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Why employment elasticity of India's growth is "among the lowest" in the world

By Moin Qazi*
Development can be seen as a process of expanding the real freedoms that people enjoy. -- Amartya Sen
The pursuit of growth over social justice, which has been the defining credo of classical economists, has brought prosperity to most developing societies. But it has also created huge inequalities. The argument that economic growth is the road to social justice has been relentlessly advocated for a long time with several wrong consequences for poor societies.
The question that has now engaged development economists and proponents of social justice is: Does accelerated growth translate into inclusive growth? Nobel Laureate Amartya Sen believed that to think just in terms of income rather than achievements of particular living conditions, like health and well-being, is to miss something critical.
The dichotomy between the economic might of India vis-a-vis the reality of our crumbling development sectors, leading to India being ranked in the lowest percentile in Human Development Index, is a pointer to what is wrong with our development paradigm. What are the ends of development — growth in GDP or enhancement of people’s capabilities and widening of their choices and freedom?
For too long, we have been over-obsessed with two concepts: Top-down bureaucracy and trickle-down economics. We have believed that the policy makers have all the solutions for problems of the grassroots communities and that aggressive growth can generate wealth at the top and this will trickle down to deeper ranks where the poor live. But this has not helped. Many have argued that we need to find a new measure to assess the health of our economies and more importantly, the people.
GDP simply totals up everything made within an economy in a year, from widgets to whizzy financial products at their market value. GDP is regarded as a poor indicator of progress and there have been persuasive calls to change the way we measure economic and social development.
Dubbed as one of the greatest inventions of the 20th century, GDP has long been a the most significant metric for politicians, administrators, policy doctors and journalists alike. But it is now no longer lionised and the love-affair with GDP may come to an end because as economic historian Adam Tooze calls, it is “a narrow and somewhat arbitrary slice of reality.”
An increasing GDP is often seen as a measure of welfare and economic success. However, it fails to account for the multi-dimensional nature of development or the inherent short-comings of capitalism, which tends to concentrate income and, thus, power. GDP is not, on its own, an adequate gauge of a country’s development. Development is a multi-dimensional concept, which includes not only an economic dimension, but also involves social, environmental, and emotional dimensions.
There are several social economists, who believe inclusive growth has to be grounded in inclusive governance. In the absence of inclusive governance, people at the grassroot level that is, the intended beneficiaries of social programmes, are left dependent on a top-down bureaucratic delivery mechanism over which they have no effective control.
The alternative system would be participatory development, where people themselves are enabled to build their own future through elected representatives who are responsible to address local community needs. For all-pervasive prosperity, we need a tide that can lift all boats.
One expanded indicator, which attempts to measure the multi-dimensional aspect of development, is the Human Development Index (HDI), conceived by the United Nations Development Programme (UNDP). Mahbud ul Haq and Amartya Sen developed the index, which is better suited to track the progress, not only of rich, but also of poor nations.
The first report on HDI was conducted in 1990. It incorporates the traditional approach to measuring economic growth, as well as education and health, which are crucial variables in determining how developed a society is.
In 2018, the World Bank launched the Human Capital Index (HCI). This newly created index ranks 157 countries’ performances on a set of four health and education indicators according to an estimate of the economic productivity lost due to poor social outcomes. The main benefit is that it focuses on outcomes, rather on inputs,
Amartya Sen’s revolutionary conceptualisation led to the evolution of Social Progress Index (SPI), a refinement of HDI. The SPI was developed by the non-profit, Social Progress Imperative. It is one of the outcomes of the Commission on the Measurement of Economic Performance and Social Progress – or simply, Stiglitz-Sen-Fitoussi, after its leaders.
The main objective of the Commission was to investigate how the wealth and social development of countries could be measured beyond the uni-dimensional GDP measure. It is still a relatively new indicator, with data only for four years, however it covers a wide span of more than 130 countries.
The SPI it expands the number of composite indicators from only four in HDI to fifty-four and covers a wide array of areas, including basic human needs, foundations of well-being, and opportunities to progress.it is capable of synthesising the most relevant aspects that determine development. Naturally, the main drawback of the SPI is its comparatively large complexity and lack of practicality when used to inform policy making.

The various facets of SPI:

1. Economic growth as freedom
The view underlying the SPI is based on Amartya Sen’s conceptualisation of economic growth as not an end in itself, but rather, an effective means of expanding personal and societal freedoms – the impact it has on people’s lives. For example:
  • political liberties in the form of freedom of expression,
  • transparency and accountability of the government,
  • personal security/safety, and
  • access to economic opportunities such as participation in trade and production.
Hence, development consists of the elimination of deprivations of liberty that limit the choices and opportunities of persons in the exercise of their agency in their own lives.
2. A multi-dimensional development perspective
The greater value of the SPI is that it combines various indicators of subjective components that are often missing from the economic debate. These include: freedom of expression, assembly and religion, political rights, tolerance for, and discrimination and violence against, minorities and immigrants, the levels of corruption and policies to curb it.
No single aspect of the index demotes a country. Instead, a combination of variables provides expanded insight into the level of development of a country.
3. Economic growth versus development
There are three main explanations why countries underperform in relation to the size of their economies:
  • They have a sizeable population of poor people,
  • Wealth and income inequality is high and/or growing, and
  • There are no proper policies for addressing Environmental degradation 
Although the third is captured by the SPI, the two former explanations are not. Poverty and inequality are increasingly being debated in academic literature, not only due to their negative impacts on human development, but because they drag GDP growth.
The last two decades have seen a phenomenal rise in market-driven philosophy of growth over state-driven development models that dominated the developing countries in the years that followed their birth. One section embodied the values and principles of the older non-profits and other collectives, including social movements, mass organisations and community-based groups. The other section was located in market and technology spaces and got rapidly populated by new-age non-profits, social enterprises and online collectives.
There is a fundamental contradiction between these spheres. The old non-profits’ worldview is premised on integrated social sciences and systemic approach in which complexity, interdependence and inter-relatedness of diverse factors at work need to be addressed.
By contrast, the approach of new-age non-profits emphasises on finding technology-based managerial solutions for complex social, economic and political issues. One is empathetic and human-driven, the other is rational and techno-centric.
Those who look through the techno-managerial lens encourage and enable development groups to zoom straight into the middle of the problem, without the need to engage with contextual complications. This devalues deeper socio-cultural nuances. In this process, the real world, existing in all its complexity, is circumscribed or left behind. It is like creating a bubble in which technical linear solutions are expected to solve complex problems.
The whole issue of development gets artificially locked into a bubble, which is then presented as fertile ground for systems change and innovation. These developments in turn lead to more investment, which results in the bubble growing into a balloon till it punctures.
The complexity of the socio-economic and political systems and human behaviour remain peripheral to the issue until the bubble bursts. In the meantime, the process of formation of new bubbles sets in.
A large part of the development work is ‘change’. It requires the ability to collectively envision a different future — about ‘design thinking’, ‘direction setting’ and ‘influence making’ i e, leadership.
The most profound lessons in development are grounded in the philosophy of Gandhism. Gandhi’s leadership was anchored in strong ethical principles. He was convinced that real India lived in villages where the pattern of life was not only timeless but also insulated from the pernicious influence of industrial civilisation.
Taking cue from the hallowed Gandhian traditions, development professionals have plumbed a more democratic planning model, participatory development. It involves a tough balance between not being subservient to the beneficiaries and not coming across as disrespectful to them.
Winning a point is not as important as achieving long-term change. If, for this, we have to compromise for the time being, we must be prepared. The core of our relationship must be with the people as also with the Government. We must deal with people who are more permanent in the system and are the key interface with their societies.
A good society is one that enables each individual to realize his or her aspirations. It is the duty of everyone to cooperate for creating such a society. The NITI Aayog’s policy document, ‘Strategy for New India @ 75’ marks an infusion of more democratic ideas and an acknowledgement of the illusory character of the concept of GDP.
The drive to shift the approach from assembling plans and budgets in the rarefied atmosphere of bureaucratic corridors to the creation of a mass movement for development in which “every Indian recognises her role and experiences the tangible benefits”, is noteworthy. The strategy affirms that “policymaking will have to be rooted in ground realities” rather than economic abstractions.
Successive governments have often recognised and affirmed this truth but had taken their eyes off the ball when it came to actual implementation of the idea because it was perceived as a threat to vested interests in the planning apparatus. In a world where villagers and project beneficiaries are atomised as individuals, they must be given a platform to aggregate themselves to have more voice and weight in the development debate.
For these people, development process matters more than the size of the GDP. Development must be by the people (more participative), of the people (education, health, skills), and for the people (growth of their well-being, incomes and happiness). India’s impressive GDP growth has not been able to to generate enough employment for India’s large youth population.
Whereas India’s economy should have been a powerful job generator, the employment elasticity of India’s growth — the numbers of jobs created per unit of GDP growth — has been among the lowest in the world.
Successful development practitioners have always recognised the richness of this local wisdom. By involving local communities in development, we can ensure more equitable and just growth — something which is not captured by Gross Domestic Product. This should be the true metric of both inclusive and sustainable development.
For example, rapid growth, which involves faster growth in agriculture, especially in rain-fed areas where most of the poor live, will be much more inclusive than a GDP growth that is driven entirely by mining or extraction of minerals for exports.
Amartya Sen had consistently said that “growth rate is a very daft and a deeply alienated way of judging economic progress.” Sen and Jean Dreze warned as early as 1995 that reforms that boost growth, though important, were not enough to improve the living conditions of the poorest, let alone dismantle caste and gender hierarchies and generate employment.”
“They have to be supplemented by a radical shift in public policy in education and health,” they wrote.
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*Member of NITI Aayog’s National Committee on Financial Literacy and Inclusion for Women. Contact: moinqazi123@gmail.com

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