Rising GDP and Falling Wages: The Hoax of Rapid Growth


The False Claims of Economic Growth 

 

The GDP estimates for the April 2022 - June 2022 quarter have given immense joy to the ruling elites. They were in celebration, as the finance minister (FM) told a gathering of the United States Chamber of Commerce: “Today fifth; soon third.” According to the International Monetary Fund (IMF), India has overtaken Britain to become the fifth largest economy in the world, and according to Morgan Stanley, it is going to don the cap as the fastest growing Asian economy by next year.

 

But the data released by Ministry of Statistics & Programme Implementation brought to the fore that despite much clamour regarding GDP growth, neither per capita income, nor employment rate is rising. India's per capita annual income continues to hover around Rs. 91,481/- in 2021-22, which is below the pre-pandemic level. The unemployment rate continues to remain high at 8% in August 2022, while the employment rate or worker population ratio among youth (aged 15-24 years) has dipped to 10.4% in 2022 from 20.9% in 2019. 

 

Does the rise in GDP indicate growth? Economists all over the world have repeatedly pointed out that rise in GDP is NOT an indicator of growth. All the indices of Human Development have fallen in India in the recent past, and India's global rankings have gone down from 130 in 2020 to 132 in 2021 in the Human Development report of 2021-22. The National Crime Records Bureau (NCRB) has noted a deplorable situation:  economic distress ranks high as a reason for suicide in 2021 among the self-employed, unemployed, farmers and farm labourers; taken together with the number of daily earners who took their own lives, 52.85 % of suicides belong to this category. 

 

The Fall in Real Wages

 

The conundrum of rise in GDP alongside falling wages is a universal phenomenon throughout the globe. Even the period of strong economic growth in India, between 2005 and 2013, failed miserably to change the structure of employment, to improve the minimum wages, and to resolve the precarity in employment in our country. The fruits of economic growth failed to generate better, safer, more secure, and more productive jobs for the masses. Now, let us dwell upon the issue of falling wage rate in particular. 

 

The study of the rating agencies pointed out that wage growth of households has declined from 8.2% during 2012-16 to 5.7% in 2017-18, but it will be actually even lower – around 1 percent – if inflation is taken into account. Both in rural and urban areas, this deceleration of wage growth was palpable, and in rural areas, wages grew at 2.8%, while in urban areas the increase was of 5.5 %. Once adjusted to prevailing inflation, these growth rates turn negative. In rural areas, inflation adjusted wage growth was reportedly (-) 3.7% while in urban areas it was (-) 1.6 %. These data prove that real wages declined during 2017-21.

 

Periodic Labour Force Survey estimates of the earnings have exposed the deplorable state of gender wage gap, both in rural and urban areas. The extremely low level of earnings of women workers, irrespective of urban or rural, casual, regular, or self-employed is the main reason behind the low participation rates of women in labour market.

 

Stark Inequality 

 

A well-documented article published in the Economic & Political Weekly pointed out, that across social categories, a substantially large proportion of Dalit/ Adivasi workers is unable to earn even the bare minimum wages fixed for the unskilled workers on a per day basis. SC and ST workers account for a higher percentage of people getting less than the minimum wages in almost ALL industries as a proportion to their employment share in those industries. SC and OBCs are in the most disadvantaged state. In mostly all states, the SC and OBC workers together constitute around 60-80 % of the total workers who did not get the minimum wages in 2018-19. Of all the states, Delhi, Gujarat, Punjab, Tamil Nadu, Madhya Pradesh, Uttar Pradesh, and West Bengal together constitute 70 % of the workers who did not get the minimum wages. 

 

There is a total disconnect between GDP growth and wage rise. It has been observed that around 10 % of our population (10 million) earn an income below the poverty line. The fact that 10 million urban informal workers and their families are living under poverty despite being employed is highly worrisome. There is an additional 6.85 % of workers who are at the margins and another 20.64 % (21.5 million) who are vulnerable. Altogether, a total of 39 million workers are either poor or vulnerable. 

 

Way back in the year 2015, an IMF report, authored by five economists, published a paper after meticulous research work. The study results suggest that rising incomes for the poor and middle-class yields improvements to the national economy. They suggested that increasing the income share to the bottom 20 % of citizens by a mere ONE percent results in a 0.38 %-point jump in GDP growth. By contrast, increasing the income share of the top 20% of citizens yield a decline in GDP growth by 0.08%. 

 

The Organisation for Economic Cooperation and Development (OECD) published a strong case for fighting income inequality, asserting that economic growth “is most damaged by the effects of inequality on the bottom 40 % of incomes”.

 

Possible Ways Out 

 

ILO published a book recently, called “Wage- led Growth: An equitable Strategy for Economic Recovery”. In this book, the authors have drawn the following conclusions: 

 

  • Wage growth can generate demand growth and productivity growth. Insufficient wage growth and more broadly the polarisation of income distribution, have contributed to the global economic crisis.
  • In all the G-20 countries, a 1 percentage point increase in the wage share of a country has a positive impact on the domestic demand of that country.
  • In Canada, Mexico, Argentina and India, ONE percentage point increase in the wage share occurs in all the G-20 countries. The impact of such a coordinated increase in wage share is a 0.36 percentage point increase in the overall GDP of all G-20 countries which represent more than 80 percent of the World GDP. A wage-led strategy is a viable economic policy for a world-wide economic recovery.
  • An increase in the wage share has a favourable impact that goes beyond that of aggregate demand and economic activity and faster real wage growth induces positive effects on the growth rate of labour productivity.
  • With GDP rising to be among the top five in the global rankings, poverty levels in our country remain intolerably high. Increasing concentration of wealth within a few hands has pushed the majority of the population to the brink.
  • This paradigm of neo- liberal development trajectory has doomed and devastated our country and its economy. The entire country should rise and alter this present path of economic development.