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India's decade of high growth rates; reason enough to celebrate?

Jan 07, 2011

Years of high growth in India have failed to create equally high rates of employment in most sectors. For a majority of Indians, it has been a false growth and an empty promise. C. P. Chandrasekhar writes.


As the first decade of the 21st century draws to a close, commentators at home and elsewhere are likely to declare that it marked a period when India successfully pursued a neoliberal growth trajectory. Neoliberalism is, of course, an ambiguous and loosely defined term. But among its noteworthy features are (i) the use of the rhetoric of market fundamentalism to pave the way for the increasingly unfettered functioning of private capital, both domestic and foreign; (ii) the use of the notion of a minimalist state to legitimise mechanisms that shift income and asset distribution in favour of the already rich and conceal the conversion of segments of the state apparatus into sites for primitive accumulation; and (iii) the pursuit of a regime in which debt-financed private consumption substitutes for deficit-financed state expenditure as the principal stimulus for growth.

Elsewhere in the world neoliberal policies have been substantially discredited, as in Latin America and Africa for example. In those contexts they have resulted in periodic crises of varying intensity, resulting in slow growth, rising unemployment and increased deprivation and one or more “lost decades” in terms of growth and development.

These policies are seen as adversely affecting the livelihood of those dependent on agriculture. The free rein given to private capital has been found to result in predatory practices, as in forestry and the mining industry for example, that has devastating effects on the already poor and the marginalised. Neoliberal policies have also altered the form and curtailed the volume of state spending, adversely affecting the degree to which welfare expenditure of the state can redress these negative outcomes for a large section of the population.

These features are visible in India as well and have been the source of much controversy in recent times. Yet, in India, and in some other countries in Asia, neoliberalism still commands much support as a strategy that can deliver high growth and ensure economic “take-off”. In fact, as the current decade ends, India is being presented as a country that has traversed under such policies onto a high growth trajectory. Two developments have been taken as confirmation of the view that India has made this transition successfully.

One is the evidence of near-sustained 8-9% rate of gross domestic product (GDP) growth since 2003-04 and the rather quick and sharp recovery of GDP growth after the deceleration triggered by the global financial and economic crisis. The second is the evidence of a significant pickup in employment growth rates between the 55th and 61st rounds of the National Sample Survey Organisation (NSSO) relating to 1999-2000 and 2004-05, which has prompted some government spokespersons to declare that the country is on the road to full employment.

Rise in savings

There are other reasons for celebration. The high growth of the last few years has been accompanied by a number of important structural changes in the economy. The first of these is the sharp rise in savings and investment rates. The ratio of gross savings to GDP as per the older national accounts series of the Central Statistical Organisation (CSO) touched 29.1% in 2004-05. This amounted to an increase of 5.5 percentage points relative to 2001-02.

The newer series with 2004-05 as base suggests that the gross savings rate rose further: from 32.2% in 2004-05 to 36.4% in 2007-08, before falling to 32.5% in 2008-09. The fall in 2008-09 was because of a fall in public sector savings, possibly as a result of the implementation of the sixth pay commission's recommendations.

The second structural change was 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% in 2004-05 to 24% in 2007-08, while that of the household sector fell from 72.3 to 62.2%. Thus, the period witnessed a sharp rise in private savings, which largely came from the corporate sector.

The third is a turnaround in the tax-to-GDP ratio. The aggregate tax-GDP ratio of the Centre and the States rose from 13.8 to 19.1% between 2001-02 and 2008-09, with the contribution of corporate taxes rising. It must be noted that the period after 2002-03 was one in which profits in the organised sector rose sharply, and the ratio of profits to value added also rose significantly.

Put together these features suggest that there has been a relatively large increase in incomes of those in the saving- and taxpaying- classes, especially profit earners in the corporate sector. In other words, the period of high growth seems to be one in which income inequalities increased significantly.

