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QUANTITY, NOT QUALITY, IN OUR GROWTH

Many scandals have surfaced recently, which highlight the immaturity of India’s economic development model. India lurched somewhat reluctantly into the economic reform process nearly two decades ago. If China has been on the path for the last 33 years, the fact is that we have been at it for 20 years, too. This is a good a time to assess whether we are making sufficient progress along the many dimensions which impact our people’s quality of life.

For this, we can use an absolute standard, or look at where China had got to in the late 1990s. On neither count, is there any room for satisfaction. On the Human Development Indicators (HDI) front (which includes per capita income as well as quality of life factors such as education and health), we rank 119 out of a total of 169 countries — roughly at 30th percentile.

We are flanked on the HDI table by countries such as Equatorial Guinea and Nicaragua on the higher side and by Swaziland and Timor Leste on the lower side, countries innocent of great power ambitions as India has. In terms of the improvement in the HDI index from 1980 to 2010, we have moved from a rating of 0.32 to 0.52 — an annual growth rate of 1.63%.

Surprisingly, since the reform process began in 1990, we have grown at a rate of 1.45% annually — so, in fact, at a slower pace than in the decade prior to reforms. Meanwhile, China, ranked 89 — 30 places above India and roughly in the middle of the table — has grown its HDI index at a markedly higher rate of 1.98% every year.

When we adjust for inequality, India’s HDI falls by almost 30%. This compares unfavourably to China’s fall of 23%, indicating that India’s inequality levels have a disproportionate impact on social indicators. Distressingly, when we look at the overall Poverty Index as defined by people earning less than about Rs 55 every day, then 42% of India’s population falls into that category — more than 500 million people!

For China, the numbers are 15%, amounting to just over 200 million people. Worse, while our spends on education are in the mid-range among all countries (as a percentage of GDP), our literacy rate at 62% is among the lowest in the world. This surely has to be a failure in governance. On the other hand, India’s spends on health are among the lowest in the world and this is reflected in both malnourishment levels as well as low life expectancy. The average Indian lives to 62 years of age compared to 73 years for the average Chinese.

At one level, we need to be very critical of a reform programme which over two decades has led to increasing inequality and poor improvements in key social welfare indicators than the decades preceding it. With over half a billion people below the poverty line, we simply cannot afford an economic paradigm that does not more pressingly address the needs of our desperately poor compatriots. We are carrying more malnourished children than there are anywhere else in the world, and are doing a terrible job of addressing this issue, notwithstanding ‘inclusive growth’. On the contrary, our growth paradigm continues to be non-inclusive and selective.

However, this non-inclusiveness is not a result of the directional change in our economic policies since the early 1990s, but is caused by poor implementation and governance. The reform process has been subject to fits and starts, is uneven in nature, subject entirely to political compulsions of the day, and occurring within until recently a socialist-minded society, generally suspicious of free markets, competition and foreign money, and prone to extreme lobbying and special interests.

Our business people have thrived within this environment by perfecting the art of managing the political class to their advantage and allowing reforms largely to the extent it has benefited them. In turn, politicians have mastered the art of maximising their own ‘take’ on licences, clearances, spectrum or land allocations to the point where the line between the political entrepreneur and the business entrepreneur has got blurred.

IN A way, therefore, the entire reform programme has been controlled to benefit the few. Its democratisation to benefit the larger mass of Indians is yet to take place, and that is why, along with poor governance, social indicators have not kept pace with economic growth.

We need to ensure that the benefit in future accrues in a more egalitarian manner. For if it does not, we will shortly hit a wall. One of the more overlooked aspects of economic growth is the formation of quality human capital just as we need gross capital formation.

If we do not educate our youth and make them both employable and employed, then we will soon be out of hands that can man the growth machine. And if we don’t provide proper nourishment and education to our children, they will be in no position to participate or contribute to their own development, let alone that of the country’s.

In respect of human capital, China started with a significant advantage in the 1970s. Its people were better educated and healthier than India’s were in the early 1990s. Higher quality growth is not just a necessary outcome of the reform process, but equally a basic requirement for continued growth momentum.

Hence, a much stronger focus on education and health, and on social issues in general, is an absolute must — from both a moral and need standpoint. Unfortunately, most of our politicians, business people and bureaucrats miss this point.

For a politician, their continuation in power is the most important national service they can provide. Therefore, accumulating money to fund elections, compromising with coalition partners, holding economic development hostage, splurging state money on giveaway schemes and passing the burden to future generations are all par for the course. For the other elites also, self-interest is paramount.

As a result, true economic development of the country, planned with a long-term vision, and implemented diligently and broadly, across all levels of government and civil society, and across many sectors, is totally missing, and this has been the single most important reason as to why our economic model has delivered poor quality growth — largely inequitable, lacking in focus on the really needy, erratic and spotty, political in nature and lacking a defining economic vision of where we want to take this country, and how.

source: Economic Times