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India - a 'bypass' nation

Lopsided policies have made India a bypass nation - a nation of duals, of inequity and of absurd paradoxes

Nikhil Inamdar Mumbai
A unique feature of India's economic evolution has been its transformation from a largely agrarian nation to a services driven engine of growth, in the process largely bypassing traditional industrial development that propelled GDP expansion in economies like China, creating a vibrant middle class.

Economists studying demographics and employment trends describe this phenomenon as the "missing middle" - a scenario where growth in manufacturing & industry with their ability to absorb large scale labour is missing, and jobs tend to be concentrated in either highly skilled service driven industries like IT and financial services or in very low productive farm and construction related sectors. This evidently has left India incapable of coping with an impending  demographic wave, increasing the risk of us falling into a middle income trap with scores of jobless youth.  
 
This "missing middle" theory can be extrapolated to virtually all segments of the Indian economy. But take e-retail as an example, considering that it has hogged headlines in the last week with one of the e-commerce portals - Flipkart, crossing $1 billion in sales. Despite all the hoopla around allowing foreign investments in multi-brand organized retail and dizzying growth projections being strewn around by government ministries and consultants (1.3 trillion by 2020?!), organized retailing has failed to take off meaningfully in India, with potential foreign investors still battling a complex policy maze, and home grown players running heavy losses.

But as we've observed, e-tailing has whizzed past the traditional brick and mortar model, with e-commerce companies raking in millions of dollars from investors even as the Walmarts and Carrefours of the world dither before committing their monies to India.

Soon, as online portals begin selling everything from vegetables and rice to safety pins and soaps, we might just have a scenario where Indian consumers will have virtually bypassed the organized retail model that characterized growth in developed economies, continuing to shop either at their local baniya or on snapdeal.com. This could have a serious negative fallout on the development of this sector for it will disincentivize investments into backend infrastructure and logistics, and also rob India of an estimated 10 million new jobs. Private organized retail is among the biggest employers in countries like the UK. E-commerce will hardly be able to absorb much labour in face of rising automation and technological advancement.

The proclivity of India's growth trajectory to sidestep key stages of evolution has resulted in imbalances and fractures that are palpable not just in retail and manufacturing, but across developmental areas such as sustenance and healthcare, education and housing as well. 

In the field of education for instance, you have a handful of IITs and IIMs producing top graduates who head global conglomerates , but across the country the proportion of children in class 5 who can read a class 2 level text has declined by 15% in the last decade. Similarly you have India emerging as a hot health tourism destination, but ranking lower than its less prosperous neighbors like Bangladesh, Nepal and Pakistan on key health parameters like life expectancy, mortality etc according to a Global Burden of Diseases, Injuries, and Risk Factors 2010 Study. The binaries and contradictions don't cease, often creating stark, jarring contrasts in the Indian narrative - rising pediatric obesity in urban India even as 48% children of the country under age of five years see stunted growth, booming demand for luxury homes even as urban homelessness increases rapidly etc etc.

Lack of investments in creating sturdy social foundations had made India a bypass nation, a nation of duals, of inequity and of the absurd paradox of having more people with cell phones than toilets as the economist Amartya Sen famously analogized.

The World Economic Forum has listed such inequities, that arise presumably as a result of severe income disparities (which again are a consequence of the nature of employment generated) and a non-inclusive model of growth, as among the top global risks for 2014. India's policymakers need to bridge them by addressing the various "missing middles", which haven't influenced our discourse about GDP and economic prosperity as much as they should. 



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First Published: Mar 17 2014 | 10:47 AM IST

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