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Inclusive growth in India - Part 2
11.0 LABOUR AND JOBS PROBLEM IN INDIA
"Countries across the world, including India, need to move towards formalisation of labour and generation of at least 600 million new quality jobs in the next 15 years to fulfil Sustainable Development Goals set by the United Nations by 2030." —Guy Ryder, Director-General, ILO
Over the last quarter of the century, India’s GDP has grown tenfold over from around $275 billion in 1991 to US $2.3 trillion in 2016, even through the period of global recession in 2008. However, in a paper provocatively titled ‘Indian Income Inequality, 1922–2014: From British Raj to Billionaire Raj?’, renowned French economists Thomas Piketty and Lukas Chancel argue that the share of income of the top 1 per cent population of the country, at present, is more than what it was during the colonial times.
India's contribution to global economic growth has doubled to almost 15 percent. Further, income poverty levels have declined, resulting in 133 million people being lifted out of poverty in the past 20 years. But, nearly 300 million people still live in extreme poverty.
We have to agree that to achieve inclusive growth, we have to ensure a robust formal sector jobs generation process in India. Otherwise, everything remains tentative and informal.
11.1 Growing inequality
Between 1980 and 2014, the income share of the top 1 per cent of India’s population increased from 6 per cent to 22 per cent, while the share of the bottom 50 per cent fell from 24 per cent to 15 per cent. In fact, according to the Multidimensional Poverty Index (MPI) 14 for 2016, nearly 54 per cent of the Indian population is ‘multidimensionally’ poor. There are more multidimensional poor people (421 million) in the 8 poorest Indian states (Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh (MP), Odisha, Rajasthan, Uttar Pradesh, and West Bengal) than in 26 poorest African countries combined.
The MPI was launched by the UNDP and the Oxford Poverty & Human Development Initiative (OPHI) in 2010. Basic philosophy and significance of MPI is that it is based on the idea that poverty is not unidimensional (not just depends on income because an individual may lack several basic needs such as education, health, etc.), rather it is multidimensional. 15 It is not as if the government and policymakers are unaware of this grave issue. Successive governments have initiated efforts to assess the extent of poverty in the population and introduced policy measures to ameliorate the situation.
11.2 Indian jobs market - the bitter reality of failure
One of the most startling features of the labour force of our country is that only half of the working population is even part of the job market—in fact, the participation rate is steadily declining over the years. In 1981, 60 per cent of the potential working population were part of the job market which reduced to merely 47 per cent in 2016. India’s current working population (people of age group 15–64 years) is around 960 million, of which the total number of persons seeking jobs is around 450 million. According to recent CMIE reports, it has declined even further to around 405 million or just over two-fifths of the working population.
This means that more than half of the potential working population do not even count for in the economy—they are not part of the GDP and the growth spectacle. This is striking because India is apparently at the peak of its demographic dividend—that means it is primarily a youth-driven economy. About one-fourth of the population is below 14 years and a whopping two-thirds is in the age group of 15–59 years, and only around 8 per cent of the population is in the age group of 60 years and over. And yet more than half of this young population are not even seeking job in the formal sense of the term.
But who are these people who can afford to not seek jobs? They constitute primarily of women; the government statistics show that only around 20 per cent of women participate in the labour force. And yet we know that women, young and old, do back-breaking labour from dawn to dusk and even later, but do not feature in the GDP because they are not paid for their toil. According to a recent Mckinsey survey, women in India do as much as 10 times of unpaid work as men of the country, and if it were paid for, it would have contributed to over 300 billion dollars to the economy20— this is an underestimate because it merely monetizes the current work done at the lowest rates.
11.3 Formal versus informal sector (organised versus unorganised)
Unemployment rate is defined as the difference between those seeking formal employment and those who are actually employed.
The organized sector is defined to include all government and public sector establishments, all private corporate sector establishments and those of private non-corporate sector establishments that employ at least 10 regular employees (this is a standard definition widely used in India). The unorganized sector is the rest of the economy.
