ECONOMIC HIGHLIGHTS

New Delhi, 20 October 2005

Twenty-year Vision

Get Out Of Poverty Syndrome

By Dr. Vinod Mehta

Higher investment is only one of the pre-conditions for realizing a high rate of economic growth in any country.  Other factors that influence the growth rate of any country are education and health.  Educated and healthy population can make a lot of difference to the economic growth, as it helps them rise the social and economic ladder. More people that are added to the prosperous middle class more economy develops faster.

This is amply borne out by the experience of many developed countries, which have witnessed, over the years, a relatively higher rate of growth by adding more people to the middle class.   Thus when we say that vast majority of the people in developed countries belong to middle class we mean that they have not only relatively higher level of income which provides them comfortable level of living beyond bare subsistence but a level of income which also provides access to good education and good health care. 

The economic evidence in the developed countries shows that relatively higher income and comfortable level of living is dependent upon access to good education and health care coupled with highly developed infrastructure.  Knowledge of better job opportunities and ease of mobility makes a significance difference in improving the living standards.

Unfortunately, in India adequate attention has not been paid to provide universal education and health care to all.  Even after 55 years of independence vast majority of the people are illiterate and have no access to even primary medical facilities. This is in sharp contrast to erstwhile socialist countries where the goal of universal education and health care for all was achieved within one decade of the revolution.  And, we, even after fifty-five years of independence, have yet to ensure universal education and primarily health care to all.

The available data on India show that though the Government is willing to give subsidies on non-merit goods, the expenditure on education and health care has almost remained stagnant or gone down in certain individual years.  The expenditure on education is hovering around 3% and on public health around 1.4% of the Gross Domestic Product (gap) for the last five years.  As against this the subsidy paid by the Government on food, fertilizers and export promotion activities is around 8%.

This is in sharp contrast to other countries where social expenditure as a percentage of GDP is much higher compared to India.   For instance, India's neighbour Pakistan and China spend more than 3% of their GDP on health care.  Mexico and South Korea spend more than 5% on health care.  Based on the Human Development Report more than 15% of our population has no access to health services, 19% has no access to safe drinking water while 48% of the adult population is illiterate.

The contribution of education to economic growth at the macro level and in improving the living standards of the families at the micro level cannot be underrated.  According to an American scholar, the investment in education contributed 23% of the growth of real income and 42% of the growth of real income per person employed in the USA during 1929-57.

Therefore to ensure high economic growth the state will have to make serious efforts to provide education and health care to all and make conscious efforts to bring bulk of the population above the poverty line.  The educated labour force can raise its productivity manifold as also its earnings.  The time has come to challenge the argument that cheap labour provides comparative advantage to India in the international market.  But cheap labour also means low earnings.  The labour should be cheap in the sense that it is more productive.

This can come through education only.  We should make conscious efforts to move from "absolute cheap labour" to "relatively cheap labour."  The productivity of skilled labour is much higher. Today the societies are going to be knowledge driven and India cannot afford to be left behind in the race simply because a substantial proportion of its population is illiterate.

Apart from education and health-care, an efficient infrastructure which includes good road and rail network, efficient transport system and up to date communication facilities so that people especially at the lower rung of the society can move easily and quickly from one place to another in search of better opportunities.  But the infrastructure as it exists today in this country is one of the biggest stumbling blocks to achieving higher growth rates.

 Except for the national highways, development of modern airports, harbours, communication systems and railways is very slow.  The facilities available at Indira Gandhi International Airport do not match the facilities available at say Frankfurt Airport or Singapore Airport. Frankfurt and Singapore airports handle thirty to forty times more flights than Indira Gandhi International Airport. The Government has yet to make a major move on the recommendations of the Rakesh Mohan Committee on the development and improvement of infrastructure in the country.

In fact, the country should stop talking about bringing people above the poverty line but start working to uplift vast majority of the people at the margin to the lower middle class level; the country must get out of the poverty syndrome.   That 25% of the population which lies below the poverty line, needs to be brought to the lower middle class level.

The key to high economic growth lies in universal education, health-care to all and ease of mobility.  It should be our vision for the next 20 years that people below the poverty line are brought to the level of lower middle class and once that is achieved the social mobility towards middle class and upper middle class will gain its own momentum. 

The phrase "middle class" is not to be understood in derogatory sense as it is more often used but as an economic category which shows the absence of both absolute and relative poverty.  Middle class in developed countries is the engine of economic growth and development; it is this class, which sustains the domestic market.  This becomes quite obvious when one travels in Europe or Japan or for that matter in Southeast Asian countries like Singapore or Malaysia.---INFA

 
(Copyright, India News and Feature Alliance)