Bring equality for steady growth

Dr Ashwani Mahajan
United Nation Conference on Trade and Development (UNCTAD) a UN body, has expressed concern over slowdown globally, especially in emerging economies. Growth rate has nearly halved in emerging economies including India, China, Brazil etc. It is notable that Chinese economy, which was growing at 14-15 percent in the last one and a half decade, has come down to nearly 7-8 percent. Similarly India which was growing at an average rate of 8 percent between 2002 and 2012, has come down to 5 percent in 2012-13. Conditions are no good in Brazil, South Africa and other countries. Manufacturing growth has been the worst victim in this slow down. Rate of growth of manufacturing which was 8.2 percent in 2010-11 has come down to 1.1 percent in 2012-13. In the last one decade, though manufacturing sector on the whole was growing at fast rate but durable consumer goods sector witnessed much higher rate of growth, more than 15 percent.
Apart from India, China witnessed even higher rate of growth in manufacturing; and between 2000 and 2011, China experienced manufacturing growth ranging between 9 and 30 percent in different years. But rate of growth in these countries has come down drastically, and has even turned negative in some quarters. This decline in growth is raising concerns.
Sluggish Real Wages behind Slowdown -UNCTAD
In its recent report UNCTAD has raised its concerns over stemming of growth in developing countries. It is notable that per capita income in these developing countries is far below the per capita income in developed countries. This slowdown in developing countries would adversely affect the chances to improve the living standards of the people in developing countries. To eradicate the inequalities between developed and under developed world, first condition is that these developing countries must grow faster. Any road block in the way of growth of these economies would slowdown the process of improving the quality of life of their people. Although governments of these countries are trying to blame international reasons for this slowdown, but the UNCTAD gives an altogether different reason, which is worth understanding. UNCTAD says that these economies are faced with sluggish demand, caused by low wages in these economies. Fast rising prices of essential goods is reducing the real wages.
At the same time sectors which require credit (loans) are not getting the same, which is coming in way of their growth, especially agriculture and small business. Therefore it is imperative that central banks and governments of these countries adopt policy measures to increase the level of wages for workers and flow of credit to the credit starved sectors, suggests UNCTAD. We should not take growth in aggregate terms. Composition and structure of growth is also important for raising the quality of life of majority population, warns UNCTAD. If we give due importance to this aspect of growth, we can not only raise growth, rather south-south trade (trade amongst developing countries) can also be encouraged.
Imperative to reduce Inequalities
If we ponder upon economic growth in the last decade, we find that the spread of economic growth of India has not been uniform. If we look at it carefully, we find that though there is no fall in the number of people working in agriculture sector, yet the contribution of agriculture in GDP is constantly declining. In the year 2000, the contribution of agriculture was over 25 per cent in GDP, which has now fallen down to merely 14 per cent. Ratio of urban and rural average consumption per capita was 1.62 per cent in 1993 which became 1.96 in 2009-10. The contribution of industries has stagnated, though the contribution of service sector has increased from 50 per cent to around 59 per cent. It is to notable that only 25 per cent of the work force is engaged in service sector. From this, we should not infer that income of all the people working in the service sector has increased in the same proportion. In reality, most of the workers working in the service sector like in hotels, restaurants, retail shops, transport etc. have no choice but to work at extremely low salaries. Ten per cent of the people working in the service sector have excellent income. It can be said that where majority of the workers are struggling to fulfill their basic needs due to extremely low levels of income, only a few are able to reap the benefits of economic growth.
Data shows that in the beginning of the decade of 1990, the portion of labour was 40 per cent which came down to 34 per cent in 2010. In urban areas in 1993-94, the consumption of top 10 per cent of the population was 10.5 times more than that of the bottom 10 per cent of population, now this it has reached 14.5 times. In villages, this difference has increased from 7 times to 10 times. On the one hand, there are few enjoying best of luxuries, on the other hand, there are crores of people whose earnings are less than Rs. 1000 per month and Rs. 810 per month in urban areas and rural areas respectively. Rising inequalities are also depicted by rising national Gini Coefficient, which was 0.31 in 1993-94, reached 0.36 in 2009-10.
Rising inequalities are not only coming in way of improving living standards of poor and they are forced to live with poverty; this is also turning out to be a major road block for growth. Less than top 5 percent of population, comprising mainly of capitalist class, bureaucrats, highly educated salaries people, corrupt politicians etc. are enjoying the fruits of this growth and rest is deprived of the same. Poor may be having mobile phone with them, giving an illusion of improvement of living standards with improved connectivity, but they lack money to recharge the same phone. In June 2012, there were 93.4 crore mobile connection, out of which 24 crore (more than 25 percent) were dormant connections.
Due to stagnating real income of the common man, demand for industrial products has started declining, and industrial production has come to a standstill. Demand for new homes is also on decline. Increasing interest rates due to rising inflation is not only causing increased cost of new loan; increase in EMI on loans taken earlier is impacting the pockets of the middle class. It is required that fruits of growth are equally distributed, so that income of poor improves. We need to restrict profits of the capitalists and raise the share of labour. It is notable that according to Annual Survey of Industries, as published by the government, share of wages in the total value added which used to 78 percent in 1990, has come down to 41 percent, whereas share of profit has zoomed from merely 19 percent to 56 percent during the same period.
To improve the condition of workers, we need to link all wages and salaries with inflation index. We also need to keep prices of real estate under check to keep them affordable for masses. If we fail to raise incomes and living standards of poor, we may again fall into the trap of 3-4 percent growth, or what Prof. Raj Krishna (economist) once said, ‘Hindu rate of growth’.
(The author is Associate Professor, Department of Economics) PGDAV College (University of Delhi)