A systematic diagnostic of the India economy by The World Bank

[suresh]

A Systematic Country Diagnostic (SCD) is an analytical exercise taken by The World Bank to identify the challenges and opportunities of countries. Recently The World Bank undertook a diagnostic of India and here are the highlights from the draft report.

The report says that for India is poised to tradition to a country with a higher level of prosperity. If India wants a global middle class that can fulfill aspirations such as safe and affordable housing, health care, education, clean water, sanitation facilities, reliable electricity, a safe environment, and discretionary income to spend on leisure pursuits it has to grow at a rate of 8% for the next 3 decades.

1) Growth and poverty alleviation

India has grown to be a middle-income country. The average per capita GDP which stood at US$440 in the early 2000’s stood at US$1,700 as of 2016.

This is also the period during which the share of Agriculture in the Indian GDP fell from 18% in the 90s to 11% in 2016. The share of services in the GDP rose from 40% to 52% during the same period.

The poverty growth rate has decelerated from 8.8 percent a year during 2003-08 to 7% since 2009.

2) Abundance of labor and scarcity of natural resources

The report makes a prescient comparison between the resource availability in China in India. China has a Per capita GDP of $6000 compared to $1700 of India. it has has twice as much as water per person compared to India. In spite of this the report found that India uses more water on land “equipped for irrigation” than any other country in the world.

The implication: for India to achieve a higher per capita GDP, it needs to use fixed resources much more productively. Indeed, simple arithmetic indicates that, to reach China’s per capita GDP, each unit of land in India would need to generate four times more GDP than it does now.

Since China cultivates a smaller area of land (150 million hectares) than India (166 million hectares) but produces more aggregate farm output, India needs to accelerate its productivity to catch up and then overtake the productivity of the other BRICS just to meet the same per capita output.And the water used for irrigation (688 bm3 ) in India would need to produce five times more agricultural GDP to achieve China’s water productivity in agriculture.

[suresh]

3) Female labor participation

India has a very low female labor participation rate and ranks a abysmal 120 among the 131 countries that are ranked.

In a puzzling development, the share of working-age women who work or actively seek work declined by more than 10 percentage points between 2005 and 2012, with a particularly pronounced decrease in rural areas (from 49 percent to 36 percent).

In urban areas, only one in five working-age women are in the labor force. At these levels, India’s female labor force participation rate (LFPR) is well below the expectation for its level of income and against that of its neighbors, such as Bangladesh, Sri Lanka, and Nepal. Raising that rate is a high priority because it promotes women’s empowerment and improved outcomes for children

4) Disparities in Gross State Domestic Product (GSDP)

[suresh]

4) High income inequality

5) Growth potential of cities

India’s cities will soon be home to 600 million people, nearly twice the population of the United States packed into a fraction of the area. This massive social and spatial transformation could create unprecedented development opportunities if city growth is proactively managed to realize the benefits of urban agglomeration.

Post-1991, not only have cities propelled growth, stronger links between cities and the rural economy have meant that urban growth has displaced rural as the largest contributor to faster poverty reduction in rural India.63 But, India’s cities are performing below their potential.

[suresh]

6) Severe air pollution is a serious concern

7) Volatile agriculture growth and low productivity

[suresh]

8) Scarcity of Jobs

Less than a fifth of Indians have a salaried Job. To make things worse the share of salaried employees in the total workforce has rises only by a meager 4% since the 2000s.

Agriculture still employs nearly half the workforce .India faces a jobs deficit, with job growth primarily in sectors such as construction that offer irregular employment.

Between 1991 and 2007 but has since declined to about half that level. Between 2005 and 2012, the economy added roughly 3 million jobs a year, far too few for an economy with close to 13 million people entering the working age population every year. In a young, more educated, and increasingly aspirational society, this jobs deficit has the potential to turn the much-awaited demographic dividend into a demographic curse.

9) The growth potential of Indian firms

The report found About two thirds of manufacturing jobs are in firms that have less than 6 workers. It also found that a high percentage of these forms have just 1 employees as compared that of 45 workers in The United States. It also found that the average number of employees of a 40 year old firms is the same as that of a 5 year old firm. In the US employment grows by over 8 time while it doubles in Mexico over the same period.

Addressing the misallocation of labor and capital between Indian firms to U.S. efficiency
levels could raise India’s productivity by 40–60 percent.

[suresh]

10) Skill premium

The high wage growth in the top 10 percent of jobs reflects the increasing scarcity of highly skilled labor in the service sector. Over the past decade, high growth rates of sectors such as IT have depleted talent pools, producing labor shortages in high-skilled jobs and driving up salaries. Requirements for a more, and differently, skilled workforce are set to grow as work is disrupted by rapid technological change.

In spite of efforts by the govt to increase the skill levels less 3% of the workforce undergoes formal skills improvement training while a meager 9% of the workforce improving skills though informal apprenticeships and on the-job training.

11) Public sector premium

[TraderVenk]

Great article @suresh

However, we all have seen several such articles always concluding that India has great potential. But India has never for centuries and millennia lived upto its potential. It gives me sadness.
The most potential land is Africa abundant land, natural resources, moderate climate (apart from the two deserts). But Africa is consumed by civil wars, decease and poverty.
Most difficult land are some of the Scandinavian countries and Japan which is a group of secluded islands devastated by earthquakes and volcanoes (there are 110 active volcanoes). But look at those countries, the way they have developed. Britain was a secluded very cold island too before growing into a global empire.
So it all depends upon the people who inhabit the land. Potential is not in the statistics, it is in the minds of the people. It is going to take long time to reach middle income status I doubt we will ever cross the “middle income trap” (an economic terms which states countries need to increase productivity and innovate to get beyond middle income levels)

[TIMEFRAME]

Any countries economic strength & prosperity depends on the mindset of the people and also the leader they follow , During the world war & after people of that generation of India followed a wrong leader , who’s thoughts are ’ unproductive ‘’( as stated by former Indian prime minister & Economist) and divisive & appeasement in nature. otherwise India would have been in a top world order position . Winston Churchill was a world war-II hero for British , but after the war , British dumped him , because he was a "Racist " & Imperial colonist .
But India being 7th largest country in the world & having No 1 largest arable land holder , in coming future , prospects are not that weak but it will be a good one & lets work for that , hope for that