Inequality hindering India’s march towards a developed nation

INDIA is certainly going to become the world’s third largest economy in the near future, for which the substrate has been created since Independence. The Indian economy has been evolving and transitioning to higher levels of growth and development. The economy grew at an average annual rate of 0.8 to 1 per cent, while the per capita income’s (PCI) growth rate ranged from 0.04 per cent to 0.2 per cent between 1900 and 1947. From such a dismal base, the economy transitioned to an annual average growth rate of 4.1 per cent during 1951-64, a great achievement by any stretch of imagination.

A significant departure from the earlier phase (1951-64) was achieved during the 1980s (a growth rate of 5.7 per cent per annum during 1980-89 and 5.2 per cent per annum during 1990-2002). Clearly, the planned development strategy laid down strong foundations and created a formidable substrate for future growth and development. Even the foundations of space and atomic technology, about which the current political dispensation boasts so much, were laid down during the Nehruvian era. Nonetheless, ever since the NDA came to power in 2014, it has been mocking the previous governments (except the Vajpayee dispensation) and highlighting its own achievements. Such rhetoric often gives one the impression that it was only after 2014 that the Indian economy started developing. The post-Independence economic history of the country, however, does not support the claim.

Even the growth rate of the gross national income (GNI) and pre-capita income was higher during the 10 years of the UPA rule than in the decade of the NDA reign. The GNI (at 2011-12 prices) increased from Rs 50,43,422 crore in 2003-04 to

Rs 96,79,027 crore in 2013-14 and further to Rs 1,54,61,721 crore in 2022-23, according to the Economic Survey 2022-23. The estimated projected GNI for 2023-24 comes out to be Rs 1,63,10,753 crore. Clearly, the GNI increased by 1.92 times in 2013-14 over 2003-04, whereas it rose by 1.69 times in 2023-24 compared to that in 2013-14. The real PCI surged from Rs 42,995 in 2003-04 to Rs 68,572 in 2013-14 (a 1.60-fold increase) and increased to Rs 99,774 (projected) in 2023-24, a 1.46-fold rise over that in 2013-14. In 2022-23, the PCI was Rs 96,522.

The trend growth rate of the GNI in the UPA years (2004-14) was 2.7 per cent per annum. It was estimated to be 1.9 per cent per annum during the 10 years of the NDA government. The respective growth rates of the PCI were 1.9 per cent and 1.3 per cent per annum. The trend growth rate is a better measure of comparison than the compound growth rate (CGR) and year-on-year (Y-o-Y) growth rate as it takes into account each year’s value while the CGR is based only on the initial year’s and end year’s values and the Y-o-Y growth rate is only for the preceding and succeeding years.

It is crystal clear that at the macro level, the economy performed significantly better during the UPA’s two terms than during the NDA rule, even if we take into consideration the economic slowdown during the Covid-19 pandemic. Even the share of development expenditure in the Union budgets of the UPA was slightly higher (47.88 per cent compared to that of the NDA — 47.21 per cent).

The economy got a shock due to the sudden and illogical decision of demonetisation in November 2016, which is visible from the slowdown during the succeeding years. The real growth rate of the GNI declined from 8.3 per cent in 2016-17 to 6.9 per cent in 2017-18 and further to 6.5 per cent in 2018-19, dwindling further to 3.9 per cent in 2019-20. The PCI growth rate dipped from 6.9 per cent in 2016-17 to 5.5 per cent in 2017-18 and further to 5.2 per cent in 2018-19. It nose-dived to 2.3 per cent in 2019-20 (all post-demonetisation but pre-Covid 19 years). The ever-increasing NPAs of banks and their very low recovery (up to 20 per cent) through a one-time settlement during the NDA rule is also a serious drag on public money and development.

The unemployment rate of 6.1 per cent in 2017-18 was at an all-time high in the previous 45 years, as per an NSSO survey. However, it recently registered a downward trend. The Periodical Labour Force Survey (PLFS) on employment and unemployment since 2018-19 is a poor substitute for the NSSO survey. What happened to unemployment and the quality of employment in the informal/unorganised sector is not being fully captured by the PLFS. The work participation rate — especially that of females — has also witnessed a significant decline in recent years. The ruling NDA’s tendency of revealing less and concealing more — magnifying its own achievements and disparaging those of the earlier regimes — is also a new public discourse. Even the consumption data for 2017-18 was made public after great hue and cry by academia and civil society.

Private household savings are falling, and their debt burden is on the rise. In 2023, India was 111th out of 125 countries on the global hunger index, with its score of 28.7 indicating a serious hunger level. Paradoxically, it has been dismissed as an erroneous measure of hunger by the Indian government. And how can appropriate socio-economic policies be formulated and implemented in the absence of vital statistics such as the Census? It all shows that the government is not keen on sharing data with the citizens. Though basic issues like unemployment, hunger and inflation have been raised by the INDIA bloc, the election results show a mixed response from the voters.

However, amid rising income and wealth inequality, the country’s latent growth potential and its prospects of becoming a developed and rich economy by 2047 are bound to be adversely impacted. As per the World Bank classification, India is currently a lower-middle-income economy, and according to former RBI Governor Raghuram Rajan, it will continue to remain so even in 2047. With a PCI of 10,123 dollars (PPP terms), India currently stands at the 125th place. The GDP of the US and China is, respectively, 7.53 and 5.31 times higher than that of India. The PCI (PPP terms) of the US and China, respectively, is 8.43 and 2.47 times higher than that of India. In view of this, India’s goal to be a developed and rich economy by 2047 seems like a distant dream. The new government at the Centre would have to address these challenges.