It’s happening, lets keep at it

RAMA BIJAPURKAR

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‘Little drops of water, little grains of sand / make the mighty ocean and the beauteous land.’

THE bad news is that despite almost seven decades of effort, India still remains a very unequal society on most counts, except perhaps the number of gods per capita. The good news is that social inequality continues to plague our collective conscience and every government of the day tries hard to make it better.

Beliefs and ideologies on how to do this differ, spawning a multitude of strategies all being executed simultaneously – the ten handed Durga with a different weapon in each hand and phenomenal multitasking ability is an apt metaphor for our effort. One school believes that welfare schemes and subsidies are essential to reduce social inequality: think MNREGA. Another believes that better governance and less corruption will reduce inequality: think panchayati raj and direct benefit transfers. A third school believes that reservations and quotas work best: think caste and gender based reservations. And there is yet another school, the one that India Inc. passionately believes in, that the only cure for social inequality is through a high GDP growth rate brought about by unfettered, globally linked, free markets and shutting off of ‘wasteful, populist handouts’. It will increase the size of the pie and improve the lot of everybody and all it would take is political will.

A multiplicity of ideologies and belief systems is not unique to us. But being Indian, our default option has always been ‘this as well as that’, not ‘this or that’. And with good reason too because as we all know, India is a hugely heterogeneous country, a land of many truths. So we have deployed, with equal vigour, an array of solutions from across a spectrum of beliefs

 

While the glass is still far from full, a lot of progress has actually been made: Let’s look dispassionately at the list of things we did in the last 15 years, knowing that none of it is as perfect as we would like it to be. Sarva Shiksha Abhiyan showed visible results in a decade of at least getting children into school and literate (though not necessarily well educated). The Right to Education (RTE) didn’t achieve much but it has strengthened the foundation for future effort. Reservations for Other Backward Classes (OBCs) happened in 20 central government universities, the Indian Institutes of Technology (IITs) and the Indian Institutes of Management (IIMs), taking the total reserved seats up to 50%.

The golden quadrilateral got built and the PMGSY programme got underway boosting road connectivity. For women, reservations in panchayats were increased and instituted in corporate boards. We have better laws for domestic violence and rape. New, more equitable land acquisition laws are being agonizingly framed. The passage of the Right to Information Act is a landmark though still caught in a tug of war between state and citizen on what it covers. The banking regulator and government have pushed the reluctant banking system hard on financial inclusion. There has been big bang large funding of MNREGA. A combination of Aadhar and direct benefit transfers, already implemented widely for LPG subsidies and in a phased roll out for others. Technical viability has been proven and will make the welfare rupee work harder for weaker sections of society with low bargaining power. The rural health mission has also done well in several states, decreasing infant mortality prevalent in poor households. All these initiatives, taken together, are significant actions on the ground, not just empty slogans.

 

Could results have been more dramatic with greater will, more whip and less corruption? Yes, theoretically. But chances of finding a single silver bullet large and powerful enough to change things quickly are low. Significant change happens by way of a change confluence, i.e. a lot of little changes, each not very powerful when viewed in isolation, but collectively forming a significant force of change. According to the laws of physics, force=mass x acceleration, and while we would love to see faster acceleration of our lumbering, large country, we need to also appreciate that the same force of change can occur when a large mass of people moves with a small acceleration. Many of these initiatives, taken together, have done just that.

 

The silver bullet, many still argue, that will reduce inequality swiftly is embracing, more fully, the globally connected market economy. How has it worked so far? The answer is that it has done a lot of good in reducing certain kinds of social inequality, but it has limitations that its proponents are not willing to acknowledge.

Without doubt the opening up of the economy has resulted in a higher rate of GDP growth, which has added more income to even the poorest section of Indian society as compared to the days when there was lower rate of growth. Rigorously collected, all India representative, household survey based income data is hard to get. The last study was in 2004-5 by NCAER . Now at last we have a 2013-14 data point from a comparable study done by People Research on India’s Consumer Economy (ICE 360o survey), a new not-for-profit research centre. Finally, we can see what happened to income levels in different income strata of Indian households (see Table 1). These nine years luckily were a good mix of great, good and disappointing economic performance (three years of over 9% real GDP growth, two years of high 8%, a year of middling 6.7% and two years of disappointing 4.5-5%), so we can view the results without caveats.

