Development and progress go hand-in-hand, but know what is key to economic growth

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Updated: Feb 21, 2020 8:59 AM

Development and progress go hand-in-hand; getting on and remaining on the ladders key to economic growth for individuals and nations

tax payers, employment, world economy, malnutrition, financial security, telecom, per-capita, economic growthThe changes in the probabilities or in the structure of the labour force are dependent on how the economy shapes up.

As India changed and economically progressed, it brought hope. There was indeed a pathway out of the poverty that the slow growth of the many decades had foisted upon the society. There was now a way to get out of ration queues to become tax-payers—from being dependent on the state to giving back to the country. A sliver of the population would jump right off the subsistence farms and move to the cities. The pathway was to get into one of the burgeoning services sectors: get into IT to bring in the moolah or become an air-hostess to serve the customer flying in and out of the country; sell the young generation a home, or the loan and insurance on it.

One needs to have found the right steps on the ladder of development to eventually get on the ladder of progress. The ladder of development is basically a citizen’s access to public goods: (1) personal capital for basic needs: roti, kapda, makaan, (2) physical capital: bijli, sadak, paani, and (3) human capital: shiksha, swasthya, suraksha.

Think of these as steps on the way up a pyramid—the more certain you are about being able to set your foot on one step of the ladder, the more prepared you are to head up to the next one. If you are not suffering from malnutrition, you can try and find some decent shelter. Once the shelter is reasonably assured, one looks for the ability to find and go to work. Electricity is a game-changer that reduces physical effort at home and multiplies output at work. Decent hygiene and sanitation—both for social and health reasons—help a family keep away from the cycle of disease and debt. Once basic physical capital is reasonably assured (load-shedding is eliminated, or at least announced and called out; roads don’t shut down in monsoons; or piped potable water comes home), individuals and society build upon this using education and a higher level of health. Ultimately, if there is certainty of incomes, a pool of money for emergencies, financial security and retirement can be built up.

We have not added elements beyond the ‘public goods’—however, progress eventually requires that people, regions and society enter into networks of value. Such networks may be a social network that helps them find and retain jobs, or a global value chain of production and delivery. These networks can keep people in gainful employment: This is as true in the gig-economy where getting on to a platform is important or in the old-world economy.

If over time, the chance that a citizen is able to earn more than the per-capita or per-household income increases, not only do they start to become financially more secure, they also pull the per-capita income of the country up. This creates a positive, virtuous cycle of pulling up incomes across the board and takes the citizens into the consuming middle-class that the investors and businessmen find so attractive. Progress, hence, can be defined as the change in this probability for the better.

The inclusivity of India’s growth depends on its ability to create income and social mobility. Income mobility comes when new and different opportunities present themselves to the working-age population. This allows them to make a cleaner break from the shackles of the previous generation. Many a times this involves migration; one tries to move to the right sectors at the right places while planning their growth prospects.

Overall economic growth: The most important component of change is the overall rate of growth of the economy. A fast-growing economy is the best way to create new opportunities. Basic calculations will suggest that the current annual per-capita income can increase to 10X if the economy grows at 10% a year for 25 years, or may grow to only 3.5X, if the economy grows at 5% a year.

The right sectors: While the overall growth creates incomes and wealth for the economy as a whole, the distribution of the income streams and wealth will depend on the sectors and regions that create the jobs. Sectors like IT, pharma, banking, telecom, aviation and real-estate created many millions of new jobs in the last quarter century. When new sectors suddenly emerge or see disproportionate growth, they create a vortex of demand which pulls in many youths into the workforce. The digital economy is expected to be one such sector—what remains to be seen is whether it is enough for the many millions who seek employment.

The changes in the probabilities or in the structure of the labour force are dependent on how the economy shapes up. The rate of growth of the overall economy, of the various sub-sectors within it and the regions from where the growth comes shapes the labour force requirement. When the IT revolution came to India, it created a whole new set of opportunities and created a new labour force structure that altered the probability for many in the 2000s and 2010s.

The places of action: West and South Indian states benefitted significantly from this growth. Cities like Delhi, Hyderabad, Bengaluru, among others, also saw massive improvement in their economic destinies. This growth across a part of India has been variously described as the divide of the Amritsar-Vijayawada line or the East-West of the Kanpur longitude. Many reasons have been attributed the development across such imaginary lines, including better connections with the global economy, slowing down of the growth-rate of the population as maternal and infant mortalities came down in these areas, better education infrastructure, more skilled labour-force, the usage of English, etc.

The ladders of development and progress are self-reinforcing. If there is progress, it creates a tax base to fund development. Better access to development tools can lead many more citizens to join the ladder of progress.

The author is Head, strategy and new initiatives, Axis Bank Views are personal

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