The low labour participation rate explains the astonishingly low unemployment rate in the country. Most rich countries of the world have been plagued by increasing unemployment rates, especially since the global recession of 2008 (Greece: 22 per cent, Spain: 8 per cent, European Union: 8 per cent, Italy: 11 per cent, France: 9 per cent). In contrast, India’s unemployment rates have been hovering around 3–4 per cent (or just over 1 per cent of the entire working population) for over four decades. It is not lack of education or skill which keeps the unemployed from getting jobs; on the contrary, in our country, the education levels are higher among the unemployed compared to those in ‘gainful’ employment. Over 80 per cent of the unemployed graduates and postgraduates cited lack of availability of jobs commensurate of their skills and inadequate remuneration as the main reasons for their being jobless. Thus, merely increasing the education and skill levels are unlikely to address the issues in the employment market. Even more surprising is the paradox that as more jobs are lost, the unemployment rate instead of increasing has been decreasing. A recent piece by CMIE points out that the Indian economy lost 1.5 million jobs in the first four months of 2017, but an additional 9.6 million people decided to quit seeking jobs, leading to an absolute decline in the workforce by 11 million individuals.
Currently, of the total number of people employed in India, only 17 per cent are in the organized sector and a whopping 83 per cent are still in what is termed as the unorganized sector. Earlier jobs in the organized sector used to ensure regular employment, inflation indexed income, and some form of institutional security.
But over the last two and a half decades, though the organized sector has increased marginally, regular formal jobs have not, as is evident from data. Only about half of the organized sector jobs—that is merely 8 per cent jobs (of the total employment) match the minimum criteria of a dignified livelihood, the rest (even in the organized sector) are informal jobs. This means that around 92 per cent of the total employment in India is in the informal economy, that is, jobs neither with regularity or certainty nor bound by any regulations or norms and also provide no social security. Over the years, the only mobility in the job market has been from casual or contractual employment in the informal sector to casual and contractual employment in the formal sector—this in spite of the several high profile initiatives by the government. And even these jobs are not for the entire year; in fact only about 60 per cent of the working population manages to get an employment for the whole year.
11.4 The tragedy of the self-employed
These self-employed people are the ones who probably have not been able to find any sort of employment even in the informal sector. They have to face all the uncertainties of an entrepreneur, including rising input costs, falling prices, decreasing demand, competition, and contingencies (personal, economic, weather, etc.), without any institutional support. Majority of them are in the agrarian sector, forced to eke out a meagre living by tilling a small piece of land which does not yield enough to even cover their consumption expenditure. Probably this is the reason that the ‘selfemployed’ category even in rich countries is a minuscule fraction of the total working population. For instance, the United States, the citadel of entrepreneurship, has only about 6.5 per cent of the working population as self-employed.
If our country took seven decades to formalize merely 8 per cent of the jobs, not accounting for the fact that over half of the working population are not even part of the labour force, one can safely surmise that contrary to all claims made by successive governments and policymakers, they are nowhere close to tackling this crucial issue.
Contrary to various Ministers' claims that "lack of jobs is a good sign as it indicates rising entrepreneurship", it is the lack of jobs that's forcing people to turn to entrepreneurship.
11.5 Agriculture and Allied Activities
Even after 70 years of Independence, the majority of the population (46 per cent) is still dependent on agriculture and allied activities for their livelihood. However, the ‘relevance’ of crop agriculture to the economy has been steadily declining over the years and is now pegged at just over 10 per cent of GDP. Around 90 per cent of the households dependent on agriculture own less than 2 ha land and their income from cultivation does not cover even their consumption expenditure. All farm households have outstanding debts and the average debt is around 60 per cent of their total annual income from all sources.