TABLE 1

Change in Income Distribution in the Last Decade

Population quintile based on per capita income

No. of house-holds in each quintile2013-14 (mn)

Share of India’s HH income

2004-05

2013-14

India-Q1 (Bottom 20%)

43.90

5.20

6.60

India-Q2 (21%-40%)

47.90

8.70

11.00

India-Q3 (41%-60%)

54.90

12.80

15.00

India-Q4 (61%-80%)

60.80

20.60

21.20

India-Q5 (Top 20%)

62.50

52.70

46.10

All India

270.10

100.00

100.00

Source: 2004-05 data, How India Earns, Spends and Saves. Rajesh Shukla, Sage Publication, 2010; 2013-14 income estimates using ICE 360o survey distribution and National Accounts (CSO) personal disposable income data. © People Research on India’s Consumer Economy (PRICE).

Table 1 points to a drop in the share of the richest 20% population (Q5) by almost 6.5 percentage points, and that has been gained not by the quintile just below it (Q4) but by the next two quintiles (2.2/2.3% gain each) and the lowest quintile gained 1.4%. That’s good news, though some might well say that a better outcome would have been for the economy to grown faster; the richest quintile would then have gained a far higher share even as the bottom quintile too would have increased its income a lot more. But this is wishful thinking because to grow, as we say in business, you have to earn the right to grow, with fundamentals like education and infrastructure in place.

 

Table 2 shows how the share of incremental income that accrued to Indian households over these nine years has been distributed, and the absolute income increases in real terms. The real income of the poorest 20% of India’s population has grown 2.5 times in the last nine years – the first in India since 1994. So too for the next poorest 20%. (The question that often gets asked is why did the Congress get routed so badly if poor people’s incomes grew. I can only conjecture that it was the greater attractiveness of the BJP promise of ‘we will propel you to a higher orbit of living and give you the opportunity of earning more.’)

A better question to ask, though, would be whether all the credit for this should go to GDP growth alone. In all likelihood part of it is also the MNREGA effect. This is not so much the direct impact of the scheme as is popularly assumed because the total amount spent divided by the total beneficiaries is under Rs 10,000 per house-hold per year, and ICE 360o data shows that less than half of households from the lowest income quintile(Q1) accessed the benefits. Also the Q1 income growths shown in Table 2 are much larger than the scheme effect.

TABLE 2

How Did Income Growth of Last Decade Get Distributed?

Population deciles based on per capita income

No. of house-holds (mn)

% share in incremental income added2004-05 to 2013-14

Absolute real increase

(Rs per house-holds**,2004-05 to 2013-14

% average annual growth2004-05 to 2013-14

India-Q1(Bottom 20%)

43.9

8.2

79,714

8.77

India-Q2 (21%-40%)

47.9

13.7

121,555

8.61

India-Q3 (41%-60%)

54.9

17.6

135,910

6.63

India-Q4 (61%-80%)

60.8

21.9

152,795

4.10

India-Q5 (Top 20%)

62.5

38.6

263,095

2.86

All India

270.1

100.0

157,436

4.83

Source: 2004-05 data , How India Earns, Spends and Saves. Rajesh Shukla, Sage Publication, 2010; 2013-14 income estimates using ICE 360o survey distribution and National Accounts (CSO) personal disposable income data. © People Research on India’s Consumer Economy (PRICE).

As has often been pointed out, MNREGA succeeded in improving the bargaining power of labour by setting a base rate that could be demanded. Creating and signalling pricing benchmarks seems to be one way to reduce income inequality because of the structure of occupation in India. Only 35% of urban India and 13% of rural India get a regular salary. Even within that group, most of them are informally employed, not covered by wage agreements or minimum wage norms stringently applied. About a quarter of urban India and 40% of rural India work as casual labour, and one out of every three working people in urban India is self-employed with no job security. Therefore, most Indians offer their services individually to an employer or customer, and hence have very low bargaining power.

