Inequalities: The Seamy side of Economic Development

I Satya Sundaram

In the economic sphere, One euphoria is replacing another. The relative roles of the state and the market are not properly defined. In India, at one time, the stress was on state interference. There was nothing wrong in it. But, that failed to ensure judicious use of scarce resources, nor could it curb corruption and growth of black money.

The country continues to face crisis in leadership. The politicians thrive on shibboleths and shenanigans. Democracy has been enfeebled. Corporate-led growth led to rise of inequality. India has a poor index in terms of hunger or happiness—its rank is lower than those of its neighbours like Pakistan, Bangladesh, and Sri Lanka.

Growth of private wealth by itself is not bad. It should be followed by rise in productive employment, and also rise in wages in tune with rise in price rise (Natti, Sunitha 2017).

Despite a satisfactory growth rate (around 7 percent), India continues to be ranked below its neighbours in the inclusive development index released by the World Economic Forum (WEF) on 22nd January, 2018. India was ranked 62 out of 74 emerging economies. Pakistan was ranked 47, Sri Lanka 40 and Nepal 22.

The WEF Report said: "Designed as an alternative to GDP the inclusive development index (IDI) reflects more closely the criteria by which people evaluate their countries' economic progress."

However, observed that there has been a 2.29 percent improvement in the over-all five- year trend of the IDI for India. The country performs best (44th) in terms of inter-generational equity and sustainability, profiting from a low dependency ratio. Indian economy reaps the dividends of an extremely young population—28 percent of the Indian population was younger than 14 years in 2017. However, the Report observed that in India six out of ten still live on less than $3.20 per day.

Global inequality has come down as income growth shifts from Northern countries to emerging markets. However, this has not benefited the bulk of people in developing world. In fact, the extent of international inequality is likely to be substantially more than is indicated by measures based on purchasing power poverty (PPP) exchange rates.

At the WEF meet at Davos, in January 2018, it was revealed that 82 percent of the wealth generated in 2017 worldwide went to the one percent, while 3.7 billion people that account for the poorest half of population saw no increase in their wealth.

In India, there is no doubt income and wealth inequalities are rising. For instance, in 1982-83, the top ten percent (income group) claimed 30 percent of the GDP. This increased to 55 percent in 2013-14. During this period, the share of bottom 50 percent (income group) fell from 24 percent to 15 percent (Shome, Parthasarathi 2017). According to World Inequality Report, one percent earners received 22 percent of the national income in 2014.

The harsh reality is that 10 percent of the youth between 18 and 25 years, numbering 51 million, are unemployed. India has the third highest number of billionairs but 80 percent of the population earn less than $10 per day (200 million subsist on $2 per day).

In India, development has become skewed in favour of the rich and super rich, resulting in vast inequality which is reflected in social indicators.

The fact is, India's performance in respect of child mortality, child sex ratio, maternal mortality, mean years of schooling and life expectancy is far from satisfactory.

On the other hand, those with a net worth of more than Rs. 25 crore, are growing at 30 percent per annum. The country appears to have entered a vicious circle of inequity post-1991.

The situation is really pathetic because there has been misdirected emphasis on financial capital, instead of human and natural capital, and neglect of the core sectors—health, education and agriculture (Shukla, Avay 2018).

At the WEF meet at Davos in January 2018, it was revealed that the richest one percent in India cornered 73 percent of the wealth generated in 2017. The International Rights Group, Oxfam, has stated that 67 crore Indians comprising the population's poorest half saw their rise by just one percent.

According to the WIR 2018, in India, the top 10 percent got two-third of income increases, and just the top one percent got 28 percent. A recent Oxfam Report on global inequality has revealed that inequality in India was very sharp—the richest one percent accounts for 58 percent of the country's total wealth, as compared to the global figure of 50 percent.

In India, the rural-urban divide is sharp in the absence of balanced regional development. There is urban bias in investment under the veneer of lack of infrastructure in rural India.

