Wednesday, February 6, 2013

“We should aspire & work for prosperity””

In this exclusive interaction with virat bahri of B&E, Dr. Isher Judge Ahluwalia discusses her views on the potential & challenges of the Indian economy

Dr. Isher Judge Ahluwalia plays a phenomenal number of roles apart from her position as Chairperson, ICRIER, which highlight her remarkable contribution to resolving critical issues of Indian economy & policy. Besides being Member, National Manufacturing Competitiveness Council, Government of India & Chairperson of the High Powered Expert Committee on Urban Infrastructure by the Ministry of Urban Development, she is on the boards of a number of research institutes in India & abroad; and a recipient of the Padma Bhushan in 2009 for her achievements in education & literature. In the second part of this two-part interview series, she elaborates on issues related to poverty alleviation and urbanisation:

B&E: Analysts seem particularly obsessed with GDP growth & Sensex. What other indicators can help ascertain our economic health?
IJA: These indicators are ultimately only signaling devices. Along with GDP growth, we should be looking at employment growth. Besides, we should look at social indicators like life expectancy, Infant Mortality Rate, Maternal Mortality Rate, literacy & immunisation. These are determined by long term factors. When you look at life expectancy, you look at it every ten years; when you look at production in the economy, there is focus on GDP. So nothing by itself will tell you the total story. But I am not advocating happiness index because I know that it can not be measured. I believe we should place more importance on employment. If we do that, we will understand how regressive our policies have been and how they stand in the way of providing employment. Related to that is education and providing the right skills. We keep talking about the demographic dividend. But it could become a demographic disaster if we don’t endow our youth with the skills that the market needs.

B&E: Do you believe in the trickle down effect to bring down poverty?
IJA: I prefer the inclusive growth approach. In the late 1970s, the debate was about growth vs distribution. It was assumed that because you needed to redistribute, you accept a certain reduction in growth rate. So we instituted policies presumably directed at redistribution but actually created a situation in which virtually no growth took place. By the end of the 1970s we could figure out that the policies made no dent on poverty and that the percentage of people below the official poverty line remained around 50% through the 60s and 70s. Growth was at the infamous Hindu rate of growth of 3.5%. Distribution did not improve very much. In the 1980s we realized that we were wrong not to focus on productivity at all. If you only talk about distribution and curb all channels that generate productivity and growth, there will be no growth and no improvement in standards of living. The VIth Plan placed emphasis on productivity for the first time. In the 80s, we were able, through hesitant experiments here and there with domestic deregulation – making the process of licensing easier, decontrolling the price of cement, simplifying the trade policy regime – in facilitating the market to work. It was still a closed economy framework. We did not open up to foreign trade and investment. We did not reform the public sector. Even so, we were able to raise the GDP growth rate to 5.5% per annum. We were able to reduce the percentage of people below the defined poverty line to 33% by the end of the 1980s. This proves that you need a sustainable higher growth rate to make a dent on poverty.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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