The release of a series of worrying figures in the last few weeks generated a lot of debate on the health of India’s economy. As former finance minister Yashwant Sinha put it, “private investment has shrunk as never before in two decades, industrial production has all but collapsed, agriculture is in distress, construction industry, a big employer of the work force, is in the doldrums, the rest of the service sector is also in the slow lane, exports have dwindled, sector after sector of the economy is in distress, demonetisation has proved to be an unmitigated economic disaster, a badly conceived and poorly implemented GST has played havoc with businesses and sunk many of them and countless millions have lost their jobs with hardly any new opportunities coming the way of the new entrants to the labour market.”
It is true that Sinha’s urge to ‘speak up’ may have to do with the fact that Modi decided to sideline him and assign India’s second most wanted job to Arun Jaitley instead. However, he has a point: the health of India’s economy does not look good. Moreover, it seems clear that the slowdown – which, we should remember, comes shortly after the slowdown seen during the last phase of the UPA regime – is not ‘technical’ (as claimed by, among others, Amit Shah), but is structural: it is here to stay.
However, few have pointed out the most fundamental structural reason why the economy is not and in fact cannot be booming. As Amartya Sen put it, ‘India is the only country trying to become a global economic power with an uneducated and unhealthy labour force’.
This is the single most important policy failure of every single Indian government since independence: the almost complete neglect of public health and education. As a result, almost 40% of India’s children are malnourished. This is not only a terrible figure per se. It is also a huge loss in terms of future human capital and hence, future economic growth. Malnutrition during the first two years of one’s life causes irreparable brain and physical damage that severely affects a person’s life-long ability to become an intellectually and economically productive adult. This means that the majority of today’s labour force might have suffered from irreparable physical and cognitive damage that cannot but be reflected in its productivity, which in turn makes it poorly equipped to sustain a rapidly changing economic system. In China, the figure for child malnutrition is lower than 10%.
But the bad news does not end there, as another fundamental component of the quality of the labour force is how well educated it is. Here, again, the Indian governments have consistently and perversely decided to put public education at the very bottom of the policy agenda. India enacted a Right to Education Act, which made education free and compulsory only 63 years after it became an independent country. But even then, very little was done to improve the quality of India’s educational system, which condemn Indian children, particularly in rural areas, to learn very little. In international tests, Indian kids consistently perform very poorly – according to the latest ASER report, almost 80% of Indian children in rural areas cannot make a two-digit subtraction after three years of schooling. If we look at the education of today’s labour force the figures are similarly appalling: over a quarter of India’s population – and over a third of the female population – cannot read or write. To find similar figures in China, one has to go back to the early 1980s.
On top of all this, there is now evidence that shows that India, long considered to be a low inequality country, is in fact one of the most unequal countries on the planet, more unequal than Brazil and, if we consider the concentration of wealth, as unequal as South Africa, the most unequal country in the world. High inequality compresses economic growth and impedes policy choices that could ease off inequalities, like investments in public health and education.
This is in fact a crucial point to understand India’s faltering economy: according to the latest World Development Indicators, India spends about 5% of the GDP in public health and education, significantly less than Brazil (9.5), China (6.8) and even Sub-Saharan Africa (6.9). Without a radical turn in policy thinking and without an unprecedented, sustained (and unlikely, it seems) investment in human development, India will be less and less able to cope with the two crucial challenges that will further test the ability of its economy – and of its labour force – to remain on a path of high growth. First, climate change is expected to create 100 million poor people globally by 2030. There is a lot of evidence to show that those who are most vulnerable – also because they lack basic capabilities like health and education – are more likely to be negatively affected by climate change. Second, automation is expected to cut about 70% of existing jobs in India. How a poorly educated and very unhealthy labour force is supposed to adapt to these changes is difficult to see.
The causes for the slowdown of the last few years might be contingent: accumulated bad loans and consequent shortage of credit, lack of private investments, bad policy decisions like demonetisation and the short-term effects of the (arguably not perfectly conceived) Goods and Services Tax implementation. Similarly, the causes of the slowdown during the last phase of the UPA regime were largely contingent. But it remains that a poorly educated and very unhealthy labour force is a fundamental structural reason why India’s economic growth cannot but be similar to that of 40% of her children: stunted.
Diego Maiorano is with the Institute of Asia Pacific Studies at School of Politics and International Relations, University of Nottingham and is the author of Autumn of the Matriarch – Indira Gandhi’s Final Term in Office, Hurst & Co./Oxford University Press/Harper Collins, London, New York and New Delhi, 2015.