High growth alone is not the answer

There are great expectations about the growth in the size of the Indian economy: that it has already exceeded the size of France’s economy, and that very soon it will exceed the size of the economy of the UK.

An interesting question is, what shape will the Indian economy have in the future? What will be the rules of the game in this economy? Will it be like China’s economy? Or the US’s? Both are large economies, yet very different to each other. For an answer to this question, we should shift our attention from the customary economic indicators—the movements of stock markets and changes in GDP—to understand five fundamental forces that are reshaping politics, society, and the economy.

The first force is an international force: a rearrangement of global power, with the rise of China; the cracks within the EU; and ‘the bull in the China shop’ attitude of the present US President wrecking international institutions for governance of trade and justice. It is not clear what the rules of the international game will be now. And where the power to set the rules will lie.

The second force is a political force, rising globally. The people are rising against the Establishment everywhere. They no longer trust the political systems that have been ruling their countries. They are fed up with being treated like numbers by bureaucrats and economists.

The Edelman Trust Barometer is an annual survey of citizens in 28 countries, which includes the US, European countries, and India. The most significant finding of the survey is that trust in major institutions of all kinds has reduced. Indeed, only 15 percent believe ‘the present system is working’; 53 percent say clearly not. Therefore, in many countries, people are voting in radical leaders—some towards the extreme Right, others to the Left—who promise to fight the system on their behalf, to throw out the old rules, to ‘clean the swamp’.

The third force is the distribution of income and wealth. Inequalities have increased globally. India, “the world’s fastest growing free market democracy”, as it was described during the “India Shining” years, is now the world’s most unequal society, behind only South Africa.

The problem in India is not only the huge inequality in wealth; it is also the inadequacy of incomes. Too many people in India have very little income. If they have jobs, the jobs do not pay enough. The large population of youth in India could turn into a demographic disaster unless these young people can be employed in work with adequate incomes. The frustrated aspirations of these under-employed youth are turning into violence. Recently, five innocent persons were lynched in a village in Maharashtra by a mob. The police were able to arrest 25 persons. All of them were either jobless or only insecure daily wage earners. The same pattern has been found in most cases of senseless violence around the country, including horrific raping of women. Unemployed, or underemployed young men.

India’s GDP may be increasing fast. But India’s economic growth is lop-sided. Indeed, India’s economy has the worst ‘employment elasticity’, that is the number of jobs created with each per cent of GDP growth. There are not enough jobs and there is not enough profit being made by enterprises at the bottom of the pyramid. 

The fourth force is the force of Nature. Which we cannot ignore too long. Or try to suppress with man-made infrastructure. It will strike back, and it is. India has the most polluted cities in the world. The level of the underground water table is falling rapidly. NASA’s satellites have revealed that ground water levels in North India are falling on average by one meter every three years, and in Punjab by a meter a year. This in a country in which 60% of agriculture, and 85% of domestic water supply depends on ground water.

Lack of water can destroy livelihoods and incomes of farmers and others too. There is concern about the destruction of jobs in the future by emerging “Industry 4.0” technologies. In India we must be more concerned with the destruction of lives and livelihoods already taking place with air and soil pollution, and with depletion of water sources.

The fifth force dramatically reshaping economies and societies is technology. Robotics and artificial intelligence are displacing human beings, in manufacturing, in services, and in knowledge work. What will human beings do in the future? How will they earn incomes? These are questions that have begun to alarm economists.

However, even before technology will disrupt economies on a grand scale, technology is already disrupting societies by spreading around fake news, creating divisions, provoking violence, and facilitating political revolutions. On one hand, the internet and social media are a force for democratisation. It gives power to the people. But on the other hand, it is also a force that gives more power to governments, and to large capitalist organisations, to monitor and control people.

Running through these five forces is a notion of alienation. People at the bottom of the economy are feeling disconnected from people at the top of the economy. People at the bottom of society are feeling disconnected from the elites at the top.

For the system to function harmoniously, people must feel empowered to shape their own futures. Democracy must be deepened. Institutions of local governance in India’s villages and cities must be strengthened. Small enterprises generate more jobs per unit of capital than large ones do. Clusters of small enterprises must be strengthened around the country. Thus, capitalism will become more democratic too. 

In summary, for people at the top of governments and business enterprises to feel secure about their future, they must work very hard to ensure that people at the bottom feel secure about their futures. 

(The writer is a former member of the Planning Commission and author of the recently released book “Listening For Well-Being: Conversations with People Not Like Us”)