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Why High-Growth Alone Isn’t Sufficient For India – OpEd

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Most discussions on India concentrate solely on its economic growth. However, if only this mattered, India would seem set to be a prosperous nation. But, India’s growth story is not equal across geographies. Large swathes of the population have been left out of its skewed growth. Achieving prosperity for a broader set of people, the middle-class and the poor, would need India’s economic story to be equitable and not just about high-growth.

Uncontrolled urban migration and its ramifications

Economic distress is a prime reason for migration from small towns and rural hinterlands to large cities. This leads to the creation of unplanned urban clusters. Data reveals how the 2001-2016 CAGR is higher in most cities than the 1991-2016 CAGR, so migration has intensified in the last 15 years. This rapid increase in migration has also made these cities vulnerable to crime. The widening socio-economic imbalance between the haves and have-nots, coupled with the growing pressure on infrastructure and amenities along with the growing culture of instant consumer gratification, is causing crime.

The International Conference on Gender Equality’s Status of Women in India report showed how rapes in India have doubled from 2001 to 2014. National Crime Records Bureau data showed Delhi and Pune amongst the most rape-prone cities. Anecdotal evidence shows the culprits in few cases were migrants. Unfortunately, that builds a bias against all. In any case, there is also no guarantee that migrating gives them productive employment for 365 days of a year.

Tackling sluggish growth of tax revenue

Sluggish taxes pose a formidable challenge since more public investment is needed to push growth, given that private investment has not moved in recent years. RBI’s data of gross fixed capital formation to GDP shows a dip from 36% in 2011 to 31% in 2014. So how does the government address the risk of sluggish income tax revenue? While economic growth made people more prosperous than the earlier generations, the question is for how many? If a larger group of people are becoming net poorer due to sluggish income growth, will they yield more tax?

One solution may be to create a wealth tax or inheritance tax to tax the rich, who are becoming more concentrated each year. Credit Suisse data shows the richest 1% Indians owned 58% of the country’s wealth in 2016, up from 36% in 2000. The rich often use creative accounting to evade income tax and get away due to their clout. But, unless such sensitive issues are tackled by a strong government, the country’s development may suffer due to sluggish tax revenue from a broader base of its population each year.

Generational variations and growing financial dependencies

Census data shows the proportion of married people increased from 44% in 1981 to 48% in 2011, a 30-year period signifying a generational change. But, more couples are delaying bearing children, as the ratio of children aged 0-4 years dropped from 13% to 9% in the same period. This is because the costs of education and healthcare have also increased over the last decade. So, the number of working couples has proliferated as the income of a single-earner is insufficient now.

Financial dependencies of elder generations, who lived and worked before this economic growth of post-1991, may delay that decision further. Given that Indian couples have fewer children now, they cannot depend on their children as their parents did on them. In this society in transition, either the economic growth story is equitable for a broader set of the current generation, or else it better be stronger for the next generation so they can support the current generation. There have been talks of increasing the retirement age in certain jobs; that may be one way to stretch the productive years. But, it is critical a broader set of this generation can net save more now.
The bottom line

In conclusion, the Modi government has taken initiatives to ensure more Indians participate in the economic story. This includes skill-training, gold loans for small businesses, start-up funding, financial inclusion, rural investments and the ‘Make in India’ initiative. But, the conversion has to materialise into a large scale as “better-paying” jobs across “all the regions”. This may sound like the basics of public policy, but maybe that is what the need of the hour is.

*Sourajit Aiyer is the author of 2 books with publishers in UK and Germany and has written for 35+ publications of 13 countries. He has worked with financial companies in Mumbai, London, and Delhi, and has been invited to speak at conferences in India and abroad.

This article appeared at The Indian Economist


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