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Where does the Indian-Growth lead?

C.P. Chandrasekhar

Professor, Centre for Economic Studies and Planning at Jawaharlal Nehru University.

As the first decade of the 21st century draws to a close, commentators taking a longer

view are likely to declare that that it marked a period when India successfully pursued agrowth strategy based on internal and external liberalisation. In fact, India is being

presented as a country that has traversed under such policies onto a high growth

trajectory. This is backed by the evidence of near-sustained 8-9 per cent rate of GDPgrowth since 2003-04 and the rather quick and sharp recovery of GDP growth after the

deceleration triggered by the global financial and economic crisis. Not surprisingly,

policies based on market fundamentalism are being presented as the drivers that havedelivered the high growth needed for economic "take-off. What this assessment ignores

is, of course, the question: Growth for whom? As has been repeatedly noted but

inadequately stressed, the fact is that India is a country still plagued by hunger withamong the highest rates of malnutrition in the world. Deprivation in other forms such as

lack of access to clean drinking water, sanitation, basic health facilities and school

education still afflict a large proportion of the population.

Clearly then, the benefits of high growth for the best part of a decade must be accruing toa small minority, resulting in increased inequality. Unfortunately, data of a kind that

helps us track inequality is difficult to come by. Surveys of consumption expenditure do

not cover the rich and therefore tend to underestimate the extent of inequality. But there

are other signs of increased inequality in the country. The first is that the high growth ofthe last few years has been accompanied by a sharp rise in the gross savings rate, of 5.5

percentage points to 29.1 per cent between 2001-02 and 2004-05. The rate rose byanother 4.2 percentage points between 2004-05 and 2007-08. Since it is the richer

sections that have incomes that are substantially in excess of their consumption needs

which can be saved, this sharp rise in the savings rate points to an increase in incomes

among the richer classes.

There has also been a shift in the source of savings in the economy away from the

household to the corporate sector. The share of the corporate sector in gross domestic

savings rose from 20.4 per cent in 2004-05 to 24 per cent in 2007-08, while that of the

household sector fell from 72.3 to 62.2 per cent. Thus the period witnessed a sharp risein private saving that largely came from the corporate sector, which has been recording

significant increases in profitability at a time when the average real wage rate in the

organised manufacturing sector has been stagnant.

The third is a turnaround in the tax-to-GDP ratio. The aggregate tax to GDP ratio of the

centre and the states rose from 13.8 to 19.1 per cent between 2001-02 and 2008-09, with

the contribution of corporate taxes rising. It must be noted that the period after 2002-03

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was one in which profits in the organised sector rose sharply and the ratio of profits to

value added also rose significantly. As a result despite huge tax concession corporate

taxes and taxes paid by the rich have risen.

Put together, these features suggest that there has been a relatively large increase in

incomes of those in the saving and tax-paying classes, especially profit earners in thecorporate sector. In other words, the period of high growth seems to be one in which

income inequalities increased significantly.

This increase in inequality comes not only from profit inflation but also from the fact that

the so-called "high growth trajectory" has not resulted in high employment growth. The

five-yearly large sample rounds of the NSSO provide the most exhaustive data on

employment trends and conditions in India. Unfortunately, the results of the latest surveyon this subject -- the 66th Round, covering 2009-10 -- are yet to be released.

However, the 64th Round of the NSS relating to 2007-08, which had migration as its

focus but covered employment and unemployment as well, does provide us with anadditional source of data. We must recall that the late 1990s was marked by a dramatic

deceleration of aggregate employment growth, which fell to the lowest rate recorded

since such data began being collected in the 1950s. However, the period 1999-2000 to

2004-05 witnessed a significant recovery. While aggregate employment growth in bothrural and urban India was still slightly below the rates recorded in the period 1987-88 to

1993-94, it clearly recovered sharply from the deceleration of the earlier period. The

recovery was most marked in rural areas, where the earlier slowdown had been sharper.This prompted many official spokespersons to even declare that India was on the road to

"full employment."

What is noteworthy, however, is that if we include the relatively high growth year 2007-08, the rate of growth over 1999-00 to 2007-08 hardly points to much acceleration inemployment growth during this decade, with the increase in the growth rates in urban

areas being marginal from 2.27 per cent to 2.64 per cent. What is more striking is that

the annual rate of growth of rural employment, which had risen from 0.66 per cent between 1993-94 and 1999-2000 to 1.97 per cent between 1999-2000 and 2004-05

(which was a year of indifferent agricultural performance), was significantly lower at

1.27 per cent over the period 1999-00 to 2007-08 (which was a good agricultural year).The period between 2004-05 and 2007-08 was the period when India had moved to the

much higher, close to 9 per cent GDP growth trajectory. A slower rate of employment

expansion in this period points to a significant fall in the elasticity of employment with

respect to output.

