X'PRESSIONS
The Contradictions of India's
Economic Boom
by Rishi Pathak
Institute of Management Technology, Ghaziabad.
Let me begin with congratulating IIIT ALLAHABAD for this brilliant initiative. As it is said that if you want to know about a culture read its literature and I am sure this magazine will become true reflection of this prestigious institute. My best wishes to the organizing committee. I would like to admit that this is the first time I am writing an article for publishing (uploading would be more precise rather) so I truly understand the anxiety people concerned with this effort must be feeling. Let us hope readers are kind to both of us.
As I started writing, my first and obvious temptation was to write something related to HR, my area of specialization, like current HR practices in India or labour laws or IR, but then I thought why to limit my scope only to one field? So I decided to write about something for which everyone is gung-ho, the zip-zap-zoom state of Indian economy after all just few days back The Times of India reported we will overtake US by 2050. However, before foraying into future lets have a peek into the past. Indian economy grew at a pathetic pace of 0.8% from the year 1900 to 1950 but that was pre independence. What were appalling though were the policies adopted by the successive governments of independent India.
The government tried to implement a mixed economy that is to have features of capitalism as well as socialism. And our economy performed like a typical all-rounder of Indian cricket team who bats like a miser and bowls like a king (let’s not even talk about fielding).
The idea was to achieve self-sufficiency in all the fields. If only we had tried for most instead of all story might have been a little different. Hence, we had a monopolistic public sector an over regulated private sector. FDI was discouraged and labour laws were suffocating. What resulted was a closed economy and when rest of the world (including Japan and Germany which were not only left poor after the war but were also facing various sanctions) were enjoying high economic growth due to industrial and manufacturing boom post WW-2 we were tottering along at 3.5% growth rate from 1950 to 1980. In the mean time our population was also growing rapidly so our per capita income during this period increased merely by 1.3%! We were nearing bankruptcy and our gold reserves had to be sold in the international market to pay off our debts as we simply didn’t have any foreign exchange reserves (today our foreign reserves stand at US $175,444 million, and there is a growing debate on whether it should be used in fuelling economic growth or kept as it is!). This was the final nail in the coffin for the outdated economic model and much needed economic reforms finally started. With decrease in tariffs and the trade barriers, ‘removal of license-raj’, and devaluation of rupee, the Indian economy started showing the signs of revival. Inflation decreased and foreign exchange reserves started to build up, there was a deluge of Indian, and foreign companies setting shop in India.
Indian economic growth is consumption based (consumption accounts for 64% of India’s GDP), which is different from the trend shown by rest of the Asian economies (like Japan and China), which are production based. As the purchasing power of middle class increased people have started spending more (we do not suffer from liquidity trap). Usually when an economy takes the path of development, it moves first from agricultural to production and then to service industry. We seemed to have skipped the middle step. Our services contribute around 50% of GDP, agriculture around 22% (and employs around 60% of population) and industry around 27% (industry contribution to Chinese economy is 46%). So we are still not creating as much jobs as we can. This was again a result of bad policies. We were still being protective towards our companies sometimes under their pressure. When the government was thinking on the lines of liberalization many big business leaders of Indian industry came under one roof and formed ‘Bombay club’. The purpose of this club was to ask the government to delay the process of liberalization by 2 years. The logic behind this was that they do not have adequate resources to take on technologically advanced MNCs at that time. They got this grace period but after the end of two they managed to get a further extension of 2 years as they said they were still not prepared. And Mr. Rahul Bajaj acknowledged this was the biggest mistake made by him as a members of the Bombay Club because if reforms had started earlier then he would have started enhancing Bajaj’s technology and being more competitive much before. And this is the reason that Bajaj Auto India Ltd. is today number two to HERO HONDA.
