People's Democracy

ECONOMIC NOTES

Growth for Whom?

C P Chandrasekhar

THE year 2010 would be remembered as a scam-tainted year when allegations of corruption, both public and private, were difficult to keep track of. Overwhelmed by these allegations, the government has attempted to focus on the fact that India is among the fastest growing countries in the world. But even that boastful claim has been weakened by the fact of high inflation in commodities varying from wheat and rice to onions and tomatoes.

Yet, as the first decade of the 21st century draws to a close, commentators taking a longer view are likely to declare that that it marked a period when India successfully pursued a growth strategy based on internal and external liberalisation. In fact, India is being presented as a country that has traversed under such policies onto a high growth trajectory. This is backed by the evidence of near-sustained 8-9 per cent rate of GDP growth since 2003-04 and the rather quick and sharp recovery of GDP growth after the deceleration triggered by the global financial and economic crisis. Not surprisingly, policies based on market fundamentalism are being presented as the drivers that have delivered the high growth needed for economic “take-off.”

INCREASING INEQUALITY

IN THE COUNTRY

What this assessment ignores is, of course, the question: Growth for whom? As has been repeatedly noted but inadequately stressed, the fact is that India is a country still plagued by hunger with among the highest rates of malnutrition in the world. Deprivation in other forms such as lack of access to clean drinking water, sanitation, basic health facilities and school education still afflict a large proportion of the population.

Clearly then, the benefits of high growth for the best part of a decade must be accruing to a small minority, resulting in increased inequality. Unfortunately, data of a kind that helps us track inequality is difficult to come by. Surveys of consumption expenditure do not cover the rich and therefore tend to underestimate the extent of inequality. But there are other signs of increased inequality in the country.

The first is that the high growth of the last few years has been accompanied by a sharp rise in the gross savings rate, of 5.5 percentage points to 29.1 per cent between 2001-02 and 2004-05. The rate rose by another 4.2 percentage points between 2004-05 and 2007-08. Since it is the richer sections that have incomes that are substantially in excess of their consumption needs which can be saved, this sharp rise in the savings rate points to an increase in incomes among the richer classes.

There has also been a shift in the source of savings in the economy away from the household to the corporate sector. The share of the corporate sector in gross domestic savings rose from 20.4 per cent in 2004-05 to 24 per cent in 2007-08, while that of the household sector fell from 72.3 to 62.2 per cent. Thus the period witnessed a sharp rise in private saving that largely came from the corporate sector, which has been recording significant increases in profitability at a time when the average real wage rate in the organised manufacturing sector has been stagnant.

The third is a turnaround in the tax-to-GDP ratio. The aggregate tax to GDP ratio of the centre and the states rose from 13.8 to 19.1 per cent between 2001-02 and 2008-09, with the contribution of corporate taxes rising. It must be noted that the period after 2002-03 was one in which profits in the organised sector rose sharply and the ratio of profits to value added also rose significantly. As a result despite huge tax concession corporate taxes and taxes paid by the rich have risen.

Put together, these features suggest that there has been a relatively large increase in incomes of those in the saving- and tax-paying classes, especially profit earners in the corporate sector. In other words, the period of high growth seems to be one in which income inequalities increased significantly.

EMPLOYMENT

TRENDS & CONDITIONS

This increase in inequality comes not only from profit inflation but also from the fact that the so-called “high growth trajectory” has not resulted in high employment growth. The five-yearly large sample rounds of the NSSO provide the most exhaustive data on employment trends and conditions in India. Unfortunately, the results of the latest survey on this subject --- the 66th Round, covering 2009-10 --- are yet to be released.

However, the 64th Round of the NSS relating to 2007-08, which had migration as its focus but covered employment and unemployment as well, does provide us with an additional source of data. We must recall that the late 1990s was marked by a dramatic deceleration of aggregate employment growth, which fell to the lowest rate recorded since such data began being collected in the 1950s. However, the period 1999-2000 to 2004-05 witnessed a significant recovery. While aggregate employment growth in both rural and urban India was still slightly below the rates recorded in the period 1987-88 to 1993-94, it clearly recovered sharply from the deceleration of the earlier period. The recovery was most marked in rural areas, where the earlier slowdown had been sharper. This prompted many official spokespersons to even declare that India was on the road to “full employment.”

