Why this growth can never trickle down

ASEEM SHRIVASTAVA
The Hindu, 20 May, 2007

`Development must be equitable if it is to be sustainable'

HISTORICALLY UNPRECEDENTED economic growth in India during the last decade of reforms will continue to remain exclusive, leave poverty and malnutrition unaffected and lead to growing social tensions unless reshaped by democratic political processes.

For growth to be inclusive, it must, minimally, "trickle down" to the poor. One of the following conditions must be met for the poor to find purchasing power in their hands: (1) new employment must be generated in the organised sector; (2) the indirect employment effects (in the informal sector) of growth in the organised sector are substantial and make up for the failure of the latter to create adequate employment; (3) if the gains of growth accrue largely to the rich, the government is able and willing to redistribute a fraction of them to the poor, through an appropriate fiscal policy.

On recent evidence we may safely rule out the last possibility. Not only does the government continue to offer endless tax sops to the rich (SEZs being only the latest instance of it), bound by commitments to the IMF it is unwilling to increase allocations for such redistributive development programmes as the NREGS (whose allocation remains stagnant at a measly Rs.12,000 crores this year), or the ICDS (whose allocation remains miserly at Rs. 4,800 crores).

Let us consider the other two possibilities under which growth might trickle down to the poor.

According to the government's Economic Survey (2006-07), between 1991 (when the reforms began) and 2004 (the last year for which data is available), the number of people employed in the organised private sector grew by a meagre 0.6 million (all of it accruing in the service sector, while manufacturing employment remained unchanged!) from 7.7 million in 1991 to 8.3 million in 2004. The number of people employed in the organised sector as a whole (including the public sector) fell from 26.7 to 26.4 million!

Are state policies to blame for this failure to create jobs? To some extent.

The rest of the blame has to be shouldered by the processes of globalisation — which have meant that Indian companies have to compete with those in the outside world. This means that they must use the most efficient, capital-intensive methods of production, developed in labour-scare Western economies. This has had a striking outcome in India.

While employment stagnated over the first decade and a half since the reforms began, the real output of the non-agricultural part of the economy (which is expected to provide new jobs) grew by a factor of four: the same number of workers produced four times as much output, thanks to automation of production processes!

Success is failure


This aggregate picture is corroborated by some evidence from the shop-floor.

Edward Luce of London's Financial Times reports that in 1991 the Tata steel plant in Jamshedpur — India's largest private sector steel company — employed 85,000 workers to produce one million tonnes of steel worth $ 800 million. In 2005, it churned out five million tonnes worth $ 4 billion, employing only 44,000 people. While the output multiplied five times, the employment got halved.

Stephen Roach, the Chief Economist of Morgan Stanley, visited India a few years ago and collected similar stories. The examples are legion. The picture is summarised by the story told about a Kirloskar plant near Pune, where one worker mans 27 machines!

Has employment been generated in the informal sector to make up for this? Even if 10 times the number of jobs created in the organised sector was generated in the former, at most six million new jobs were created over a decade and a half. The annual accretion to India's workforce alone is 8-14 million!

If it is any consolation, a recent ILO study concludes that even China has experienced "employment-hostile growth" since the mid-1990s. And for further consolation we might look to the West, where the complaint of jobless and job-destroying growth has been loud and persistent for at least two decades.

The ILO report concludes: "Development must be equitable if it is to be sustainable." The time has come to distinguish development sharply from exclusive growth.

aseem62@yahoo.com