 

The new proposal of the government to have a floor minimum monthly wage of Rs 15,000 for both formal and informal sectors could create, as MNREGA did, better bargaining power and more income growth for lower income workers. By ICE 360 estimates, the average household income of a family in the lowest quintile was way short of the proposed Rs 1,80,000 per person minimum wage. However, unlike MNREGA, this is a notional number and not a real on-the-ground alternative, so it is unclear how strong a bargaining lever this will be. The hope is that in the new India of rapidly decreasing power distance (i.e. the extent to which the weak unquestioningly accept the right of the powerful), it may well work.

 

What also makes the road to social equality steeper is that outsourcing and contract jobs are now hardwired into the profitability formula of most large Indian companies –functions that need a large army like sales and marketing, ‘feet on street’, certain labour intensive manufacturing jobs, administration, or customer service are outsourced. Companies want to target the collective wallet of the mass of low income consumers, but can only do so profitably by outsourcing to contractors who have what is euphemistically called a ‘low overhead business model’, even though poor working conditions and low wages are the reason for that. Companies also claim that they hire employees on contract because labour laws prevent laying off people in bad times. But what came into sharp focus with the Manesar incident at the Maruti factory is that everywhere else in the developed world a higher price is paid by companies to contract employees, while in India outsourcing is not just about flexibility but also about reducing costs and not paying for benefits or better working conditions. Having been on several boards in India, I now notice that we rarely audit, even in the most blue-chip board, treatment of our contractors’ workers.

 

The private enterprise market economy has helped reduce social inequality in certain ways. It has had its greatest impact in making a wide range of consumer goods and services accessible to lower middle income Indians, who otherwise would never have had a chance to use them – and at hitherto not experienced new high of quality at very low prices, mostly imported from China, such as apparel, accessories, torches, mobile phones, cosmetics, watches, electronics, confectionery, home care and so on. To those who see consumption as a bad thing, I would urge replacing the word with the phrase ‘getting a solution which makes the quality of life and living better.’

TABLE 3

Number of Households and Average Annual Household Income Relative Index

Type of rural

Number of Households (mn)

Annual household income index

Developed rural

29

166

Emerging rural

53

104

Underdeveloped rural

97

78

All Rural

179

100

Source: ICE 360o Survey (October 2014) from People Research on India’s Consumer Economy (PRICE).

Note: Income is estimated from ICE 360o Survey at 58.9% coverage of CSO’s personal disposable income.

Has the private formal sector helped in solving bigger problems, among others like affordable housing, water, education, transportation, power solutions, which improve quality of life and living, or even a full and relevant suite of financial services for low income people or labour saving or low cost productivity boosting gadgets? As of now, not really and there is little action visible in the future either. Low income consumers in India are collectively seen to offer large potential. But because they are poor, yet aware and smart, serving them profitably is hard. It needs innovation to get the price-performance point right and involves a high volume low margin game that requires absorbing losses for a longer time until the volumes build, resulting in profits.

 

Multinational corporations are not capable or inclined to play this game and neither are most large Indian companies. The truth is that they are only interested in serving the so-called middle class of India which, as defined by globally accepted wisdom, are actually India’s rich (top quintile income earners). There are some forward looking companies, but even they do not want to go beyond serving the richer 50% of Indian households (except a handful of FMCG companies). Most developed world MNCs and consulting firms follow the strategic logic that people have to cross an income hurdle set by suppliers (i.e. become middle class) in order to qualify to be consumers. They do not believe that it is companies that must cross a cost hurdle in order to qualify to serve low income consumers.

TABLE 4

Rural Disparity: Basic Amenities (% Households)

Type of rural

Toilet inside premises

Drinking water tap inside premises

Highest educated member below primary

LPG

2-wheeler

Life insurance

Developed rural

87

78

52

50

10

33

Emerging rural

53

45

36

33

25

30

Underdeveloped rural

31

16

11

17

29

16

Source: ICE 360o Survey (October 2014) from People Research on India’s Consumer Economy (PRICE).

