The India success story is an urban phenomenon and hence a myth - Ranjit Shankar, Great Lakes Institute of Management, Class of 2009

India has made rapid strides since the economic reforms of 1991 which has resulted in the economy opening up to foreign investment and has created a burgeoning middle class of 300 million people which is expanding at a rapid rate. At the same time, there are certain aspects that haven’t changed at all from the post independence era and an estimated 600 million people still live on 2 dollars a day or less. This clearly shows that India is a land of contrasts and it is important to examine both sides of the coin to get a balanced view of the topic proposed above.

For

India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Services are a major contributor to economic growth, accounting for more than half of India's output with less than one third of its labor force. About three-fifths of the work force is in agriculture but they make up less than a third of GDP and are characterized by low income levels, poor quality of life and a weak base of human development. Nearly one-third of the national income comes from villages, but there is a significant rural-urban divide.

The agricultural sector has been growing at less than half the pace of the other sectors. During the Seventh Plan, agriculture and allied sectors grew at a rate of 3.4 per cent, while the national economy grew at 6 per cent. In 1997-98, there was a negative growth of 2 per cent in the agricultural sector, although the national economy grew by 5 per cent.

Despite the advancements made, India remains one of the poorest countries in the world. Unemployment rate is 7.2% (2007 estimate). 85.7% of the population was living on less than $2.50 (PPP) a day as recently as in 2005, compared with 80.5% for Sub-Saharan Africa. Even though the Green Revolution brought an end to famines in India, half of Indian children are underweight - one of the highest rates in the world and nearly double the rate of Sub-Saharan Africa. One measure of the magnitude of poverty is the proportion of income spent on food — there is, as a rule, a direct correlation. According to the National Sample Survey results of 2001, 56 per cent of expenditure in rural areas and 44 per cent in urban areas was food related, which is quite high. In rupee terms, the all-India average monthly per capita consumer expenditure (MPCE) was Rs 495 in rural areas and Rs 914 in urban ones. The yearly rise in MPCE is also low in rural areas: Rs 9 from the previous year. That is a rise of just two per cent a year. The urban rise is seven per cent of Rs 60, a simple, if powerful, explanation for why the rural poor flock to urban India, even if the conditions of living are bad.

A fifth of rural households live precariously; while less than one per cent don't get enough to eat during some months of a year, another 19 per cent get enough to eat only during the busy months. When it's lean season, they join the "chronically hungry" category. The introduction of the policy of liberalization has affected non-farm employment in rural areas. In 1997-98, the annual increase in non-farm employment in rural areas was 4.06 per cent. In 1983-84 it was 3.28 per cent. During 1999-2000 it came down to 2.14 per cent. The consequence has been a very slow reduction in rural poverty. In 1993-94 it was 39.36 per cent, in 1999-2000 the figure came down marginally to 36.35 per cent. According to one estimate, the average income of an urban dweller is four times higher than that of a rural dweller.

Rural deprivation becomes crystal clear if we look at the data on rural India's contribution to GDP and what they areas get back. Rural contribution is 27 per cent but the return is 5 per cent. In 1999-2000 the per capita per month consumption expenditure in rural areas was Rs.486.08 while in the case of urban areas it was Rs.854.96, according to the Human Development Report 2002. Rural adult illiteracy is a matter of alarming concern. In 2001, the urban literacy rate was 80.06 per cent but the rural literacy rate was 59.21 per cent. Thus, the difference in rural - urban areas in terms of percentage points is 20.85. Data released by the Planning Commission shows that among illiterate people aged 60 years and above, 78.2 per cent live in rural areas. In urban areas the figure is 48.2 per cent. Of the illiterate people who are 15 years and above but not beyond 60 years, rural areas have 55.8 per cent and the urban areas 25.1 per cent.

