5 disappointments for Indian economy in post-reform period

Posted: February 23, 2013 in Current affairs

There are five disappointments in the post-reform period.

One, slow infrastructure development. Almost all indicators score poorly if one looks at India’s infrastructure compared to countries such as China. Power shortage is perennial and this is one of the singlebiggest constraints for growth. However, there are some positives during the 11th Plan. And, in the 12th Plan, of the projected investment of $1 trillion, 47% is expected to be from private sector.

Not surprisingly, the index of infrastructure across states is highly correlated with per-capita income and level of poverty. IFPRI’s study on India showed that public expenditure on roads has better impact on poverty compared to antipoverty programmes.

Two, failure to raise labour-intensive manufacturing. In the postreform period, the share of manufacturing in total employment remained virtually stagnant at 11-12%. In 2010, India accounted for 1.4% of the world manufacturing exports against China’s share of a whopping 15%.

Reforms since 1991 have not been comprehensive enough to remove the bias towards capital and skill-intensive industries. Also, input markets such as land and labour are riddled with distortions.

Productivity of SMEs and unorganised sector manufacturing has to be enhanced. The role of agriculture in structural change is not by increasing employment, but through enhancing farm output. Services and manufacturing have a complementary role.

Three, sluggish progress in education and skill levels of workers. Not taking advantage of demographic dividend is one of the failures. The draft 12th Plan quotes Prime Minister Manmohan Singh as saying the young population is an asset only if it is educated, skilled and finds productive employment.

Even in 2009-10, around 52% of total workers were either illiterate or had been educated only up to primary level.

Overall, 10% of the workforce in the age group of 15-59 years received some form of vocational training. Vast majority of workers have non-formal vocational training. There are huge challenges in raising education and skills of workers.

Four, slow social sector development. Although there have been achievements in social sector during the reform period, the progress has been very slow. If we compare 1993-94 to 2009-10, the rate of decline in poverty for India stood at around 0.97% per annum; inequality increased; poverty reduction was slower for STs.

In the recent short period 2004-05 to 2009-10, there were improvements: the rate of decline in poverty was faster at 1.5% per annum; the rate of decline in poverty for SCs and STs was higher than for all; and inequalities in rural areas declined slightly but increased in urban areas. However, in the longer period, one expected much more progress in all these indicators.

India has failed to show progress in social indicators or the Millennium Development Goals including environment. We are not only behind China but the progress is slower than in Bangladesh.

One study published in India Development Report 2012-13 estimated inequality-adjusted human development index: it shows the cost of inequality HDI is 32%.

The loss due to inequality is the highest in education dimension (43%), followed by health (34%) and income (16%). There is a debate about progress of human development in Gujarat and Kerala. Although there have been improvements in Gujarat, it has to go a long way in raising human development.
And five, governance failure. Reforms were expected to improve governance at various levels. However, there are new problems in governance and persistence of old problems including corruption.

A study on performance of Karnataka’s Lokayukta suggests that without overhaul of the country’s administrative structure, ex-post prosecution of corruption or withdrawal from economic activities cannot reduce corruption.

At present, the design of anti-corruption ombudsman leaves a lot to the personality of Lokayukta. The analysis also suggests that the overburdened legal system needs reforms.
Bimal Jalan, former Governor of the Reserve Bank of India, and many others feel that problem of governance is the biggest constraint to achieve our development goals in the country. Fixing this problem is important for success of the above four issues also.


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