The Low Side of High Growth

I wish I could summarize Amit Bhaduri’s critical take on India’s high growth rates in recent years-titled India’s Predatory Growth from last week’s EPW. It is, however, so succinct that I’d suggest reading the whole article. Here are a few excerpts:

Statistical half truths can be more misleading at times than untruths. And this might be one of them, insofar as the experiences of ordinary Indians contradict such statistical artefacts. Since citizens in India can express reasonably freely their views at least at the time of elections, their electoral verdicts on the regime of high growth should be indicative. They have invariably been negative. Not only did the “shining India” image crash badly in the last general election, even the present prime minister, widely presented as the “guru” of India’s economic liberalisation in the media, could never personally win an election in his life.

In contrast to earlier times when less than 4 per cent growth on an average was associated with 2 per cent growth in employment, India is experiencing a growth rate of some 7-8 per cent in recent years, but the growth in regular employment has hardly exceeded 1 per cent. This means most of the growth, some 5-6 per cent of the GDP, is the result not of employment expansion, but of higher output per worker. This high growth of output has its source in the growth of labour productivity. According to official statistics, between 1991 and 2004 employment fell in the organised public sector, and the organised private sector hardly compensated for it.

At the extreme ends of income distribution the picture that emerges is one of striking contrasts. According to the Forbes magazine list for 2007, the number of Indian billionaires rose from nine in 2004 to 40 in 2007: much richer countries like Japan had only 24, France 14 and Italy 14. Even China, despite its sharply increasing inequality, had only 17 billionaires. The combined wealth of Indian billionaires increased from $ 106 to $ 170 billion in the single year, 2006-07 [information from Forbes quoted in Jain and Gupta 2008]. This 60 per cent increase in wealth would not have been possible, except through transfer on land from the state and central governments to the private corporations in the name of “public purpose”, for mining, industrialisation and special economic zones (SEZs). Estimates based on corporate profits suggest that, since 2000-01 to date, each additional per cent growth of GDP has led to an average of some 2.5 per cent growth in corporate profits. India’s high growth has certainly benefited the corporations more than anyone else.

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8 Replies to “The Low Side of High Growth”

  1. Thanks for the article. I totally get the spirit of the article. I get the pressing need for equitable growth.

    But, at the same time, I also feel that it has been far too pessimistic.

    As the article itself, states, statistics now confuse me. The article says that, growth has increased and therefore demand for luxury products has increased. If that be the case, this demand would have to be met by the proportionate increase of production of the same, which has lead to setting up of a number of manufacturing facilities in India.labour productivity must have increased by automation and effeciency increase but one cannot be blind to the investments being made as well. “In the verdant hills near Mumbai, India’s commercial capital, Volkswagen (VLKAY ), Hyundai Motor, General Motors (GM ), and a joint venture of Fiat (FIA ) and local automaker Tata are all building new factories, for a total investment of $4 billion. ” (http://www.businessweek.com/magazine/content/07_42/b4054049.htm)
    The above linked article goes on to say, how these factories have led to the setting up of other related factories as welll. Wont all of these have led to more employment? Therefore when I see that employement has not grown more than 1%, i am rather confused!

    But I do, agree, that all of these manufacturing set ups must follow the law of the land. It has to be seen that labour is not being exploited in these manufacturing set ups to get the growth that we are saying we are getting!

  2. I guess the jury is out on the reforms every 5 years (or sooner) since the so- called reforms were launched. Each time, the ruling party has been ousted. While manufacturing statistics is easier- so much so that it can become self- delusional as in BJP’s Shining India campaign- the general elections is where the verdict is clear. This is Bhaduri’s starting pointing in the article.

  3. Thanks for posting the article. after downloading it I also found it posted at:
    Development-Dialogue blog.

    One point which Amit Bhaduri misses out about the “manufactured statistics” is that both India and China have also changed their poverty numbers by changing the way it is calculated.

    @Bombaydosti
    (we keep meeting ;0)
    unfortunately, all optimistic figures about employment are invariably future “projections” and “potentials” – on the other hand, all surveys since mid-90s, actually show a decline in employment creation. Like many “developed”, India has also fallen into “Productivity trap”…

  4. Bravo Sir!!
    The biggest symbol of what you say is the $2 Bn. house of Mukesh Ambani which the rags of the rich like Times of India extol above all. Not sure if you are aware that he is building this house on Muslim Wakf (Charitable Trust) land which has been given to him illegally and when the Wakf Board Commissioner objected and raised the matter with the Supreme Court he was kicked out of his post. Mukesh Ambani was recently host to the Young President’s Club which is an exclusive group of corporate presidents for which he hosted the most ostentatious party in the history of that organization. Complete with private chartered plane shuttles, Bollywood actresses as hostesses and whatever-else-you-may-like-to-imagine.
    The fact that the latest in our growing service industry businesses is called ‘Medical Tourism’ says something, doesn’t it? They are certainly not talking about public health or primary health centers. After all even our newly qualified doctors don’t want to go and work in the villages, do they? Many get admission into medical courses in order to get a good dowry. Not to cure the sick.
    The poor in India have always endured, or quietly died without inconveniencing anyone. The current powers that be, hope that this will continue and refuse to believe the likes of those who try to convince them that times have changed. Ravaging mobs are what happens in Africa, or so we would like to believe. So our growth model is the gated compound with state of the art luxury, connectivity and convenience, into which servants are permitted in (after being duly frisked) only to leave in the evening back to their hovels, snotty nosed children and open sewers. These compounds in our development model are linked by 8 lane Expressways to glass and steel skyscraper work spaces and to sleek airports. All these of course are built by those same poor, who are temporarily allowed to build their little mud, plastic and zinc sheeted huts (God forbid that the contractor be made to create proper housing for the workers) to complete the construction. As soon as that is over, well before our white or saffron clothed politicians come to inaugurate the Expressway or Airport, the huts and their occupants are spirited away as if they never existed. And in fact, they don’t exist, do they? Not in our development model anyway. Not even when the politicians are Communist. In our development model the Communists are the first ones to shoot down those who protest being dispossessed of their lands and homes to make way for ‘Development’ – witness Nandigram, Singur and more.
    Amit Bhaduri’s article and your contribution is extremely timely. But given the nature of the political animal, supported by the Indian businessman, market and bureaucracy and the fact that those who you talk about – the absolute poor – have no voice, it is unlikely that we will see any voluntary change in economic growth policy. Which of course brings into being the spectre of the other scenario. Time to batten down the hatches and hope that when it happens, we are not anywhere near.

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