An Uncertain Glory Chapter 2

EurekaWow | Indian Economic Development

Integrating Growth and Development -Amartya Sen & Jean Dreze (An Uncertain Glory) Growth: A Relative Concept-“the wonderful fact” of a Zero economic growth after fall in GDP of previous years will be better than a 6.2 % Growth rate in India (2012) which was considered ‘dismal’ after previous rates of 8 to 9% p.a. Importance of Economic Growth: 1. It raises the per capita income and hence increases the standard of living of people. 2. It expands the public revenue, which can later be spent on social infrastructure (health,education etc) thereby enhancing the quality of life of the people. (Eg, Had Europe not had a cut on the expenditure, No cut in Expenditure  Growth  Increased Revenue  No compromise on essential public services Character of Growth: Sustainability

Growth

Equity

Growth Trends: India’s Past Pre-Independence    

 

India had a prosperous past. Adam Smith: Talks about India’s comparative prosperity due to flourishing trade,owing to navigable rivers [Wealth of Nations(1776)]. Ptolemy: Recognized towns engaged in internal and international trade. When in 1757, the East India Company (EIC) initiated, India was exporting a great variety of manufacturers, apart from grains. The competitiveness and quality of exports became a cause of concern in Britain before British rule was established. There is a paucity of data for living standards but pre-colonial Indian labour had adequate real wages (Parthsarthy compared British and Indian textile labour wages where the latter were more.) During the British Raj, there was a decline in the growth. (Per capita growth -0.1 %)

Post Independence:   

From 1950s-1980s, India grew at 3.5% (Hindu rate of Growth)& 1.5% per capita growth- less for the purpose of rapid development and poverty alleviation 1980s: Growth rates started rising. 1990s: Economic reforms, post which India saw high rates of growth . 4th Semester | B.A. Economics (H)


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Qualitatively, India is still one of the poorest countries in the world, both in terms of per capita income and quality of life (living standards). Time Period

Rate of Growth(GDP)

1900-1947

0.9

1950-1960

3.7

Per Capita Rate of Growth 0.1 1.8

Hindu Rate of Growth

1960-1970

3.4

1.2

1970-1980

3.4

1.2

1980-1990

5.2

3.0

1990-2000

5.9

4.0

2001-2010

7.6

6.0

India is the fastest growing country after China, and is followed by Indonesia and Japan. Analysing Growth:  No reduction of poverty for the three decades following the First Five Year Plan in 1951. Reasons: Argument - Some people hold India’s socialist planning responsible for it. Counter Argument- However, our policies didn’t resemble that of the communist countries like USSR where policies aimed to achieve free and universal school education. The first plan argued against regular schooling, supporting M.K.Gandhi’s idea of “Basic education”, where children were taught self-financing handicrafts. Argument – India followed a state-led development strategy where most of the economy was in private sector (with the main exception of ‘essential services’ like railways etc) and the Govt did intervene in many ways.  Failure – In terms of Social Infrastructure & tertiary industries. 15 years after 1950s saw higher growth in primary and secondary sectors as compared to after 1991 reforms (Economists call it :Material production”) Mid 1960s: Successive droughts + Costly Wars + Political chaos after Nehru’s death

 Stagnated growth (per capita agricultural production declined) Aims of Economic Policies: Economic Policies & Politics: Nationalization of Commercial Banks (1969), import quotas, industrial licenses, abuse of power due to corruption, the aims of which were: 1. Rewarding supporters 4th Semester | B.A. Economics (H)


2. Winning over the uncertain 3. Punishing opponents Growth in 1980s: Second phase of growth acceleration (first being after 1947), with recovery in agriculture came out to be a balanced & equitable growth. Major Reason: Green Revolution was showing results. Agriculture sector grew at 3% pa. Real Wages grew at 5% pa Decline in poverty. 1990: Crisis due to rising fiscal and trade deficit & foreign debt in 1980s along with rising oil prices made India run out of foreign exchange reserves SAP (Structural Arrangement Programme) - Huge cuts in expenditure on social Infrastructure -1991.From the IMF (International Monetary Fund) and then on Indian Govt’s own terms, including openness to foreign trade, relaxation of internal controls, labour reforms etc The reforms were gradual, mainly due to the Indian democratic system and GDP growth picked up after economic stabilization in 1993.

