Thursday, January 26, 2012


Poised to take off

This anniversary of our young republic is a good time to reflect on where we have reached, and the road that lies ahead. In just over 60 years, India has found its place at the high table of the comity of nations, the G-20. It is one of the largest and fastest growing emerging economies. But India has also been rated one of the worst performers in education outcomes, and the incidence of malnutrition is so high that the country has sometimes been characterised as chronically being in a near-famine condition.

Such contradictions notwithstanding, there is some evidence to suggest that there is a great window of opportunity for India. Some key reforms could launch the country on a long cycle of high, inclusive growth that could well end with India emerging as the third largest economy in the world.

The proportion of working age persons in our total population is rising. A recent World Bankstudy projects that this 'demographic transition' will continue till 2040. If the working age population can be productively employed, the ratio of earners to dependents will keep rising for the next 30 years - yielding a huge 'demographic dividend' of higher savings and growth rates, rapidly rising per capita income, and rising consumption.

This trend will be reinforced by two other processes that are at work. India's workforce, still concentrated in low-productivity agriculture, is finally beginning to shift to higher productivity sectors like industry and services. Between 1983 and 2007-08, agriculture's share in total employment came down from 63% to 53%, and it has since declined further. And while the workforce outside agriculture is mostly employed in the unorganised sector - where productivity is only about half or a third of that in the organised sector - the 2009-2010 NSS survey shows that for the first time, employment has grown much faster in the high-productivity organised sector than in the unorganised sector.

This dual process of the workforce shifting to higher productivity jobs and the rising ratio of earners to dependents points to a huge potential rise in productivity, savings and investment.

This could push up India's potential growth rate from around 7%-8% at present to 10% or more during the next two to three decades. That would also enable productive employment of the additional 800,000 to one million young women and men who will enter the workforce every month during this period. However, there is nothing automatic or inevitable about India reaching this golden age of growth. As the World Bank study cautions, realisation of this long cycle of high growth will depend on some critical preconditions being fulfilled.

One precondition is the accumulation of physical capital - not just plants and equipment but also infrastructure such as roads, railways, ports, airports, telecommunications, and especially power. This is not merely a question of throwing enough money at the problem, but also of getting systems right to deliver adequate high quality infrastructure services on schedule.

There has been a marked improvement on this front during the past decade, but there is still a long way to go. In the power sector for instance, which is the main bottleneck today, a great deal of new capacity has been created or is on the way, but the sector is hobbled by the shortage of coal supply. Fortunately, the PMO is now focussed on this challenge and we can hope to see some forward movement in the near future.

Another precondition, and a much bigger challenge, is education. An important goal in itself, education is also key to equipping the workforce with the necessary knowledge and skills to migrate from low to high productivity jobs. Unfortunately, here we are moving backwards. The latest PISA report, the OECD's annual global assessment of students' skills, ranks students from China and other East Asian countries at the top while Indian students are ranked second last at the bottom.

Moreover, learning levels are not only very poor but getting worse over time. The 2011 Annual Survey of Education Report points out that over 96% of rural children in the school-going age of 6-14 are now going to school, about 25% of them in the private sector. However, more of these children are now learning less. The proportion of class V children who are able to read a class II text was only 54 % last year and has dropped further to 48%. Similarly, the proportion of class III children who can solve a two-digit subtraction problem with borrowing has dropped from only 36% last year to less than 30% this year.

Finally, we have the challenge of hunger. The prime minister recently referred to India's shamefully high incidence of malnutrition. Elaborating on that, social activist Binayak Senobserved in his 2012 N P Sen memorial lecture that in India, persons with a body-mass index of less than 18.5 show clinical symptoms of malnourishment. By this marker, 37.5% of Indians are malnourished, just a shade less than the 40% benchmark UN agencies use to define famine conditions.

But there is no shortage in the supply of food. Clearly, bold, imaginative reforms in the distribution of food as well as in the delivery of education services and infrastructure are key preconditions India must fulfil to realise its potential long cycle of high, inclusive growth.

The writer is emeritus professor at the National Institute of Public Finance and Policy, New Delhi.

No comments:

Post a Comment