India is shining …but for whom?

Joan Robinson famously remarked:

everything and its opposite are guaranteed to be true in India.

She said this decades ago but is still so true. India is one of the few countries where you get completely opposite developments. On reading the newspapers, you are just struggling to read such diverse news about the same country.

 

The country is expected to grow leaps and bounds but continues to slip on most social development indicators. On one hand, IMF says we will grow by 9.6% in 2010  on the other hand the recent global hunger index puts us at 67. So as per GDP growth, we are just ranked second to China and there is hardly any competition, and as per global hunger index we are doing as bad as some small African countries like Dijbouti, Togo, Burkina -Faso etc. Even Zimbabwe is above us. Clearly a list not to be proud of. 

Leave social development indicators. We might say it takes time for these to come down. Let’s take World Bank’s Doing business indicators, we are placed at a lowly 133 and we have hardly improved over the years. So, even in terms of pure business indicator we are not doing any better. In the area of high growth, we have hardly moved anywhere in the list. This makes you wonder where is the growth coming from. These indicators have been criticised hugely for collecting data from few points. But still difference is stark and anyone who has seen how business is done in India will not be surprised. So even though the WB approach might not be great, we know we belong right there.

Then there is an Economist story which says India will grow faster than China.  They give two reasons for the same – demography and democracy. Second is ok but first can be countered easily. Shankar Acharya presented a paper about the same. He does a state-wise analysis and finds states that have the highest fertility rate are laggards (Bimaru States – Bihar, MP, Rajasthan and UP)  and those with lowest fertility are leaders. So is the demographic dividend happening?And when one looks at fertility rates and per capita incomes the disparity grows further as population has grown higher in Bimaru states. The figures need to be updated but I don’t see much changes.

Then Scott Sumner points that Indian growth happening faster than he thought.

How does one relate to all this?  

I look at the whole thing this way. Indian growth is happening for sure (assuming statistics are true, though with recent IIP fluctuations, all of this also comes under a big q mark) but we have some serious challenges to address. There are supply bottlenecks everywhere, we are having growth which is not really trickling down, poverty and all other social development indicators are just too bad, inclusive agenda is not just working etc etc. I can keep going  on and on with that list. My real worry is there are very few people discussing these issues or giving them their true weight. 

Policymakers wrap everything around 9% growth rate and asset market growth. As long as that is good, rest should follow. I really liked the article by  V. Anantha Nageswaran today in Mint. He says why can’t government think of growth minus asset price rises. By inflating these assets by easy money, developed economies think that all is done. Same kind of thinking you see in Indian government policies as well. In this context, Andy Haldane of BoE points a superb thought in this speech/paper:

A more direct test of short-termism would involve estimating directly the discount rate people assign to future outcomes. Conducting your own test is fairly simple. Ask your friends how they would feel if the price of their favourite luxury good were to rise by 10%. Then ask them how they would feel if the price of their house were to rise by 10%. The first is likely to meet with a frown, the second a smile. In general, people dislike goods price inflation, but like asset price inflation.

This feels rational right? Wrong. These perceptions suggest a sub-conscious myopia. Higher goods prices cut today’s disposable income. Higher asset prices cut tomorrow’s disposable income. So disliking goods price inflation and liking asset price inflation suggests a potential time-inconsistency in preferences. It is leaving as a bequest for your children the mortgage but not the house.

As people are predictably irrational, we just ignore all this. So worldwide, politicians just look at doing what people like – play on asset markets and lookout for inflation in goods markets. In India’s case however, we have no clue on goods’ inflation as well. And then as assets belong to a few, wealth flows to them as well.

No one seems to be really worried on how long can we carry on like this? How can we have such divergence in real and social development indicators?

It truly is worth asking this- India is shining…but for whom?

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