ADDRESSING ECONOMIC INEQUALITY IN INDIA January 8 th -9 th, 2015

Transcription

1 ADDRESSING ECONOMIC INEQUALITY IN INDIA January 8 th -9 th, 2015 NIAS/IC4HD ROUND TABLE Devaki Jain Assisted by Smriti Sharma

2 The Argument A review of the information and analysis that has emerged from major global reports and books and articles, on the link between the galloping increase in deep inequalities in wealth and income and the theoretical and political underpinnings of the current ideas on economic progress, has in my opinion been a game changer. It has not only called the bluff on ideas of reform inclusive growth etc but it offers a space for us to reconsider other routes, other engines to GDP growth 2

3 The main voices flagging Economic inequality as the PROBLEM Inequality Matters: Report of the World Social Situation 2013, Department of Economic and Social Affairs, United Nations, 2013 said: In addition to inhibiting economic growth over time, inequality can also generate greater market volatility and instability. Humanity Divided: Confronting Inequality in Developing Countries, United Nations Development Programme Bureau for Development Policy, New York, November 2013 Economic progress in these countries has not alleviated disparities, but rather exacerbated them. Increases in inequality over the last two decades were mainly on account of trade and financial globalization processes that weakened the bargaining position of relatively immobile labour vis-à-vis fully mobile capital. UNCTAD report, in 2010 said, Wages would have to be perceived, not just as a cost of production, but as a major source of aggregate demand, such that rising wage bills can actually propel economic recovery in slumps, and generate conditions for stable growth. The inability of economic growth to create sufficient decent work to meet the requirements of the labour force is a major part of the problem. International Labour Organization s contribution 2014, to these discussions is the most pertinent, being unintentionally linked to Piketty s analysis. It said, It is time to reconsider the validity of these pro-capital distributional policies, and to examine the possibility of an alternative path, one based on pro-labour distributional policies, accompanied by legislative changes and structural policies. OXFAM Working for the Few: Political Capture and Economic Inequality by Oxfam argues that such deep inequality, where a few control the economy, will lead to policies that naturally support their interests. 3

4 Capital in the Twenty-First Century Some Insights by Indian Economists In India, commentators on Piketty s Book use the book to take off on the importance of factoring this growing danger, in working towards economic progress Growing inequality within nations will likely be a growing area of concern in the coming years even as global inequality declines. It will be an important political issue in national politics, said Niranjan Rajadhyaksha Mihir Shah in his article Fairy tale capitalism, published in the Indian Express, April 24, 2014, suggests that Piketty s work underscores the need to address the legitimacy of capitalism amidst growing inequality. 4

5 TREND IN INEQUALITY IN INDIA Source: OXFAM BRIEFING PAPER,

6 Can there be another kind of growth? One of the proposals for generating a more equitable GDP growth track has been the proposal that we need to shift from a strongly capital led growth mechanism to a wage, livelihood led growth process. [Stephanie Seguino, Rebooting is Not an Option: Toward Equitable Social and Economic Development, in Harvesting Feminist knowledge for Public Policy (eds. Devaki Jain and Diane Elson), SAGE Publications India Pvt Limited, 2011] 6

7 The Indian Economic Landscape The characteristics of the Indian economic landscape offers a fertile soil for reversing the current reform process, and putting on the ground broad based growth that does not exacerbate inequality. A close look at where GDP, especially the contribution to employment and manufacture, is coming from currently in India reveals the great potential that already exists, and simultaneously the neglect of this resource by the official data systems and policy 7

8 The hidden economic growth : Small is Big Potential of Small farms A recent paper, Small farmers in India: Challenges and Opportunities by S. Mahendra Dev of Indira Gandhi Institute of Developmental Research (IGIDR) suggests how small holdings is important for raising agriculture growth, food security and livelihoods in India. Small and marginal farmers account for more than 80% of total farm households. The global experience of growth and poverty reduction shows that GDP growth originating in agriculture is at least twice as effective in reducing poverty as GDP growth originating outside agriculture. Small holdings play important role in raising agricultural development and poverty reduction, it says. 8

9 Growth of MSMEs sector

10 Growth of the MSMEs sector Total Working Enterprises and Employment (in Millions) Total Working Enterprises Employment 10 Projected data for years to Source: Ministry of Micro, Small and Medium Enterprises. Annual Report( ). New Delhi

