Perpetuating Inequality and Jobless Growth

Paranjoy Guha Thakurta

(The writer is an independent journalist, educator and documentary film-maker. This article is based on columns he has written for Asian Age/Deccan Chronicle.)

Indian society was always unequal. In recent years, although the country’s gross domestic product (GDP) has grown faster and more consistently than ever before, there is little evidence to indicate that economic inequality has come down. On the contrary, there are indications that India has become more polarized, perhaps more vertically (that is, across income and expenditure classes) than horizontally (namely, across geographical regions). Even if the poor in India have not become poorer, the gap between the rich and the poor has continued to grow even as politicians mouth empty slogans about the need for “inclusive growth”.
It is often argued that economic growth invariably results in inequality widening but that poverty cannot be alleviated without growth. It is also claimed that China has not just grown faster than India but that China is more unequal than India. Both these contentions can be challenged and in fact, have been in a book Awakening Giants: Feet of Clay with a subtitle Assessing the Economic Rise of China and India that has been written by Pranab Bardhan, professor of economics at the University of California, Berkeley and published by Oxford University Press.
Prof Bardhan points out that inequality in India is not merely higher than in China but possibly “in the Latin American range” as official data from the government of India (notably, from the National Sample Survey Organization) is largely based on distribution of consumption expenditure and not income. This clearly under-estimates inequality as the rich tends to save much more than the poor. He has further argued that the temporary reduction in the net worth of sections of India’s corporate oligarchy on account of the economic slowdown has not at all reduced its corrupt grip on the country’s political life or brought down the power of the elite that captures local governance and misappropriates natural resources, funds and services meant for the poor.
If one considers factors such as inequality in the distribution of land and capital, access to education, health-care and employment opportunities and mobility across generations and social groups, Prof Bardhan believes that India’s performance is inferior to that of China. He writes that while regional disparity in income or consumption is greater in China than in India, over the last two decades, China’s backward regions have grown at rates almost comparable to its advanced regions and regional earning disparities may be narrowing. In India, on the other hand, the poorer states (largely concentrated in the central and eastern regions) have grown much more slowly than richer states (mostly in the west and the south) implying that relative inequality has increased.
In his book, Prof Bardhan explains why the impact of growth on poverty reduction has been weaker in India than in China, “probably on account of initial conditions, including larger inequality (of opportunity) in India, owing to inequalities of land, education and social status”. The penultimate sentence of the chapter on poverty and inequality in his book reads: “The link between economic reform and inequality is … ambiguous and difficult to disentangle from the effects of other ongoing changes.”
A few years ago, at a function in a five-star hotel where a television channel was awarding state governments which had performed well in terms of human and social development, one of the judges of the competition made a brief intervention. Former Governor of the Reserve Bank of India and Rajya Sabha MP Bimal Jalan stated that the total value of the assets of the country’s top five billionaires (in US dollar terms) equalled those of the bottom 300 million people. He was no party-pooper that evening for scarcely an eyebrow was raised before the booze started flowing.
When, in May 2006, the report of the National Commission for Enterprises in the Unorganized Sector headed by Arjun Sengupta claimed that 78 per cent of those who work in the unorganized sector in India live on Rs 20 a day or less, there was a huge hue and cry from economists who questioned the methodology and the authenticity of the data that was used to arrive at such a conclusion. In December 2008, an expert group headed by the former head of the Prime Minister’s Economic Advisory Council, Suresh Tendulkar, estimated that roughly a quarter of the country’s urban population live on Rs 19 a day while close to 42 per cent of the rural population consumes goods and services worth roughly Rs 15 a day. When the Planning Commission put out this data in a report to the Supreme Court, it became a target of ridicule by social activists and the government’s political opponents.
The upper classes in the country have become apathetic to rising inequality. “The poor are poor because they are lazy and inefficient…the poor must become resigned to their fates because human beings are not born equal just as five fingers in a hand are not the same” – such statements are made with unerring regularity as well-off individuals seek to clear their conscience by rolling down the windows of their air-conditioned cars to drop a few coins in the hands of begging children.
