Getting people back to work – the growth mantra India needs as 1991 big bang reforms turn 30
NOTNext week will mark three decades since the Narasimha Rao government took office and set in motion sweeping reforms that have changed the direction and speed of the Indian economy. During these 30 years, India’s share in the world economy has tripled from 1.1% to 3.3%. In current US dollars, the economy has grown 11 times; only China and Vietnam did better. And on key human development indicators (mainly life expectancy and literacy), India did slightly better than the average for countries bracketed in the “medium development” category. To be the 12e largest economy, India is expected to be the sixth largest this year.
This is a good track record, compared to what other countries have done and also compared to India’s previous three decades, but well below what is needed and what was possible. Many numbers have crossed the poverty line. Yet outside of Africa, which has taken Asia’s place as a hotbed of mass poverty, India’s percentage of poor remains among the highest. In terms of per capita income, 90 percent of the 150 economies for which the International Monetary Fund (IMF) had data in 1990 did better than India. Today, about 75 percent of the 195 or so countries are doing better than India, which today even has less than a fifth of the world’s average per capita income. Inequality has clearly increased, but there are no reliable figures after 2011.
The history of the past 30 years is not uniform. The first two decades did better than the third (2011-21). Many countries that were previously overshadowed by India’s record are now doing better, including Bangladesh and even the Philippines – and of course China and Vietnam too. India still looks relatively good when you compare its 2011-21 record with Latin America’s decline in GDP over the same period, the crisis in sub-Saharan Africa and even the ten-year performance of Asean-5. . But India’s GDP was 37% of China’s in 2001; two decades later, that figure has fallen to 18 percent. India’s growing contribution to the global economy has given it greater weight on the international stage, but its balance of power with China has weakened considerably.
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What the economy needs
Gaining momentum after the relative sluggishness of the post-2011 period would have been difficult enough, but the pandemic has made all the numbers worse and more challenging. Employment was already a failing ground; the situation is now much worse than it was two years ago. Millions of people have fallen back into poverty. And millions of small businesses that have lowered their shutters may never reopen. The dualism of the economy is accentuated.
What the economy needs is a new boost in productivity and a fairer system. The Modi government focused on physical infrastructure and a series of welfare measures. Both are necessary and welcome, but cannot substitute for the necessary dramatic improvement in the quality of human resources, which laid the groundwork for the transformation of East Asia half a century ago. While goals like becoming a $ 5,000 billion economy are discussed, there is hardly any question of increasing literacy from 74% to 100% in record time, or radically improving the quality of education. health infrastructure – poorly exposed by the pandemic.
A properly functioning financial system, meeting the needs of all categories of borrowers, is still lacking. The tiny shard of outstanding loans that will accrue to lenders during the bankruptcy process tells a damning story. A new wave of defaults is now expected, reflecting the challenges still facing small and medium-sized businesses. Finance can’t do well when businesses are hurting.
But the most important task, economically and from a welfare point of view, is to get people back to work and to promote employment-intensive activities. It has not been done for 30 years, nor for 30 years. The fate of the next 30 years depends on this question.
By special arrangement with Business Standard
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