India's economical growth is real, but not everyone is reaping the rewards
Or, how the Indian economy is like the Kardashians
The story you’re likely to hear first about India’s Prime Minister is one of picturesque opportunity. The man once sold tea on a railway platform, and now he runs our country: it’s an incredible story, one that forms the cornerstone of the Indian dream. (It’s not like the stall he used to sell tea in is now a tourist attraction promoted by the Central Tourism Ministry.[1] We definitely don’t have that level of idolatry here.) In a dynamic country growing this fast, the belief goes, anyone can be that guy.
That belief does seem to be a common one. In a WEF survey by SAP and Qualtrics in 2018, while answering the question “Thinking about [your country] today, how common is it for someone to start poor, work hard, and become rich?”, 69 per cent Indians answered “Somewhat common” or “Extremely common”, more than anywhere else in the world.[2] (Their detailed methodology isn’t available. They had a stratified sample with quotas for gender and age, but they were still asking 839 Indians online, which can select for class - so I’d take this with a grain of salt.)
Source: Quartz chart on Qualtrics survey[3]
The truth is slightly more complicated than that.
The most important policy change related to the Indian economy itself is the set of reforms initiated by the Narasimha Rao government and its Finance Minister Manmohan Singh in the early nineties. In short, they opened up the economy to external funding, sought to cut down on red tape and superfluous licensing, privatised government-owned enterprises, and invited foreign companies to invest directly into Indian ventures.
It was an inflection point in Indian growth. Foreign investment (FDI) went from $73.5 million in 1991 to $3.6 billion at the end of the decade[4]. India’s GDP per capita nearly tripled over the next fifteen years.[5] The gains we had made in education and literacy by 1990 were carried forward.[6] It also meant the creation of a large (and growing) middle class: by 2013, India had 40 million households with a disposable income over $10,000.
(Source: Euromonitor[7])
The gains we had made against poverty before the 90s have accelerated since then as well.
(Source: CEPR[8])
We have covered significant ground since the liberalisation of our economy. The reforms of 1991 were the pivot for a story of dazzling growth.
But the fruits of that growth have not been evenly distributed.
The share of the income going to the top 1%, on a downward trend in the latter half of the twentieth century, exploded after the 90’s. The share of national income attributable to the top 1% went from 6.2% in 1982–83 to 21.3% in 2014–15.[9]
(Source for the graph: UNU-Wider policy brief[10])
In 1980, the top 10% and the middle 40% held nearly equal shares of the total personal wealth. In 2012, the top 10% held nearly twice the share of the middle 40%.
In fact, the data and the research seem to suggest that economic mobility in India has been, at best, flat overall.
…upward mobility has remained constant for the past several decades, despite dramatic gains in average levels of education and income. An Indian son born in the bottom half of the parent education distribution in 1985–89 (our youngest cohort) can expect to obtain the 37th percentile; a daughter obtains percentile 35.5.
(footnote: In a society where children’s outcomes are independent of parents (i.e. perfect mobility), a child born in the bottom half of the distribution obtains the 50th percentile on average. In a society with no upward mobility, (i.e.where all children obtain the same percentile as their parents) the same child attains the 25th percentile.)
(Source: Intergenerational Mobility in India: New Methods and Estimates Across Time, Space, and Communities, Asher et al, 2020[11])
So, what’s happening here?
Over the time period between 1980 and 2015, the bottom half of the distribution saw a growth rate of 90%. The top 10 % saw a growth rate of 435%. The top 0.01% saw a growth of 1699%.
Like the Kardashian sisters, almost everyone is doing better now than they were in 1980. The bigger ones are just doing a lot better.
Asher et al (see footnote 11 above) agree, though not with the Kardashian bit:
This suggests that India’s decades of economic growth may best be described as an order-preserving shift in socioeconomic outcomes; while people are better off at every point in the distribution, the likelihood of moving to a higher rank across generations has not changed on average.
On the whole, then, economic mobility isn’t very different from what it was before the reforms were initiated.
But that is a blurred view of a patchy image.
Development in India is uneven, and mobility changes with it. Urban areas, and other areas of high access to education and manufacturing jobs have higher upward mobility. So belts of the country that score high on those indicators do better, like the southern states of Tamil Nadu and Kerala - and states like Bihar and Uttar Pradesh have lower upward mobility, as does a rugged belt across parts of Karnataka and Andhra Pradesh.
Caste structures are a definite barrier to upward mobility. Caste gums up the works for backward castes to make progress, and as a result, mobility is lower where caste structures retain the most influence. SCs and STs (for non-Indians: “Scheduled Castes” and “Scheduled Tribes” - India’s affirmative action cohorts of backward castes and tribes protected by the constitution) have made gains in mobility, though they don’t have as much as the higher castes. Mobility for Muslims, on the other hand, has steadily declined over this period (under multiple governments, not least the present one) and is now is lower than both SCs and STs, per Asher.
With this background, let’s now try to answer the question.
What policies are correlated with higher economic mobility in India? And what can the Indian government do to create more?
1.Affirmative action, or “reservations”: Reservation in India is itself a complex topic with many dimensions to it[12]. (In short, in government-funded institutions and government jobs, a specific percentage of seats are reserved for constitutionally marked minorities.) Without wading into an overall controversial topic, this affirmative action has definitely shown good results at the lowest levels of education. Affirmative action policies may have led to an increase in literacy of 10 percentage points and in secondary attainment of 7 percentage points, according to Cassan (2019)[13]. Asher et al find something similar in their study. As they write:
[…] when a caste group gets assigned to Scheduled Caste status, it experiences a 7–8 rank point increase in upward mobility over the next twenty years. This is the same size as the rank mobility gap that has opened between Muslims and Scheduled Castes over the same period. This finding suggests that educational quotas, government job reservations, and other affirmative action policies may be a key driver of the upward mobility gap that has opened between Scheduled Castes and Muslims.
