Behind the Veil of Economic Growth

India’s short period of fast economic growth has been considerably eulogized. We are now the fastest growing economy in the world—an achievement that we pat ourselves on the back for. Yet, this shred of data is difficult to embrace after being a witness to ground realities. The rapid growth has manifested itself in a plethora of opportunities for many while leaving many others in conditions that seem to be helpless. One can’t help but feel something’s amiss in the “Indian Growth Story” narrative.

Towards the end of the 21st century, there will be 1.5 billion Indians and 1.1 billion Chinese. Simply as a consequence of the number of people, India will continue to be among the world’s biggest economic powers. This will hold true even if the economy stagnates sometime in the future, or even if India’s efforts to become a middle-income country fall behind. In fact, we could be the largest economy with slightly more than two-thirds of China’s current per capita GDP by that time. It is well established that economic prosperity doesn’t imply people lead satisfied lives. The aspect which has failed to come to the forefront is how rapid economic growth doesn’t necessarily translate to better living standards. Their relationship hinges on how the government employs public revenue generated from economic growth. Unless the expenditure facilitates advancement in human capabilities, it isn’t really ‘growth’.

While India is climbing up the ladder of per capita income, it is slipping down when it comes to social indicators. Public revenue generated from economic growth has not been used to expand social and physical infrastructure in a well-planned manner. While the middle and upper-middle classes have fared extremely well in terms of improved standards of living during the last three decades, the same cannot be said for those employed in the informal sector, who make up to 81% of India’s 487 million person workforce. For them, the pace of growth has been excruciatingly slow. Growth in real wages for poorer sections of the population has been severely lacking when compared to other developing economies. The reason lies in the failure to generate adequate employment, in what is best described as “jobless growth”. Rapid economic growth was led by the services sector. Since growth was concentrated in skill-intensive sectors rather than labour-intensive sectors, the educated labour force has been able to earn much higher wages and salaries. The rest of the workforce is employed in activities where wages and productivity have remained very low.

Official poverty estimates tell us that the poverty rate in the country has nearly halved in the ten years between 2006 and 2016. This appears to be a huge leap at first. However, as the density effect explains, since there are so many people just a little below the poverty line in India, a tiny increase in per capita income is enough to lift large numbers above the poverty line. It also explains why the official poverty line is so low (₹32 per day for rural India and ₹47 per day for urban India, which is equivalent to less than a US dollar per day). One may argue that India cannot rely on income growth alone to transform living conditions. But, the concern remains that India is not doing well in many respects even in comparison with some of the poorest countries in the world. India’s Human Development Index (HDI) ranking is 130 out of 189 countries, with a score of 0.64. Moreover, when inequality-adjusted HDI is considered, this value further falls by another 26.8%.

The “big brother” of the South Asian subcontinent is falling behind every other South Asian country in terms of many social indicators, notwithstanding it does much better in the growth of per capita income. Despite being much poorer than India, Bangladesh does better in terms of life expectancy, Infant Mortality Rate (IMR), immunization rates, Total Fertility Rate (TFR) and access to improved sanitation. It also fares better in the data on mean years of schooling and female literacy. Perhaps more intriguing is the case of Nepal, a country enmeshed in unstable politics and governance. In 1990, Nepal was severely lagging behind in terms of every development indicator. Over the years it has caught up with India and even overtaken it in maternal mortality, infant immunization, and female literacy. The comparison with Pakistan is more favourable to India, but not particularly flattering either. In 1990, only Sri Lanka had better social indicators than India. Now India appears to be the second worst in the region, ahead of Pakistan.

Although India is the poorest among the BRICS countries, much more needs to be done to bridge these gaps than to catch up in terms of per capita income. When compared with other BRICS countries which have the commonality of large populations, India lags abysmally behind in every social indicator, especially undernourishment among children below 5, child immunization rates, and universal literacy. Experiences within the country itself have been starkly contrasting. The Multi-Dimensional Poverty Index (MPI) places the North Indian states of Bihar and Jharkhand in the same category as Mozambique and Sierra Leone. However, the growth model in states like Kerala, Himachal Pradesh and Tamil Nadu continue to serve as examples of how economic growth can be complemented with sustained successful social policies.

What clearly works for rapid social progress is the universal provision of essential public services: school education, primary health care, electricity connections, sanitation and drinking water. Their provision has to be facilitated by an efficient administration that takes into account the structure of social inequality in the area while ensuring the involvement of local communities. Among BRICS countries, India is the only one that hasn’t gone through a phase of expansion of public support (elementary education, health care, social security) or economic redistribution. It also has the lowest expenditure on education and health, which have yet again taken a back seat in the face of a populist budget. The nation has much to learn from the policies and achievements of two of its neighbouring countries. From Bangladesh, it must learn female literacy programmes, microcredit and community mobilization to bring about social change. And from Sri Lanka, it should adopt the health care and public schooling system. India can have a serious advantage over these countries in implementing these same programmes. As Amartya Sen phrased it, “A poor country may have less money to spend on healthcare but it also needs to spend less to provide the same labour-intensive services.” Healthcare and education are primarily labour-intensive activities. Since wages are low in populous and poor India, these community building services can be provided at low costs.

Questions about the nature of economic growth require much greater attention than they receive. Recently, a leaked government report put India’s unemployment rate on a 45-year high. Prominent NSSO employees (the institution who had prepared the report) had resigned in protest because the government was not releasing the report. The government’s reply to the leaked report? “You can’t be growing at 7.2% and say no jobs are being created.” A discussion on India’s economy lacks sufficient inquiry on the provision of jobs to the 1 million people who reach working age every month, or the transparency on data for economic indicators, or the massive improvement required in malnutrition indicators. Unless we end our obsession with GDP numbers, we cannot expect our governments to focus on social indicators. After all, what a democratic system achieves depends largely on the issues that are brought into political engagement.


Reema Singh

A student of Economics at the University of Delhi, Reema finds her interest scattered between data science, microfinance, world history and politics. She finds her inspiration from the writings of Oscar Wilde and V. S. Naipaul.

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