Stats show Sonia's inclusive growth was less than Vajpayee's

Two buzzphrases associated with the Congress-led UPA are “inclusive growth” and “aam aadmi” policies. As the government nears the end of its useful life after more than eight years in power, it is time to hold up the mirror to its own claims.

Has UPA ensured inclusive growth for the aam aadmi and aam aurat? And what exactly have welfarist schemes like the Mahatma Gandhi National Rural Employment Guarantee Act (NREGA, for short) ensured?

The short answer is: not much.

Exclude the beneficial effects of economic growth - which was largely the result of the general global surge and easy liquidity during George Bush’s presidency - and the conclusion seems to be that there was more inclusive growth before the UPA came to power. And schemes like NREGA, while beneficial, have had a mixed record. They have been positive for wages, but their net impact has been far less given the kind of money spent on them. There’s very little bang for the buck.

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But first, inclusive growth. Surjit Bhalla, writing in The Indian Express, comes to a counter-intuitive conclusion based on per capita consumption data during NDA rule (1999-2004), and the first five years of UPA rule (2004-09): Growth was more inclusive during the former period than in the latter even though the economy was in top gear during the UPA regime (average growth during NDA was 5.6 percent, versus 8.3 percent for UPA). Says Bhalla: “The (Sonia) Gandhi-led UPA delivered much less inclusion than the Vajpayee-led NDA.”

How could this happen?

[caption id=“attachment_377607” align=“alignleft” width=“380”]  Defenders argue that if NREGA has indeed raised wages, it is actually helping reduce poverty - and that’s good. Its detractors argue the opposite: high wages have caused inflation and affected the poor more than the rich. AFP[/caption]

Simple: while rising growth lifts all boats, inclusive growth is about how the overall pudding is shared. The only proof of the pudding is in the relative rate of rise of the poor vis–vis the better off.

The question on inclusive growth thus boils down to this: did the SCs, STs, Muslims and OBCs - assuming these are the widely accepted disadvantaged groups - see faster growth in consumption than the rest?

The answer is no, yes, no and no. The only group that actually did better than the others is the scheduled tribes group. The SCs, OBCs and Muslims saw less inclusive growth.

This is how Bhalla came to these conclusions. He calculated the relative distance between each disadvantaged group and the better-off sections (i.e. the non-SC/ST/OBC/Muslim group), and found that the NDA regime fared better.

Here are the numbers. During the NDA period (1999-2004), SC consumption grew by 0.7 percent against 1.1 percent during the UPA period. A triumph for UPA’s inclusionary policies? Not quite. For the others grew at 0.9 percent and 1.7 percent during the respective periods.

The gap between SCs and others was -0.2 percent during NDA and a whopping -0.6 percent during UPA - three times larger.

Ditto for OBCs - where the NDA gap was -0.1 percent and the UPA one -0.6 percent. In short, the gap between upper segments and OBCs was practically closed during the NDA period, but it opened up wide during UPA.

Ditto again for Muslims, where the gap was -0.5 percent and -0.8 percent. This means the benefits of UPA growth were even more unevenly shared when it came to Muslims, despite all the Sachar committee talk. This does not mean NDA rule was better for Muslims, just that it was worse during UPA’s hegemony.

The one exception to the rule has been scheduled tribes - which saw a negative gap of -0.3 percent with the “others” category during NDA, and a positive 0.3 percent during UPA. This means growth for tribals was more inclusive under UPA, since their consumption grew faster than the better off.

The overall score for UPA’s inclusive growth is thus 3 goals against and 1 for. It fails the test of inclusive growth despite having the tailwind of growth in its favour. (Read Bhalla’s insightful analysis here).

Next, NREGA.

The UPA’s flagship has been both criticised and eulogised, often for the same reasons. High wages have been blamed on NREGA, and also high inflation. Its defenders argue that if NREGA has indeed raised wages, it is actually helping reduce poverty - and that’s good. Its detractors argue the opposite: high wages have caused inflation and affected the poor more than the rich.

But the problem so far has been that no one has really analysed the impact of NREGA even from a macro perspective, leave alone studied it in detail at the local level.

Akhilesh Tilotia of Kotak Institutional Equities has some unique insights to share. Having taken a deep dive into data put out by the NREGA website, he has come to the conclusion that NREGA’s impact has been so small that it could not, on its own, have driven up agricultural or industrial wages.

For example, he points out that the average annual wages earned by NREGA households was Rs 5,271 in 2011-12, and the average number of NREGA households even during the lean season (when agriculture needs less labour) was just about 17-18 million every month - which is just 4.5-5 percent of the rural workforce. This is simply not enough to create a rural labour shortage where it really pushes up wages rates all around.

But wages do rise - but not in the way we assume. Tilotia’s conclusion is simple: “NREGA has been instrumental in getting contestability in the market, which has provided rural labour with better bargaining opportunities with its employers. However a rise in wages without a corresponding rise in productivity coupled with easily financeable capital goods (like tractors) has meant that there has been a significant change in the way farming is done in India (and this, by extension is true for industry also).”

Growing agricultural mechanisation means labour will not have the skillsets needed to find regular jobs in future, unless they are upskilled. Says Tilotia: “A labourer trained in using the plough requires very different skills to use a tractor. This manifests itself in the rising cost of skilled labour.”

Put another way, NREGA may not have caused labour shortages, but the shift to farm mechanisation will make NREGA workers unemployable unless they are given new skills.

Tilotia is also clear that NREGA is not creating permanent assets, since most work involves creating earthen roads and water conservations ponds - both of which get washed away every year. This ties in well with what the man in charge of NREGA - Rural Development Minister Jairam Ramesh - has been saying about the value of NREGA work.

The Indian Express has quoted Ramesh questioning the true value of NREGA work. “Kitna mazdoori aap karoge? Kitna gaddha khodoge? Kitne talaab ka punarnirman karoge? Kitna vriksharopan karoge? To ek seema bhi hoti hai na (How much work will you do? How many ditches will you dig? How many ponds will you rebuild? How much forestation will you do? There has to be a limit). We will have to see in one-two years whether 100 days (of NREGA work) will continue.”

Tilotia’s conclusion on NREGA is unusual. He says: “It might be better to look at NREGA as the cost of implementing the law of minimum wages.”

The big question is this: Did the taxpayer pay Rs 2,00,000 crore or thereabouts in NREGA expenses over the last seven years just to ensure minimum wages that were anyway due to rural workers?