GDP Doesn’t Measure What Matters

Our appreciation of events refines with time. Recent developments tend to reframe issues, prompt reassessment and even skew our judgment.

History has many authors and there are multiple versions of the 1991 reforms. However, there is no denying that it was truly transformational.

It was fait accompli, prodded, pushed compelled even, by several externalities. It was ‘baked’ for an ecosystem that was almost completely constricted by the rule of licences, quotas, and discretion. Everything was in ‘short’ supply. The culture of paternity (mai-baap sarkar), and the role and power of the ‘insider’ had deprecated and denied growth.

The 1991 reforms worked because they were well-defined, mutually supportive and structured around a core. The goal was to dismantle a dysfunctional system of controls, free the private sector of myriad government bondage, and unleash entrepreneurial capability. 

The theme was to ‘deregulate’. The objective was to attract foreign capital in exchange for the Indian wallet. It would have been sufficient had the Balance of Payments crisis been averted. The reforms did more.

A turning point that redefined the vocabulary of policymaking

The 1991 reforms transformed the ecosystem but even more importantly, set a precedent, changed the narrative, and exemplified the virtues of hard economic decisions, and defining ‘action’. Foreign direct investment (FDI), jobs and growth are now the bedrock of every economic policy framework and determine every policy move.

However, the decade after 1991, was lost. Most politicians lacked the political capital. Some the will, others the intent. They could neither carry on that momentum, nor build upon the early success. We meandered.

However early this century several well-meaning people both within and out of governments, persevered and coaxed incremental reforms and were rewarded with high growth and substantial poverty reduction (particularly destitution).

Everything has changed. Yet nothing is different

A proper assessment of reforms must go beyond growth rates and GDP numbers. The situation for most Indians remains unchanged. A Crux study highlights our failure to generate sustainable livelihoods for most. We have equally failed to provide employment opportunities for the educated young. 

There has been a decadal stagnation of real wages for a majority of unorganised workers. Over 80 per cent of the ‘employed’ earn less than the per capita income. Disparities between urban and rural areas are widening, even when ‘urbanites’ choke. Access to health, education and several other human-development indicators are low.

At the macro level, the gap between laggard states and developed ones is on the rise. The ‘Jobless’ growth phenomenon is ‘hardening’, equally creeping across other sectors. The Crux study highlights the need for policymakers to go beyond the 'growth' narrative for meaningful development.

The PM must start from home

The government has a role in promoting economic growth. However, this will mean setting up, strengthening and empowering institutions and regulatory and standard-setting authorities to coordinate, incentivise and support growth.

The Prime Minister must remind his cabinet of ‘minimum government maximum governance’ and ensure it. Policymakers focus on economic issues narrowly. The ecosystem is beset with government intervention. Courts are wading into the domain of the executives.  Executives lack capacity, are often indifferent. The government must enhance both administrative and technical competence across levels.

The reforms must also focus on long-neglected social needs, particularly education, health and ‘ease of living’. A special resolve and action is needed to deliver accessible, efficient, and quality public services. This can be achieved by strengthening the capacity and governance structure at the grassroots level.

India needs reforms that enable the MSMEs to grow. Today they age.  Close to 80 per cent of the 50 million jobs providers (MSMEs) are minuscule and small. We need an ecosystem that enhances competitiveness, and powers scale. The corporate landscape is highly fragmented. Only a handful of the ‘large’ organisations have global scale or competitiveness. There is no ‘middle’, primarily because the ecosystem has failed to nurture ‘small to middle’ enterprises.

Labour reforms, GST rejig, ease of doing business and, ‘nurturing’ the ecosystem are low hanging fruits, and will scale and strengthen MSMEs. They power growth and create jobs. When more than 45 per cent of the population depends on agriculture, growth will have to start there. Agriculture reforms will fail in the absence of land reforms.

Barring a few state governments, most have not taken up market-facilitating reforms. Land, power, infrastructure, rural development, and agriculture reforms are multipliers.

Reforms are a process, not an event. Not an end in themselves

Economic reforms of the last 10 years have indeed delivered. However, in the absence of holistic measures, including administrative and judicial reforms, the larger impact has been sluggish.   

We have challenges galore. India needs bold and structural reforms, and a robust framework to substantially scale and accelerate growth. India needs to follow this up by injecting the appropriate catalyst and high-productivity models across different themes. We need to implement well, to grow at 10 per cent for the next 10 years.

However, growth must be accompanied by a very intense focus on societal mobility. Growth is wonderful, necessary, and important but the trajectory and pattern more so. It’s not an end in itself, but the means to enrich lives, expand opportunities, jobs for every aspirer, provide mobility and a life of dignity to every citizen. Growth must empower. The benefit of growth concentrated at the top manifests into several ills.                                                                            

The fact that growth and inclusion reinforce each other will not be lost on the Prime Minister. Poverty and inequality not only adversely impact human development, but also stunt the very growth we need. The Prime Minister must ensure that the bottom 300 million too rise. Equally,  the middle 300 million should expand. The upward mobility triggers a virtuous growth cycle led by higher demand, investment, and jobs. He must address the challenge of jobless growth and rising inequality

Real leadership moment for an aspiring India  

The Crux research articulates that up to 50 per cent of GDP growth in the last three decades can be attributed to inclusivity, and particularly to the contribution of those millions who were pulled out of the poverty trap.

Growth must provide upliftment and freedom to make life choices. It must measure other indicators of life particularly leisure, well-being and focus on broader societal touchstones like equality, governance, participative democracy, and societal connectedness.