dna edit: India's growth model

Gujarat’s economic model is likely to become even more of a hot button issue as the 2014 polls approach, for better and for worse. Much has been written and said already, and a wide range of personalities — from professional economists to politicians and corporate leaders —  drawn in. That is to the good. The conversation may have devolved into petty acrimony at times, but it has also positioned serious questions of governance and economic policy at the heart of public and political debates; something that was long overdue. The danger, of course, is that the flash and swagger of political rhetoric will overshadow substantive issues. That makes the just-released Raghuram Rajan panel report all the more relevant.

The immediate takeaway from the report, predictably, was that Gujarat falls in the category of less developed states by the panel’s reckoning, contrary to its portrayal by Modi backers as the brightest star in India’s economic firmament. But Gujarat’s performance is just a pointer to the larger issue the report addresses — the metrics used to quantify economic progress and development. Macroeconomic indicators make for good headlines, but whether they reflect the reality of a region’s economic progress is open to debate. A quick look at the ten criteria used by the Rajan panel to determine states’ performance makes this clear. Among them are education, health and female literacy, presenting a much more holistic view of economic progress.

This alternative take on Gujarat’s progress raises questions about the manner in which the issue of economic growth as a whole is framed in India. The India Rural Development Report released at the same time as the Rajan report shows that while rural poverty as a whole has reduced, one in five households still does not have access to any of the three basic facilities — water, electricity or sanitation — while only 18 per cent of households have access to all three. At the other end of the spectrum, the Capgemini and RBC Wealth Management’s 2013 World Wealth Report, also released at around the same time, shows that India has recorded a 22.2 per cent jump in high net worth individuals (HNI) — those with investable assets over $1 million — in 2012, the second highest in the world.

This is a trend, not an aberration. While 2011 saw a rare decline in their numbers, the HNI population had grown by 20.8 per cent in 2010. Given that vast disparity between the two ends of the economic spectrum, it shouldn’t come as any surprise that Credit Suisse numbers released in 2010 showed the top 10 per cent of India’s population owning 52.9 per cent of the country’s wealth while the bottom 10 per cent owned 0.4 per cent.

For a country with an economy and aspirations the size of India’s, such a stark gap is both unconscionable and unsustainable — particularly when there is no social security net to keep those at the bottom of the ladder above a baseline that ensures survival at the least. And the last human development report released by the Planning Commission showed that the gap is growing larger.

There are basic questions here about the ability of supply side economics and the trickle down effect, while undoubtedly responsible for lifting millions out of poverty, to do so in the numbers and at the rates required. How, for that matter, should the country even view the notion of economic progress? The ferocity of the narrow debate about Modi and Gujarat’s performance should not be allowed to drown out these issues.