It is to be expected that a growth trajectory with these features would have impacted the labour market adversely. Yet, there is much optimism based on the short-run evidence, which points to a remarkable, quick and sharp recovery of GDP growth and employment after the deceleration triggered by the global financial and economic crisis. Not only do quarterly growth rates signal a return to the post-2003 high growth trajectory, but the available evidence points to a return to high employment growth.

Thus, according to the limited, inadequately comparable and not-too-reliable quarterly surveys of employment trends in selected sectors by the Labour Bureau of the Government of India, the recession-induced decline in employment of 4.91 lakh workers during October-December 2008 had been followed by employment increases in all quarters except one (April-June 2009) over the year ending December 2009.

The net increase in employment during that year has been placed at 12.8 lakh workers. What is more, subsequent surveys over the first three quarters of calendar year 2010 suggest that employment increased by 0.61 lakh during January to March, 1.62 lakh during April to June and 4.35 lakh over July to September that year. However, the limited scope of these “quick” surveys of selected sectors makes them inadequate assessments of employment trends across the economy.

Such an assessment requires turning to data that is more reliable. As is widely acknowledged, the large sample rounds of the NSSO provide the most exhaustive data on employment trends and conditions in India. Unfortunately, the results of the latest such survey on this subject – the 66th round, covering 2009-10 – are yet to be released, making it difficult to assess the impact that the transition to high growth since 2003-04 had made on employment, since the previous large sample round relates to 2004-05.

Growth and employment

However, the 64th round of the NSSO, which had migration as its focus, included coverage of employment and unemployment trends. Differences in sample size and design notwithstanding, it could be argued that we have a reasonably comparable set of estimates for the years until 2007-08. What those figures show is that while the rate of growth of aggregate employment in rural and urban areas rose from 0.66 and 2.27% respectively during 1993-94 to 1999-2000 to 1.97 and 3.22% respectively during 1999-2000 to 2004-05, the aggregate employment growth figures for the period 1999-2000 to 2007-08, which covers the high growth years, were 1.27% and 2.64% respectively. To recall, the period between 2004-05 and 2007-08 was the one in which India moved to the close-to-9% GDP growth trajectory. A slower rate of employment expansion in this period points to a significant fall in the responsiveness of employment to increases in output.

It also needs to be noted that 2004-05 was a bad agricultural year when agricultural GDP was stagnant relative to the previous year, whereas 2007-08 was a good agricultural year when agricultural GDP increased by 4.9%. There was also an increase in labour force participation rates for both men and women in 2004-05 relative to 1999-2000, which was substantially reversed in 2007-08. This includes both those who were actively engaged in work and those who were unemployed but looking for work.

The significant increase in female participation in 2004-05 may have been because of the need 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, while male participation rates increased marginally, that of women fell significantly, possibly because the compulsions operating in a bad year were not operative. This suggests that higher participation rates, as in 2004-05, need not necessarily be a reflection of improved employment performance.

High growth, few jobs

Thus, overall, the traverse to a high growth trajectory does not seem to have delivered too much on the employment front. The growth rate of employment remains depressed even if not as badly 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 such as a bad agricultural year. The responsiveness of employment with respect to output increases seems to have deteriorated with accelerated growth. Casual wage and self-employment dominate the employment scenario. And manufacturing and organised services appear to contribute little to additions to employment though these were the sectors that were expected to take up the employment slack once neoliberal policies succeeded in delivering growth. That is, the areas in which growth is seen to occur, delivering large surpluses, higher savings and higher tax revenues for the government are the areas where employment has not been too responsive.

All this suggests that while the years of high growth may have been accompanied by increased employment, that employment has not been either in the productive 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.

Growth occurs in an environment in which a huge reserve army unsupported by any form of social security spills over into casual and self-employment, with extremely adverse distributional and social welfare implications. This, besides the persistence of widespread and even extreme deprivation, calls for caution when making much of GDP growth rates and extolling neoliberalism. India's exit from the first decade of the 21st century does not seem to be a time for pure celebration, at least for the majority of Indians.

Source : Frontline
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