India’s growth has caused
tremendous excitement. The living standards of the middle classes (top 20% of
the population by income –or, in other words- people like you and me) have
improved greatly. But the story is more complex for many others such as the riksha-wala,
the domestic worker or the brick-kiln labourer. Dreze and Sen argue that
India’s economic growth has barely altered their abysmal living conditions.
For example, between 1993-4 and
2009-10, the average per capita
rural expenditure (average
expenditure of a rural person) increased at the very very low rate of 1% per
year (and even for urban areas the figure was only 2% per year). There has been
a slowdown of real agricultural wages
in the post-reform period[1].
The growth of real wages for other parts
of the economy has also been relatively slow, especially for casual or
so-called ‘unskilled’ workers. The contrast to China is striking - real wages
in manufacturing in China grew at 12% per-year (!!) from 2001-10, compared with
2.5% per year in India.
The rate of poverty decline in India has been much slower than in other developing countries as a whole in the last 20 years, despite economic growth being much faster in India.
The rate of poverty decline in India has been much slower than in other developing countries as a whole in the last 20 years, despite economic growth being much faster in India.
But why has economic growth in India led to such a small increase in
the wages and incomes of the poor?
One important reason is India’s
economics is propelling a ‘jobless
growth’ i.e. a failure to generate employment. In India, the rapid economic
growth in the last 20 years has been driven
by ‘services’. And a large part of the growth in services has been heavily
concentrated in skill-intensive sectors (like software development, financial
services and other specialized work) rather than in the labour-intensive
sectors. This has enabled the more
educated section of the workforce to earn much higher wages and salaries. But
the bulk of our workforce is not involved in services, but is instead engaged
in agriculture or other sectors (this includes the ‘informal sector’ which
employs 90% of our labour force). Here, wages and productivity are very low.
Dreze and Sen state that India’s lack of progress in education and
healthcare also prevents people from entering and flourishing in general
manufacturing jobs. The progress of living standards is extremely slow (living
standards include longevity, health security, literacy, educational
opportunities, child undernourishment, social status etc). For example, India has
a higher proportion of undernourished children than almost any other country in
the world, even after 30 years of rapid economic growth. Many countries have
made huge improvements in health and nutrition status of their respective
populations in a shorter time, even with lower rates of economic growth (The
following blogs will say more about this).
The authors argue that for economic
development to take place, India needs not just growth-friendly institutions that encourage initiative
but it also needs to give a central role to
education which is critical to the formation of knowledge and skills (which,
in turn, is essential for the process of socio-economic development). In short, Dreze and Sen stress that it’s
essential for India to focus on developing
‘human capital’ because this is crucial for growth and development.
[The purpose of
the ‘Reading Dreze and Sen’ series of blogs is to briefly summarise some of the
arguments given by Jean Dreze and Amartya Sen in their book ‘An Uncertain
Glory: India and its Contradictions’. The arguments are of the authors alone
and the blogs are merely a recapitulation of them in as simple a way possible
(the style is deliberately informal). The aim is to help myself to remember the
details of these arguments (writing always helps!) but more importantly to
hopefully trigger conversation and provoke contestation regarding the issues
raised, even if on small forums like facebook :)]
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