The problem it seems is that we are still reactive in our approach and not pro-active. Only when some disaster has occurred we wake up. Statement made by Maharashtra CM best exemplifies the widely pervaded laxity in Indian psyche. When asked after the Mumbai floods why there was no prior disaster management strategy in place. He simply said look at US even they could not cope with natural disaster they are facing (it was Katrina if I remember correctly). It reminded me of my childhood, when I was scolded by mother for getting less marks and I used to say look at that fellow he failed, I am better than him. However, in due course of time I realized that if I have to compare myself let it be with the person better than me. We have to be more responsible, and more accountable. We must learn to admit our mistakes and correct them promptly. Nevertheless, this mentality still prevails in our way of living. We always tend to lower our benchmark for performance.
Before I continue further let me explain what I meant when I wrote ‘suffocating labour laws’. Labour laws are supposed to defend rights of labour class and not to torment the employer. As it appears this has become the norm in India. Forget public sector(it is supposed to provide job security, so what if a babu has more important work like chewing tobacco or a lady has to make a sweater for her mother-in-law, while you wait patiently in the queue), even in private sector it is an uphill task to lay off a worker. (In)famous case of Uttam Nakate will illustrate the fact. Mr Nakate was found happily sleeping on the floor of the factory he worked in pune at around 11.40 A.M. and the employer warned him. But he was caught napping repeatedly and disciplinary proceedings were started against him after he was caught dreaming for the fourth time. After 5 months of hearing he was found guilty and sacked. Mr. Nakate then went to a labour court and accused the employer of unfair trade practices. The court unbelievably agreed with him and the factory was asked to take him back and pay 50% of his lost wages. The employers then appealed in Bombay High Court and subsequently in Supreme Court. And after 17 long years factory finally won the right to fire, someone who is repeatedly caught sleeping on the job. It simply does not make any sense. Moreover, just a week back I studied in my strategic management class that work produced by an Italian worker for an 8 hour shift is around 500 units (US, Germany, Japan all hover around 450 mark) and by an Indian worker is around 50 units and we call this labour cheap!. I might sound anti-labour but this is what the statistics tell us.
Coming back to India economy, today after more than two decades of sustained growth we have become fourth largest economy of the world and are poised to become third by overtaking Japan in the next ten years. By 2025, we will about 60% the size of US economy and by 2035 India will be larger growth driver than 6 top EU economies. From near bankruptcy we have achieved favourable Balance of Payment. Foreign reserves crossed US $100 billion on December 19th, 2003 and have reached to a current level of US $175,444 million. There is a feeling of buoyancy in the air and I am looking forward to my placements by the end of this year as eleven farmers committed suicide in last 48 hours, which takes January’s toll to 62 (official statistics for 2006 was 1452 suicides). As these ghastly stats catch our attention and we stop and ponder over them we tend to overlook, other issues, which we think, are small in comparison. 22% of Indian population is still living below poverty line, despite government initiatives like ‘Food for Work’ and ‘National Rural Employment Program’ in 1980s to current ‘Rural Employment Guarantee Bill’. Literacy is 61% of total population as compared to china’s 90.9% and in HDI (Human Development Index), India ranks a very poor 127.
HDI is of significant importance as it is true measure of a country’s over all well-being. It focuses on three measurable dimensions of human development: living a long and healthy life, being educated and having a decent standard of living. Life expectancy of India is 63.3 (rank 119) years while Japan has life expectancy of 82 (rank 1). In education, combined primary, secondary and tertiary gross enrollment ratio of India is 60% (rank 131) while of UK is 123% (rank 1) and GDP per capita stands at US $ 2,892
While Luxembourg has 62,298 (rank 1). After going through these statistics I think something is seriously wrong somewhere. We must now stop taking shelter in lame excuses like its only 50 years since our independence, while countries like UK and US achieved their economic growth after hundreds of years. Ours is a young workforce as compared to china and many other countries whose majority of population is not working, as they are too young or too old. However, by the time we overtake US in 2050 we will be facing same problem as India’s birth rate is finally decreasing, and young workforce advantage will be with some other country. It means, YES! Our time is now but it is up to us to make the best possible use of it.