Kishore G. Kulkarni is an adjunct professor of International Economics at the Josef Korbel School of International Studies, and a professor of Economics at Metropolitan State College of Denver. He is also the editor of the Indian Journal of Economics and Business. In this article, he examines the dichotomy between India's rapid economic growth and the country's persistent social challenges.
It is now common knowledge that India's economy has been growing very impressively. Recall that in the last decade, Indian economic growth rate was second only to Chinese growth. In 2010, with 8.5 percent growth rate in a roughly $1.3 trillion GDP, India has taken some significant strides in becoming a major economy of the world.
Compare that with 2 to 3 percent growth in the 1970s and 1980s, when-- among other distressing things-- Indian policymakers were in a confused state of affairs. In terms of purchasing power of money, the Indian GDP ranks amongst the top ten national GDPs. India has increased exports significantly, which has helped her buy foreign goods and create a substantial stock of foreign reserves (roughly $200 billion worth).
This economic growth is made possible by a boost in the service sector, primarily in the software and computer industry. The increased demand for software and computer engineers has increased wages exponentially, and has created a wealth effect that has not only raised the need for better infrastructure and goods and services, but has also trickled down into other parts of the economy. Thanks to favorable monsoons in the past few years, the Indian agriculture sector has also shown a brisk improvement. Manufacturing goods such as automobiles, steel, cement and housing have grown with the advent of the new century.
This improved economic condition has, therefore, brought much hope in the minds of frequent visitors to India, as well as in the minds of foreign investors who look at the Indian economy as a worthy destination for their investment. So, the main question is: Can this growth be continued in the near (and probably far-distant) future?
Without reservation, and by any yardstick one wants to use to measure the growth, the Indian economy has been moving in an enviable fashion. But to some sociologists, this may seem only an exercise that has increased income inequality. When some sectors grow, even if others stay at the same level, the inequality of income increases. The Indian case is not very different from this trend. When 33 percent of the population is still below the subsistence level (defined as an income of $2 per day), India needs to keep growing for a long time to reduce absolute poverty to a manageable level. Second, one can point out the "digital divide" that has created two separate population groups within India. The so called "skilled" (and elite) people live a whole different lifestyle than the poor and unskilled ones. Bridging this divide will be a challenging and monumental task in the future.
There are also several other factors to worry about regarding continued economic prosperity. Consider, for example, the legal system. There are literally millions of unresolved cases in front of all the courts in India. They will take years, if not decades, to reach a final conviction. Foreign lawyers routinely advise businesses not to go to the Indian courts; instead, they should attempt to settle the issues amicably. Signed contacts mean little. Disputes regarding house rents, labor relations, profit-sharing and house ownership are known to take so many years that by the time the verdict arrives, all parties in the case are either deceased or have shown little interest in the decision. Corruption in high, as well as in low places (such as the police force), has created havoc in recent months. The "rent seeking" crisis created by politicians as well as civil servants not only makes prices for services that people rightfully claim, but also lowers the moral of a hardworking and sincere populace. Bribery and favoritism are at a very high level, and need to be curtailed on an emergency basis. Then again, to do that, a country needs a strong and viable legal system which can enforce law quickly and efficiently. Indian lawmakers need to overhaul the legal system urgently to manage this problem.
Second, the effect of Indian economic growth seems to have created fewer jobs than economic growths across the world. Here is the dilemma: In the service sector, where the growth is concentrated, labor productivity is significantly higher than in manufacturing or in agriculture. Therefore, the "growth without employment" is a possibility when the service sectors grows the fastest; Indian economic growth tends to fall in this category.
Third, in recent months, the inflation of food items has created a major worry for policymakers. The prices of gasoline, onions and tomatoes have all skyrocketed for one reason or another. While price controls are not a solution for any inflation, an efficient market system where the government takes away all impediments for the smooth flow of supply and demand is necessary. It will also help if the production of these necessities is promoted with special subsidies.
Finally, political trouble in the Northeast (by Communist forces), in the south (by Naxalites), and up north (by so-called Kashmir liberators) cannot be ignored. These forces have a propensity to get stronger, and unless the government watches them carefully, they can significantly lower the economic growth rate. Additionally, the supply of real ingredients needed for meaningful sustainability has to be increased. This includes improved infrastructure facilities, a steady supply of necessities such as items for food, clothing and shelter, and improved efficiency in the public sector-- which is still very dominant and intrusive in Indian business.
In other words, there are some major challenges to be faced in the upcoming years. Answering "YES" to whether or not economic growth is sustainable depends upon how the Indian economy finds solutions to these challenges.
For more of Professor Kulkarni's work, check out www.kulkarnibooks.com