~By Anu. While President Obama gets to grips with the crisis in the American economy... I've been learning in-depth about the Indian economy under the tutelage of Professor Arun Kumar at Jawaharlal Nehru University. I'm sure you've heard the glowing headlines over the past few years:
"Record Growth!"
"Sky-rocketing Stock Market"
"Booming Middle Class"
But these headlines reflect a tiny proportion of India's overall economy. It would be as if America's economic statistics were based on the economy of Silicon Valley and a few surrounding areas, and the rest was represented by variables based on incomplete data.
Here's what you won't read in the newspapers, or even The Economist:
•Statistics about India's growth are based largely on annual data collected on the mere 6% of the economy that is regulated. 94% is unregulated and only surveyed by the government every five to ten years.
•India has 'jobless growth'. Ten million people enter the job market each year, but only a tiny proportion of jobs are actually created.
•There are an estimated 30 million child laborers.
•Wealth remains concentrated in the hands of roughly 3% of the population, although official statistics, which are riddled with errors, will suggest the wealth gap is narrowing.
•Rising GDP does not translate into better overall social welfare, because of how tightly wealth is concentrated in India.
•India's black economy (undeclared, untaxed income generated mostly through legal businesses which under-report their revenue and overstate their costs) is estimated to be worth 50% of GDP... or a staggering $500 billion every year. That's more than the entire federal budget on which no tax is paid.
India's Black Economy
It's this 'black' economy that distorts and stunts India's true growth potential. Because it involves widescale mis-reporting of income, assets, etc... and because it robs the exchequer of billions in revenue, India continually misses its targets on literacy, health, education, sanitation, and infrastructure.
Here's just one example of how the black economy functions:
In Delhi, if you buy property, you typically pay 70% of the market value in cash. 30% is declared on the deed as the official value and tax is only paid on that 30%. This is why most expats will never own property here, because few people outside this peculiarly Indian system hoard such vast amounts of undeclared cash.
There are hundreds of other examples: 'over-invoicing' - you ship a whole load of junk out of India, but declare it worth millions, thus allowing you to launder a huge amount of foreign exchange into the
country.
Real Effects
According to Professor Kumar's careful research, here are the real effects of India's black economy:
• India's economy has been missing roughly 5% rate of growth... so instead of 8%, it could have been 13%
• Tax revenue worth billions is missing and could have been used to
build the toilets, roads, low-cost housing and schools India so badly
needs.
Ignoring the true scale of the black economy affects India's estimates of income, growth, savings, investment, consumption... not to mention that it makes planning and social progress virtually impossible.
These horribly distorted and incomplete national statistics are then picked up by international institutions like the World Bank, IMF, UN, WHO, etc. So again, you can understand why their attempts at development in India proves so woefully inadequate.
A Million Middlemen
So few jobs... so many rich people hoarding their money... so little development... No wonder the biggest job category in India has to be the 'wallah' or middleman (that's my translation). There's a wallah for everything here.. Need to get your kid into the local school - find an admission-wallah. Need a gas canister for cooking? There's usually a local gas-wallah who'll expedite the cockeyed system for a fee. Need your ears cleaned? There's the kaan-saaf-wallah who'll use a mini shovel to dig the wax from your ears. Need the constant dust swept from your driveway? Get a safai-wallah (or walli, i.e. middle-woman). Need your bills paid? There's usually a long line of wallahs at most phone, electricity, water, and post offices, stacks of bills in hand, waiting in a crush to pay their master's utilities. Even the local mall has 'parking ticket wallahs' dressed in smart corporate uniforms whose sole function in life is to push the button for you as you pull up to the automated ticket machine in the underground parking lot.
The problem of course is that no Wallah or Walli has any bargaining power over wages, benefits, unemployment or insurance. They are expendable. And when food or fuel prices rise even slightly (India has never experienced sudden, crippling inflation), it's the Wallahs and Wallis who have to cut back to one meal a day and pull their children out of school.
President Obama has it easy. India doesn't need a good finance minister... it needs a good psychologist to examine why the country's elite remain willfully blind to the facts, and bristle so visibly when you suggest that they might be part of the problem.
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