The importance of the years 2004-05 and 2007-08, being bad and good agricultural years

respectively, comes through from an examination of labour force participation rates.

There was an increase in labour force participation rates for both men and women in

2004-05 relative to 1999-00. This includes both those who were actively engaged inwork and those who were unemployed but looking for work. The significant increase in

female participation may have been because of the need (in the lands cultivated by

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individual households) for women to substitute for male workers who were looking for

better opportunities outside agriculture in a poor agricultural year. Or it may be a

reflection of the need to augment household earnings in a bad year.

These possibilities are corroborated by the fact that in the good agricultural year 2007-08,

male participation rates increased marginally, while that of women fell significantly.This could have been because the compulsions operating in a bad year were not as

operative. This suggests that higher participation rates as in 2004-05 need not necessarilybe a reflection of improved employment performance. Rather it could be a sign of stress

induced by poor agricultural performance.

One of the more interesting features that emerge from the data for 2004-05 was the shift

in the type of employment. There had been a significant decline in wage employment ingeneral. While regular employment had been declining as a share of total usual status

employment for some time (except for urban women workers), wage employment had

continued to grow in share because employment on casual contracts had been on the

increase. But the results of the 2004-05 round point to a fall even in casual employmentas a proportion to total employment.

Going by the evidence for 2004-05, it appears that for urban male workers, total wage

employment was at the lowest that it had been in at least two decades, driven by declinesin both regular and casual paid work. For women, in both rural and urban areas, the share

of regular work had increased but that of casual employment had fallen so sharply that

the aggregate share of wage employment has fallen. So there clearly appeared to be areal and increasing difficulty among the working population, of finding paid jobs,

whether they were in the form of regular or casual contracts. However, by 2007-08 there

were clear signs that this decline in the share of casual labour in total was being partially

reversed especially in the case of females. Clearly, high growth had facilitated anincrease in wage employment, though this was still in the casual and not regular category.

The fallout of these trends was visible in the trends in self-employment. In 2004-05 there

was a very significant increase in self-employment among all categories of workers inIndia. The increase was sharpest among rural women, where self-employment accounted

for nearly two-thirds of all jobs. But it was also remarkable for urban workers, both men

and women, among whom the self-employed constituted 45 and 48 per cent respectively,of all usual status workers. What seems to have occurred in 2007-08 was that the rise in

the share of casual employment had been accompanied by a fall in self-employment, with

the fall being sharpest again in the case of females. Even so, all told, around half of the

work force in India currently does not work for a direct employer. This is true not only inagriculture, but increasingly in a wide range of non-agricultural activities.

Another noteworthy feature is the sectoral distribution of employment. As is to be

expected given the short period of time involved, there have been no major changes in the

structure of employment between 2004-05 and 2007-08, except for a rise in the share ofconstruction among rural males. Thus the trends in the structure of employment prior to

2004-05 have been more or less sustained. An important feature of this was the

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significant decline in agriculture as a share of rural employment, even as the share of

manufacturing employment did not go up commensurately for rural male workers. The

share of manufacturing employment has stagnated in the urban areas as well. While therehas been some shift to construction, the share of trade, hotels and restaurants seems to be

stagnating.

Thus, overall, the traverse to a high growth trajectory does not seem to have delivered

much on the employment front. The growth rate of employment remains depressed, evenif not as low as during 1993-94 to 1999-2000. Employment increases seem to occur

when workers, especially female workers, are pushed into the workforce by economic

circumstances like a bad agricultural year. The elasticity of employment with respect tooutput increases seems to have deteriorated with accelerated growth. Casual wage labour

and self-employment dominate the employment scenario. And the non-agricultural

sectors appear to contribute inadequately to additions to employment though these werethe sectors that were expected to take up the employment slack once neo-liberal policies

succeed in delivering growth.

All this suggests that even to the extent that the years of high growth have been

accompanied by increases in employment, that employment has not been either in theproductive sectors or in forms that suggest that growth does result in the generation of

what has been termed "decent work" of one kind or another. Not surprisingly, inequality

increases and large scale and even extreme deprivation persist. India's exit from the firstdecade of the 21st century does not seem to be a time for pure celebration. At least for a

majority of Indians.

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