Indian Growth: A Contrasting Story

This week International Monetary Fund (IMF) released its bi-annual World Economic Outlook (WEO) and it forecasts that Indian Gross Domestic Product (GDP) will grow at 7.2 per cent in the current financial year. This is certainly encouraging news, as amidst the rising global economic and political uncertainty, India continues to retain its tag of the fastest growing large economy. This will be music to the ruling government as year on year, the GDP continues to clock healthy numbers.

But, do GDP numbers reveal the true picture? A few days ago, 17th April to be precise, World Bank released the "Atlas of Sustainable Development Goals 2017". According to the report, the primary focus of which is elimination of poverty in all its forms shows that India has the maximum number of poor living in extreme poverty. As of 2013, the latest period for which the data is available, India had a whopping 218 million people living below the poverty line of US$ 1.9 per day. This corresponds to 28.4 per cent of the total global population in extreme poverty living in India. If these numbers are not shameful enough, the report further adds that during the period from 1990 to 2013, India has been the slowest in eliminating poverty. There were 338 million people living in extreme poverty in India in 1990, which means India managed to bring out only 120 million people out of poverty between 1990 and 2013. During the corresponding period, China managed to pull out more than 730 million people out of extreme poverty. It had 756 million or nearly 2/3^rd of its population below the poverty line in 1990 as compared to 25 million or 1.8 per cent in 2013. 

What is astonishing is that during this period both India and China registered significant GDP growth year on year and were amongst the fastest growing economies globally. As can be seen from the graph below, China constantly expanded in double digits and clocked a highest growth of 14.23 per cent whereas India managed to touch double-digit growth only once.

Source: World Bank

As a result of the tremendous growth in its GDP year on year, China’s economy was valued at US$ 9.6 trillion or over five times the Indian economy at the end of 2013. The value of Indian economy was US$ 1.86 trillion. But disparity was never as huge as can be seen in the graph below. In 1990, Indian economy was valued at US$326 billion whereas China’s economy was only slightly bigger at US$360 billion. The persistent growth over almost quarter of a century propelled Chinese economy to the second position globally.

Source: World Bank

In 1990, India had a higher GDP per capita of US$ 375 than China’s US$ 318. But in 1991, India’s GDP per capita fell to US$ 309 whereas China continued its upward movement and its GDP per capita stood at US$ 333. Since then, China continued its progress and made rapid strides. At the end of 2013, GDP per capita of China was US$ 7077 whereas India’s GDP per capita stood at a mere US$ 1451.

Source: World Bank

If you explore the data a bit further, it brings lot of skeletons out of the closet. As can be seen in the graph below, in 1993, 79.62 per cent of the Indian population and 82.31 per cent of the Chinese population was living on or below US$ 3.1 per day. Move to 2011 and the story changes dramatically. China managed to raise the standard of living of vast swathes of its population and now less than a fourth is living on US$3.1 per day. Whereas in India, even in 201l, nearly three out of every five individuals are surviving on or less than US3.1 per day. 

Source: www.knoema.com

This clearly indicates that there is a huge disparity in the income / wealth of individuals in India and the fruits of this growth are not being enjoyed by everyone. World over there is a yawning gulf between the haves and the have not’s and India is no exception. But the problem may be acute for India because it has a huge population and meeting the aspirations and demands of all its citizens is and will continue to remain a challenge in the foreseeable future. India will have to introspect its growth model and take corrective measure at the earliest to step the concentration of wealth in the hands of few individuals. The population demographic which India always boasted about is in serious jeopardy and if not handled properly, instead of yielding dividends, it runs the risk of becoming a bad burden and ultimately will drag the economic growth which the nation enjoys.

To address this issue, one of the measures government should take is to increase the share of manufacturing in the GDP, primarily of the lower value goods as it generates more employment vis-à-vis high value products. For example textiles and apparels industry is the second largest employment generator in the country after agriculture and it employed 13 times more people than the IT industry and contributed 15 per cent to India’s export earnings. Data from the government shows that an investment of approximately $nearly in the apparel industry creates an employment for 56 to 84 people, whereas other industries manage to employ only six people.

For the success of Make in India and achieving the targeted 25 per cent contribution of manufacturing in the GDP, the government will have to nurture Small and Medium Enterprises (SME) as they are the real employment generators in smaller towns and rural pockets of the country where major population resides. Similarly, the Skill India initiative is a step in the right direction but lot is still desired and the existing efforts shall take time to yield results.

With protectionist policies across the globe on the rise, it’s now time that we as a nation drive growth through domestic consumption rather than focusing on the export earnings. But to propel the domestic consumption, more employment opportunities needs to be created, wages should rise and may be its time for universal basic income (UBI) to be provided to unemployed people, an idea which the finance minister mooted in his budget speech. It’s time for real actions and we cannot afford to drag our feet any more on these issues as we are the cusp of a full blown crisis.