After 25 years of reforms, deeper malaise still prevails

After 25 years of reforms, deeper malaise still prevails

India is currently on the cusp of a radical ‘change.’ Change is the new narrative that the current government has indulged in most of its thinking and governance. However, the ‘change’ that we all subscribe to is the change that began little over a quarter of a century ago.

For independent India, the year 1991 was a tumultuous but a momentous one which witnessed radical departure from its past. Initiation of structural adjustment programme (SAP), restructuring of the domestic economy with abolition of Licence Raj policy in the 1990s and episodes of external trade policy liberalisation paved the way for India’s slow and gradual integration to the world economy. The path trodden however was not smooth, rather marked with sense of fear, despair, uncertainty and toeing the line of ‘Washington Consensus’.

In fact, India earlier witnessed some episodes of liberalisation in the late 1970s and in mid-1980s, which were perceived as correctives for an industrialising economy, but did not contemplate any fundamental changes in the objectives or strategy of development. The changes in 1991 were significant to be characterised as paradigm shift.

This paradigm shift aimed to achieve economic growth combined with economic efficiency. The earlier concerns about equity were subsumed in the pursuit of growth on the premise that it would reduce poverty. Second, this policy was supposed to have a conscious decision to substantively reduce the role of the state in the process of development and rely far more on the market.

In doing so, the large share of the public sector in investment and output would be reduced while the government would no longer guide the allocation of scarce invest-ible resources in the private sector. Third, the degree of openness of the economy in trade, investment and technology was soug-ht to be increased significantly and rapidly.

All these 25 years of reforms have catapulted India to a higher level of growth and income with GDP registering high growth of 7.3% and some sectoral contributions to India’s GDP have been rising steadily in the area of services sector. This is a welcome sign which has been significantly recognised by industrialised countries. But this achievement is yet to cure many social evils that the country is currently laden with.

This performance is impressive in aggregates but conceals as much as it reveals, for growth is necessary, but not sufficient. It is important that a country’s per capita income should rise but it is more important to know that the per capita income is only an arithmetic mean. Social indicators of development are also statistical averages.

Neither captures the wellbeing and happiness of the poor or the common man because GDP doesn’t have the power to distribute the gains equally. There are three persistent, yet mounting, crises that can be sighted of such as jobless growth, persistent poverty and rising inequality. A long-term view reveals the quiet, almost silent, crises in agriculture, infrastructure, industrialisation and education also.

The first persistent crisis is the phenomenon of jobless growth. The key failure of the reform policies of the past quarter has been, despite such rapid economic growth, is employment creation which has simply not been commensurate. In fact, the employment elasticity of output declined steadily from reasonably high levels during 1972–73 to 1983 (0.60) through modest levels during 1983 to 1993–94 (0.41), to low levels during 1993–94 to 2004–05 (0.17) and 2004–05 to 2011–12 (0.04).

The second persistent crisis is that of poverty which persists on a large scale even after three decades of the most rapid economic growth, faster than anywhere in the developing world, as also in history, except for China. Of course, growth has helped bring about a significant reduction in absolute poverty.

Yet, its incidence remains high. In 2011–12, at least 25%, possibly 30%, of 1.2 billion people were living in absolute poverty and below the critical minimum in terms of food and clothing. These are the perennial poor. If we were to use a higher poverty line that allows for other basic needs such as appropriate shelter, adequate healthcare and education, it is estimated that about 75% of the population lives in absolute poverty. These are the vulnerable poor.

Vulnerable population

The population between the two poverty lines, more than 40% of the total is vulnerable to any shock such as a bad harvest, high inflation or an illness in the family which could push them deeper into poverty. In fact, in 2011, of the total number of poor in the world around one-third lived in India. It has not shown any signs of improvement in 2016 in real terms.

The third one, which has worsened in the era of economic liberalisation, is the rising inequality. In fact, but for this, rapid growth in GDP would have reduced poverty far more. The evidence on trends in inequality is fragmented and incomplete. Between 1990 and 2010, the Gini coefficient of consumption inequality in India (estimated from the National Sample Survey Office data) rose from 29.6 to 36.8. The increase in income inequality is bound to have been significantly greater because the poor save little or dis-save, while it is the rich who save.

Apart from such deeper malaise, a few more crises are also noticeable in the countries which are posing serious threat to the sustainability of this economy. First is the distress in agricultural sector.

Current situation in this primary sector of the economy is far more serious than it was in mid-1960s. Its near absence in the GDP contributing to 15% is a clear indicator of suggesting why this sector is not heard enough in the discourse of the governmental narratives. It is becoming apparent that agriculture’s long neglect has worsened with each successive government. Farmer suicides are on the rise and Maoist movements are spreading in different parts throwing law and order out of the gear. Neither of these is recognised as symptomatic of deeper crisis of rural India.

(The writer is Professor, Lal Bahadur Shastri Institute of Management, New Delhi)