Growth and development equation
Dip in growth can be accommodated as long as economic development is on track
The current slowdown in the auto sector triggered off the fear of recession and is seen as a 'clear and present danger'. It is a cause of concern as the automotive sector is one of the key segments having extensive forward and backward linkages with other segments of the economy. Secondly, GDP growth rate slowing down to a six-year low of 5 per cent in the first quarter of this financial year also adds panic to fear. This is ascribed to a massive slowdown in the manufacturing sector. Compared to last year, the agriculture sector has also registered a slowdown from 5.1 to 2 per cent. Real estate was not far behind as it fell to 5.7 from 9.6 per cent last year. As reported, poor growth (3.1 per cent) in private final consumption and a lacklustre investment demand led to a meagre rise of 4 per cent in capital formation. Only the governmental expenditure which grew to 8.8 per cent has been the lone support for growth.
The above state of affairs is surprising as it contrasts with the celebrated status of our economy as one of the fastest-growing in the world in view of rapid growth in per capita income, agricultural production ranking second in the world, fast-growing services sector contributing around 60 per cent to GDP, and blooming software-industrial hubs. India continues to be the third-largest economy in the world in terms of purchasing power parity (PPP). We have an enviable demographic composition of 700 million people below 35 years – a potential workforce with low wage costs that investors cannot resist trying their luck; a promising land, especially for FDI. Unlike many advanced economies, we are blessed with a huge domestic market that can consume almost the entire production from within. But ironically, RBI's annual report 2018-19 finds 'lack of domestic demand' as a chief factor for the slowdown and emphasises the need to revive consumption demand and private investment. The report also mentions structural issues in the land, labour, agricultural marketing, etc., as indirect reasons that need to be addressed. There is much to read in the report as it also hints towards the fundamentals of the economy.
The instant fear factor of recession compels us to revisit our mission of economic development. As UNDP reports, India ranks 136 among 186 countries in terms of Human Development Index – a yardstick to measure economic development in terms of peoples' incomes, health, education, life expectancy, etc. It boils down to the fact that economic 'growth' can be an outcome of the state of economic development of a nation but the converse is not necessarily a corollary fact i.e., 'growth' doesn't always mean economic development. 'Growth' is only a subset of development. Rising growth rates will not necessarily vindicate the sound state of economic development, no more than falling growth rates indicate economic backwardness. Even when growth rates fell in advanced nations, they still remained advanced economies. Growth only means a rise in the value of goods and services, GDP, NGP and per capita income in a specific time frame which must not be confused with economic development. The latter refers to the health of fundamentals of an economy such as infrastructure, sound credit structure, sustainable economic activity, skilled manpower, education, health, environmental conservation, etc., which are major concerns in developing countries, diametrically opposed to those for 'growth' which is typical of advanced economies. It is relevant here that the RBI in its report stresses on continued policy focus on reforms in factors of production; of course the fundamentals. Increasing the growth rate is not to produce more billionaires but to uplift millions living under BPL so that we generate more demand and also increase the rate of savings. Establishment of SEZs, EPZs, STPs, EOUs is certainly welcome in the interest of increasing ease of business and appropriate technologies for sustainable growth. But more important is the health of fundamentals.
Sectors for intervention need to be identified with a sense of proportion. The primary sector which is integrally connected to agriculture has not received required attention in spite of the fact that fundamentals of the economy largely depend on it. Entrepreneurship and spending need to be encouraged in agriculture and allied sectors as it directly benefits farmers and also helps gradually raise the share of the agriculture sector to GDP which is currently below 30 per cent. Being one of the world's major food producers, food processing also needs focus. Our agro-climatic diversity is suitable for round the year cultivation of crops. We have 10 per cent fish genetic resources of the world, 16 per cent of cattle, 17 per cent of goats and 5 per cent of sheep population of the world and all of this is an integral part of the rural economy where the agricultural workforce is fast depleting as millions of migrant labourers are rushing to cities for work. The primary sector needs a revival for another important reason as we have to feed our growing population. The farm stress has been a major cause of worry for all successive governments and the plight of 'kisan' needs no mention. Though liberal budgetary allocations in agriculture and allied sectors come as a relief, we also need to strengthen marketing mechanisms with value additions in order to reduce dependence on MFP and develop farmers into 'agriprenuers'. Steps in reducing the cost of cultivation and encouraging crop diversification will make agriculture not only a viable occupation but a profitable venture. 'Doubling the farmer's incomes' is the agenda. It's high time a separate budget for agriculture, both at the Center and in states, is contemplated upon with a view to rejuvenate the primary sector and revive the rural economy.
The human resource is a reservoir for productive manpower which is a sine qua non for economic development. There is an appalling dearth of skilled manpower in many sectors like tourism, hospitality, retail marketing, medical care, etc., which provide numerous employment opportunities. National Skill Development Mission Document admits that only 3.2 per cent of 'educated workforce' is skilled, compared to 68 per cent in the UK, 75 per cent in Germany, 52 per cent in the US, 80 per cent in Japan and 96 per cent in South Korea. Employment oriented education for our youth is of immense importance, especially in view of the promising electronics industry which is expected to grow 7 times the global rate. The boom is evergreen in sectors like telecom, defence, IT and e-governance, automotive, consumer electronics, and energy. Textiles Industry, for instance, contributes 14 per cent of industrial production, 4 per cent of GDP and 10.63 per cent of the country's export earnings and provides employment to over 35 million. Skilled manpower can help such promising manufacturing sectors to grow exponentially and compete in the world markets. It would ensure a dual advantage to the economy in terms of addressing unemployment on one hand and generating a rise in consumer demand.
It needs no telling that a sound credit structure is a motor force for economic development. Efficient management of public deposits and building a capital base for the economy is the responsibility of the banking industry. But the state of affair leaves much to be desired. The RBI report also hints at the indifferent work culture in the system as bank frauds went up by 73.8 per cent during 2018-19 in comparison to 2017-18. Moreover, by 2017, gross NPAs of all the banks amounted to Rs 8,40,958 crore – the opportunity cost of which could have been hundreds of infrastructure development schemes to strengthen the fundamentals of the economy. A developing economy could ill-afford such luxury of squandering capital resources. There is a need for monitoring the banking industry effectively as a part of policy focus.
Inadequate infrastructure, low productivity, unskilled human capital, and poor rate of savings, are bad fundamentals which impede economic development, let alone growth. Of course, 8.6 per cent growth in power generation and electricity in comparison to 6.7 per cent last year is a blessing but rising costs of energy and its erratic supply hamper the growth of businesses, manufacturing and primary sectors. RBI's prescription in favour of faster implementation of capital expenditure by public authorities, strengthening of banking and non-banking sectors, quick and enhanced spending on infrastructure is scientific and is also aimed at restoring the health of the fundamentals.
(The author is a senior bureaucrat of Chhattisgarh. The views expressed are strictly personal)
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