Originally Published 2011-02-19 00:00:00 Published on Feb 19, 2011
Twenty years after the launch of economic reforms, India has visibly changed. But the 'common man' is still confused and struggling even though most people in the low income group can afford a TV, mobile phone, scooter and even a room or two in a poor residential area.
Two decades of celebrating inequity
Twenty years after the launch of economic reforms, India has visibly changed. Today New Delhi and Mumbai claim to the status of "global cities", but it is the rich of India who seem to be enjoying the benefits most. There are 52 dollar billionaires and more than 100,000 dollar millionaires. A number of swanky malls in big cities have global lifestyle products and huge imported cars are plying the streets. Like in the US, India's inequality seems to be widening and reforms have brought unprecedented opportunities, income and wealth to people with higher education, capital, connections and nurtured talent.

But the 'common man' is still confused and struggling even though most people in the low income group can afford a TV, mobile phone, scooter and even a room or two in a poor residential area; all this does not necessarily signify upward mobility. There are still 93 million people in slums and 128 million have no access to clean water. The barriers to entry to high paying jobs and lucrative business are lack of skills, higher education and access to capital.

The huge middle class population, which is almost touching 300 million, is on the other hand enjoying more comforts than before and many can afford to buy branded goods. In sheer numbers India offers a big market to all global luxury brands.

For the ordinary middle class person, the rise in food prices over the past three years has been bothersome but it has not impacted on his survival. For the poor, higher food prices have meant cutting down on essentials, which, sadly, includes children's education. There are now over 8 million children out of school. The impact of high inflation has been the hardest on the lower income groups especially in rural areas. According to a recent study, purchasing power has declined by about 50 per cent for the rural low income group compared to about 38 per cent for the urban high income group. In addition, a majority of the people in the lower income group are wage earners from the unorganised sector whose incomes are not compensated. It has led to the erosion of their real per capita incomes disproportionately.

Food inflation has been high despite the fact that monsoons have been better in the last two seasons. The reason for high food prices is structural and requires deep rooted solutions like serious efforts at increasing agricultural productivity and revamping the public distributional system.

In recent times, slack or inadequate governance has led to crores of rupees being defalcated and misspent in different government departments. The government has increasingly deregulated sectors but has done so without enforcing a supportive legal framework and without keeping strict vigilance on public servants. The inevitable outcome of reforms has been the loosening of control and increased reliance on the market. However, markets do not always deliver and the corporate sector also needs strict control as it can easily indulge in oligopolistic practices-with a few controlling production and prices, excessive profiteering and speculation. The big businesses are thriving today on incentives and with the help of exemptions doled out to them in every budget whereas small businesses are struggling to survive. Crony capitalism has become more entrenched than before and the nexus between politicians, business and journalists was exposed in the Radia tapes recently.

Over the past year, a series of scams reached a high pitch and though every emerging country faces corruption, India seems to be getting a disproportionate share. It hurts more when the there are 400 million people below the poverty line and when many deprived lives could have been changed if the money that is circulating in the underground was used for their benefit. According to experts, the amount of black money in circulation is around 50 per cent of the GDP and if we also take into account the money that is stashed abroad in Swiss Banks and other tax havens, it would be much more.

The report of an American think tank, Global Financial Integrity, suggests that since 1948 India has lost over $460 billion in illicit financial flows much of it through corruption. The report concluded that the problem would worsen as the economy grows and incomes become more unequal. Even Sonia Gandhi recently said that India's moral universe is shrinking but what is the government doing about it? Just to refresh one's memory there was the CWG scam of Rs 8,000 crore, IPL scam of Rs 1,200-1,500 crore, 2 G scam of Rs 1.75 lakh crore and LIC Housing Finance scam of Rs 1,000 crore, to name a few.

Rural and urban unemployment is also going to be a big problem in the future. The main avenue of absorbing semi skilled labour is getting choked as manufacturing growth is showing a declining trend. In December 2010, industrial growth was at 1.6 per cent with the manufacturing sector growing at barely 1 per cent and capital goods sector contracting by 13.7 per cent. It means that India is increasingly becoming a high input price and high output price economy. This cost escalation (including high interest rates) would limit capacity expansion and the rate of manufacturing growth would slow down further.

In any case, India has had jobless growth for many years because the organised sector, in order to retain flexibility of production and a competitive edge, has been using more capital intensive techniques rather than labour intensive ones. Jobs in the organised sector have for a long time been stagnant.

Finding jobs in rural areas is going to be the main problem in India in the future. It has contributed to the spread of Maoist insurgency because village youth, most of whom are semi literate, lack employability. With no job prospects and families to feed they have taken to violence and crime.

According to Labour Bureau statistics, 9.4 per cent of the Indian labour force is unemployed with a higher rate (10.1%) in rural areas which means that there are around 40-50 million unemployed in the country not counting those who are disguisedly unemployed. The job prospects of village and urban youth will not improve unless they can be given training in skills or higher education.

Punishing the corrupt and bringing the money back from the Swiss banks is something that could be done easily to win back people's confidence in the government. The other challenges are to tame inflation and to create jobs for rural youth. Otherwise the voices of millions of disgruntled and angry people will gather momentum. The benefits from economic reforms have to reach down to the common man and the government has to promote growth with equity.

(The writer is a Senior Fellow at Observer Research Foundation)
Courtesy: The Pioneer

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David Rusnok

David Rusnok

David Rusnok Researcher Strengthening National Climate Policy Implementation (SNAPFI) project DIW Germany

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