India needs ‘business as unusual’ to solve its massive development problems



Nobel Prize laureate, Amartya Sen, makes an interesting point in a recent New York Times article. While praising India for its economic progress, he chides it for the shortcomings in providing basic public services, and explains why India trails China. Sen believes that India catching up with China’s economic progress might remain a pipe-dream. He’s spot on.

After pursuing a mixed economy for most of its existence, India broke those shackles in 1991, and opened up its economy. Things improved. The country upped literacy, reduced poverty, fed more children under five, curtailed the infant mortality rate and India was tipped to become the world’s biggest economy by 2050.

Problems galore:
Even as our economic indicators went up, our social indicators have not shown the same improvement in key human development indices. According to 2010 World Bank estimates, India houses one third of the world’s poor, with more than 400 million living on less than $1.25 a day. That figure is up from 22 per cent in 1981. A shame considering, that its neighbor China, reduced its poverty rate from 43 percent in 1981 to 13 percent in 2010. Besides extreme poverty, India’s other litany of woes, include inadequate healthcare, illiteracy, malnutrition, high infant mortality rate, energy deficiencies and millions unemployed or underemployed. To address all of this, what’s needed perhaps is a business as unusual approach, which we shall get to later in this post.

India languishes at 136 out of 186 countries in the human development index (HDI) ranking. In 2012, India ranked 65th out of 79 countries, in the global hunger index (GHI), with 43.5 per cent of all children below 5 years remaining undernourished. Even as we fail our very young, the country, in the next few decades, is expecting to reap the dividends of its large young population. That is increasingly looking like a false hope. The young population is either uneducated, undereducated or lacks employable skills. The government has launched a massive scheme to skill 500 million individuals by 2022, this ambitious program might just prove to be, too little too late.

There is also a lack of jobs. The Planning Commission estimates that there will be an additional 183 million job seekers who will enter the market soon, and the manufacturing sector will need to provide 70 million of those jobs. Alarmingly, the opposite seems to be happening, after suffering jobless growth, even during the boom GDP years, there are predictions of jobless de-growth. Between 2005 and 2010 the country shockingly lost 5 million jobs in manufacturing and agriculture. Not addressing these problems could be a recipe for civil unrest.

Why hasn’t India been able to address these issues?

The government spends a lot of money to deal with these problems and the country boasts of the largest number of non-profits in the world, doing their bit to combat these issues. It also receives plenty of external assistance; the World Bank for example, approved $4.3 billion in aid in 2012.

But it isn’t enough.

Post economic liberalization in 1991, and the spectacular GDP growth of the 2000s, observers opined that the rising tide would magically lift all boats. The trickle-down economic theory that Indian policy makers preached have borne fruit that have mostly benefited the rich and the middle class with income inequality doubling in the past 20 years. The trickle-down theory states that with lower taxes and increased investment, the entire economy will grow, and benefit everybody, including those at the bottom. Not enough jobs have been created for the poor to take part in the growth story. Estimates suggest that there are 30 million unemployed currently. One reason could be that India has failed to transfer jobs from agriculture to manufacturing while China has moved 150 million jobs in the last 10 years.

Besides manufacturing, agriculture, which has been shedding jobs consistently, but still accounts for 49 per cent all jobs, needs a reboot. The World Bank has a bunch of suggestions on how this can be done. They include investments to boost farm productivity, creation of improved livelihood projects, increased farm credit, better irrigation, agricultural insurance and improved market access for farmers.

Social enterprise- one of the possible solutions

India’s deep-seated and multifaceted problems need more than the intervention of government, non-profits and international agencies. This is where social enterprises, with a dual promise of financial and social returns (sometimes includes environmental benefits) leveraging the power of market forces, could do some of the heavy-lifting in combating India’s crippling issues. Social enterprises provide innovative products and services at affordable price points, create livelihoods, and also engage the economically disadvantaged as producers and clients.

Note: Over the next few months we will be exploring life at the BoP, the enterprises serving these low-income populations, government’s role and the different approaches to solving these issues.

Photo courtesy: Nelson Vinod Moses.

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