Income inequality, poverty and unemployment have deepened and the pandemic has accentuated them further
On July 24, India completed 30 years of economic reforms. The reforms were kickstarted formally on this historic day with the budgetary speech made by then Union Finance Minister and former Prime Minister Dr Manmohan Singh in 1991. The main focus was to bring in “essential reforms in economic policy and economic management as an integral part of the adjustment process, reforms which would help to eliminate waste and inefficiency and impart a new element of dynamism to growth processes in our economy” in addition to the stabilisation of macro economy and fiscal imbalance.
As we stand in a similar kind of economic crisis augmented by the Covid-19 pandemic, it is imperative to assess the performance of these reforms and their outcomes in a critical yet constructive way.
The economy since 1991 grew in terms of size (from $266 billion to $2.3 trillion), foreign exchange reserves ($1.1 billion to $432 billion in 2017), per capita income ($300.10 to $1,709.60 in 2016), budget size, domestic savings and inflation. The expectation of life at birth was 58.7 during 1988-92 and rose to 67.9 in 2010-14. The Infant Mortality Rate declined from 80 to 37 in-between 1991-2015. The per cent of households living in kutcha buildings in rural and urban areas came down from 38.9 and 10.9 to 9.6 and 1.4 respectively in 2012. The Average Monthly Per capita Household Consumption Expenditure was Rs 243.5 and Rs 370.3 in July-Dec 1991 and this stood at Rs 1,430 and Rs 2,629.7 in July 2011 to June-2012 for rural and urban areas.
All these figures indicate the success of economic reforms to an extent. However, the reforms failed to improve the living standards of the people. Income inequality, poverty rate and unemployment scenario are the three core components of inclusive growth. All three features are intrinsic and were deepened by the pandemic crisis.
Income Inequality: The income gap between the rich and poor is a persistent feature in the growth story and more so since the economic reforms period. The pandemic has exposed this reality in a crystal clear manner. The Oxfam India report titled ‘The Inequality Virus: Davos India Supplement, 2021’ has highlighted that “during the pandemic, on the day when Indian billionaire, Mukesh Ambani, rose to become the fourth richest man in the world, a farmer, Rajesh Rajak, and his three daughters died by suicide as a result of his job loss”. This is just the tip of the iceberg of the ever-increasing income inequality and is a symptom of the concentrated operation of the economic system, which is violative of Article 39 [c] of the Constitution.
Poverty Rate: As per the Tendulkar Committee estimations, India’s 21.92% of the population was living below poverty line in 2011-12. However, as per the National Family Health Survey-4 (2015-16), the multi-dimensional poverty rate stood at 27.9%. The poverty rate, which was 45% in 1994, declined especially during 2004-2011 when India implemented substantive anti-poverty measures and rights-based initiatives to uplift the poor. This has been affected by the pandemic due to loss of work and earnings and the people, especially informal and daily wage labourers, are pushed into the vicious cycle of poverty. A study conducted by the Azim Premji University (2021) finds that during the pandemic “230 million additional individuals slipped below the poverty line defined by the national floor minimum wage” and took away the anti-poverty efforts that were in place for the last 25 years.
Unemployment: The reduction in poverty rate during 2004-2012 was due to the employment shift from farm to non-farm, especially in the services sector. The construction sector absorbed a large number of informal/unskilled labour resulting in the real wages enhancing the purchasing power of the people. On the other side, the number of jobs created during this period was very less, ie, 0.6% per year than compared with the growth of the working age population. As per the data of macrotrends, the unemployment rate in India was 5.45% in 1991 whereas it was 5.36% in 2019. In fact, according to the International Labour Organization’s ILOSTAT database, India’s unemployment rate in 2020 was the highest since 1991 with 7.11%.
India’s growth rate and its progression as one of the leading developing economies of the world is inconsistent with the Human Development Index (131st rank in 2020), Global Hunger Index (94th position in 2020), Gender Inequality Index (122nd rank in 2018) and Environmental Performance Index (168th rank in 2020).
The journey of three decades of economic reforms has certainly transformed our economy from a slow and regulated to a fastened and liberalised path of growth. During this process, what was really missed out was the large workforce of the informal sector. This non-inclusive approach is one of the limitations of the trickle down economic growth model and needs serious revision.
The 1991 reforms have provided the required dynamism to the economy. However, it has fallen short in sustaining the pace of growth owing to structural and institutional deficits, including the model of development and centralised governance. The 91% of the labour force participation working in the informal sector needs to be provided better avenues of employment by leveraging the inherent potentials of agriculture and allied sectors.
In spite of the pandemic, the expenditure on the health sector is still low compared with our neighbours like Bangladesh and Sri Lanka, which are ahead of India in terms of human development. Social and political (governance) reforms are imperative to achieve the goal of sustainable and equitable economic growth.
(The author is PhD Fellow, Centre for Political Institutions, Governance and Development of Institute for Social and Economic Change (ISEC), Bengaluru. Views are personal)