While the number of households dependent on agriculture has been increasing over the decades, the total agricultural area owned has been declining over the years. Consequently, the average area owned per household has also declined drastically. Land ownership is also extremely skewed. On an average, over 118 million households in rural India own merely 0.23 ha household— a plot of land which does not even cover the food requirements of the household, let alone other essential expenses. On the other hand, the richest 7 per cent of the rural household own about half the total land available and only for this segment of the farming population, agriculture is viable, that is, it covers their costs and also leaves them some surplus. So how are the majority of the farm households surviving? They have not been able to survive, as the grim news reports of farm suicides remind us of the extreme distress of the agrarian sector. According to official estimates, more than 3 lakh farmers have committed suicides in two decades (1995 to 2015)—in other words, every half an hour, one farmer has been forced to take this extreme step, and millions more continue to live on precariously. But why do our farm households hold on to their minuscule plot of land if it does not even pay for their consumption? Because they have no other option since there are no regular jobs in the two other sectors as well.
11.6 Jobs in Manufacturing and Services
Half the working population is employed in manufacturing and services, but far from being the citadel of modernity, over 90 per cent of the jobs are in the informal sector. The 2010–2011 round of NSS estimated that there were 58 million such enterprises (in manufacturing, trade, and other services, excluding construction), employing 108 million workers—this translates to ‘less than two workers per enterprise’. These ‘enterprises’ primarily cater to the needs of the poorest sections of our economy, but given the dire straits in agriculture (where half of the population is stuck), there is hardly any demand pull. With no surplus and zero access to any form of institutional support, the owners of these units have to be enormously enterprising to survive—that probably is the only reason these insignificant set-ups qualify to be labelled as ‘enterprises’.
A million people enter the job market every month; thus to keep up with the population, the economy needs to create around 12 million jobs. No wonder, the present government’s electoral promise to create 10 million jobs every year resonated so widely among the people. But the reality is a far cry from the promise. From a high of 1 million jobs in 2010 (still merely one-tenth of the actual requirement) in the 8 key sectors, the new jobs plummeted to merely 0.15 million (one-hundredth of the promise) in 2015. The government tried to boost up the numbers by including high growth service sector jobs in the 8 key sectors, but the picture remained dismal.
11.7 Manufacturing industry
The manufacturing industry seems to have already lost the script about its role in the economy. At present, the formal sector accounts for 65 per cent of the manufacturing output but employs only 10 per cent of the manufacture sector workforce, and there has been a secular trend towards even more capital-intensive production. Further this trend is visible not only in capital-intensive industries but also in labour-intensive industries. In the use of capital-intensive techniques of production, skilled workers are favoured, while unskilled workers are replaced by technology. This leads to further accentuation of inequality amongst wages of workers and supervisory/managerial staff. According to a recent research, in the period 2001–2002 to 2011–2012, the ratio of the average salaries of supervisory and managerial staff to the wages of production workers increased from 3.57 to 5.82. Basically, the wages and salaries to production workers have remained largely stagnant over the last decade, while that of managerial/supervisory staff have risen sharply. In a country, where the comparative advantage lies in the availability of unskilled labour, this is entirely inexplicable. There have been some arguments put forth regarding restrictive labour regulation and the rising cost of labour to justify this drift, replacing of people with machines. But this just does not hold water, given the fact that regulations apply only to formal sector employees (10 per cent of all manufacturing sector employees). But even more importantly, wages and salaries account for merely 4.5 per cent of total input costs in the sector. Post-2008, things have got worse. According to a recent analysis, India’s salary growth stood at 0.2 per cent in real terms in the last eight years since the global recession, while the GDP grew by 63.8 per cent over the same period. But more importantly Indian wage growth was ‘by far the most unequal’ of the countries analysed. People at the bottom are 30 per cent worse off in real terms since the start of the recession; while people at the top are 30 per cent better off.
11.8 The road ahead
In the 1990s, when the leaders of our country introduced fundamental economic reforms and embarked on a path of high growth, they aspired to emulate the spectacular performance of the Asian Tigers and Japan, which were able to undergo rapid industrialization through high growth. The reforms constituted primarily of withdrawal of the government from all vital sectors of the economy and allowing free run to the private sector, both national and global. But a cursory look into the development process of all these countries reveals the decisive role of the state in ensuring minimum social protection to the people and also to make capital accountable to a comprehensive programme of inclusive growth. Even before the economic reforms, these countries implemented ‘extensive land reform programmes’ by the state, often referred to as the ‘secret sauce’ that sparked sustained and broad-based economic growth.