This suggests that, at least at the lowest levels, reservation has shown positive effect for some sections of society. However, even the most ardent supporter of this policy would not claim that it is a permanent solution.
2. Towards a more skilled workforce: Most of the growth in economic mobility has come entwined with another trend: the decline of the share of the workforce in agriculture. I’ve written about this before[14] - the share of the workforce in agriculture has decreased from over 60 per cent to over 40 per cent in the last thirty years. A lot of that shift away from agriculture has led to increased mobility. Expansion of the non-farm sector has contributed significantly to reducing poverty in rural areas[15]:
As the non-farm sector has expanded, the previously disadvantaged and most vulnerable segments of village society have gained access to non-farm employment opportunities and have recorded significant upward mobility.
That’s a great thing, but are two major challenges here.
One, a lot of the workforce moving out of agriculture is still unskilled. NSSO 2011–12 said 76% of the workforce had received no training, formal or informal, in their vocation.[16] This creates a curious “skill gap” - where skilled jobs lie vacant, while unemployment rises. This is a part of why our government pushes for, say, “Skill India” - it’s a race against time to train more of the workforce so it can move into better jobs. (Skill India has been… lagging a bit.[17]) Because this workforce is unskilled, large sections of it, especially in rural areas, have actually moved to industries like construction, as a Niti Aayog report noted in 2017[18]:
Employment in construction sector increased 13 times during the past four decades, leading to a significant increase in its share in total rural employment from 1.4 per cent in 1972-73 to 10.7 per cent in 2011-12. It is interesting to note that this sector absorbed 74 per cent of the new jobs created in non-farm sectors in rural areas between 2004-05 and 2011-12.
[…] One of the reasons for the much higher growth in rural workers in construction over manufacturing or services sectors is fewer requirements of skills and education in construction activities.
With the boom of service-sector jobs such as software companies in India since the 90’s, becoming an engineer has been one of the best tickets known to an Indian family for occupational mobility. (An indicator of demand: Accompanying the growth of services jobs, the number of AICTE-approved engineering colleges in India went from around 157 in 1980[19] to 6163 in 2019[20].) This provides an interesting proxy for those seeking upward intergenerational mobility, and it also reinforces some of the trends we’ve seen. An interesting 2014 study[21] finds:
Studying in rural schools and living in rural areas impose limitations upon individuals’ prospects for upward mobility. The more rural one is, the lower one’s chances are of getting into any engineering college, even the lowest-ranked one, with most rural individuals facing prospects close to nil.
The good news is that at the margin, among younger people, some headway has been made in the representation of hitherto excluded groups in engineering colleges. This improvement, particularly visible in the case of women, is also apparent for children of agriculturists, and to a somewhat lesser degree for SC candidates.
[…] The bad news, most notably, is that the rural–urban divide has become entrenched: the more rural you are, the harder it is to get into engineering college.
The second big challenge is that the workforce moving out of agriculture has largely been absorbed into an informal economy, making their gains precarious. About 85–90% of our workforce currently has informal employment - with no written contract, paid leave, health benefits or social security.[22] As an IndiaSpend analysis showed with NSSO data, 90% of the jobs created from 1991 to 2011–12 have been informal.[23] It’s not just industries like construction. Even a lot of the new jobs created by the Indian startup boom have been informal. Just two companies - Ola and Uber - are supposed to employ more than three million drivers in India[24] by the Niti Aayog, all of whom are “independent contractors”. Increasingly, even sectors like organised manufacturing, traditionally associated with solid, long-term jobs, hire contracted workers. As a 2019 paper found[25]:
The share of contract workers in total employment [in the organized manufacturing sector] increased sharply from 15.5%in 2000-01 to 27.9% in 2015-16, while the share of directly hired workers fell from 61.2% to 50.4% in the same period.
And that makes these gains, for large sections of our workforce, precarious at best. To make that better, we need…
3.Investment in healthcare and a safety net: This is where we need to discuss the flip side of things. In part due to some of the factors discussed above, Indians face a significant risk of downward mobility - and these risks are higher for groups that already face disadvantages, such as SCs, STs, and Muslims.[26]Of course, in a developing economy, a stronger safety net may be difficult to provide, but at least some of this is entirely avoidable.
Despite our recent push towards sanitation and expansion of facilities, our healthcare spending per capita lags way behind even other BRICS members, and is closer to countries like Sierra Leone.[27]
(data from World Bank)
This pushes the expenses onto the citizens. Around 63% of healthcare spending in India in 2016–17 was out of pocket expenditure[28](page 5), and it has been in that range for a while.[29] This can be crippling. 18% of all households faced catastrophic expenditure due to healthcare costs in 2011–12, and 63 million Indians faced poverty due to healthcare costs alone[30] (draft National Health Policy 2015, page 8, probably referring to Selvaraj et al[31]). As the pandemic has shown, improving our healthcare spending is needed - yesterday. Apart from protecting against crises like this one, it can also be an investment to provide a cushion against downward economic mobility for millions of our citizens.
The Indian dream is very real for a lot of people. But the gains from the liberalisation of the economy have so far been disproportionate, and caste structures add barriers wherever they hold sway. A lot needs to be done to ensure that these gains are lasting for larger segments of the population.
Gatsby was a mope, but we can at least ensure the green light is within reach for everyone.
I had to remove the sourcing to ensure the email did not get clipped. Please check it out in the original answer on Quora!
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