The Indian state has the primary responsibility to supply safe drinking water to all people in the country irrespective of their place of habitat. But the situation is far from desirable. The National Sample Survey (NSS) data (1998, 5th round) shows that while 70.1 per cent of urban dwellers have access to piped water; in the case of the rural people it is as low as 18.7 per cent. Public health facilities are so inadequate in rural areas that the death rate per 1,000 is 9.6 per cent while in urban areas it is 6 per cent. In rural areas the infant mortality rate is 77 per 1,000 but in urban areas it is as low as 45. The same scenario emerges if we look at the data on households with access to toilets tabulated in the National Human Development Report, 2002, prepared by the Planning Commission. In 1991, such facilities were enjoyed by only 9.48 per cent of rural households; in the case of urban households it was 63.85 per cent. In India, according to the data tabulated in HDR 2002, only 30.54 per cent of rural households had electricity; in the case of urban areas it was higher: 75.78 per cent. The value for rural areas is 0.340, in the case of urban areas it is as high as 0.511.

Thus given the facts stated above, it would perhaps not be too divorced from the truth to state that the India success story is largely restricted to the urban areas and there is a need for more inclusive growth in the country.

Against

However, having brought notice to the above facts, it would also be fair to assess the developments that have taken place in the rural context. As stated at the outset, the Indian growth story began in 1991, when current Prime Minister Manmohan Singh (who was Finance Minister then) came up with a path-breaking budget and policies that sowed the seeds of growth that all of us are witnessing today. GDP at market prices has increased from US$ 20 billion in 1950-51 to US$ 912 billion in 2006-07 and is expected to cross a trillion dollars in the current year. In terms of purchasing power parity (PPP), India’s GDP at US$ 4 trillion in 2006-07 accounted for 6.3 per cent of global GDP. Average annual economic growth, which had been constant and tardy at 3.5 per cent during the first thirty years of Independence, increased to 5.7 per cent during the 1990s and, since 2003-04, the average rate has increased further to 8.6 per cent. 2006-07, in particular, was a splendid year with the GDP growing at 9.4 per cent.

This growth has not been jobless growth. During 1999-2000 to 2004-05, India added to its workforce about 12 million people each year. During this period, the rate of growth of employment was 2.9 per cent per year. India, today, is among the fastest growing economies of the world next only to China. The proportion of people living below the poverty line in India has declined from 51.3 per cent in 1977-78 to about 22 per cent in 2004-05. The Indian Govt has achieved an enrollment ratio of 95 per cent in primary education. Of the children in school, 73 per cent are now reaching Grade V.

A massive road building program is boosting connectivity and lowering transaction costs. The positive impact of flexible markets is already apparent in growing s to connect farmers directly with retail consumers. Deregulation, the building of rural roads and the growth of sophisticated commodity markets is already transforming Indian agriculture. The Pradhan Mantri Grameen Sadak Yojana was launched in December 2000 as a project aimed at improving rural roads and facilitating better connectivity for 160000 unconnected rural habitations with populations of 500 persons or more by the end of the Tenth period at an estimated cost of US$13.33 billion. The program aims at upgrading 500,000 km of rural roads.

Private firms are increasingly supplying more inputs and buying more output directly from the farmer, cutting out the middlemen. The ITC E-choupal initiative is a case in point. Financial institutions are becoming far more active in funding agriculture especially under new arrangements such as contract farming and futures markets. The recently started re-organization of farm production with better technology, more specialization, and greater quality control and facilitates the growth of agro-industry and better supply chains. Some of the schemes adopted by the current govt include Sarva Shiksha Abhiyan (education for all) as well as allocating funds for irrigation projects. It has increased spending on rural electrification and health and has also provided subsidies worth tens of thousands of crores for fertilizers, electricity and rural credit. In 2004, the UPA government launched Bharat Nirman, an ambitious infrastructure program for rural areas. It aims to provide connectivity by having a pucca road, electricity, telecom and drinking water in every village of over 1,000 people.

One can therefore hope that with the effective implementation of all these projects and given a reasonable time frame, there will definitely be an impact on rural prosperity which will make it impossible for one to view urban success in isolation.