Urban India is ahead of rural India on many fronts. In 2016, there were three percent more dilapidated houses in rural India than urban. Only about 3.36 percent of the houses in rural India are self-owned. About 4.82 percent of the houses in rural India have a computer (Business Line, April 9, 2016). Only a pragmatic investment policy can narrow down the Rural-Urban Divide.

Not a few factors have contributed to growing inequalities in income and wealth in India. No serious attempt was made by the Government to eliminate the factors contributing to inequalities. The government is also fully aware of the circumstances leading to worsening inequalities.

Unemployment rate is the proportion of persons who were available for work but did not get work and are still seeking work. The unemployment rate for the youth (aged 18 to 29 years) during 2015-16 was 13.2 percent. It was only 1.6 percent for the age group, 30+ years.

Unemployment is higher in urban than in rural areas and for females compared to males. Also, unemployment among educated youth is becoming increasingly more acute. Unemployment is 23 percent among the youth having a certificate course at the undergraduate level. This was 35 percent in respect of those who complete their graduate degree and above (Sharma, Alakh N 2017).

The ILO's World Employment Report, released on 23rd January, 2018, has stated that unemployment in India and China would rise in the next two years. The Report said that around 90 percent of workforce in India is in the informal sector.

The Report observed that in India, the number of jobless is expected to increase to 18.6 million in 2018, and to 18.9 million in 2019 (Business Line, January 28, 2018).

According to Labour Bureau, only 1.35 lakh jobs were created in 2015, lower than the 4.9 lakh new jobs in 2014 and 12.5 lakh in 2009. It looks 'jobless growth' is a reality.

Also, the employment elasticity to output was about 0.2 during the period 1993 to 2012. This means, every 10 percent change in real GDP led to a 2 percent change in employment. It fell from the level of 0.4 percent witnessed in the 1980s.

Only around 10 percent of India's workforce is trained (3 percent formally and 7 percent informally). In developed countries, 50 percent are formally trained.

There is no doubt that growth of black money in India has enfeebled the economy in more than one way. Black money is responsible for unproductive investment, a preposterous and perilous consumption pattern, undue demand for comforts and luxuries when there is shortage of essential goods and services. There is no political will to eradicate black money. An official, about to retire, is caught by ACB only after he accumulated crores of rupees. The official got increments and promotions. What the ACB has been doing all these years? Elections are mainly financed by black money. The measures so far taken by the government have not been successful.

According to some estimates, India's parallel economy was substantial at 75 percent of the GDP. According to one estimate, 1, 195 Indians operated accounts in other countries, and an amount of Rs. 25, 420 crore has been kept in those accounts.

India's development scenario suffers from regional disparities in development. Growth pattern itself is responsible for this. One of the major objectives of planning in India is reduction in regional disparities. However, that objective remained only on paper. For instance, in 2013-14, the per capita income of Gujarat was 4.3 times that of Bihar. In respect of Kerala, it was 4.3 times.

True, at one time, India gave top priority to industrialisation, and basic industries like iron and steel. However, the pattern of industrialisation led to regional disparities in industrial development. The rural industrialisation schemes too have run into rough weather. The implementation of special schemes in rural areas failed to correct this situation. They are ill-planned, suffered from leakages.

The economic reforms too contributed to widening inequalities. Structural reforms aim at improving the supply side of the economy. The stress is on efficiency and productivity. These are no doubt important. However, there were excess capacities in many sectors. Weak demand is the real problem. Most workers experience uncertainty about future. Sluggish wages and debts worsened the situation (Das, Satyajit 2017). There is no doubt that economic reforms in India bypassed the poor.

The poor are not able to raise their income levels because of government failure. For instance, with the present level of public expenditure on health, the poor were made to depend on the private sector. The health expenditure forms a major part of total expenditure of the rural households.

India has rich experience in the implementation of wage employment and asset distribution programmes. However, even now, the implementation continues to be poor.

The need for equity and social stability calls for creation of opportunities to shift and absorb workforce in some productive sectors (Aiyar, Shankar 2017).

Concerted efforts are needed to generate productive employment. The special schemes so far implemented could not strengthen the local economy. They suffered from leakages. In fact, they should form an integral part of block planning. In the place of special schemes, there must have area planning.

