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Economy

It could be a dubious first

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WORLDS APART: The disjunction between growth and the quality of life is becoming increasingly clear not just to the poor but to the urban affluent as well.

India may soon get its first year of double-digit growth. But how big a deal would that be? Not that big, say a growing tribe of growth sceptics. It's the quality rather than the quantity of growth that really matters

At a time when the Western world worries about double dip recession, India seems to be preparing for double digit growth. It is not that difficult to conceive. After all, in 2006-07 the Indian economy came tantalisingly close to the double digit mark with 9. 8 per cent growth in GDP. However, a hiatus followed. The slowdown induced by the global financial crisis put the aspirations of 10 per cent growth on hold as India sweated through the dog years of 2008-09 and 2009-10. The two years saw growth rates of 6. 7 per cent and 7. 4 per cent respectively, respectable by any standard but clearly nowhere close to 10 per cent. The rebound in the economy this year has rekindled hopes. If some American investment banks and some of our own economists are to be believed, our economy will cross this threshold by the middle of the decade, perhaps as early as 2015.

Say we do get to double digits in 2015. How big a deal would that be? Not that big, assert a growing tribe of growth sceptics who point out that it's not the quantity or the absolute rate of growth that matters. It's the quality that is important. In short, what does growth really deliver?

This scepticism or caution is legitimate for India. For one, a few uncomfortable questions have to be answered satisfactorily about the payoff from growth over the past decades. After all, India sprang out of the 'Hindu rate' trap almost thirty years ago. Liberalisation added traction. Thus India might not have hit double digit growth, but it was the second fastest growing major economy in the world after China, averaging over 7 per cent in the 2000-10 decade.

Yet if you believe experts like Suresh Tendulkar, 37 per cent of our population of over a billion lived below the poverty line at the end of the last decade, a fraction that is much higher than the government's figures would have us believe. The fact that it is down from 45 per cent in 1993-94 is, I guess, a consolation. However, one has to bear in mind that the population grew substantially in this period and in absolute numbers we are pretty much at square one. Take another statistic that I find particularly distressing. About 43 per cent of our children below five suffer from malnutrition. The corresponding number for China, to put this in perspective, is 7 per cent. India is 132nd on a list of 182 countries on the ranking of the UN's human development index, below the likes of Guatamela or Equatorial Guinea. I could go on.

Then there is the issue of inequality that is closely related to poverty. For the non-economists among readers, technical inequality measures might seem like mumbo jumbo. However, the simple fact that cities like Mumbai teem with dollar billionaires while India has more poor than a number of African countries put together gives us some clue to whether inequality has gone up or down. Estimates show that the wealth of India's top ten dollar billionaires is 12 per cent of our GDP. For China, it is 1 per cent, for Brazil 5 per cent. The same country that frets over juvenile obesity in affluent city children is, ironically, also the one where over 40 per cent of children are severely underweight.

Finally, I am not even sure that the urban middle classes (usually considered to be the biggest beneficiaries of the post-reform surge in growth) are that better off either. Look at our cities. I live in Gurgaon, India's so-called millennium city and upper middle class Valhalla. I do have a range of malls to choose from stocked with the best branded couture and the widest-screen LCD TVS. But with eight power cuts a day on average, perpetually dry taps, roads that resemble the moon's surface and the constant dread of dengue and Japanese encephalitis, I often wonder what the fuss is all about.

There are two sets of problems that we need to think about before we start salivating over the prospect of double digit growth. First, the disjunction between growth and the quality of life (or development if you like) is becoming increasingly palpable not just for the poor but for the urban affluent as well.

Second, the problems that have been associated with growth in recent history could actually start impinging on growth over the medium term. Thus, we might just climb over the 10 per cent barrier for a couple years, but this might not sustain for too long. For one, economists who look at the growth experience of different economies claim that rising inequality can severely damage growth. The skewed distribution of incomes is one of the biggest risks that our economy is running. One way to fight this is to promote urbanisation (the incidence of rural poverty is much higher than in the cities) as China did. However, the abysmal condition of urban infrastructure tends to push the rate of migration from village to city down. It is a vicious cycle.

Growth junkies tend to bet on the so-called demographic dividend - the combination of a growing and de-ageing population - to rev the growth engine. An unhealthy or under-educated work force might swell the population top-line;they do not, however, add to labour supply. Thus a labour-surplus economy like India could well be in the ironic situation where labour shortage emerges as the biggest constraint for growth. Those who find this suggestion bizarre just need to look at the experience of the IT and BPO sectors before the global economic crisis. The much-touted graduate pool of a hundred million plus seemed to have shrunk dramatically when it came to finding 'employable' graduates.

This is not meant to be an anti-growth rant. In fact, history shows us that high growth has the potential to alleviate poverty and enhance development. The problem lies in treating it as the holy grail of economic policy, sufficient by itself to ensure a better quality of life. That's an error that some of our governments made in the past. Misplaced faith in the power of growth has toppled governments (remember India shining?). Let's not make the same mistakes again.

Reader's opinion (1)

Arvind MohanOct 25th, 2010 at 13:19 PM

YOUR ARTICLE IS GREAT IN TERMS OF KNOWLEDGE AND EMOTIO.ONE MUST UNDERSTAND THE FACT THAT DESIRED STATISTICS DOES NOT RUN NECK- TO- NECK WITH SOCIO-ECONOMICS.DISPARITY WILL BE EVERWHERE.DEMOCRACY TRY TO LESSEN ABJECT POVERTY BUT IT ALSO ALLOWS ONE TO MAKE AMASS PROPERTY.

 
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