India's neglected development transformation

Inclusive growth appears irrelevant to current electoral outcomes

The election is done. Now, serious economic challenges loom. Addressing these effectively will be key to the success of India’s development transformation.

The first challenge is employment. Four things have worsened since 2014, pointing to the macroeconomic nature of this challenge and the need, therefore, for active government intervention: (1) 100 million people between the ages of 18 and 35 are neither seeking work nor in education or training, (2) 45 per cent of our workforce is now dependent on agriculture for a livelihood, (3) migration from North to South India, and from everywhere to foreign countries remains the most attractive option to secure a stable and secure life, and (4) the second most attractive option is any government job, leading millions to waste their youth trying to secure one

At the moment, the government compensates those who cannot migrate or enter government service, and those in agriculture who are not learning or working, with a rural employment guarantee scheme, which amounts to little more than workfare. Combined with all sorts of subsidies and cash handouts, the scheme allows these people to acquire the crumbs of things that they would have otherwise got by dint of their own earnings and capabilities. The result is that we continue (enclaves apart) with a dysfunctional agricultural sector, a 90 per cent informal economy, and near zero manufacturing in North and East India, where the majority of the population lives.

The second is consumption: Consumption growth in the fifth-largest global economy has been flagging for some time. Dangerously, an increasing chunk of consumption is now fuelled by debt.  At the same time, the growth of luxury consumption continues unabated. Even in a top-tier sector like automobiles, growth is coming from sales of luxury cars, not entry-level models. The railways are rationed as civil aviation booms. Any housing for minimum wage earners requires subsidy, as does their consumption of fuel and light. The majority cannot afford a better and more economically secure life in the world’s fastest-growing economy without resorting to debt, relying on subsidy, or doing with less — a telling indicator of economic failure .

The third is productivity. In my view, this problem is reflective of inequality and has societal parameters that need collective action to resolve. Uttar Pradesh and Bihar are poorer than Nepal. Both capital and labour flow out of these states to southern and western India. This means a huge unproductive movement of labour away from their homes to more prosperous geographies due to a comprehensive longstanding inability to locate manufacturing and service jobs where people live. Rather than infrastructure being used to move goods to coastal ports, it is used to move people (remember the pandemic?) like pack animals, destroying families and communities. Caste, ethnic and gender discrimination further hobble productivity, as does the devaluing of skills and  education in favour of the competitive exam jobs-rationing racket. A social culture of legitimising cronyism and criminality over accumulation and prosperity further accentuates the malaise.

These are serious, worsening, and longstanding challenges to India’s development transformation. But these issues were of peripheral importance during the election, and to its outcomes. The diversity of the electoral verdict shows this clearly: The National Democratic Alliance lost and the INDIA bloc gained in Uttar Pradesh and Maharashtra, but the converse happened in Bihar and Telangana. This yet again signals that development transformation is irrelevant to current election outcomes.

If the terrain of electoral politics involves contestation over who can provide a better compensatory state, who can compensate better for the loss of economic opportunity, and if basic issues like adherence to constitutional democratic values and political inclusion continue to remain in dispute, then it is quite natural that the looming history-making failure of India’s development transformation will remain permanently in the background.

The policy ecosystem is largely unconcerned with these macro challenges, content to debate decimal point changes in the fiscal deficit and the repo rate, and  the zero-sum game of who wins or loses from inframarginal changes in tax rates. These quibbles are bureaucratic; policy thinkers  should be able to address the great challenges of the day. But the ecosystem will only deliver actors that do so when the political leaders are willing to make political investments in the transformation project  and/or promote a  political ideology that builds collective action on national development transformation.

Consider an industrial policy to foster diffused manufacturing and enhance the share of formal economic activities. A medium-term plan to cater to the home market demand of those earning the minimum wage rather than lotus-eating about exports and unicorns. An incomes policy that actively seeks to raise the stagnant share of wages in national income. An agricultural sector that is ecologically and economically stable and remunerative, and whose interests are not always sacrificed to provide cheap food to the vocal urban rich. The content and substance of things like these should be at the focus of political debate and occupy attention in Parliament. But they are not.

Despite electoral irrelevance and the persistent squabbles over more primordial issues, I continue to hope, without reason, for a coming together on an inclusive development transformation that takes us on the Japanese rather than the Brazilian path. Nothing can heal and abate primordiality better than making the right choice on this one. Inclusion is a terrific healer.

The writer is distinguished professor, Kautilya School of Public Policy, and visiting senior fellow, ODI, London