Political India: Engaging America

A recent report by the Organisation for Economic Cooperation and Development has suggested that while India’s growth record in recent years was unprecedented, a focus on labour markets and agricultural growth could spur the country to a better poverty alleviation record.

The report, “Perspectives on Global Development in 2012: Social Cohesion in Shifting World” noted that China stands out for its remarkable rise in its private and public savings rate, from 33.3 and 5.7 per cent of GDP in 1992 respectively, to 44.7 and 6.2 per cent in 2008.

However the report also said “China is not alone,” in particular adding that “India possesses high and rising levels of national savings, which include rapidly growing corporate savings.”

Suggesting that these funds could be channelled into areas such as poverty alleviation the OECD report added, “Higher savings endow converging countries with a greater capacity to confront the major challenges of investment in human and physical infrastructure.”

The study delved deep not only into the economic dimensions of development but social aspects too. For example, touching upon the relevance of India’s caste system on development outcomes, the study quoted samples from several Indian rural villages showing that “Low-caste households living in low-caste dominated villages have a higher income than those in villages dominated by a high caste.”

The OECD also praised India’s overall development model and drew attention to the structural factors underlying its recent decades of rapid economic growth. In its report the OECD said, “With sustained high growth over several decades the depth of structural change in large Asian economies such as India is remarkable and without historical precedent.”

Citing the rapid rise in labour productivity as a key factor driving this growth the study noted that in the case of India structural transformation in labour markets had made the services sector a key source of employment unlike China, where manufacturing appeared to dominate.

While this labour reallocation in India had resulted in an average annual productivity improvement of 0.9 per cent, the OECD said, “Labour has also moved from formal to informal employment, which offsets the positive impact on productivity.”

Further in comparative terms China appeared to have better realised the link between poverty alleviation and agricultural growth, while India’s modest achievements in poverty reduction may be associated with the relatively poor performance of its agricultural sector, the report noted.