30 per cent success won’t do
T. N. Ninan

A view of Air India’s jumbo jets parked next to Dharavi slums, Mumbai, 2004. — Photo courtesy: Raghu Rai

Early this month, the government handed out a single contract, for building a 4,000 MW power station. Sixty years ago, the total power generation capacity in the whole country was less than half that figure. Indeed, India’s total power generation capacity has multiplied more than 60-fold in 60 years, and is set to grow by another 60 per cent in the next five.

As those numbers would tell us, India has come a long way-from being a metaphor for poverty to being recognised as the 10th trillion-dollar economy in the world. We have moved out of the World Bank’s category of ‘low-income’ countries, and are now recognised as one of the ‘lower middle-income’ countries. In fact, India’s economy has become bigger than Russia’s, and the country has more super-rich people than even Japan!

But as the old wisecrack goes, for everything that is true of India, the opposite is also true! Poverty still stalks the land. India is now a land of opportunity as it has never been before, but large numbers (defined most easily by caste and community) are locked out of the excitement and the opportunity.

The fact is that, after 60 years, we have done well for the top 30 per cent of the population, not the rest. Only 30 per cent of the people live in pucca homes that have at least two rooms; Only slightly more than that number have bank accounts. And that same 30 per cent (or 350 million people) define the size of our very loosely-defined middle-class. Slightly less than 30 per cent of those who start at primary school manage school matriculation! Our founding fathers would probably be disappointed-they had thought that we could have 100 per cent school enrolment up to the age of 14 in 10 years’ time (by 1960), and the Constituent Assembly felt that reservation for even the Scheduled Castes and Tribes would not be required beyond that date! How naïve their assumptions were about overcoming age-old problems.

In fact, if you look at the malnutrition numbers in the country, the numbers are still painfully high. In the UNDP’s ranking of countries on the basis of its human development index, we come in at a poor 127th-with our ranking on a basic need like sanitation being even poorer. Whether it is universal health care or universal education, the supply of safe drinking water or connecting all habitations with a road, we simply have not found the answers when it comes to providing the basics for everyone. Nor do we have an effective social security system that takes care of the poorest. Many other countries have managed to do much of this in a similar time period; in that sense, the miracle of India’s marrying democracy based on universal adult suffrage with a "mixed economy" pattern has produced very mixed results.

Still, everyone now recognises that, just as China and India accounted for close to half the world’s GDP at the start of the Industrial Revolution, 250 years ago, these countries seem headed to becoming two of the three largest economies in the world, well before the next 60 years are over. While China has done better than India in the last 30 years, many observers are betting that positions will be reversed over the next 30-and not just because India will at some stage overtake China to become the fastest growing economy in the world.

The energy and momentum for powering ahead is going to be provided by a growing middle-class. The growth story of recent years is precisely because the number of people at and near the top of the pyramid has been climbing rapidly. As recently as 2001-02, there were only about 55 million people who enjoyed family incomes of more than Rs 20,000 per month. By 2004-05, that number had swelled to 90 million, and today it would be well over 150 million (out of a total of 1150 million). In other words, the middle- and upper-class market has nearly trebled in six short years. Look into the future and it could be 400 million who belong to the consuming class in another six years-that is more than the population of the US and close to the numbers in the European Union. Assume continued rapid growth till the end of the next decade, and we will have a middle class that is bigger than the combined populations of the US and Europe. Admittedly, even at that stage, the average Indian income will be a fraction of what it is in the rich western economies, for we will still be a middle-income (not a wealthy) country.

The magic therefore is in the size and scale of India, and the promise of its domestic market. We now have 7 million new telephone connections every month, and sell 7 million motor-cycles and scooters in a year. We are among the world’s largest producers of a whole range of items (milk, TV sets, bicycles, sugar, motor-cycles`85), and in many markets demand is growing annually by 15 per cent and more. And yet, while it is true that youngsters are taking out home loans while still in their early 30s, and we are producing more business school graduates (of varying quality) than almost any other country, the harsh truth is that only about 10 million people in India have taken out proper life insurance policies when we have some 240 million families; the number of people who have medical insurance is even smaller; and the average bank account has a balance of no more than Rs 40,000. We may be a trillion-dollar economy and the second fastest-growing in the world, but for the majority that success story has no real meaning.

The question must be how we include more than 30 per cent of our people in the success story of India, how to expand it to 50 per cent, and then more—and how long it will take to do that. On the basis of the poverty estimates made periodically, what becomes clear is that slightly less than 1 per cent of the population crosses the poverty line each year. If today about 22 per cent of the people are below the poverty line (compared to more than 50 per cent in 1971), what that means is that at the present rate of progress, it will take us till 2030 or 2035 before we get rid of absolute poverty. Most people would consider that an unsatisfactory prospect-and indeed an affront to the nation if we are among the top three economies of the world at that stage, and still have extreme poverty in our midst.

The deeply political question is not whether we should do something urgently about this, but how. One answer is to throw more money at the problem. And so the governments at the Centre and in the states are spending more money than ever before to address this issue-there is subsidised food, guaranteed employment in the countryside for at least 100 days in a year, an education cess to finance increased spending on education, subsidies of various kinds for farmers, and much more. But the problem, as always, is how well the money is spent; numerous studies support Rajiv Gandhi’s statement two decades ago that what reaches the intended beneficiary is only 15 or 20 per cent of the outlay.

The alternative view, therefore, is that it is better to focus on growth and governance. Growth because all the countries that have made a serious dent in poverty after World War II have been rapidly growing economies; and governance because if you cannot get the government to function more effectively in problem-ridden states like Bihar and Jharkhand when it comes to providing sanitation, health care (including basic immunization programmes) and education, then poverty is not going to be eliminated.

In this alternative view, the problem we face is that our markets are efficient and work well for those who are a part of the market, but the state does not work well enough to help those who do not have the financial and other resources to become a part of the market. And since politicians don’t seem to know how to fix the problem, they try populism instead. So they promise free electricity but are unable to guarantee electric supply. They pass laws that promise job security but can give jobs in the organised sector to no more than 15 per cent of the work force. They promise agricultural support but keep in place a series of policies that hold back agricultural diversification and greater productivity. Indeed, some studies now suggest that even if the government were to spend more money on education and health care, it would make little difference because the money is spent so badly.

What we know today is that the economic reform undertaken over the past 16 years has given the economy the power to grow rapidly. What still needs to be done is to make that a good news story for the majority who are at or near the base of the income pyramid.

T.N. Ninan

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