Land reform has been credited with kick-starting the transformation of each of these economies, driving growth in the agricultural sector and setting the stage for manufacturing sector growth.
To achieve inclusive growth is a problem, and our country is miserably failing to find a solution to it. But maybe we should not rush to a solution. Maybe we should take time to appreciate the enormity of the problem, decipher its many manifestations, linkages, and complexities, and only then go back to history yet once again, ‘and ask the right question’ this time. We just might find the answers.
Our society, as has been briefly argued earlier, is stuck in a structural bind where mobility for the majority consists of distress movement from one sector of the all-encompassing informal economy to another—with no qualitative change in the economic condition. Structural constraints warrants a fundamental programme for change. Band-Aid solutions can only make things worse in the long run.
12.0 AGRICULTURE AND INCLUSIVE GROWTH
Inclusive growth has become an important idea in the development discourse in India. It combines the two most important ideas in development: income growth along with a progressive (or more egalitarian) distribution.
The term was first embraced in the early 2000s by the UPA-1 government under PM Manmohan Singh, and taken up by the NDA government under PM Narendra Modi. But is “inclusive growth” anything more than a slogan like “Sabka Saath, Sabka Vikas?”
12.1 Doubling farmer incomes
GoI objective is to double the income of farmers by the year 2022. Fact is that agriculture employs close to half the labour force in the country but generates the lowest per capita output (and hence is associated with the highest levels of poverty). So if there is to be inclusive growth in India, it has to begin in the agricultural sector.
Between 2003-13, evidence of overall income growth by a factor of 1.34 in real terms is found. However, the land-rich saw their incomes grow fastest; the land poor, the slowest. Households with over 10 hectares of land (the largest landownership class in India) saw their incomes double. In fact, all households with at least 1 hectare of land saw their income increase by at least 1.5 times. The slowest growth of income was among the smaller landholders; marginal landholders (with less than 0.4 hectares) saw their incomes grow by a mere 1.1 times. In general, the smaller the landholding class, the slower the income growth. As far as land ownership is concerned, the opposite of inclusive growth—a regressive growth—had taken place.
These differences in averages were indicative of high income inequality. The Gini Coefficient (a popular measure of inequality that takes a value between 0 and 1, with a value of 0 for perfect equality and higher valuesindicating higher levels of inequality) can be used to measure income inequality. The Gini Coefficient value is about 0.6 for income between 2003-13.
To put it in context, if this level of income inequality were to hold for the whole nation (and there are good reasons to think that it is more than likely), then it would be among the highest levels in the world. There is a serious warning here that goes well beyond the agricultural sector—income inequality in India is extremely high, far higher than the utterly misleading inequality estimates derived from expenditure surveys that range between Gini Coefficients of 0.29 to 0.38 (in the rural and urban sectors respectively).
12.2 Statewise situation
The stagnation of incomes in a couple of states (Bihar and West Bengal) and lack of diversification of income sources in many major states speak directly to the question of inclusive growth and income inequality at the sub-national level. In 2013, cultivation provided close to half (49 percent) of the total income, and more than half the income in several important states (Punjab, Haryana, Karnataka, Telangana, Maharashtra, Assam, Madhya Pradesh, Chhattisgarh, Uttar Pradesh, and Bihar). While wages were important (providing about 31 percent of incomes in 2013) they had grown more slowly than income from cultivation. The least significant income source was non-farm business (8 percent). It is important to note that non-farm businesses did not provide more than 10 percent of total income in any but three states (Kerala, West Bengal, and Tamil Nadu). The patterns we found do not square with the assertion in a recent Niti Aayog discussion paper that “about two third of rural income is now generated in non-agricultural activities.”
