The Hindu Business Line : Budget wishlist: For growth with development<br> Greater focus needs to be given to agriculture and training

Increasing labour participation, ensuring equal distribution of wealth and firming up infrastructure projects are all aspects of development that determine growth.

While India's growth is reaching stratospheric levels, one hopes that tomorrow's Budget will focus on the country's developmental aspects.

There is a difference between growth and development. While growth is a univariate concept measured as per capita GDP, development is a multivariate concept and refers to the achievement of a quality of life for the average citizen or a region.

In the words of Prof Amartya Sen, development is synonymous with freedom — freedom from poverty, illiteracy, malnutrition, and the freedom to participate in political processes and economic exchange. A country with good prospects for growth but which neglects development cannot grow in the long run. Improved standards of living cannot be ensured through increased growth rate alone.

Wealth distribution

It is the diffusion of increased wealth and income that contributes to the improvement in the quality of living. For example during the 1960s and the 1970s, Brazil witnessed higher growth but as distribution of income was neglected, policymakers eventually had to follow populist policies that put a halt to reforms.

Pro-poor policies

The present United Progressive Alliance (UPA) Government, under the leadership of an economist Prime Minister, was quick to pick up the importance of development. Growth with a human face, as it is better known, talks about growth that is pro-poor. According to a report by Asian Development Bank, growth is said to be pro-poor "when it is labour absorbing and accompanied by policies and programmes that mitigate inequalities and facilitate income and employment generation for the poor, particularly women and other traditionally excluded groups".

In India programmes such as the National Rural Employment Guarantee (NREG) scheme ensuring a minimum of 100 days employment to a member from a poor household, is one such activity. The idea is to redistribute income towards the socially deprived group.

Unfortunately, the yield from such projects is often less than optimum.

For the NREG project, the Centre wants to employ unskilled labour in development works such as building rural infrastructure. Noble idea. Besides generating income, the project hopes to build rural infrastructure, which may also curb fluctuation in agricultural output. However, often public entities start project works but these are seldom completed. This could happen in the present context.

Lack of funds from cash-strapped States could affect work on the project. Such unproductive use of resources may lead to an increase in the borrowing cost of capital and eventually to inflation. What the government needs to ensure, at this point, is proper implementation of any agenda it adopts in the name of reform.

Focus on agriculture

A great part of the concern regarding distribution of income can be addressed by focusing on agriculture. The agricultural sector, which supports around 70 per cent of the population, gets a paltry 24 per cent of the total national income. Volatility in agricultural output during recent years has increased due to inadequate infrastructure in the farm sector. Public investment in irrigation and drainage, storage, soil conservation, water management systems and rural roads is falling mainly because the State government does not have adequate funds.

Volatile agricultural output contributes to rural poverty, affecting the distribution of income. It also triggers migration from the rural to urban sector. Although we are euphoric about the growth of India's services sector (contributing around 66 per cent to GDP), such migration of unskilled or semi-skilled labourers in the urban informal sector, who are not going to find meaningful employment in the service sector, is going to aggravate distribution of income.

One cannot fully blame the ongoing reform process for this. Reforms encourage more active market participation and hence do not guarantee equal returns to all.

Skilled labourers, being few in number, will naturally see an increase in returns, whereas unskilled labourers are going to be left out of the wealth circle unless they acquire the necessary skills.

Cultivating skill

Since the Indian economy is predominantly service driven, one way to balance the equation would be to train the workers through vocational education.

The experience of some South-East Asian economies shows that one of the reasons these economies faired well on the distributional aspect of income is because the governments laid emphasis on vocational education.

Growth in these economies is primarily driven by increasing labour force participation.

India can learn from this; a little training will go a long way in employing people in manufacturing and service-oriented activities. However, training without developing necessary infrastructure will to do little good. Industries and multinationals will not be willing to invest in the absence of good roads, railway networks (physical infrastructure) or proper legal systems and property right regimes (social infrastructure).

So infrastructure, whether it is physical or social has to be a key component for the existing reform process. Only then we can hope to see some trickle down effect of growth.

(The author is Assistant Professor, Institute for Financial Management and Research, Chennai. Feedback can be sent to: nil@ifmr.ac.in)

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