The MSME sector, with an emphasis on the micro and the small, is willing to serve poorer consumers but does not have what it takes to invest ahead and reap benefits of scale later, though it is pretty good at innovating solutions and business models (a lot of the jugaad story comes from them). Financial inclusion for small business is low. Banks are happy to run up huge non-performing assets (NPAs) for large companies but are not willing to relax ‘prudence’ norms for smaller companies. They actually need more than loans; they need the kind of handholding that venture funds bring, but at this moment no one is interested.

That said, the private sector has done a reasonable job of providing slightly better education options to low income people who would otherwise have been stuck with government schools and colleges and further depressed their children’s ability to compete in the workplace. Government driven skilling and vocational training initiatives have not taken off, but neither have private initiatives of any relevant scale. Getting small education loans is difficult too, and bankers have often cited NPAs as a reason, applying the same percentage norms for this pool as they do for other pools.

 

If we were to segment India today from a social inequality perspective, we have a slice at the top (20 to 40% of households) that is reaping the benefits of well paid work opportunities and of the competitive market economy. It is growing in size and income and companies are struggling to keep pace with their demand (ever seen how crowded airports have become or had to wait in a queue for check out in a modern supermarket or a popular restaurant or been caught in traffic in Gurgaon or Bangalore?), and we have a slice of the bottom 20% that is a dissaver according to ICE 360o data but is benefiting from welfare and other inclusion initiatives.

There is however a slice in the middle, typically urban, that is excluded in many ways, and benefits from neither. One cannot get an LPG connection without proof of residence, and in Mumbai no chawl room owner will oblige. The Aadhaar card has the village home as proof of residence because otherwise one would have no rights there either. One may make a good living running a pavement shop, but one has no rights to be there, and no alternate space where one should be. One can buy Chinese goods, dress well, possess a phone but one does not have electricity and water at home. Living far from ones place of work, there is no alternative but to use the horrendous public transport in conjunction with autorickshaws for the last mile. When diesel prices go up, the stock markets celebrate, but it forces many to give up something in order to afford the autorickshaw. Yet, ones children need money to go for private tuition.

It is time we focused our economic and social debate away from the so-called middle class India (in reality, upper class India) and towards middle India, where the consequences of social inequality are the most severe, as witnessed in our cities. An included middle India will deliver better quality economic growth than a welfare dependent lowest quintile India. They have the aspiration and exposure; they need the opportunity and affordable supply of everything.

 

As stated earlier in the article, the cup is far from full, but it is filling slowly. Tables 3 and 4 show the emergence of developed rural, i.e. rural parts of districts that qualify for the label based on the relative status of development indicators. There are about 100 million rural households who are way below the rest of their countrymen. Even here though, 18% own a two-wheeler, 61% a phone and 33% a TV.

No discussion on reducing social inequality is complete without a discussion on what urbanization and digital access is doing. In India, urbanization is not an automatic quality of life improver. Yes, it is true that urban incomes are higher than rural incomes, but not all that much. On an average, urban households earn about 1.6 times that of rural; but the bottom two per capita income based population quintiles of urban India earns about 1.25 times that of their rural counterparts. It’s only when one gets to the top two richest quintiles of rural and urban India that the gap widens where the urban rich earn about 1.88 times that of their rural counterparts. As for living conditions, the Census informs us that a quarter of urban Indians live in slums and the phenomenon of poor quality census towns tells us that urbanization doesn’t mean less social inequality.

 

Digital access certainly reduces asymmetry of information and access and if we had anything approximating a silver bullet it would be digital access. Low income, less educated people love technology. It democratizes. But man does not live by bytes alone. To digitally transact, he must have money. To eat better, earn more and build a life that gets better with time, he must have skills and a proper job to give him a shot at the opportunity. And to sleep well at night he must have a roof over his head.

Going forward, we should obsess over the metric of access to infrastructure, amenities both digital and physical, and skills, as much as we obsess over the GDP growth rate. It is the former that will enable the latter in a nation of intrepid self-employed aspiration driven young people.

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