economic growth is about fulfilling the human needs for
goods and services, eliminating want, preventing avoidable
suffering and promoting happiness. Does growth in services
always meet these criteria? Let us look at some facts reported
by Reserve Bank of India.
1997 - 98, construction accounted for 4.7% of GDP at about
Rs 49000 crore at 93-94 prices. But during the same year,
real estate accounted for Rs 54000 crore, and 5.15% of GDP!
The profits in real estate actually exceeded the new construction!
Does this indicate the strength of our economy, or a glaring
weakness? Short-sighted land policies, poor infrastructure,
appalling urban planning and artificial scarcity of residential
land have all led to skyrocketing of real estate prices.
And we add the resultant profits as a net gain to the services
sector and economy! Similarly high real interest rates have
enhanced banks' profits. Many questionable investors get
bank credit with consummate ease, but genuine small and
medium manufacturing enterprises valiantly struggling in
a hostile global and domestic environment, are starved of
capital to expand or diversify, and working capital to maintain
satisfactory levels of production. Insurance in 1997 - 98
was still a state monopoly, and high premiums, poor coverage
and shoddy service are common complaints. And yet, banking
and insurance accounted for 6.27% of the GDP in 1997 - 98!
is now widely acknowledged that the single biggest failure
of India is in the field of governance. Our bureaucracy
is too big and unproductive, and is often a stumbling block
to progress, let alone providing services and adding value
to the nation's labours. And yet, high wages in government
despite the propensity for rent-seeking and harassment ensure
a share of 5.59% to public administration and defence. National
defence is certainly vital, and its cost at under 3% of
GDP is actually low by global standards. But public administration
in other areas has been hardly conducive to our happiness,
or fulfils our needs.
saddest part is that other community and social services,
including education and health care - account for only 6.26
percent of GDP. While both are critical, their share is
hopelessly inadequate. And the nature of services is skewed,
and quality is poor. In health and education India actually
has great comparative advantage. We enjoy a somewhat privileged
position among developing countries in both sectors, although
our human development indicators are low. We have impressive
technical capabilities and manpower availability compared
to most poor countries. We have over half a million trained
allopathic physicians. There are millions of trained technologists
in various disciplines. In fact, the software boom of recent
years has largely been a biproduct of our investment in
education, and the society's enormous respect for higher
paradox is, in both these fields of education and health
there is evidence of comparative decline and underperformance.
Our universities are churning out millions of graduates
most of whom have no problem-solving skills, and cannot
contribute to production of goods and services or value
addition. If only we take the trouble to improve the quality
of education, we can produce real wealth creators. And we
can attract hundreds of thousands of students from all over
the world hungry for higher education, and earn valuable
only our health care systems improve, we can prevent much
of morbidity and mortality, contain population growth, and
make our people far more productive. Our hospital care is
of high quality and low cost. Heart surgery in India costs
only 5 - 10% of the charges in developed countries at current
exchange value, and our safety and success record is comparable.
But our management of medical emergencies, nursing and standards
of hygiene are unacceptable. A little bit of additional
effort and effective marketing will see millions of patients
flocking to India for quality medical care.
does all this mean? First, a significant part of our service
economy is not a strength, but a glaring weakness. Second,
there cannot be real economic growth or poverty reduction
without growth in industry and agriculture. Third, real
growth will not accelerate unless education, health care
and infrastructure improve significantly. Finally, we have
the resources and capabilities for such improvements. But
our skewed priorities and poor governance have become millstones
weighing us down.
can achieve rates of growth comparable to China, and can
become the next great success story. But it will not happen
without clarity and emphasis on production of goods and
services of real value and quality.