The International Monetary Fund claims that India will go past Germany as the fourth largest economy in 2022 and consequently squeeze Britain out of the top five. This is both a matter of pride and real concern. Many hurdles are standing in the way of India's ability to leverage this growth. For starters, the country is still recovering from the Centre's recent demonetisation initiative, which sucked out 86% of the cash in circulation at the end of last year. Despite the real benefits of the Goods and Services Tax system, which will overhaul India's indirect tax system, there will be short-term disruptions to economic activity during the process of implementation. Bigger concerns lie with the banking system trapped under a mountain of corporate debt, especially those in the public sector. As per recent reports in a leading news daily, the gross non-performing assets (NPAs) of state-owned banks surged 56.4% to Rs 614,872 crore during the 12-month period that ended last December. What's even more frightening is that the volume of NPAs is set to grow further in the following two-quarters.
While the National Democratic Alliance government is trying to get a handle on this problem, loan growth has dropped to record lows. This has made the government's task of reviving investment and boosting employment a lot harder. In addition to slowing investment, labour productivity has also taken a hit, further limiting growth and job opportunities. In reply to a question in Parliament earlier this year, Minister of State for Planning Rao Inderjit Singh said that overall unemployment was rising, but the rate was highest among the Other Backward Classes (OBCs). The overall unemployment rate in the country is 5%, while it is 5.2% for OBCs. From 3.8% in 2011, the unemployment rate has only gone up. At a time when 12 million join the labour force every year, experts are worried about the implications jobless growth could have on India's social fabric. Labour productivity, meanwhile, has fallen from 10% in 2010 to 4.8% in 2016, as the process of implementing necessary reforms has not gained necessary pace. However, this is not to suggest that the government's struggles with employment generation are of its own doing. The current downswing in the global economy, allied with greater automation across various industries, has also played a significant role. However, it is the scourge of income inequality, aided and abetted by the factors stated above, that stands in the way of India achieving its full economic potential. As per a recent report by the United Nations released earlier this week, the richest one percent own 53% of the country's wealth. It also claimed that unlike other nations, development in India is not well distributed across states. To reduce the growing disparity in income, India needs a 'different economic model' –one that recognises poverty, inequality, and lack of financial access. It is a well-understood fact that rising inequality leads to slower progress in reducing poverty. "On its current trajectory, India will continue to face enormous challenges in rural development, urban sustainability, national infrastructure, and improved quality of life of its citizens," the report says. These figures come on the back of another report late last year from Credit Suisse, a Zurich-based financial services company, which stated that the richest 1 percent of Indians now own 58.4% of the nation's wealth. What should concern policymakers in this country is the rate at which this has grown. In the last two years, the share of the top 1 percent increased at a phenomenal rate from 49% in 2013 to 58.14% in 2016. Delving further, the richest 10% have raised their share from 68.8% in 2010 to 80.7% in 2016. Meanwhile, the bottom half own a mere 2.1%.
The International Monetary Fund, probably the repository of neo-liberal economic thought, has itself admitted that a widening income gap between the wealthy and poor is bad for growth. In its report, economists in the IMF have said that if governments want to increase the pace of growth, they should concentrate on aiding the poorest of 20% of citizens. Evidently, most of the gains from years of high economic growth have not trickled down to them. This sentiment isn't restricted to India and the developing world. The rise of Donald Trump and Brexit are expressions of the discontentment felt by many that they have not received the fruits of economic growth. In an astonishing report last year, Oxfam (a global advocacy group) had found that just 62 individuals had the same wealth as 3.5 billion people—the bottom half of humanity—in 2015. Inequality in this country exists in many forms, besides income. Vast sections of the populace also suffer from inequality of opportunity. Class, caste, religion, literacy, and health are all factors in denying people the opportunity to raise their share of the wealth pie. The reservation system in its current form has done little to correct these imbalances. In fact, its failure has inspired reactions from some to scrap reservations. Of course, the solution is not to get rid of it, but to work out why the system has failed so many. It is not as if our political class is ignorant of these realities. In 2013, a parliamentary standing committee on finance published its report titled Current Economic Situation and Policy Options. In the report, the committee criticised India's growth model, claiming that far more people were being excluded and that the gains were accruing only to a select few. The Credit Suisse report only confirms this fear. "In the context of the economic growth and per capita income, the Committee is concerned to note the emerging ever-widening gap between the wealthy and poor and the increasingly disproportionate distribution of assets in our country. It is being observed that the purchasing power is getting concentrated in the hands of a few, whereas the majority is stuck below the expenditure curve," the parliamentary committee said. Is anybody listening?