Who has benefited from growth?

In the run-up to the elections, one could do worse than take a look back to see how we can move forward. What has been the state of the people as it were the past two decades since reforms began? The Congress claims, less confidently now than it did earlier, the past decade has seen the highest growth in GDP; the BJP holds up Gujarat as the model state, really a microcosm of the same claim by the Congress for the entire nation. But how do they measure their claims?

More often than not by reference to GDP numbers. But it might help to consider the issue from the bottom up; from the viewpoint of the mass who will line up to exercise their franchise.

Things are not what they are cracked up to be; growth has slowed, but a lot more than we imagined have been left behind.

So far, debates on the depth of poverty or deprivation have been confined to the rarefied spaces of policymaking and academia. Now a study by the McKInsey Global Institute (MGI) widens the debate in a refreshingly novel way.

Released last month, From poverty to empowerment: India’s imperative for jobs, growth and effective basic services offers two new indicators to measure deprivation. While admitting a decline in the number of those afflicted with “extreme poverty” per official estimates, the authors address the scope and depth of deprivation by reference to quality of life and access to basic services.

The authors offer us the Empowerment Line and the Access Deprivation Score. The former is a “holistic measure of income-based deprivation”, an approach that nudges MGI into the small group of critics who say poverty has to look at more than just an income level. And as Arjun Sengupta had pointed out years earlier in his report on the informal sector, if one goes by the yardstick of income as an empowering weapon, then poverty is more universal than official estimates would suggest.

The poverty line is a statistic that hides more than it reveals. Of course McKinsey does not say that aloud. The message is encrypted all through in the actual measurement of what a given level of income can buy.

MGI estimates the cost of “fulfilling eight basic needs”: food, energy, housing, drinking water, sanitation, healthcare, education and social security. The metric arrived at is the Empowerment Line and the results are for 2011-12.

More than half India’s population (56 per cent) “lacks the means to meet their essential needs.” Some 680 million Indians — two and a half times those below the official poverty line — live a life “marked by a continuous struggle to achieve a modicum of dignity comfort and security”.

But deprivation does not necessarily flow from an inability to spend: access to basic services equally matters. Even if Indians have purchasing power for food and energy, MGI claims they do not enjoy the fruits of “community level social infrastructure such as health clinics and schools”.

To complement its Empowerment Line, the MGI develops an Access Deprivation Score (ADS) “to capture the availability of basic services at the national, state or even the district level”. The ADS parameter found that “on average Indian households lack access to 46 per cent of the basic services they need”.

Thus far, the authors provide us with fresh insight into a more realistic level of deprivation. These metrics provide a better understanding of the limits of growth and of policymaking.

But now the authors begin to back-peddle, wandering off onto the well-trodden paths of policymaking hot air, of Planning Commission-speak. They find the future in the past. In the seven years to 2012, the headcount of those below the Empowerment Line fell by 183 million; rising incomes accounted for three-quarters of this fall in the numbers of those below the EL; increased government spending accounted for the balance quarter.

For the authors then the answers are: more private investments, more non-farm job creation, higher productivity and all the rest of it — an echo of all that has been endlessly echoed by Economic Surveys, Planning Commission studies on employment and apex bodies of Indian industry weaned on classical models of industrial transformation, with a deep bow to Joseph Schumpeter.

But jobs are not scarce because reforms are stalled or investments are thin on the ground. Neither can it be said that rigid “fossilised” labour laws deter modern industry from offering more factory, assembly-line work.

Job creation is the handwork of an industrial structure facilitated by governance and balmy investment climates.

In early and mid-20th century capitalism, creative destruction, factor reallocation and job flows seemed like a magical triad for higher manufacturing growth, which underwrote much of capitalism’s overall dynamic character. Technological changes hurt, but they generated new spheres of work and jobs.

But since the late 1980s, digital technology (and the huge growth of financial services conglomerates) has been unscrambling the triad. Now, technological upgrades lead to immense leaps in productivity but fewer jobs, leading to huge income inequalities; not just in America but in UK and Europe.

India has a long way to go before it digitalises the way advanced countries do. But with labour-saving technology and with the growth of the informal employment even in the modern organised sector, India is stumbling in that direction.

That huge number below the Empowerment Line is stuck in agriculture or low productivity jobs is true. But a large swathe of our demographic gift will stay in the informal sector even if robust governance electrifies investments for reasons that have to do with structural shifts and new “corporate” imperatives.

To remain low-cost, high-profit driven, to compete in the global order, modern industry has to digitalise; the option, a more expedient one is to depend on informal labour, flexi- or temp-labour that denies social security benefits.

In the meantime, the gifts of the economic growth McKinsey celebrates have their own contradictions that, in effect, deny empowerment capabilities even for the fresh entrants to the job market.

In a recent report on employment, the Institute of Human Devlopment offers, unwittingly perhaps, a foretaste of things to come: “The share of wages in total value-added in manufacturing has been declining consistently… The shift from wages to profits is large and is closely connected with growth in recent years. Thus there is a substantial shift towards income from capital, contributing to the overall increase in income inequality.”

Our kind of growth empowers some and disables the many.