What happened to India’s economic miracle?

Patience, wrote Ambrose Bierce in The Devil’s Dictionary, is a “minor form of despair, disguised as a virtue”. The economists Amartya Sen and Jean Drèze quote Bierce in their new book on the Indian economy, An Uncertain Glory:

India has seen a lot of this alleged virtue. There has been an extraordinary tolerance of inequalities, stratification and caste divisions . . . There has been the silent resignation of Indian women. There has been patient endurance of the lack of accountability and the proliferation of corruption. And – of course – there has been adaptive submission by the underdogs of society to continuing misery, exploitation and indignity.

An Uncertain Glory is a major work by two of the world’s most perceptive and intelligent India-watchers writing today. In it, they examine the uncertain future of the country’s economy at a moment when initial optimism about the spectacular rise of “New India” is giving way to more a nuanced understanding of the difficulties that still lie ahead.

Sen is among the greatest minds of our time. A winner of the Nobel Prize in Economics, a former master of Trinity College, Cambridge, and now the Thomas W Lamont University Professor at Harvard, he is regarded with such reverence in academia that he has probably been awarded more honorary degrees than any other person alive: there were about 100 on his CV at the last count.

His co-writer, Drèze, though lesser known in this country, is also a celebrated development economist. Of Belgian origin, he became an Indian after decades of living in the country and has taught at both the London and Delhi Schools of Economics. He is regarded as one of the most knowledgeable writers on famine, child health and poverty, on which subjects he advised the Indian prime minister, Manmohan Singh, before resigning in despair when he saw that all his suggestions were being ignored. This is the third book Sen and Drèze have co-written and is by far the most important and chilling.

Their thesis is simple: India’s failure to equal the success of China’s hyper-development is due in large part to the failure of the state to provide “essential public services – a failing that depresses living standards and is a persistent drag on growth”:

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Inequality is high in both countries, but China has done far more than India to raise life expectancy, expand general education and secure health care for its people. India has elite schools of varying degrees of excellence for the privileged, but among all Indians seven or older, nearly one in every five males and one in every three females are illiterate . . . India’s health-care system is an unregulated mess. The poor have to rely on low-quality – and sometimes exploitative – private medical care, because there isn’t enough decent public care. While China devotes 2.7 per cent of its gross domestic product to government spending on health care, India allots 1.2 per cent.

An Uncertain Glory comes at a time when observers worldwide have begun to recalibrate their expectations of India’s future. The economic boom, which began in 1991 and took off in the late 1990s, provoked a miniboom of New India books, some far better than others. First off the blocks was Gurcharan Das, a former CEO of Procter & Gamble, whose India Unbound in 2001 became an international bestseller and made a convincing case that the future was India’s: all that was needed was further deregulation and a stripping away of the economic coils – the “licence Raj” – that were tethering the Indian elephant to the ground and the country’s future as an economic superpower was assured.

The statistics were impressive: India was reportedly training a million engineering graduates a year, against 100,000 each in the US and Europe, and the country was said to stand third in technical and scientific capacity – behind the US and Japan but well ahead of China. Between 1991 and 2001, as the Indian economy trebled in size, the country’s IT sector alone earned almost $50bn a year, mostly in export revenues. Part of those profits were spent buying prestigious foreign businesses – for example, the muchtrumpeted acquisition of Jaguar and Land Rover by Tata Motors.

Some of this continues today. Average incomes were projected to continue doubling every ten years. The number of mobile phone users has jumped from three million in 2000 to 100 million in 2005 and 929 million in 2012. The number of television channels rose from one in 1991 to 150 in 2007 and more than 500 today. In 2006, 23 Indians appeared on the Forbes list of the world’s billionaires; this year, the figure had more than doubled to 55.

In the wake of this amazing growth, there followed two more books on the subject from Das and a series of notable New India memoirs and studies from authors such as Patrick French, Anand Giridharadas and Akash Kapur. One of the best was a remarkable look at India’s economic prospects entitled In Spite of the Gods by Edward Luce, the articulate and wonderfully literate former New Delhi correspondent of the Financial Times. “Economic futurologists at the CIA, in the investment banks, at western universities and in the business press all agree that China and India will at some stage in the 21st century come to dominate the global economy,” he wrote, almost a decade ago. “In Washington’s various intelligence estimates, China will overtake the United States between 2030 and 2040 and India will overtake the US by roughly 2050, as measured in dollar terms.” According to Luce, opinion was only really divided “on the speed with which the future will materialise”: “Add or subtract a couple of points from India’s annual growth rates and it could overtake the United States as soon as 2040 or as late as 2090.”

As the economic climate has become chillier in the past five years, however, there has been a major revision of expectations and the books emerging more recently have begun to reflect that. In 2009, Dipankar Gupta published The Caged Phoenix: Can India Fly? The book was the first to look closely at the structural limits to the Indian growth story. Gupta wrote that despite the promises of independence and liberalisation, India continued to remain caged in backwardness. Why was the growth story not translating into development? Why was the much-vaunted human resource capital not taking India rapidly towards excellence? How could deprivation and prosperity live so easily side by side?

As the economy has continued to slow since 2010, the mood has grown steadily more pessimistic. India’s growth rate has now sunk from 9.3 per cent in the first quarter of 2010 to about 5 per cent a year, slipping from the world’s second-fastest-growing economy to tenth place in this index. Other economic indicators are equally alarming: public borrowing has quadrupled in the past five years, the national deficit is growing, inflation is high and the value of the rupee has plummeted by 20 per cent in the course of the summer. In a few years, India has gone from what seemed to be imminent world economic domination – the maharaja of the Brics – to what the emerging market analyst Ruchir Sharma, the author of last year’s bestseller Breakout Nations, has called merely a “50-50 bet”.

