9% GDP growth is widely inclusive

The leftist critics are right when they say India’s record GDP grow-th is bypassing rural millions. This tragedy arises from massive government failure to provide decent education and infrastructure to every village despite 60 years of gargantuan but wasteful spending. India’s cities have been connected to the global economy and have taken off. The villages have not.

But does this justify criticism that 9% GDP growth benefits only a thin upper crust of the population? Not at all.

No economy can grow at 9% unless a wide swathe of people simultaneously increase their productivity and output. Caveat: in small economies, a single mineral deposit can raise GDP without widespread citizen involvement. These exceptions apart, 9% growth is rare across the world precisely because it is so difficult to rapidly improve the productivity of most of the population.

The plain fact is that 9% growth cannot be non-inclusive. It can be achieved only by aggregating the efforts of hundreds of millions. Now, widespread inclusion is not the same thing as complete inclusion. Significant sections are excluded in India, especially in badly-governed states. Still, 9% growth is widely inclusive, and could never have been achieved by a thin upper crust.

Mobile phone connections in India are growing at the rate of six million per month, or 72 million per year. With telecom towers coming up in rural areas, the number of mobile connections is expected to soon hit 500 million. Clearly, this represents wide inclusion, not a thin upper crust.

The number of households with TV sets was just one million in 1980, mostly black and white TVs. Today, 120 million households have TV sets, mostly colour TV. When close to two-thirds of all households have what was an elite privilege in the heyday of socialism, let us celebrate this as a success of inclusion.

Forbes magazine’s list of dollar billionaires has two new Indian entrants, K P Singh of DLF and Ramesh Chandra of Unitech. Critics find it awful that Singh and Chandra have so much wealth when others have so little. But Singh and Chandra used to be non-entities, and have become billionaires only because the price of the few thousand acres they own has skyrocketed. The same price rise has benefited every home and farm owner. Urban land in Delhi goes for Rs 2 lakh/square yard, and rural land in Haryana sells for up to a crore per acre. So, rising real estate prices are actually very inclusive. They benefit all from the jhuggi owner to the small farmer. Even those recorded as landless in rural India have homesteads. A small minority with no house or land at all have missed the bonanza. But the vast majority of Indians have gained.

India’s 9% growth is not, as some people think, due largely to the information technology (IT) exports. Indeed, India’s National Accounts do not even list IT services as a separate category. These services are lumped into the category ‘real estate, ownership of dwellings, business and legal services’. The real impact of IT is grossly underestimated by official data, since GDP is based on a historical composition of the economy, where IT had a tiny role. If you exclude IT altogether from GDP, the growth of the rest of the economy will probably be 9%.

Services account for most of the economy. The largest services sector is ‘trade hotels and restaurants’, which has been growing at 8-10% for many years. This is not run by the Ambanis or software giants.

Millions of urban and rural folk are employed in trade. Hotels and restaurants mean, overwhelmingly, dhabas, pavement vendors in cities and tea-shop owners in villages. Our formal statistics have no good way of measuring this unorganised sector, and so unfortunately miss large parts of it.

Activist Madhu Kishwar estimated some time ago that almost half the households in Delhi were engaged in street hawking and cycle rickshaws. Both these activities are largely illegal, and hence, poorly captured properly by official data.

The fastest-growing sector is communications (23.9% in 2005-06). The telecom revolution benefits a wide swathe of people, not an upper crust. Transport, another fast-growing sector, also benefits a wide swathe. Finance and insurance are booming. Millions of the uninsured now have cover. Consumer credit has spread the benefits of credit to millions of buyers of TV, white goods, vehicles and homes. Micro-credit has reached over 10 million poor women.

Official data show that almost 60% of Indians are engaged in agriculture. This is misleading. Agriculture is a seasonal occupation. Most rural workers do multiple casual jobs. A rural worker who spends 51% of his time in agriculture is classified as agricultural, even though 49% of his work may be in services, construction and rural processing. One study estimated that 70% of new rural jobs for women were in construction (which is growing by 14%, and employs millions).

If all Indians participated in today’s boom, i imagine GDP growth would be 15%. Clearly, we need more inclusion of those left out today. But equally we must scotch the notion that only a thin upper crust of Indians is benefiting. India’s growth is widely, though not fully, inclusive.

One thought on “9% GDP growth is widely inclusive

  • 2012.Aug.27 at 15:36

    Mr. Sami, then why have the growth rate fallen now? The unemployment rate is same for the past 5 years, the companies are capable to produce & maintain their productivity. If the GDP is inclusive as you state, they should have been maintained? GDP is not synonymous with the number of people taking part in it. The decrease in the investments & decrease in exports explains why our GDP has fallen. The goods & services produced by some corporate giants thrusted the growth rate. In a perfect world, GDP would be the best indicator, but it isnt perfect. GDP is a tool which would veil the poverty prevalent and the gross inequalities prevalent in the country. Inequality, yes, would exist anyway but of such colossal magnitude?


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