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The venerable industrialist J R D Tata, to the surprise of many, had said: “I don’t want India to be an Economic Super-Power, I want it to be a Happy Country.” The World Happiness Report 2024 ranks India 126th out of 143 countries — not a very happy country. Ironically, India most likely will be an economic superpower. Well before the end of this decade India’s gross domestic product (GDP), growing at over 7 per cent, is expected to overtake Germany’s and Japan’s to become the world’s third-largest. And if it does reach the gross national income (GNI) per capita of around $14,000 at 2021 prices — the World Bank’s cutoff to become a high-income country — by 2047 it will be a $21 trillion economy, about the size of the United States (US) today and certainly an economic power.
But income alone does not make people happier. The world’s richest country, the US, whose credo is “Life, Liberty, and the Pursuit of Happiness”, dropped to 23rd on the happiness rankings. To be happier India needs to not just increase GDP but have better education and health, and better jobs and less inequality, along with social cohesion. The United Nations Development Programme’s (UNDP’s) human development index (HDI) measures income, health (life expectancy), and education (literacy and schooling), and shows India’s rank is a low 132nd amongst 190 countries. Public-health spending despite the pandemic shock remains at a low 1.3 per cent of GDP. Education public spending has increased to about 5 per cent of GDP and more children including girls go to school. But learning is poor and most of the youth remain unskilled and cannot do basic functions.
India’s demographic dividend as a result risks becoming a demographic disaster. The latest International Labour Organization employment report paints a grim picture of employment in the country, especially for the youth. The share of the youth with secondary and high-school education who are unemployed has increased from 35.2 per cent in 2000 to 65.7 per cent in 2022. The World Bank says the employment ratio is declining. Agricultural employment, which should be declining, instead, increased 60 million over the past five years. Those that did find work outside the farm were mainly in daily wage work (informal) in construction and services. And huge gender gaps persist. The Arab Spring uprisings showed us education and unemployment were a volatile combination.
The government’s response is that it’s not their job to create jobs. The private sector must create jobs, but with complicated labour laws, land made so expensive by outdated zoning regulations — like low-floor area ratios — and other high costs of doing business, the private sector prefers to invest in high-tech and in capital-intensive sectors not in low-skilled manufacturing, where a lot of people with secondary and high-school certificates could expect to find jobs. And many firms contract out to smaller outfits which hire workers in low-skilled daily work. Tech jobs are growing but are nowhere near enough for the 10 million youth entering the working-age population every year. And the government’s industrial policy has focused its production-linked incentive subsidies on less labour-intensive sectors. It is, therefore, no surprise that jobs are scarce in India.
While poverty has clearly declined, the picture of inequality is unclear. The preliminary data from the latest household consumption survey 2022-23 shows a decline in consumption inequality compared to the 2011-12 survey. But their comparability must be verified once the full data is released. In any case under-reporting of consumption, more pronounced at the high end, understates inequality. A new study by the World Inequality Lab[1] with a sub-title “The Billionaire Raj” shows Indian income and wealth inequality among the highest in the world, with the top 1 per cent of the population having 22.6 per cent of income and 40.1 per cent of the wealth. India’s inequality is much higher than China’s and the US’s, and is at levels seen in South Africa and Latin America.
Even if the World Inequality Lab numbers, as alleged, are a bit exaggerated, there is no doubt that inequality in India is shockingly high. The UNDP shows that the HDI — where India’s score is already low — drops further by a staggering 31 per cent for India when adjusted for inequality. According to Hurun’s Global Rich list, India has more billionaires at 271 than in California (186), Germany (140), and Japan (44), each with a GDP greater than India’s.
Some people argue that more billionaires is a sign that India is generating large national companies with the ability to execute at scale to handle global competition — as in Korea and Japan. They also produce a supply chain from which smaller companies prosper. But as we have seen in Latin America such large companies protected from global competition can also become a major impediment once they are able to influence politics and thereby influence regulation. This “regulatory capture” and lack of innovation have left much of Latin America stuck in a middle-income trap. It remains to be seen whether India will go the way of Korea and Japan with globally competitive firms, or like Latin America with protected markets in which consumers pay high margins and the country gets stuck in the proverbial middle-income track.
With lavish weddings and a crass display of wealth by its “nouveau riche”, India’s rising inequalities are very visible. Some see this as a good sign and a signal that wealth is now venerated, no longer despised. But if it were accompanied by better and more jobs and shared prosperity, we could all celebrate the new rising India. The new “welfarism” where the poor get handouts — free foodgrains, gas cylinders, free electricity and water connection — may help win some elections, but without the ability to generate more jobs there will be no “Viksit” Bharat. India’s growth model needs a serious course correction because inequality once entrenched is hard to reduce. We want a “Samrudh” (prosperous) Bharat but also a more “Sajit” (inclusive) Bharat to make India the happy country that JRD desired.
The writer is distinguished visiting scholar, George Washington University, and co-author of Unshackling India, HarperCollins India, 2021, the Financial Times Best New Book in Economics for 2022
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
