The enigma of India's growth

Shreekant Sambrani

Top Emailed Features

• 10 ways to reduce your family's taxes

• 10 calculations to know
• They quit good jobs to mint millions!
Have you tried this?
• Ask a question
• News on your Desktop
Advertisements
• Master the Stock Market
• Industry Market
• Business Guru speaks
Moneywiz
• Stocks & MFs

· My Portfolio · Live market report · MF Selector · Broker tips

Get Business updates: What's this?
[Subscribe to Newsletters] [XML Business Feeds] [JS Business
Feeds] [SMS 7333 Mobile Downloads]
Advertisement

Pre launch Free Opportunity.

Earn up to 25,000 a week forbuilding 2 teams + matching bonuses. Top incomes up to RS. 75,000/- a
month.
Sandalwood Investment.
Best Opportunity to investment insandalwood with government permission.
5Rediff P4C Classifieds
August 16, 2008 11:32 IST
Last Updated: August 16, 2008 12:06 IST

"India seems to be held together by chicken wire and chewing gum," I said to a niece visiting us six years
ago on Independence Day and wondered how long before it would start giving way. "Don't worry," she
said, "we'll invent stronger chicken wire and stickier gum."

Events since then show that the young lady, a star shining brightly in India's largest private bank, was
largely right. The India success story is long past the flavour-of-the-month stage and even the most die-hard
critics have had to accept it.

This article is not about the usual success stories and fault lines. I wish to reflect on the large picture from
three angles to see what our real degree of comfort is.
First, by any yardstick, India's success as indicated by its $1 trillion GDP in actual currency units (the only
true measure of economic power in the era of globalisation) and its sustained 8 per cent plus annual growth
appears improbable.

The horrendous state of infrastructure, unending shortages of energy and attendant high costs, chaotic and
unpredictable twists and turns in the policy and governance environment, pervasive corruption, abysmal
quality of life in cities and villages, would all suggest imminent collapse, not growth, which is the envy of
most of the world.

India has indeed invented sturdier chicken wire and more adhesive gum!

Second, poverty, once a defining adjective for India, is on the decline. It is now not confined only to official
statistics, the latest of which point out that for the first time the number of the poor is actually falling and at
a rapid rate at that.

The poverty ratio in 2005-06 was 24 per cent, with an actual decline of over 20 million in the head count of
280 million over the preceding year (Planning Commission internal assessment reported in The Indian
Express, July 22, 2008). One can see it visually as well in travels in the countryside, including relatively
remote areas. Let us accept this remission without entering into a debate as to what caused it.

Third, there is ebullience of a can-do spirit abroad. Surging exports of manufactured items, albeit still of a
relatively small number of articles, show that we are moving fast to shed the stigma of shoddy goods long
associated with the sector.

A highly successful first generation entrepreneur, now a star performer in a global business, confidently
predicted that India will see an inflexion point within the next five years in the secondary sector, with the
world increasingly thinking of it as an alternative manufacturing hub to China, especially for relatively
high-value products.

I have no reason to doubt his optimism, based on the experience of many others like him. The eager
acceptance of world-wide challenges is not confined any longer to the IT sector or giants such as the
Ambani brothers or the Tatas. It has percolated to those orders of magnitude smaller than them.

So now I come to the dreaded two words, 'and yet'. Even the most vociferous champions of India's growth
would have to admit that it has not been inclusive. I had pointed out in these columns (Business Standard,
April 17, 19 and 24, 2008) that notwithstanding the brave words of the government, agriculture has
continued to stagnate even as India grows: "The per capita income for those dependent on agriculture at
$327 a year is only 22 per cent of that of the remaining half of the population at $1,490.

"And the gap would widen every year by almost $120 even if agriculture grew at the desired rate of 4 per
cent and the economy at 8 per cent . . . The gulf between India and Bharat is real and fearsome." My friend
the entrepreneur-technocrat readily accepts this and ruefully admits that a solution eludes even his proven
and formidable problem-solving abilities.

Further falls in poverty will necessarily have to follow employment generation of a very high order. I had
earlier referred to the disproportionately high dependence on agriculture as the employer of last resort. The
Economic Survey 2008 has revised this figure down to 50 per cent, but agriculture contributes only 18 per
cent of the GDP.

Dr Shankar Acharya says: "There is clearly something wrong with our employment policies and outcomes"
(Business Standard, April 24, 2008). He points out that the huge mismatch between supply and demand for
labour is the result of an absence of labour-intensive manufacturing which creates decent low-skilled jobs
in poor countries. Our growth, while not quite jobless, has not succeeded in absorbing the surplus labour to
the extent needed.
This is not an easy task. It requires that the population dependent on agriculture must come down in
absolute numbers. My simple, back-of-the-envelope calculations show that to wean 1 million workers (or
2.5 million people) away from agriculture with a per capita income of $400 a year, still well below that in
service and manufacturing activities, will require an investment of $17 billion a year, every year.

Compare this to the total investment of $10 billion over a four-year period in the government's most
ambitious such activity, the Bharat Nirman project.

And finally to the rising spirits. The captains of industry may exult in it, but we are still an anarchistic
people as public events, intolerance of any divergence, and the lack of discipline and public morality
abundantly make clear. The eminent historian, Dr Harbans Mukhia, had observed in a luminous essay some
years ago that the world over, development means a greater sense of responsibility and self-control, while
in India, the exact reverse seems to be happening.

In the decade since then, this phenomenon has grown manifold. The ever-widening gulf cannot but
exacerbate this, as can be seen from the turn of events such as the Gurjar agitation not too long ago, or the
current Amarnath imbroglio. Conflicting claims on increasingly scarce resources such as land, water and
energy hold the portent of acute civil strife.

On this Independence Day, I wonder yet again how long the stronger chicken wire and stickier gum will
hold.