Growth of What Living standard of Middle class (top 20% of population by income) has increased in India over time. Although there has been a very slow improvement, if at all, in the quality of life of underprivileged.

Average Per Capita Expenditure Rural Urban

1993 2009 1% per annum 2% per annum

Growth Rate of wages has been 2% or so in 1990s reducing to zero % in early 200s.However after NREGA (National Rural Employment Guarantee Scheme), wages have grown, especially for women. Comparing our wages with China, according to comparable international data, real wages in China in manufacturing sector have increased at 12% as compared to Indian rates of 2.5%p.a. Poverty Figures: According to Planning Commission, Head Count Ratio (Proportion of people below poverty line) of rural poverty reduced from 50% in 1993 to 34% in 2009-10. Explanation- This improvement is explained by the Density Effect (Many people are just a little below the official poverty line, so that a very small increase in expenditure is enough to ‘lift’ people above the poverty line.

4th Semester | B.A. Economics (H)


Criticism- Kotwal ,Ramaswamy and Wadhwa have shown that poverty has declined from 86% (1983) to 80% (2004),if the poverty line was doubled. Thereby the rate of poverty decline in India has been quite low. Jobless Growth: Growth in services has been heavily concentrated in skill intensive sectors rather than traditional labour intensive sectors (as in China).’Informal Sector’ in India, which constitutes 90% of the labour force, saw no improvement in their wages or productivity. Economic Growth

Reduction in Poverty

Importance of Institutions in Economic Growth In the past, rigid hereditary caste system and Mughal absolutism have been impediments in the development of inclusive in India.    

Institutions secure and encourage economic initiatives and operations. Institutions are also important in the accumulation and expansion of knowledge, which further helps in increasing Total factor productivity. However, with the setting up of ‘necessary’ institutions, development of human capital through them is equally important. Institutions are needed both for (A) achieving growth and development and (B) for translating the achievements in growth into development and flourishing human beings. Failures of Economic Governance (Pre-Reforms: 1991)

 Failure to tap the Constructive Role of the Market: “License-Raj made economic enterprise difficult, putting it at the mercy of bureaucrats. The 1991 reforms incorporated openness to trade and removal of arbitrary controls which has helped in India’s high rate of growth.  Failure to harness the constructive role of the State: as in visible in the underdeveloped social infrastructure, a dysfunctional system of accountability of public services and neglect of physical infrastructure. Post-reform period saw some improvement, credit being deserved by India’s democratic politics, various social movements and sections of the media.



Linkage between Growth and Development: The relation between the two depends on economic and social inequality and on what the government does with the public revenue. It is necessary to recognize the role of growth in facilitating development in the form of enhancing human lives and freedom, but it is also necessary to appreciate how the growth possibilities depend on the advancement of human capabilities. Case Study (Kerala) Public Investment in India is 1.2% Of GDP as compared to Chinese 2.7% of their GDP where GDP India << GDPChina. India’s has moved towards reliance on private health care without developing the support of basic public health facilities. On the contrary, in Kerala, a major expansion of public health services was accomplished before the large scale expansion of private medical care. There was universal health coverage by the state and the private care developed much later for catering to the rich. The state allowed and encouraged the auxiliary facilities of private health care to enrich a well-functioning state system. Kerala experienced growth, which was in a way related to the development of human capabilities. Problems facing Indian Economy 1. Removing the sharp inequalities while continuing to encourage overall economic growth and expansion. 2. Bringing more accountability to the running of the economy in the delivery of public services and operation of the public sector, in particular. Sustainable Development: People, recently are worried about how human lives will continue to prosper if the depletion of our environment continues as fast as it is now. In India, the acceleration of economic growth has coincided with unprecedented environmental plunder. Rivers and ground water have reduced, mining activities have destroyed forests and pollution is on a high. India’s natural wealth is estimated to have shrunk by about 6% in value terns between 1990 and 2008.Environmental Impact Assessment (EIA) has lost its relevance in today’s growth driven India.

Advancemnet o f Human capabilities

Economic Growth

Development

In the broader perspective of seeing development, it is the progress of human freedom and capability to lead the kind of lives that people have reason to value. Hence, development cannot be divorced from ecological and environmental concerns. Important ingredients of the quality of human life are the air, water and ecological surrounding we live in. Development and environment can never be drawn into a conflict.


An Uncertain Glory Chapter 2

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