How optimistic can we be of the possibility of inclusive growth given the low levels of income from cultivation (and agriculture, in general) and the continuing fragmentation of agricultural land? From 2010-11, the average landholding size was 1.15 hectares. In the 40 years that the agricultural census has been undertaken, the average landholding size has decreased by about half, and the number of marginal landholdings has grown three-fold. This continuing fragmentation of land has had serious consequences for both income generation and income inequality in the agricultural sector. Land possession was the key variable in determining income from cultivation, which accounted for half of income inequality in our calculations, and hence was the key variable in explaining income inequality.
12.3 The road ahead
In 1936, the manifesto of the Independent Labour Party, formed by B. R. Ambedkar, highlighted the problem of “fragmentation of holdings and the consequent poverty of the agriculturists.” We are also reminded of the judgment delivered three decades ago by Sukhamoy Chakravarty, who was closely involved with Indian planning, “that no sustainable improvement in the distribution of incomes is possible without reducing the ‘effective’ scarcity of land.” That has clearly not happened, and neither has there been a significant shift of agricultural labor to rural non-farm or urban work. A telling sign of this stagnation in agriculture is the fact that cultivation income outgrew both wage income and income from non-farm business between 2003-13.
Given the difficulties faced by small farms in realizing scale economies, accessing credit, or getting into market-oriented as opposed to subsistence farming, it is very likely that most policies geared toward increasing productivity will primarily benefit larger farms. This is not an argument against increasing productivity, but simply a reminder that marginal and small landholders will benefit least from big ticket policies that aim to “double farmer income by 2022” in a business-as-usual scenario without addressing the issue of land fragmentation. Even if a doubling of income for farmers was feasible, it would almost certainly be based on the income growth of large landholders. The continuing fragmentation of agricultural land all but ensures that inclusive growth will not be possible in the agricultural sector (and, as a result, possibly all of India) by the year 2022 (or the foreseeable future). If B. R. Ambedkar or Sukhamoy Chakravarty were around to comment on the current scenario, they would not be surprised.
13.0 GOVERNMENT OF INDIA'S STAND - 2019
The Vice President said in 2019 that India was continuously focussing on equitable, inclusive growth and on bridging income inequalities. A number of schemes like Jan Dhan Yojana, Saubhagya and Ujjwala were testament to the core values of inclusiveness that India adheres to.
The Sustainable Development Goals 2030 emphasize upon the need for nations to focus more on equitable economic growth and to reduce inequalities. India accounts for about 15% of global growth and it has been estimated that the Indian economy would grow to $10 trillion by 2030.
Measures like demonetization, GST, Insolvency and Bankruptcy Code, repeal of outdated laws, giving thrust to road and air connectivity, increased focus on infrastructure, housing and agricultural sectors have enabled the economy to gather momentum. Year 2018 was replete with external vulnerabilities, but the Indian economy’s ability to withstand such stresses was high. The growth trajectory of Indian economy is now being reshaped by its youth. About 850 million, constituting about 65% of India’s population, is in the age group of 18 to 35. India is likely to have the world’s largest workforce by 2027, with a billion people aged between 15 and 64.
For the first time ever, India has registered the fastest growth in FDI in over two decades. The FDI inflows into India were to the tune of $38 billion in 2018, overtaking China and evolving as the favorite destination in emerging markets. The entire world is looking towards India and there has been renewed focus on the country in the past few years. India has achieved a GDP growth of 7.6 per cent in the first half of 2018-19. The size of the Indian economy is expected to touch $10 trillion by 2030. The VP also said that Dr Raghuram Rajan, the former Governor of the Reserve Bank, has recently said, “India will become bigger than China eventually as the latter would slow down, whereas the former would continue to grow. So, India will be in a better position to create the infrastructure in the region which China is promising today”.
Today, India is home to second largest start-up ecosystem in the world. India is expected to emerge as the third largest consumer market, just behind the US and China, the World Economic Forum said, in a report titled 'Future of Consumption in Fast-Growth Consumer Market – India'.
