2010 was a year of relief that soon grew into despondency. We were relieved that India had pulled out of the deepest post-War recession relatively unscathed. The soundness of its cautious macro-economic management was underlined once again and the US economy is also looking like getting slowly back on track. The “coupling-decoupling” debate notwithstanding, how well the American economy does is quite important for India's call centre job economy and the future of its software jobs. The American recovery was reassuring. The Indian economy is poised to grow at 8.5 per cent next year, may be even cross 9 per cent. But the outbreak of a veritable scam-epidemic suddenly seemed to pose the question: Is our basic institutional structure strong enough to sustain the dream of an economically affluent democracy?
Good indicators
It is not as if the question can be decisively answered at this juncture. It is surely a very important question. But our inability to answer should not entirely crowd out some good signs that we are now seeing.
The first sign is that the Indian economy is back to rapid economic growth. India's GDP in the second quarter of 2010-11 has registered a growth rate of 8.9 per cent over the second quarter of the previous year. Manufacturing has grown by 9.8 per cent, while trade, hotels and restaurants increased by 12.1 per cent. Agriculture (inclusive of forestry and fishing) has grown by 4.4 per cent over the previous year. In particular, coarse cereals and pulses have grown by nearly 20 per cent and 40 per cent.
Substantial growth
In general, economic growth is crucial since it helps raise the potential standard of living. For example, if per capita income can grow at 6 per cent a year, then it will double in approximately 12 years. That will mean twice the amount of food, clothes, medicines, books, entertainment, schooling etc. for the average Indian. That is why the figures quoted earlier give cause for satisfaction. These figures are all for growth in real terms, adjusting for the rampant inflation. The growth in agriculture as well manufacturing is heartening. An unduly large fraction of India's population (a little more than two-thirds) still depends upon agriculture and good performance by agriculture can potentially make life a little easier for the rural poor. Manufacturing growth has the potential for creating jobs that are more paying than the massive sweat-shop that passes by the name of the urban informal sector. Growth of manufacturing has the potential to shift millions from low paid agricultural activities and urban slums to better paid, formal sector jobs. From this point of view, the acceleration in the manufacturing sector growth rate (9.4 per cent in Q2 of 2010-11 as compared to 8.7 per cent for Q2 in 2009-10) is indeed important. If the growth momentum can be steadily maintained in this fashion for the next decade or so, we will surely see a significant dent in the age-old problems of rural and urban poverty. Food inflation too, seems set for a more moderate new year.
Having said this, there is a very significant caveat, which will need policy attention. If growth is to be broad-based, it will also necessitate developing the requisites skills across a wide swath of the population so that they can fill the jobs that the growth process creates. Otherwise, growth may wilt from a sheer shortage of competent people to employ. This will require a significant re-look (not merely a quantitative expansion) of educational opportunities. The schooling system that is available to the majority is not really delivering on this count. How to create widely accessible and inexpensive schooling structure that will give jobs to poor people who cannot afford to stay in school too long is a difficult issue. A particularly difficult problem is the incentivisation to teachers for better performance. From this point of view, we have got it all wrong. Pay commission after pay-commission gives hefty pay increases to those who are already employed and are not performing (by and large), while new recruits are hired on short-term contracts under very poor pay structure, since it is too expensive to hire them at the Sixth Pay Commission salaries. Thus, neither those well established, nor those who are seeking entry, have any incentive to perform. This aspect needs to be tackled as soon as possible.
Governance pays
Another heartening aspect of 2010 was the demonstration that developmental work has become politically viable. The huge mandate to Nitish Kumar's developmental policies have demonstrated that building better roads and creating better governance pays much more than playing on caste identities. The spate of scams has become a little bearable by the fact that nearly all the scamsters have had to pay dearly, at least in terms of lost reputations. And so, though we do indeed look back in anguish at the years that has gone by, the future is potentially hopeful. But that will require us to solve some hard problems.
Neeraj Hatekar is Professor, Department of Economics, University of Mumbai.
