It is im­pos­si­ble to re­alise the po­ten­tial de­mo­graphic div­i­dend with­out cre­at­ing ca­pa­bil­i­ties in our young pop­u­la­tion.

India Today - - UPFRONT - Deepak Nay­yar is emer­i­tus pro­fes­sor of eco­nom­ics at Jawa­har­lal Nehru Univer­sity and the au­thor of the forth­com­ing book Catch Up: De­vel­op­ing Coun­tries in the World Econ­omy (OUP)

It would seem that the econ­omy in In­dia is be­sieged. Eco­nomic growth has slowed down to be­low 5 per cent. The fis­cal deficit of the Gov­ern­ment is wor­ri­some. The bal­ance of pay­ments sit­u­a­tion is un­sus­tain­able, for we can­not live be­yond our means in­def­i­nitely. Con­fi­dence, the great in­tan­gi­ble, is col­laps­ing. Tan­gi­bly, do­mes­tic in­vest­ment has dropped, sti­fled by erod­ing con­fi­dence and ris­ing in­ter­est rates. From abroad, short-term in­vestors have fled, and long-term in­vestors are re­luc­tant to come. The ex­change rate vo­latil­ity and the plum­met­ing ru­pee sug­gest that a cri­sis is im­mi­nent.

But the real con­cerns of the peo­ple lie not in macroe­co­nomic eso­ter­ics. In­fla­tion or the rate of price rise has been close to dou­ble-digit lev­els for three years. The con­sumer price in­dex has moved up faster than the whole­sale price in­dex—which is ris­ing again af­ter a brief lull—while in­fla­tion in food and ne­ces­si­ties is even higher. And this in­fla­tion has hurt peo­ple, par­tic­u­larly the poor. The sky­rock­et­ing prices of food in an ob­vi­ously abun­dant mon­soon are a se­ri­ous prob­lem.

The peo­ple’s con­cerns about the econ­omy ex­tend much be­yond in­fla­tion. The three decades from 1980 to 2010 wit­nessed the most rapid eco­nomic growth since in­de­pen­dence, at 6 per cent per an­num in GDP and 4 per cent per an­num in GDP per capita. But this did not lead to a com­men­su­rate im­prove­ment in the liv­ing con­di­tions of a large pro­por­tion of our pop­u­la­tion. The rea­sons are clear enough.

The most im­por­tant rea­son is job­less growth. Dur­ing the 2000s, the pro­por­tion­ate in­crease in em­ploy­ment in agri­cul­ture and man­u­fac­tur­ing has been less than one-tenth the pro­por­tion­ate in­crease in out­put. This is our big­gest fail­ure which shows that in­clu­sive growth is mere rhetoric. The NREGA is at best a safety net but trans­fer pay­ments in per­pe­tu­ity can­not pro­vide a sus­tain­able so­lu­tion to this prob­lem. Em­ploy­ment cre­ation is the only in­sti­tu­tional mech­a­nism that can me­di­ate be­tween eco­nomic growth and hu­man de­vel­op­ment or so­cial progress.

It is no sur­prise that the sub­stan­tial in­crease in ag­gre­gate in­come at­trib­ut­able to growth has been dis­trib­uted in an un­equal man­ner. There is a steady in­crease in con­sump­tion in­equal­ity. In­so­far as the rich do much of the sav­ing, the in­crease in in­come in­equal­ity is greater. And the share of the rich­est 1 per cent of the pop­u­la­tion in na­tional in­come has in­creased even more. The ben­e­fits of growth have ac­crued largely to the su­per-rich and the grow­ing ur­ban mid­dle class.

The in­crease in in­equal­ity has meant that growth has led to less poverty re­duc­tion than it would have if in­come dis­tri­bu­tion had re­mained un­changed. And poverty per­sists. Set­ting aside the de­bates about poverty lines or es­ti­mates, it is clear that the num­ber of poor peo­ple in 2013 is much larger than the to­tal pop­u­la­tion of In­dia in 1947. And, in 2010, more than one-third of the world’s poor lived in In­dia.

Such a medium-term per­spec­tive high­lights the per­sis­tent, yet mount­ing, crises em­bed­ded in job­less growth, ris­ing in­equal­ity and per­sis­tent poverty.

A long-run view re­veals the quiet, al­most silent, crises in agri­cul­ture, in­fra­struc­ture and ed­u­ca­tion. There is a cri­sis in agri­cul­ture that runs deep. Farm­ers’ sui­cides and Maoist move­ments are just symp­toms. The agri­cul­tural sec­tor ac­counts for less than one-sixth of GDP but more than two-thirds of our peo­ple de­pend upon it di­rectly or in­di­rectly for their liveli­hoods. The dif­fer­ence in GDP per capita is mas­sive. The in­equal­ity in terms of so­cial op­por­tu­ni­ties is even greater. Yet, there is lit­tle cog­ni­tion of this in the pub­lic dis­course.

In­fra­struc­ture is dis­mal. The phys­i­cal in­fra­struc­ture, whether roads, power or trans­port, is poor and in­ad­e­quate. The story is much the same for so­cial in­fra­struc­ture, whether ed­u­ca­tion, health­care, san­i­ta­tion or even drink­ing wa­ter. In this mi­lieu, nei­ther eco­nomic growth nor hu­man de­vel­op­ment is sus­tain­able.

There is a quiet cri­sis in ed­u­ca­tion. Ed­u­ca­tional op­por­tu­ni­ties are sim­ply not enough and what ex­ists is not good enough. It is im­pos­si­ble to re­alise the po­ten­tial de­mo­graphic div­i­dend with­out cre­at­ing ca­pa­bil­i­ties in our young pop­u­la­tion. In­deed, the spread of ed­u­ca­tion in so­ci­ety is at the foun­da­tions of suc­cess in coun­tries that are late­com­ers to de­vel­op­ment. In this crit­i­cal do­main, the Gov­ern­ment is asleep at the wheel.

The fo­cus now is on the im­pend­ing macroe­co­nomic cri­sis. There is a need for deft macro-man­age­ment of the econ­omy. But sta­bil­is­ing the bal­ance of pay­ments and the ru­pee, while ab­so­lutely nec­es­sary, is not suf­fi­cient for broader eco­nomic well-be­ing. The un­der­ly­ing crises in the econ­omy are man­i­fold and com­plex. The for­mi­da­ble chal­lenge is that each of th­ese crises, which might sur­face or im­plode in dif­fer­ent time hori­zons, need to be ad­dressed here and now. Un­less this is done, eco­nomic growth is bound to be con­strained if not sti­fled. The gov­ern­ment that as­sumes of­fice in May 2014 has its task cut out.­di­a­to­day­im­



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