The news of India’s GDP growth slowing down to 5 per cent is already creating problems in stock markets. According to this fiscal year’s fourth quarter’s results, various sectors are slowing down and even though many experts think that the downturn is bottoming out and once again a high growth rate of 8 per cent can be attainable, there are various issues that need to be looked into. At this juncture, the RBI Governor’s recent cautious speech may be in the right direction. While the WPI inflation has come down to 4.8 per cent, the Consumer Price Index inflation is still high at 9.3 and food inflation is at 10.4 per cent.
The main problem seems to be the flagging demand, and even the robust automobile industry is facing a slowdown. Only the fast moving consumer goods (FMCG) industries seem to be doing better (soaps, toothpaste, etc) and the rest of the industries appeared to have registered rather meagre profits after tax (PAT) of 10.4 per cent and net sales growth of 7 per cent.
India is not alone in facing a slowdown. After all, the European Union is a big buyer from the Asian region and its massive unemployment is something which is dampening the demand for goods and services from the developing world. China too is facing a slowdown in GDP growth (it is not going to be double digit any more but around 8 per cent) but now it seems to care more about other problems than just pushing for higher GDP figures.
China has already had three decades of high double digit GDP growth and it has reduced the poverty level to 1 per cent of the population which is really remarkable. There is no absolute or abject poverty in China today, only relative poverty. In India, on the other hand, a higher GDP growth rate will help in faster poverty reduction because it still has a high poverty ratio of 26 per cent. India even now has millions of people below the poverty line - whichever way one calculates it.
What is most distressing about the latest set of data is the slowdown in agricultural growth to 1.4 per cent which is a dangerous sign because 52 per cent of the population still is dependent on agriculture. And 77 per cent of India’s poor live in rural areas. Thus, a higher agricultural growth is the most important criterion for poverty reduction.
For the first time, however, an increase in rural population in India has been less than the increase in urban population. It shows that migration from villages to towns has picked up. But migration brings with it some associated problems - slums coming up and human deprivation in urban spaces as well as problems in the villages where women have to look after farming and children.
Having visited China recently, I found that it is also facing a whole series of new problems related to rapid migration and the fast disappearance of arable land and farms. China has 20 per cent of the world’s population but only 7 per cent of the world’s arable land. It is facing severe problems in the quality of agricultural produce and safety of its agro-products. A lot of farms have problems with the soil due to too much pesticide use and irrigation with water that is released from chemical factories and mining areas. Such contaminated water is causing serious problems in the produce. Traces of heavy metal have been found in rice and other agricultural products. Also farmers are using arsenic to cure animals of certain diseases and these types of dangerous chemicals are transferred to humans through the consumption of their meat. All this is creating a lot of anxiety in China and there is a serious discourse on the subject everyday in the newspapers.
China is not so much interested in export-led growth anymore and it is more geared towards increasing domestic incomes and thereby the demand. Most importantly, they are aiming at balanced growth between its villages and the cities. China is very worried about migrants who are living often in cramped and inhuman conditions because this has led to a very unstable labour force.
Food security is a problem not only in India but in China also. Though Chairman Mao Zedong had wanted China to be self-sufficient in food, today China has to import huge quantities of soybean, corn and rice. Its own food exports which had been growing in the past are now facing a stumbling block in terms of anti- Chinese propaganda in the West. People are scared of eating food produced in China. Thus, China is facing a different kind of problem and many people think that the best way out is to focus on food safety and to import safer food for the Chinese population.
Migration is creating another set of problems in China which is related to the one child policy followed by the government during the last 30 years or so. The usually one (pampered) child leaves for the nearby town or city and settles down with his or her family and does not visit the elderly parents often. The parents who live by themselves in the village often feel lonely and depressed and this is leading to a high rate of suicides among the elderly. The Chinese government is very concerned about this and there are academic papers being written on how to control and stop this terrible human problem.
Though GDP growth in India may be less than China’s, there are not so many problems that the government is facing except perhaps the latest problem of accelerated insurgency by the Maoists. Like China, which is more interested in the distributional aspect of economic growth, India should also be worried about reducing the glaring inequality of incomes and balanced development between the rural and urban areas. If some areas are left totally underdeveloped and are also more or less ungoverned, there will be problems.
India like China will also face a depopulation problem in the countryside and congestion in the cities. China is trying various reforms so that the urban migrant Chinese get the same benefits as they got in the villages. India is far behind China in giving the poor complete social security coverage and so the first step is to have more effective poverty alleviation schemes so that all are under some safety net.
Thus, India Inc will recover sooner or later, but in the end it has to depend on the rural demand in a big way. Reforming rural India and agricultural production will actually contribute to India getting out of the trough of the slowdown quicker.
(The writer is a Senior Fellow at Observer Research Foundation, Delhi)
Courtesy : The Tribune, June 4, 2013
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