People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 07

February 17, 2008



The India Story: Growth Without Equity

S D Naik

THE Indian economy in recent years has emerged as one of the fastest growing economies of the world. GDP growth during the Tenth Plan period (2002-07) averaged 7.6 percent with the growth rate accelerating to 9 percent in 2005-06 and 9.4 percent in 2006-07. What is more important, this higher growth rate has been achieved along with a significant improvement in macroeconomic stability.

However, it remains a matter of grave concern that the recent acceleration in GDP growth has not been accompanied by an equitable distribution of wealth and well-being. In other words, the higher growth in recent years has not been inclusive.

While the percentage of people living below the poverty line did come down over the past two decades, the incidence of poverty as measured by the head count ratio (HCR) declined at a slower rate of 0.7 percentage point per annum during 1994-2005, compared with 0.85 percentage points per annum during 1983-94.

Again, while India now has the second highest growth rate in the world, its rank in terms of human development index (a composite measure of life expectancy, adult literacy and standard of living), has slipped to 128 among 177 countries in 2007 from 126 in 2006 even as incomes of middle-class people have surged and the country's dollar billionaire ranking rose to No. 4 in 2007 from 8 in 2006.


The India Development Report 2008, the fifth in the series, released recently by the Indira Gandhi Institute of Development Research (IDIDR), Mumbai, is a valuable contribution to the ongoing debate on various issues and challenges facing the economy at this juncture.

It carries forward the debate initiated in IDR 2004-05 and analyses issues associated with sustaining high growth, achieving macroeconomic stability, quality and adequacy of higher education, employment, agrarian crisis, implications of globalisation, and so on.

The report, edited by the institute's former director, Dr R Radhakrishna, and published by Oxford University Press, looks at the current macroeconomic scene from both the growth and human development aspects and from the poverty perspective, and makes out a strong case for appropriate policies for making the growth process more inclusive.

In a comprehensive overview, Dr Radhakrishna and Mr S Chandrasekhar aptly conclude that the trickle-down process of growth has been weak, since growth is not located in sectors where labour is concentrated (for example, agriculture) and in states where poverty is concentrated (Bihar, Orissa, Madhya Pradesh and Uttar Pradesh). They point out that the present pattern of growth has the potential for widening inequality.

In his macroeconomic overview, Mr Manoj Panda says that while the percentage of population below the poverty line has fallen from 36 percent in 1993-94 to 27 per cent in 2004-05, the absolute number of total poor stood at 302 million in 2004-05 — accounting for a quarter of the poor in the world.

The obstacles that need to be addressed if a real dent is to be made on poverty include widespread malnutrition and illiteracy. For example, in 2004-05, about 40 percent of adults suffered from chronic energy deficiency, 35 percent of workers were illiterate, and 20 percent of workers were in the households below the poverty line, leading to low productivity of labour.

It may be noted here that India's record in poverty reduction pales before the achievements of China. The incidence of poverty in China declined by a staggering 45 percentage points in two decades --- from 53 percent in 1981 to 8 percent in 2001. In contrast, India could reduce poverty by a mere 17 percentage points in two decades. A detailed comparison of the achievements of the two countries is given by Mr C Veeramani.


The analysis in different chapters of the report brings out clearly that provision of gainful employment for all in the labour force is essential for reducing poverty and achieving inclusive growth. Accelerating productive employment is important because wage income is the main source of income for the poor.

While on the basis of rigorous econometric analysis, economist T N Srinivasan shows that there has been no slowdown in employment growth since 1993-94, he agrees that employment growth did not accelerate in consonance with GDP growth. Also, the quality of employment has deteriorated significantly with growing casualisation and underemployment. He sees barriers to accelerating employment growth in labour laws and regulations and suggests a reform of labour laws. In this context, the problem of low wage rates, particularly in laggard states, lack of employment opportunities in agriculture, increasing casualisation of employment, gender disparities in wage rates, and high levels of underemployment among those employed, continue to remain formidable issues that need to be addressed.

In a chapter on 'Globalisation, Employment and Labour Market Flexibility: The Case of India,' Mr KV Ramaswamy shows how accelerating output growth in India in recent years has not been accompanied by a faster rate of job growth. In particular, the slow growth of regular jobs and the intensification of duality in labour markets (formal versus informal) has become a serious problem.

In a chapter on 'Indian Textile and Apparel Sector,' which happens to be the second largest provider of employment in the country after agriculture, Mr G Badri Narayanan shows how employment growth in the sector has suffered. Employment has been consistently falling since the late 1980s in the organised cotton mills sector, while it has been almost stagnant in mills that work with wool, silk, and other natural fibres. This has been attributed to the negative relationship between labour legislation and employment.


Referring to the constraints and risk factors, the report expresses apprehensions about the lopsided growth patterns and the underlying regional imbalances. Regional disparities and the rural-urban divide have widened significantly in the post-reform period. During the 1990s and beyond, inter-State inequalities in per capita State Domestic Product (SDP) worsened, and the laggard states, Bihar, Orissa and Uttar Pradesh recorded low growth rates. If these states continue to grow slow, the overall GDP growth rate will be pushed down.

The most formidable constraint in making the growth process equitable and inclusive, however, is the crisis in agriculture and rural distress in post-reform India as highlighted by D Narasimha Reddy and M Srijit Mishra. They point out that the present all-pervading crisis in agriculture could be traced back to the complacency and benign neglect of agriculture since the mid-1980s.

Apart from the big decline in public investment in the sector, the crisis was aggravated by the decline in the flow of the much-needed credit from the banking sector. Dr S L Shetty has elaborated on how the credit flow to agriculture, small-scale industries and other small borrowers was sluggish in the 1990s and thereafter till 2003.

While India has made great strides in information technology, high-tech services and knowledge-based industries, Dr S R Hashim points to the emerging capacity constraints in higher education. There is a lack of reach and equity in higher education and the quality standards have declined. The neglect of this sector could act as a drag on India's development in the context of its opening up to globalising forces.

Courtesy: Business Line, February 8