11 Contribution of the MSMEs sector It is estimated that this sector contributes about 45 per cent of manufacturing output and 40 per cent of total exports of the country and employs about 69 million persons in over 29 million units throughout the country. (Twelfth FYP, GOI) MSME Sector has been consistently registering a higher growth rate than the overall growth of the industrial sector. According to the Report of the working group on MSMEs growth for the twelfth plan, the sector contributed 8.72% to the GDP in

12 Productivity growth has been the most dramatic in the informal side of the economy, Equity strategist Neelkanth Mishra notes... 90% of India s workforce is engaged in the informal economy, mostly in rural areas, and about half of India's GDP is informal - it is not generated by incorporated enterprises. In 2005, India had 42 million enterprises in 2005 while it had less than a million companies, According to the Economic Census The average employee count of these 42 million enterprises was 2.4 per unit But he asks, why are these sources of half of the GDP, which engage 90% of India's workforce, not reflected in the official GDP growth numbers? It remains invisible because the definitions of India s data collection systems do not include it. NCEUS, Arjun Sen Gupta Report (August 2007) Interrogating Inclusive Growth by K P Kannan (2014) 12

13 Can SMEs drive India s growth? : Pronab Sen, Mint (February 12, 2014) One of the reasons possibly why India has one of the lowest incidences of youth unemployment is because it has one of the highest shares of SMEs in its GDP. Thus, if youth unemployment is a concern for policy, focusing on entrepreneurship is a better strategy than supporting existing corporate enterprises..it may, therefore, be possible to achieve and maintain growth rates of above 7% per annum without any significant improvement in the global economy, relying mostly on the dynamism of the Indian entrepreneur and the creation of financial space through government fiscal correction. 13

14 the MSMEs, Handicrafts, Handlooms as well as the Khadi Village Industries have high proportions of SC/ST/OBC and minority groups. The handloom sector alone provides employment to about 4 million persons of which 11% belong to the Scheduled Castes (SC), 19% belong to the Scheduled Tribes (ST) and 45% belong to Other Backward Classes (OBC); 87% are located in rural areas and remaining 13% in urban areas. Employment in Handicrafts sector has risen to 7 million crafts persons in Of the total, 25% crafts persons belong to the Scheduled Castes, 5% are Scheduled Tribes and 23% belong to minority groups. Khadi and Village Industries has another 14 million again with strong presence of the SC and ST communities

15 Here in lies India s gold. Not many other countries have such a lively lower end of the economy. If the same energy and attention given to the corporate(s), India Inc as the media tells us, our GDP growth and employment can be stable and inclusive What the data tells me is that there are other engines in India to generate GDP growth, and that these engines need to be fired

16 A Qualifying Big Issue: The poor condition of workers in the informal economy It is well known that in these sectors informal sector, the KVIC wages, working conditions for the workers are abysmal. In fact, the success is due to the informality namely no security for the workers. Hence those on the left usually are not supportive of the informal sector. However this is a field for action, both by the state and worker organizations. Inputs from the state to provide both the backward-forward linkages Infrastructure support and Simultaneously bring them under the, Worker Protection Acts Build and strengthen Unions of informal and self-employed workers New interest is building up in wages with a new report by ILO,Wage and income inequality This is being followed up by a Matching report on wages in India. This report can be a platform for revival of worker organizations and worker trade unions to strengthen the situation of workers in this sector.

17 17 Way forward for India In my view, the Way forward for India, is to argue for an employment led growth can be called wage led as a counter to capital led. It is necessary to move away from the overwhelming presence and pampering of the corporate sector, which comparatively is contributing less both to manufacturing and to employment Blowing energy to the lower end of the economy would ensure that GDP growth will bubble up. Diane and I have referred to this process as the Bubbling Up Theory of Growth in our book, Harvesting Feminist Knowledge for Public Policy: Rebuilding Progress Sage Publications We need to give currency to these ideas, to make them walk at the higher levels of policy making The Secretary, of the ministry of MSMEs, appealed to me, saying please publish this, we are asking for attention of the Finance and other ministries, but we are not being noticed in the big league Here then is a task before the partners in this round table, to make this theory overtake the existing notion of reform. It might be possible as the rhetoric of make in India, and Made for India and reference to Gandhi gives us the opening