What is noteworthy, however, is that if we include the relatively high growth year 2007-08, the rate of growth over 1999-00 to 2007-08 hardly points to much acceleration in employment growth during this decade, with the increase in the growth rates in urban areas being marginal from 2.27 per cent to 2.64 per cent. What is more striking is that the annual rate of growth of rural employment, which had risen from 0.66 per cent between 1993-94 and 1999-2000 to 1.97 per cent between 1999-2000 and 2004-05 (which was a year of indifferent agricultural performance), was significantly lower at 1.27 per cent over the period 1999-00 to 2007-08 (which was a good agricultural year). The period between 2004-05 and 2007-08 was the period when India had moved to the much higher, close to 9 per cent GDP growth trajectory. A slower rate of employment expansion in this period points to a significant fall in the elasticity of employment with respect to output.

The importance of the years 2004-05 and 2007-08, being bad and good agricultural years respectively, comes through from an examination of labour force participation rates. There was an increase in labour force participation rates for both men and women in 2004-05 relative to 1999-00. This includes both those who were actively engaged in work and those who were unemployed but looking for work. The significant increase in female participation may have been because of the need (in the lands cultivated by individual households) for women to substitute for male workers who were looking for better opportunities outside agriculture in a poor agricultural year. Or it may be a reflection of the need to augment household earnings in a bad year.

These possibilities are corroborated by the fact that in the good agricultural year 2007-08, male participation rates increased marginally, while that of women fell significantly. This could have been because the compulsions operating in a bad year were not as operative. This suggests that higher participation rates as in 2004-05 need not necessarily be a reflection of improved employment performance. Rather it could be a sign of stress induced by poor agricultural performance.

WAGE EMPLOYMENT DOWN,

SELF-EMPLOYMENT UP

One of the more interesting features that emerge from the data for 2004-05 was the shift in the type of employment. There had been a significant decline in wage employment in general. While regular employment had been declining as a share of total usual status employment for some time (except for urban women workers), wage employment had continued to grow in share because employment on casual contracts had been on the increase. But the results of the 2004-05 round point to a fall even in casual employment as a proportion to total employment.

Going by the evidence for 2004-05, it appears that for urban male workers, total wage employment was at the lowest that it had been in at least two decades, driven by declines in both regular and casual paid work. For women, in both rural and urban areas, the share of regular work had increased but that of casual employment had fallen so sharply that the aggregate share of wage employment has fallen. So there clearly appeared to be a real and increasing difficulty among the working population, of finding paid jobs, whether they were in the form of regular or casual contracts. However, by 2007-08 there were clear signs that this decline in the share of casual labour in total was being partially reversed especially in the case of females. Clearly, high growth had facilitated an increase in wage employment, though this was still in the casual and not regular category.

The fallout of these trends was visible in the trends in self-employment. In 2004-05 there was a very significant increase in self-employment among all categories of workers in India. The increase was sharpest among rural women, where self-employment accounted for nearly two-thirds of all jobs. But it was also remarkable for urban workers, both men and women, among whom the self-employed constituted 45 and 48 per cent respectively, of all usual status workers. What seems to have occurred in 2007-08 was that the rise in the share of casual employment had been accompanied by a fall in self-employment, with the fall being sharpest again in the case of females. Even so, all told, around half of the work force in India currently does not work for a direct employer. This is true not only in agriculture, but increasingly in a wide range of non-agricultural activities.

Another noteworthy feature is the sectoral distribution of employment. As is to be expected given the short period of time involved, there have been no major changes in the structure of employment between 2004-05 and 2007-08, except for a rise in the share of construction among rural males. Thus the trends in the structure of employment prior to 2004-05 have been more or less sustained. An important feature of this was the significant decline in agriculture as a share of rural employment, even as the share of manufacturing employment did not go up commensurately for rural male workers. The share of manufacturing employment has stagnated in the urban areas as well. While there has been some shift to construction, the share of trade, hotels and restaurants seems to be stagnating.

Thus, overall, the traverse to a high growth trajectory does not seem to have delivered much on the employment front. The growth rate of employment remains depressed, even if not as low as during 1993-94 to 1999-2000. Employment increases seem to occur when workers, especially female workers, are pushed into the workforce by economic circumstances like a bad agricultural year. The elasticity of employment with respect to output increases seems to have deteriorated with accelerated growth. Casual wage labour and self-employment dominate the employment scenario. And the non-agricultural sectors appear to contribute inadequately to additions to employment though these were the sectors that were expected to take up the employment slack once neo-liberal policies succeed in delivering growth.

All this suggests that even to the extent that the years of high growth have been accompanied by increases in employment, that employment has not been either in the productive sectors or in forms that suggest that growth does result in the generation of what has been termed “decent work” of one kind or another. Not surprisingly, inequality increases and large scale and even extreme deprivation persists. India’s exit from the first decade of the 21st century does not seem to be a time for pure celebration. At least for a majority of Indians.