14.0 THE GINI INDEX
Also called the Gini coefficient, it is a statistical measure of distribution developed by the Italian statistician Corrado Gini in 1912. It is often used as a gauge of economic inequality, measuring income distribution or even wealth distribution among a population.
14.1 Technical details
The coefficient ranges from 0 (or 0%) to 1 (or 100%), with 0 representing perfect equality and 1 representing perfect inequality. The Gini index is a simple measure of the distribution of income across income percentiles in a population. A higher Gini index indicates greater inequality, with high income individuals receiving much larger percentages of the total income of the population. Because of data and other limitations, the Gini index may overstate income inequality and can obscure important information about income distribution.
A country in which every resident has the same income would have an income Gini coefficient of 0. A country in which one resident earned all the income, while everyone else earned nothing, would have an income Gini coefficient of 1.
The Gini index is shown graphically via the Lorenz curve, which shows income (or wealth) distribution by plotting the population percentile by income on the horizontal axis and cumulative income on the vertical axis. The Gini coefficient is equal to the area below the line of perfect equality (0.5 by definition) minus the area below the Lorenz curve, divided by the area below the line of perfect equality. In other words, it is double the area between the Lorenz curve and the line of perfect equality. The further a Lorenz curve deviates from the perfectly equal straight line (which represents a Gini coefficient of 0), the higher the Gini coefficient and the less equal the society.
14.2 The India case
The Central Board of Direct Taxes (CBDT), aka the Income Tax department, has made available, detailed income distribution data of roughly 50 million income tax filers for every year from assessment year (AY) 2013 to 2016. The CBDT dataset contains actual income distribution details of Indians across 21 categories of income levels such as, annual income less than Rs 1.5 lakh, income between Rs 1.5 to Rs 2 lakh, Rs 2 to Rs 2.5 lakh and so on, up to income greater than Rs 500 crores. This dataset gives the total number of people that earned annual incomes in each category of income level.
For instance, while there were 273 people that earned more than Rs 500 crores in 2016, more than half of all income tax filers earned less than a mere Rs 3.5 lakhs.
And, these 273 people accounted for one-fifth of all combined income of the nearly 50 million taxpayers in 2016. With this dataset, it is possible to calculate what percentage of people earned what percentage of the total income in a given year. Gini coefficient, the globally used statistical measure of income inequality, is typically derived using such income distribution data.
Hence, it is possible to calculate the broad Gini coefficient for India’s taxpayers too, using this CBDT dataset. Surely, it is then possible to glean insights on recent income inequality trends from this dataset?
Analysis of the CBDT dataset reveals that the Gini coefficient for India in 2013 was 48, and rose to 63 by 2016, a 15 point jump in just three years.
A Gini of 0 means perfect equality and 100 means absolute inequality. To put this in context, Gini varies from 25 to 40 for OECD countries. Gini for China is believed to be around 50. By these standards, India is among the most highly unequal countries in the world.
15.0 INDIA RANKED 62 ON WEF I.D.I.
India was ranked at the 62nd place among emerging economies on an Inclusive Development Index, much below China’s 26th position and Pakistan’s 47th, according to the World Economic Forum (WEF).
Norway remained the world’s most inclusive advanced economy, while Lithuania again tops the list of emerging economies. The index takes into account the “living standards, environmental sustainability and protection of future generations from further indebtedness". The WEF urged the leaders to urgently move to a new model of inclusive growth and development, saying reliance on GDP as a measure of economic achievement is fuelling short-termism and inequality.
The index has also classified the countries into five sub-categories in terms of the five-year trend of their overall Inclusive Development Growth score—receding, slowly receding, stable, slowly advancing and advancing.
Despite its low overall score, India is among the ten emerging economies with ‘advancing’ trend. Of the three pillars that make up the index, India ranks 72nd for inclusion, 66th for growth and development and 44th for inter-generational equity. The neighbouring countries ranked above India include Sri Lanka (40), Bangladesh (34) and Nepal (22).
