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Indian Growth Story: Striking Paradoxes

On Saturday morning, three of the four main newspapers of New Delhi front-paged the story of the Indian economy performing better than expected in these tough times. The country's yearend (2008-09) growth rate was estimated to be 6.7 per cent as opposed to 6.5 per cent that most in government had ventured to expect. Independent economists and economic organizations had predicted an even lower -- a 5.5 per cent growth this year. Hence, there was jubilation in the air.

While most in the developed West find these numbers mesmerizing -- with their own economies actually contracting -- Indian growth numbers hide more than they reveal. Meanwhile, the rejoicing continued with industry captains predicting that nine per cent growth was possible in the current year on the back of an upturn from the depths of a US-led global recession.

But the real story of the Indian economy does not lie there. The main narrative lies in the plight of 420 million people in a country of a billion and more, who constitute 86 per cent of the workforce estimated in 2005-06. They did not gain as much as the top 15 per cent when the economy was growing at a nine per cent clip. They were the first ones to lose the most when the economy nosedived.

According to a report of the National Commission for Enterprises in the Unorganized Sector (NCEUS), "... has estimated the size of this vulnerable segment in India to be not less than three-fourth of the population i.e. around 830 million in 2005, which would be close to 880 million in 2008." Most of them live with less than a dollar a day of consumption.

Despite their huge numbers, they are called marginal. In agriculture, they constitute the small and marginal farmers and a number of 86 per cent of the farming community. The story is not much different in the non-agricultural sectors. The NCEUS report says, "There are an estimated 58 million enterprises in the non-agriculture unorganized sector employing less than 10 workers. Of these enterprises, 94 per cent have an investment in plant and machinery of up to Rs 5 lakh ($10,000), and another 4 per cent have investment between Rs. 5 and 25 lakh ($10,000-50,000). These enterprises contribute an estimated 31 percent of GDP."

The sector is troubled not just by the external environment but also by a sluggish pace of domestic demand. Workers of this section of society also find employment in the minuscule organized sector. As the NCEUS holds, "...nearly 47 percent of employment in the organized sector is informal employment i.e. employees who do not have employment security or social security cover. As the crisis unfolds, these workers are the first to lose jobs. Those currently affected include workers in all sectors -- manufacturing, construction and services. Employment in the construction sector, which grew very rapidly in the past several years, has shrunk even within the first few weeks of the crisis, impacting on some of the most vulnerable segments of labor who migrate from poor, rural areas."

Small producers and traders with less than $10,000 as capital are hit because the exports from India are drying up. They constitute 30 per cent of total Indian exports but most of the workforce in handlooms, textiles, wearing apparel, leather products, gems and jewelery, metal products, carpets, and various types of agricultural products such as spices, and marine fishery. These people are now reeling under the trinity of causes: declining markets, higher input costs due to the sharp depreciation of the Indian rupee, and lack of export credit.

With the credit squeeze on, this sector is suffering not just from the general reluctance of the bankers' to lend them money, but also from the higher demand from the more established organizations who feel the credit contraction in their bones because their international sources of funding have dried up.

On top of this crisis, they are hit by the sharp upsurge in the prices of essential commodities like foodgrains. On the other hand, their products are fetching lesser prices as internationally the prices are down; because of the downturn there is a general atmosphere of deflation.

Thus the NCEUS holds, "The combined impact of all the above effects on the informal economy would be an increase in livelihood insecurity, decline in income and an intensification in the conditions of poverty and vulnerability. The worst affected segment of India's poor and vulnerable would be the casual laborers, of whom the poorest segment is constituted by the agricultural laborers."

Can the Manmohan Singh government of the United Progressive Alliance rejoice in achieving a growth rate of 6.7 per cent amidst overwhelming adversity? In my opinion, they should not; till the time they can reach relief to the huge 86 per cent of the population, much of which has elected them

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