The Republic at 69 and the next seven decades

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India has been independent for more than 70 years and a republic for 68 years. Between 1950, the year, the country became a republic and 1991, the year, the government initiated economic reforms, the economic size of the country became five times.

By 2014, the economic size of the country was 4.2 times of what it was in 1991. I am forced to stop this comparison at 2014 because India adopted a new GDP series in January 2015 and the GDP data in that series is available only from 2011-2012 onwards.
The differentiating point between pre and post 1991 eras, is that the economic growth has been faster post 1991. There is no denying that this economic growth has had huge benefits.

At the same time, it has created its own set of problems as well. In 1990, as per the World Inequality Report 2018, the top 10 % of India’s population earned around 34 % of the national income. By 2016, this had jumped to 55 %. This rise in inequality has happened because the upper echelons of the society have benefitted more from the economic reforms of 1991.

As can be seen from Figure 1, India along with Brazil, have the highest concentration of wealth in the world, after the Middle East. In purchasing power terms, the per capita income of Brazil is 2.3 times that of India.

Figure 1:
Source: World Inequality Report 2018.

Inequality is not the only reason to worry about on the economic front. For years, the story of India’s demographic dividend has been sold to the world. Demographic dividend is a period of few decades in the lifecycle of a nation where it’s workforce increases at a faster pace than its overall population. As these individuals enter the workforce, find jobs, earn and spend money, the economy grows at a faster pace and pulls out many people out of poverty.

At least that is how things are supposed to work in theory. Around a million Indians are joining the workforce every month. This is expected to continue for the next decade and a half. The trouble is that there aren’t enough jobs going around. A recent estimate made by the Centre for Monitoring Indian Economy suggests that in 2017, two million jobs were created for 11.5 millions Indians who joined the labour force during the year.

There are other data points also which suggest a lack of jobs. The investment to gross domestic product ratio has been falling for a while now. The capacity utilisation rate of manufacturing firms has stagnated between 70 and 72%. If existing capacities are not being used, there is no reason for firms to expand and create jobs.

Labour intensive export sectors like apparels, gems and jewellery, leather, agriculture etc., have remained flat, over the last few years. Real estate and construction, two sectors which have tremendous potential to create jobs which cater to India’s cheap and largely unskilled labour, are down in the dumps.

For many, agriculture is no longer economically feasible. A discussion paper recently published by NITI Aayog suggests that agriculture contributes 39% of rural economic output, while employing 64 % of the workforce. For agriculture to be economically feasible nearly 8.4 crore individuals need to be moved out of it. This unfeasibility of agriculture has also resulted in landowning castes across the country, wanting reservation in government jobs.

The education scenario continues to be depressing. Children are going to school but aren’t really learning. The latest Annual Status of Education Report (ASER) states: “For the past twelve years, ASER findings have consistently pointed… that many children in elementary school need urgent support for acquiring foundational skills like reading and basic arithmetic.” Given this, even when firms have jobs, they cannot find people with the necessary skillset.

The trouble is that skilling is not happening at the scale that it needs to. The different ministries in the government had accepted a target of training 99,35,470 individuals in 2016-2017. Of this, only 19,58,723 or around less than one-fifth had been trained up to December 2016. It isn’t fair to blame the government for this, given the huge scale required. This needs a total overhauling of our education system with a huge focus on vocational studies.

Further, the Indian firms start small and continue to remain small. Labour laws remain the major culprit on this front. The state of Jammu and Kashmir has 260 labour laws. Other estimates suggest that India has around 200 labour laws in total. A very serious effort is needed at the government’s level to improve, the ease of doing business.

All in all, the scenario that prevails for India’s demographic dividend, is very bleak. And it is this demographic dividend which is expected to take us forward for the next seven decades.

The column originally appeared in the Daily News and Analysis, on January 26, 2018.


zeroIn moments of exasperation when talking about India and what we call the system, people often blurt out, “but why isn’t the government doing something about it?”

Take the case of education. As the document titled Some Inputs for Draft National Education Policy of 2016 released by the ministry of human resources development some time back  points out: “The concern for the improvement of education had been at the top of India’s development agenda since independence.”

Despite this concern, India still has the most illiterates in the world. As the Draft National Education Policy document further points out: “The relatively slow progress in reducing the number of non-literates continues be a concern. India currently has the largest non-literate population in the world with the absolute number of non-literates among population aged 7 and above being 282.6 million in 2011.”

This basically means that around in one in four Indians continue to be illiterate. This is nearly seventy years after independence. Over and above this, India also has the maximum number of youth and adult illiterates in the world. The youth literacy rate (15-24 years) is at 86.1 per cent whereas the adult literacy rate (15 years and above) is at 69 per cent.

Further being literate doesn’t mean that the learning outcomes (the ability to read, write and do some basic maths) are in place. Madhav Chavan, the CEO-President of the Pratham Education Foundation estimates that in the period of ten years up to 2015, 10 crore children completed primary school without the ability to do some basic reading as well as mathematics.

So why can’t the government do something about it?

It is widely believed that one reason for this is that the government doesn’t spend enough on education. The various National Education Policies have recommended that the government should be spending 6 per cent of the GDP on education. But over the years, the spending has hovered around 3.5 per cent of the GDP.

Nevertheless, this does not mean enough money is not being spent. As Geeta Kingdon pointed out in a recent editorial in The Times of India, in 2014-2015, the total teacher salary bill for the country stood at Rs 41,630 crore. This amounted to a teacher salary expense of Rs 40,800 per year per child. This is huge.

The trouble is that just spending money on a problem is not a solution. But that is precisely what the various central governments over the years have tended to do. If there is a problem, they launch a new scheme on the basis of a new policy to tackle it and make some budgetary allocation to it.

The trouble is that there are way too many government schemes going around. As Devesh Kapur writes in an essay titled The Political Economy of the State: “Few states have the administrative capacity to access grants from 200 plus schemes, spend money as per each of its conditions, maintain separate accounts, and submit individual reports. This administrative capacity is even more limited in those states where the need is the most. Monitoring is rendered difficult not just because of limitation in the monitors themselves, but the sheer number and dispersion of the schemes across communities and locations.”
And this inability to monitor inevitably leads to corruption with money which has been allocated for a certain cause, getting siphoned off. There is a key lesson here that the central government needs to learn here.

As Kapur writes: “While each centrally sponsored scheme has the resources of a particular central ministry to call upon to aid its design, stipulate conditionalities for disbursement, and so on, the delivery is necessarily by local administration.”

And there is only so much a local administration can do to implement a scheme.

The larger point here is that the central government by trying to achieve too many things by running too many schemes ends up making a mess of the most important things and this includes education, health, agriculture etc.

Hence, if India has to get rid of its most basic problems, the government will have to start concentrating on fewer things. As the old saying goes, perfect is the enemy of the good. And that is well worth remembering.

The column originally appeared in the Bangalore Mirror on September 14, 2016