Excessive reliance by economists and policy-makers on GDP as the primary metric of national economic performance is part of the problem. The GDP measures current production of goods and services rather than the extent to which it contributes to broad socio-economic progress as manifested in median household income, employment opportunity, economic security and quality of life.
THE FALSE ASSUMPTIONS DRIVING THE ECONOMY OF THE 1%
The current economy of the 1% is built on a set of false assumptions which lie behind many of the policies, investments and activities of governments, business and wealthy individuals, and which fail people living in poverty and society more broadly. Some of these assumptions are about economics itself. Some are more about the dominant view of economics described by its creators as 'neoliberalism', which wrongly assumes that wealth created at the top will 'trickle down' to everyone else. The IMF has identified neoliberalism as a key cause of growing inequality.
- False assumption #1: The market is always right, and the role of governments should be minimized. In reality, the market has failed to prove itself the best way of organizing and valuing much of our common life or designing our common future. We have seen how corruption and cronyism distort markets at the expense of ordinary people and how the excessive growth of the financial sector exacerbates inequality. Privatization of public services such as health, education or water has been shown to exclude the poor, and especially women.
- False assumption #2: Corporations need to maximize profits and returns to shareholders at all costs. Maximizing profits disproportionately boosts the incomes of the already rich while putting unnecessary pressure on workers, farmers, consumers, suppliers, communities and the environment. Instead, there are many more constructive ways to organize businesses that contribute to greater prosperity for all, and plenty of existing examples of how to do this.
- False assumption #3: Extreme individual wealth is benign and a sign of success, and inequality is not relevant. Instead, the emergence of a new gilded age, with vast amounts of wealth concentrated in too few hands – the majority male – is economically inefficient, politically corrosive, and undermines our collective progress. A more equal distribution of wealth is necessary.
- False assumption #4: GDP growth should be the primary goal of policy making. Yet as Robert Kennedy said in 1968: "GDP measures everything except that which makes life worthwhile", GDP fails to count the huge amount of unpaid work done by women across the world. It fails to take into account inequality, meaning that a country like Zambia can have high GDP growth at a time when the number of poor people actually increased.
- False assumption #5: Our economic model is gender-neutral. In fact, cuts in public services, job security and labour rights hurt women most. Women are disproportionately in the least secure and lowest-paid jobs and they also do most of the unpaid care work – which is not counted in GDP, but without which our economies would not function.
- False assumption #6: Our planet’s resources are limitless. This is not only a false assumption, but one which could lead to catastrophic consequences for our planet. Our economic model is based on exploiting our environment and ignoring the limits of what our planet can bear. It is an economic system that is a major driver of runaway climate change.
SOCIAL JUSTICE AND EMPOWERMENT
The vision of inclusiveness must go beyond the traditional objective of poverty alleviation to encompass equality of opportunity, as well as economic and social mobility for all sections of society, with affirmative action for SCs, STs, OBCs, minorities and women. There must be equality of opportunity to all with freedom and dignity, and without social or political obstacles. This must be accompanied by an improvement in the opportunities for economic and social advancement. In particular, individuals belonging to disadvantaged groups should be provided special opportunities to develop their skills and participate in the growth process.
This outcome can only be ensured if there is a degree of empowerment that creates a true feeling of participation so necessary in a democratic polity. Empowerment of disadvantaged and hitherto marginalized groups is therefore an essential part of any vision of inclusive growth. India’s democratic polity, with the establishment of the third layer of democracy at the Panchayati Raj Institution (PRI) level, provides opportunities for empowerment and participation of all groups with reservations for SCs, STs, and women. These institutions should be made more effective through greater delegation of power and responsibility to the local level.
Boomtime for the world’s billionaires
It is 10 years since the financial crisis that shook our world and caused enormous suffering. In that time, the fortunes of the richest have risen dramatically:
- In the 10 years since the financial crisis, the number of billionaires has nearly doubled.
- The wealth of the world’s billionaires increased by $900bn in the last year alone, or $2.5bn a day. Meanwhile the wealth of the poorest half of humanity, 3.8 billion people, fell by 11%.
