Growth And Its Discontents : Why India's Excellent Growth Story Is Gloomy
By Ajaz Ahmad Rather
20 May, 2016
Countercurrents.org
Now that even ten states have ultimately though rather reluctantly declared drought, celebrations at excellent growth for Indian economy seems quite sadist. The IMFs projections of around seven and half percent growth instead of being a strength represents weak aspects in the growth dynamics of India. From a public perspective it is based on relative exclusion of the majority. And if it continues without any dependence on such a vast labour resource, it's prospects of benefiting masses would definitely be curtailed. In such a situation this crony capitalism will not only be a policy failure, but a deep blow to the democratic spirit and people centric claim of the Indian republic. On May 5, finance minister's remarks exactly represents this misplaced euphoria, "economy which had been expanding on strength of public investment, highest foreign direct investment (FDI) and urban demand, can grow faster if rural demand is added". He appended the latter in the context of the predictions for better monsoon this year.
What renders this excellent growth story, despite occurring in gloomy and challenging global economic conditions, a less worthy of celebration phenomenon is the severely limiting factors, both in its source as well as distributive side, that confront it. Important dimensions need deep rethinking for long terms policy appropriateness. Some of the important unaddressed problems we briefly take up here.
The first is that even when agriculture is disastrously failing in India how come it was possible that growth of that magnitude would occur? After new agriculture policy initiated in mid 2000s, the situation in agriculture improved and growth for the following decade reached almost four percent, almost double than the previous decade. However, the dependence on rainwater and monsoon remained almost the same, and any disaster preparedness was never taken seriously. Consequently, as rains failed, the situation deteriorated. In fact the statistics show that growth in 2014-15 has been minus 0.2 percent. The situation has deteriorated sharply thereafter and the current year is proving to be the worst. Not only in 2014 and 2015 the southwest monsoon failed but even unseasoned rain and hailstorms over large parts of north, west and central India in spring 2015 led to two consecutive draughts and three back to back crop failures across large parts of India.
It is well known that agriculture and industrial sector have linkages and a deterioration in one does make a trailing impact on the other, particularly in a less industrialised and high agriculture depended economy. However, Indian agriculture seem to be increasingly playing a neutral role in its growth story. It is well known that majority of people in the economy dependent upon agriculture as prime means of their livelihood. In fact, the latest employment-unemployment survey recorded a reduction in such dependence but still no less than half of the work force banks of agriculture. If fifty percent of the workforce fails to produce anything substantial and growth still happens, should it be looked as good for the economy in any real sense, unless the design of growth allows their exclusion. And if growth occurs independent of them, their possibility of benefitting from it stands already compromised. This structured exclusion of the majority and independence of growth from them is one of dark most aspects of the Indian high economic growth.
Another important issue is that the recent economic growth has been relatively employment inelastic. While agriculture has severely failed and those dependent on it are more than willing to shift to other sectors, the way growth is taking place, there seems to be no or heavily compromised space for them. As per the Economic Survey, the growth rate of labour force during 2001 to 2011 was 2.23 percent in comparison to the 1.4 percent growth rate of employment. Further employment elasticity of growth has shown progressive deterioration in from the first decade of the current century. As per the twelfth five year plan document of planning commission "the employment elasticity in India in the last decade declined from 0.44 in the first half of the decade 1999–2000 to 2004–05, to as low as 0.01 during second half of the decade 2004–05 to 2009–10." The overall employability of the economy has lately weakened even more sharply. For example, the employment creation in eight labour intensive industries of textile, leather, metals, automobiles, gems and jewellery, transport, IT/BPO, and handloom/power loom for which quarterly surveys are carried out since October 2008 has reached a low ebb in first three quarters of 2015. In 2009 these industries created 8.89 lakh jobs with best record of 9.30 lakh in 2011. Even during 2014 employment creation was 4.21 lakh. However, for first three quarters of 2015, it has reduced to 1.55 lakh only which may turn out to be around 2 lakh for the entire year, less than half of the previous year. The gravity of the employment challenge become more pronounced when one considers President Pranab Mukherjee statement who in March this year said that India needs to create 115 million non-farm jobs over next decade.
The higher growth could still be considered good from a welfare perspective if the either creation of jobs in public sector was huge or provision of public amenities would become accessible and affordable for most of the people. However, both tend to move in opposite direction. While public sector jobs have absolutely decreased after reforms, there is an increasing pressure on the curtailment of public provision of goods and service as well. In fact the ascendence of Narender Modi's government, more than anyone else before, meant curtailment of public support to common people. This happens in the name fiscal consolidation with emphasis on reduction in public expenditure and increase in revenue.
What is even more serious is that the main public employment alternative for manual labourers in India, MGNREGA, has also not been functioning properly. The latest figures, for 2016 budget, have been deceptively called the best. The fact, however, is that the allocations have actually fallen from 0.6 percent of GDP to 0.26 percent from 2010-11 to 2016-17. Further, people are already disheartened to depend on the scheme because of the nonpayment of their earlier bills. Consequent to such long delay in payments to workers, a mere 7 percent of households in the drought affected states crossed 100 days of work. People who are confronted by failing agriculture, jobless growth and ultimately by non-functional social/employment security system in the form of MGNREGA as well, can find no pleasure in learning that India grows better than others, is recipient of highest FDI and happens to be one of the main growth engines of the world.
The discontents of growth do not end here. The recent tax statistics have revealed another of the bizarre trends in the way Indian economy in working and who benefits from and who pays for Indian growth. the tax records reveal that only 18,359 presents themselves as crorepaties. As per the data released by the government until financial year 2011-12, this is a mere 0.06 percent of the total 28.7 million individual tax assesses. However, according to a 2013 Kotak Wealth Management and CRISIL report titled 'Top of the Pyramid' there were no less than 81,000 ultra-high net worth households, each with a minimum net worth of Rs 25 crore, in India in 2011-12. Thus, a potential huge number seems escaping the tax axe. Panama papers case in may be an eye opener and show how large income and asset holders evade the tax brackets. Further, corporation tax due to various loopholes is also falling short of the potential due to it. Apart from the administrative and efficiency loopholes, according to social investor Rohit Parakh, 52,911 companies that made profits in 2014-15 either didn't pay tax or ended up as recipients of funds from the government.
The result of such a trend is that proportion of direct tax in the overall tax collection has reduced. For instance, the contribution of direct tax in total taxes has reduced speedily, from 60.8 percent in 2009-10 to 54.2 percent in 2012-13 and as per provisional data further to 51 percent in 2015-16. Since, low income people make more expenditure they end up paying more taxes per hundred rupees they earn than richer sections. Thus the growth which benefits rich disproportionately end up being disproportionately supported by poorer section through their demand as well as taxes.
It may also be an issue whether the taxes actually help the richest sections most as they are in the process of acquiring more incentives in the Make in India Modi-type production philosophy. This is somewhat similar to what has happened in countries like USA as vividly portrayed by Joseph Stigtlz in his books 'the Price of Inequality' and 'the Great Divide'. Income may simply be moving up from the low slab groups to high slab ones that keeps them tickling with the production machine. And while they push it to perform the best, the further down the people are on the income ladder, the more they end up to be missing in the growth story.
Ajaz Ahmad Rather, Lecturer Economics
Author: Economic transformation in China
Email: [email protected]