Diversification of agricultural sector with stress on value-added items is necessary. This would boost farm incomes. However, a part of the labour force now depending on agricultural sector should be shifted to non-farm sector in the rural areas. Raising farm incomes on a sustainable basis is the answer to the problems of poverty, unemployment and under-employment.

In a densely populated country like India, the growth of small and medium enterprises is very important. The government has been providing incentives to this sector. Yet, sickness is growing. This means an environment for its healthy growth is absent.

The small units need not be inefficient. In countries like Germany and Japan, even small units are efficient. Modernisation holds the key. In a climate of liberalisation, the state has to extend full support to this vital sector.

Over several decades, the developmental gap between regions was not narrowing down (Ranade, Ajit 2018). The Niti Aayog's think-tank recently identified 115 most backward districts. The survey was conducted in 680 districts in November, 2017. Vizianagarm of Andhra Pradesh tops among the 115 most backward districts of the country, followed by Rajnandgaon district of Chattisgarh.

There are also inequalities within the states. The fact is, rapid rural industrialisation of each state is the solution to both inter-regional and intra-regional disparities in development.

Studies show non-agricultural workers are paid more than agricultural workers in rural India. The average daily wage of an agricultural worker was only Rs 210 while it is Rs 230 for non-agricultural workers. Masons are paid nearly double what beedi makers get in rural India (Business Line, April 23, 2016) Inequalities can be reduced only when the government gives top priority to area planning.

The Economic Survey 2016-17 mooted the idea of Universal Basic Income (UBI). It says that every citizen be given an income transfer equivalent to what is needed to raise those currently deemed poor to above the official poverty line. It may require a transfer of Rs 3,500 per capita per annum. Covering 75 percent of the population with UBI could cost the economy almost 4.9 percent of the GDP, if the basic income is fixed at Rs 7,620 per individual.

Those who support UBI argue that it gives autonomy to the poor through an unconditional cash transfer. It is hoped that this would reduce poverty and enhance employment. It also does away with leakages very common for all welfare schemes.

The concept UBI has been strongly criticised. It is that the public borrowing to distribute for consumption is to be guarded against (Balakrishnan, Pulapre 2017). It is argued that UBI reduces the incentive to work. Also, the detachment of income from employment is not sound. Most economists believe that the economy cannot afford such a huge spend on UBI. The subsidies are growing.

In a vast and densely populated country like India, achieving high growth, and then thinking of distributive justice is not sagacious. Both the production and consumption patterns should lead to reduction in inequalities. With the current stress on liberalisation, the task has become much more difficult. Concerted efforts are needed on many fronts to achieve higher growth rate, stability and equity in the economic sphere.

The stress should be on reforms to simplify procedures, speeding up the delivery system and enlarging competition (Rangarajan, C 2017) Also, in a vast country like India, region-specific strategies are required.

References:
Aiyar, Shankar (2017): 'The task of job creation and the test for task forces', The New Sunday Express, September 10.
Balakrishnan, Pulapre (2017): 'The price of fiscal folly', The Hindu, January 24.
Das, Satyajit (2017): 'Why Reagonomics will not work today', BusinessLine, January 28.
Natti, Sunitha (2017): 'Growth sans equity meaningless', The New Sunday Express. August 10.
Ranade, Ajit (2018): 'Cutting the national cake fairly', The New Indian Express, March 31.
Rangarajan, C (2017): 'Sharpen the focus on growth', The Hindu, April 3.
Sharma Alak N and Balwant Singh Mehta (2017): 'Job creation : Challenges and Way Forward', Yojana, June.
Shome, Parthasarthy (2017): ' Mind the widening gap', The Economic Times, September 26.
Shukla, Avay (2018) 'The real challenge of inequality ', The New Indian Express, March 7.
Sundaram I Satya (1984): Anti-Poverty Rural Development in India, B R Publishing Corporation, New Delhi.

Frontier
Autumn Number 2018
Vol. 51, No.14 - 17, Oct 7 - Nov 3, 2018