- Billionaires now have more wealth than ever before. Between 2017 and 2018, a new billionaire was created every two days.
- Wealth is becoming even more concentrated – last year 26 people owned the same as the 3.8 billion people who make up the poorest half of humanity, down from 43 people the year before.
- The world’s richest man, Jeff Bezos, owner of Amazon, saw his fortune increase to $112bn. Just 1% of his fortune is the equivalent to the whole health budget for Ethiopia, a country of 105 million people.
- If all the unpaid care work done by women across the globe was carried out by a single company, it would have an annual turnover of $10 trillion – 43 times that of Apple.
- While the richest continue to enjoy booming fortunes, they are also enjoying some of the lowest levels of tax in decades – as are the corporations that they own:
- Wealth is particularly undertaxed. Only 4 cents in every dollar of tax revenue comes from taxes on wealth.
- In rich countries, the average top rate of personal income tax fell from 62% in 1970 to 38% in 2013.31 In developing countries, the average top rate of personal income tax is 28%.
- In some countries like Brazil and the UK, the poorest 10% are now paying a higher proportion of their incomes in tax than the richest 10%.
- Governments should focus their efforts on raising more from the very wealthy to help fight inequality. For example, getting the richest to pay just 0.5% extra tax on their wealth could raise more money than it wouldcost to educate all 262 million children out of school and provide healthcare that would save the lives of 3.3 million people.
- The super-rich are hiding $7.6 trillion from the tax authorities. Corporates also hide large amounts offshore. Together this deprives developing countries of $170bn a year.
ECONOMIC GROWTH ANALYSIS OF INDIA
First, India’s long-term economic performance has been impressive. Despite variation around the long-term growth rate, average growth over any continuous 10-year period has steadily accelerated, and has never reversed for a prolonged period. Acceleration in growth rate is consistent with India’s steadily improving proximate determinants of long-term growth. Economic growth has also become more stable—partly due to growth rates stabilizing within each sector, and due to the transition of the economy toward the services sector, which has a more stable growth rate.
Second, growth acceleration has been characterized by productivity gains and not just by an increase in factor inputs. Productivity gains are reflected in both labor productivity and total factor productivity. The contribution of productivity gains to growth has increased in recent decades. Productivity gains are attributed to both “within sector” gains, and to the reallocation of resources to more productive sectors.
Third, the first phase of growth acceleration lasted from 1991 to 2003, when GDP grew at an average rate of 5.4 percent a year. It marked a growth acceleration of 1 percentage point a year over the previous two decades. A short second phase of unusually high growth followed during 2004–08, when growth was aided by rapid global growth and easy global liquidity, and by the impact of important reforms that were undertaken in prior years. During this phase, GDP grew at an average annual rate of 8.8 percent. The period of growth acceleration was propelled by a rapid increase in rate of investment, financed by high credit growth and a surge in capital flows.
Fourth, even as the economy has slowly reverted to the trend growth rate and stabilized in recent years, the revival is not firmly anchored in investment, exports, and the industrial sector. Investment rates have declined in recent years and India has been losing global export market shares (see Selected Issue Notes). Further, the credit slowdown initiated by the crisis has been protracted: even though the initial extent of the slowdown was comparable to that in other emerging markets after the global financial crisis, recovery in investment and credit has been more protracted than in other countries. This may have implications for sustaining the current growth rate, for accelerating growth to India’s potential, and for enhancing the potential growth itself.
Fifth, the growth deceleration of the last few quarters is not in continuation of the long-term growth dynamics. While the deceleration of growth to the average rate of about 7 percent is structural, a further decline in growth rate to levels below 7 percent between Q3, 2016–17 and Q1, 2017–18 has been an aberration. This additional slowdown is due to the twin policies of GST and Demonetisation. The economy is recovering from those, with growth reverting to the trend rate of growth of about 7.5 percent in the coming quarters. But prognosis for 2019-20 was not too upbeat.
