July 04, 2020
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Let The Cream Percolate

Growth gains meaning only with more jobs, less leakage of funds

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Let The Cream Percolate
Economic growth has had a good run in India for the last 25 years—especially so since 1994. At the same time, the growth story is every now and then punctuated by news of insurgencies, mass movements against the system, and farmer suicides. This surprises some people. But it ought not to. If you look at the statistics, you would realise that while the boom is genuine, it is largely concentrated at the top. This is not to deny that poverty has gone down. By the best estimates, the fraction of people living below the poverty line (BPL) is between 22-28 per cent. But 220-275 million BPL people is an intolerably large number, especially when you realise that we are talking about abject poverty—people living on approximately Rs 500 or less a month.

It is not surprising then that this huge segment, which sees the newspaper headlines celebrating India and watches the glitz and success of India, feels marginalised and left out of the great Indian transformation. This "other side" of India usually escapes attention. The poor with their mundane lives do not make news. So, it is easy for this segment to slip out from our attention, until something major happens, like a sudden string of farmer suicides. It will be wrong to dismiss these kinds of behaviour as misguided.

Having said this, it has to be pointed out that the connection between growth and poverty is an intricate and widely misunderstood one. Growth is essential to eradicate poverty. But growth is not sufficient. We need deliberate, complementary policies to distribute the spoils of growth wider.

Employment: So while the government continues to work on growth, there should be a whole set of parallel mechanisms that aims to draw people out from poverty. Measures like the NREGA (National Rural Employment Guarantee Act) alone will not have sustainable impact. We need policies to ensure a rise in the demand for labour from the private sector. One thing that is happening in India is that employment is not keeping in step with growth. From 1993 to 1999, the rise in employment was substantially below overall growth. Fortunately, in the last three or four years, employment has started picking up, so that we are now back again to roughly the 1993 level. Another labour market phenomenon that is not widely noted is that an astonishingly high number of India's workers—around 45 per cent—are self-employed. India needs an original strategy to reach out to this segment of workforce.

One reason why the nation has so much self-employment is because of the defects in our laws guiding the employer-employee relation. These laws were inherited by India from the British and it is time to reappraise and reform them. This will facilitate the growth of the manufacturing sector, which can cause a surge in the demand for labour. And this will enable workers to bargain for themselves—for better wages, better working conditions, better severance conditionalities. We will not have to rely on the whimsies of our policymakers to dole these benefits out as they see fit.

Delivery Mechanism: There are two things required to improve the delivery of basic health and educational facilities. We need to allocate more money for this—all the same recognise that money is not enough as a lot of it can dissipate through leakages. So while stepping up allocations, we need to monitor that the services are actually being delivered. In the case of education, there are studies to show that in state-run primary schools, 25 per cent of the teachers are absent from school at any random point of time. On top of this, there are teachers who are physically there but not teaching. This means that over a quarter of allocations are literally being doled out for nothing. This is partly a matter of culture, which explains why there is performance gap between states—in Maharashtra, absenteeism is 14 per cent, in Jharkhand 42 per cent. Still, India's rise in literacy rate in the last decade has been the fastest since Independence. The reason is that the urge to educate has increased among households. It's time the government steps in with a better delivery of services. With the demand already there, it can get better returns on each rupee.

This has a general lesson for India. With the economy booming like never before, there's scope for reaching out to the poor of a kind we have never had. It will be a shame if we let this opportunity pass.

Kaushik Basu, Professor And Director, Cornell University. As told to Lola Nayar

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