The slowing of India’s economy, argued Sharma, was partly due to a wider global malaise that was outside its control: almost all of the main emerging markets were growing at around 7 per cent between 2003 and 2008; only three contracted. India did well to have an average growth rate of 8.9 per cent during these boom years but it was hardly a surprise. Thanks to the global recession, growth rates are down across the board. This year, China is expected to grow 7.7 per cent and Brazil less than 2.8 per cent. India still has a good chance of success, wrote Sharma, but no better a chance than that of many other emerging economies.

Into this contested field, Sen and Drèze walk with the steady tread of umpires emerging on to a pitch after a shout of “LBW!” Their book is not journalistic like Giridharadas’s India Calling, nor anecdotal like French’s India, nor a literary memoir like Kapur’s sophisticated look at a changing South India in India Becoming. It does not offer a bold, new way of looking at poverty like Abhijit V Banerjee’s and Esther Duflo’s remarkable Poor Economics. What it does, with a rare clarity, is provide a fabulously comprehensible deployment of complex data and lay out the factual basis of where India stands now and what it needs to do if it is to reach its full potential. It shows how far India has moved on from the time of the Raj, when average life expectancy in India, in 1931, was only 27. Today, it’s 66. The female literacy rate in India has likewise gone up from 9 per cent in 1951 to 65 per cent today.

On the other hand, Sen and Drèze show that “a quarter of the Indian population . . . remain effectively illiterate”. Physical infrastructure is badly neglected: “The general state of public services in India remains absolutely dismal, and the country’s health and education systems in particular have been severely messed up.” Even today, a third of Indians do not have electricity, compared to 1 per cent in China. “Half of Indian homes remain without toilets, forcing half of all Indians to practise open defecation.” Wages in manufacturing in China have grown by 12 per cent since 2000, compared with 2.5 per cent in India, and 90 per cent of Indians still work in what is referred to as “the informal sector”. While India has climbed rapidly up the ladder of economic growth rates, it has fallen behind Nepal and Bangladesh in the scale of social indicators. Brazil, with much slower economic growth, has a far better record of poverty reduction. India remains an oddity among the Bric countries: “India’s per capita GDP is less than half of China’s, one third of Brazil’s and one fourth of Russia’s.”

This is the most shocking part of the book. Every year, more children die in India than anywhere else in the world: 1.7 million children under the age of five, largely from easily preventable illnesses such as diarrhoea. Of those who do survive until the age of five, 48 per cent are stunted as a result of a lack of nutrients: child malnutrition in India is higher than in Eritrea.

In this respect, write Sen and Drèze, “South Asia fares distinctly worse than sub-Saharan Africa. More than 40 per cent of South Asian children (and a slightly higher proportion of Indian children) are underweight in terms of WHO norms, compared with 25 per cent in sub-Saharan Africa.”

Likewise, the most basic health measure that any government can provide for its people is to immunise very young children but, in India, only 43.5 per cent of children are completely immunised, compared to 73.1 per cent in Bangladesh: “India is falling behind every other South Asian country, with the exception of Pakistan, in terms of social indicators.” For instance, life expectancy was the same in India and in Bangladesh in 1990 but today it is “four years higher in Bangladesh than India, 69 and 65 respectively. Similarly, child mortality, a tragic indicator, was estimated to be about 20 per cent higher in Bangladesh than India in 1990, but has fallen rapidly in Bangladesh to now being 25 per cent lower than in India by 2011.”

In sub-Saharan Africa, only eight out of 25 countries have immunisation figures as bad as India’s. India’s adult literacy is not quite the lowest in the world but, at 65 per cent, it is the same as in Malawi and Sudan. Adult literacy in China, by comparison, is 91 per cent. So bad is the situation that Sen and Drèze go as far as stating that Indian democracy is “seriously compromised by the extent and form of social inequality”.

Improving education lies at the heart of solving the problem. India’s underperformance, they write, can be traced to a failure to learn from the examples of so-called Asian economic development, in which rapid expansion of human capability is both a goal in itself and an integral element in achieving rapid growth. Japan pioneered that approach, starting after the Meiji restoration in 1868, when it resolved to achieve a fully literate society within a few decades. As Kido Takayoshi, one of the leaders of that reform, explained: “Our people are no different from the Americans or Europeans of today; it is all a matter of education or lack of education.”

Indians hugely value this, too, but effective public education remains out of the reach of millions. The private sector is often excellent but state schools – all that is available for most ordinary Indians – remain abysmal.

In a recent article, Aravind Adiga wrote that “the greatest danger to India’s future” was not Pakistan “but overconfidence”. He is right. As Sen and Drèze point out at the end of their magnificent study, democratic politics does offer opportunities for the most deprived Indians to demand “a rapid and definitive removal of their extraordinary deprivation”. However, as well as political organisation, what is also vital is “a clear-headed understanding of the extensive reach and peculiar nature of deprivation and inequality in India. This is surely one of the principal challenges facing India today.”

By providing the raw data on that poverty and by presenting it in such a palatable format, Sen and Drèze have made a major contribution to finding a way towards solving the desperate situation faced by India’s many millions of underdogs.

William Dalrymple’s “Return of a King: the Battle for Afghanistan” is published by Bloomsbury (£25)