Here is an example of how the Indian government often turns a blind eye towards recovering dues from the rich. In response to a query raised under the Right to Information Act, the New Delhi Municipal Committee (NDMC), the country’s most affluent civic body, disclosed a list of arrears that were due to it at the end of 2008, accounting for over half its annual budget of Rs 1,656 crore. This is a small sample from the list: ITC Maurya Hotel (Rs 64 crore), Taj Palace Hotel (Rs 43 crore), the Oberoi Hotel (Rs 37 crore), the government owned Ashok Hotel (Rs 31 crore) and Samrat Hotel (Rs 20 crore). Even the owners of the building on Tansen Marg that houses the offices of the Federation of Indian Chambers of Commerce and Industry (FICCI), an association of some of India’s most wealthy industrialists, owes the NDMC over Rs one crore. Not surprisingly, these claims of arrears are embroiled in a welter of complex legal cases, suits, petitions and appeals in and out of courts.
Across the world, even super-rich individuals and the very-powerful elites are expressing concern about the rising gap between the rich and the poor. In India, however, most politicians in the ruling party are reluctant to concede that the government’s economic policies have failed to bridge -- rather, contributed to -- the yawning divide between the affluent and the under-classes. For this failure, the incumbent regime will almost certainly pay a stiff political price in the coming general elections.
In a rather belated (and almost reluctant) admission, on 24 December, Finance Minister Palaniappan Chidambaram said: “There is no easy solution to taming food inflation. There are no quick fixes to taming inflation. I am afraid it will take some time to contain this inflation. We are paying a political price for that and I acknowledge that, but those are the facts...”
The government takes pride in stating that over the last decade, India’s gross domestic product has grown faster than ever before even if the rate of growth of the economy has decelerated to between 4.5 per cent and five per cent over the last couple of years. This slowdown has come after the country’s GDP expanded by nearly nine per cent for four years in succession for the first time ever between 2004 and 2008.
Official spokespersons keep talking about how government policies have brought about “inclusive growth” and how its welfare schemes -- including the Mahatma Gandhi National Rural Employment Guarantee Programme, the farm loan waiver and the food security programme -- have put more money in the hands of the poor, particularly those who live in rural areas. What they don’t tell you is that food inflation and corruption has eroded a substantial part of the gains that have thus accrued to the underprivileged.
What is also not talked about is extremely tardy rate of growth of job creation. The latest data put out in a survey conducted by the government’s National Sample Survey Organization indicate that the annual rate of growth of employment between 1999-2000 and 2011-12 was just 2.2 per cent per year over this decade, which is supposed to have witnessed “impressive” and “unprecedented” economic growth.
A December 2012 paper entitled “Joblessness and Informalization: Challenges to Inclusive Growth in India” prepared by the Institute of Applied Manpower Research, an organization under the Planning Commission, observed: “One of the most disturbing numbers that the 2009-10 employment-unemployment National Sample Survey data show is the addition of merely 2.76 million work opportunities during the period of fastest growth for the economy... Compared to this, there was an addition of 60 million to the workforce during 1999-2000 and 2004-05.”
Many in the government are supposed to be quite in favour of the prescriptions of the International Monetary Fund. Here’s what Christine Lagarde, managing director of the IMF said on 4 February while delivering the Richard Dimbleby lecture in London: “In India, the net worth of the billionaire community increased 12-fold in 15 years, enough to eliminate absolute poverty in this country twice over.”
Widening income disparity even became a prominent topic of discussion at the recent annual meeting of some of the world’s most affluent and powerful individuals at Davos in Switzerland. As a report by Bloomberg put it: “Failure to narrow the gap risks robbing economies of demand and threatens banks and big businesses with political and regulatory backlashes if voters rebel at squeezed wages. A poll of Bloomberg subscribers....found 58 per cent view income disparity as a brake on economic growth, with 68 per cent urging governments to confront the problem.”
India is where one out of three computer software engineers in the world has originated. This is the same country where one out of three of the planet’s malnourished and illiterate also reside. We in India may aspire to hold our heads high in the comity of nations but we cannot also ignore the fact that not just China, but other countries that were historically unequal, such as Mexico, Brazil and Chile have been far more successful than India has been in reducing poverty and inequality. .