, there is not that much difference between the blue collared and white collared workers. The basic necessities can more or less be met by all. The more egalitarian the country the less are the differences between the rich and the poor.

Regarding jobs in the formal sector, the news has not been great. Most people in India seem to be self-employed, perhaps because jobs are difficult to get and retain. How these self-employed persons sustain themselves round the year is the moot question. There is an alarming news from the Centre for Monitoring Indian Economy that last year 11 million people lost their jobs and mostly in rural areas. Women were the main losers as they are less educated or skilled and are easy targets. In Britain, such people would be on dole and they can collect money from the state for being unemployed. In India, unemployed women have to go back being non-earners and it weakens their position in the household. People stop looking for jobs after sometime. That is why the participation in labour force is declining for both men and women. Unemployment as a result has been rising in India.

The World Bank’s forecast that India’s GDP growth for 2019 and 2020 will be at 7.5 percent is also controversial. It believes that India’s economy is robust and resilient and has the potential to deliver sustained growth. There are, however, many indicators that are showing contrary signals which may translate into slower growth than 7.5 percent. There are still problems in increasing private investment because of banks’ reluctance to lend easily. Private consumption is also not going to be as high as predicted because of lower agricultural incomes among farmers and the rural population, which is likely to reduce rural demand. The fall in food prices and lower inflation at 2.19 percent reflects continuing agricultural distress.

Government expenditure is going to be up for sure because of the various ways the government is trying to woo the voters before the forthcoming general elections, and the fiscal deficit is unlikely to be met. The Centre’s deficit April-November was Rs 7.17 trillion, breaching the target of Rs 6.24 trillion for FY 2018-19.

There is good news on fixed capital formation front which has risen to 12.5 percent from 10 percent in April-June quarter, but it is unlikely to boost GDP growth right away. Industrial and manufacturing growth are supposed to be higher but the latest Index of Industrial Production (IIP) for November 2018 has been only 2.19 percent which means it is substantially lower than the projected IIP growth. There is also problem of demand in the service sector and it is likely to bear the brunt of a global slowdown this year.

Despite our high rate of growth, unless we clean up our cities, have better quality of air and water and improve our education and healthcare system, it will take us many years to enter the ranks of advanced countries which provide pollution free environment, clean drinking water and round the clock power supply. So, a much more focussed approach to address the micro needs of the people is needed. The emphasis should be on development rather than on growth alone.

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