Investment in Social Protection is necessary to eradicate Poverty-HDR 2014

2014 Human Development Report

Investment in Social Protection is necessary to eradicate Poverty

28, Jul 2014

Vidyanand Acharya

Comprehensive social protection for India would cost only 4 percent of GDP and help to accelerate the rate of growth. With this message HDR 2014 was launched globally and in Delhi also.

Staggering rates of poverty and high inequality threaten the gains in human development in South Asia. To protect these gains and ensure that all people are benefiting from the region’s growth, UNDP’s annual Human Development Report, released today in Tokyo, shows that the combination of social protection floors, universal basic services, full employment and programmes that specifically address discrimination and exclusion can help countries to irreversibly eradicate poverty.  

The Report: Sustaining Human Progress: Reducing Vulnerabilities and Building Resilience, shows that despite impressive global progress in improving human development, 2.2 billion people are poor or near-poor. Equally worrying, 80 percent of all people have no social protection net and 50 percent of all workers are in insecure employment, mostly in the informal sector.  

South Asia is home to the largest number of multi-dimensionally poor people, suffering from low incomes, poor education and inadequate health care. An estimated 800 million people fall into this category and an additional 270 million are near poor. The Report examines the causes of vulnerability and shows that people at different stages of life face different threats. People are at greater risk when they are very young, entering the labour market for the first time and when they are leaving as pensioners. 

The Report also shows that different categories of people are at high risk because of structural factors. Poor people are the most at risk, women suffer more than men, and the elderly are at particular risk. The disabled represent the largest category of vulnerable people in the world. People are more at risk if they have limited capabilities; if they have less education, poorer health, less income and if they are personally insecure. 

In summarizing the Report’s analysis of vulnerability, UNDP Administrator Helen Clark said today: “By addressing vulnerabilities, all people may share in development progress, and human development will become increasingly equitable and sustainable.” 

The Report recommends a number of concrete steps that countries can take to protect the progress they have made and accelerate gains. These include universalizing social protection and basic services and ensuring full employment. In addition, the Report argues that investing in programmes that address life-cycle and structural vulnerabilities and that help communities prepare for disasters will result in greater resilience to climate change, conflict, economic crisis and social unrest. The Report demonstrates that all of these actions are affordable and can be quickly implemented in all countries, regardless of the level of development they’ve currently achieved.

Lise Grande, United Nations Resident Coordinator and UNDP Resident Representative says, “As countries debate a new global social contract, the six affordable steps being recommended in this report are pragmatic and can have immediate, decisive impact. Equally important, the Report makes the compelling argument that the time has come to reform global governance through a Brundtland type commission.” 

In the case of India, the Report estimates that a comprehensive social protection net which would include old age and disability pensions, basic childcare benefits, universal access to essential health care, social assistance and 100 days of employment would cost only four percent of India’s GDP. Commenting on the Report, Ms. Grande said: “This is a social bargain by any measure.” 

The Report also singles out India’s commitment to disaster preparedness, showing how states have been able to minimize the impact of cyclones and other disasters by helping communities put in place mitigation measures.  

As in previous years, the Report includes the Human Development Index (HDI) which ranks 187 countries and UN-recognized territories on their progress on human development. India is ranked 135. The Report includes four other indices. On the Gender Inequality Index, India ranks 127 out of 152 countries; on the Gender Development Index, 132 out of 148 and on the Inequality Adjusted HDI, India loses 28.6% in potential human development due to inequality. 

Will Budget Look Beyond Corporate Sector?

By S Gurumurthy / Published: 29th June 2014  in New Indian Express

 

Now, with the economy nearly incapacitated, the economic establishment seems to have run out of ideas

Of all governments since Independence, the Narendra Modi government has perhaps aroused the highest expectations of people – the kind of aspiration not easy for any government to satisfy. Modi regime’s first major test is the Budget for 2014-15, just 10 days away. Budgets have long ceased to be just printing and presenting annual financial data. Over time they have become policy setting or resetting instruments. Like in 1991, given the global and national economic conditions, there is now a compelling need for reassessing and resetting the direction of the economy in the Budget. This Budget has necessarily to be very different one from the Budgets of the last two decades. Why?

No “Fit -All’ economic model

It will need going back to 1991. When India set out to liberalise then, it chose to follow the US way to frame policies, preferring not to look at the other successful German and Japanese ways. From then on, the national focus shifted to celebrating and promoting private corporate sector particularly big companies, multi-national and national in that order. But, now the US model has been heavily questioned in the US itself after the 2008 global meltdown. Till then the US claimed to have the theoretical lead for all countries.

After 2008, the truth un-admitted by the guild of economists in India is that the world is without a reliable, Fit-all economic theoretical frame work. At least one leading Indian economic thinker Dr Rathin Roy, who heads the National Institute of Public Finance and Policy, had the guts to say in a seminar in Chennai in March 2014 that any economist who denies that truth was either ignorant or dishonest.

Not many did notice that even before the global meltdown, in 2005 itself when the US model was seen to be doing very well, world financial bodies had washed off their hands saying that they have no Fit-all economic model and each country has to find its own way. Yet India continued to imitate the US way.

1991-2011 a look back

Now, with the economy nearly incapacitated, the economic establishment seems to have run out of ideas. The prescriptions of the US seem outdated. The US-led policies did produce high growth rates of over 9 per cent in the first edition of UPA rule and this persuaded our establishment to trust that that was the right way. But that growth has now proved deceptive. It has concealed the terrible truth that that was just phoney money growth which not only did not yield jobs but actually reduced jobs! The employment added in six years between 2004-5 and 2010 was just 2.7 million as compared to over 60 million jobs generated in the five years preceding. This truth has rudely shaken the economists. This alone is adequate to question the economic thoughts that have guided the government in the last 10 years. Also, two decades is a vantage point high enough to look back and assess what the post-1991 theories and policies – which have focussed almost exclusively on private corporates, particularly, the listed corporates as the escalator for growth – have yielded. Now look at how the private corporates have responded to government’s benevolence. This exercise calls for data-based analysis and the reader has to bear with some numbers.

Rs 47.6 lakh cr yields 2.2 m jobs!

With most of the Indian economy opened for foreign investment, since 1991 and till 2011 the corporate economy had received close to $317 billion of foreign investment – $176 billion through stock market and $141 billion as direct investment. The non-government external debt – read borrowings of public sector and private sector corporates in dollars – jumped by over 10 times to $179 billion. The bank lending to corporates grew up by 43 times to almost `20 lakh crore. Corporate and personal tax rates had halved, making India rank among world’s least taxed nations. What did all these monies do? The Sensex vaulted by 20 times from 1,000 to over 20,000 in 2011 with stock market-cap touching $1.6 trillion (`96 lakh crore). Result, Indian corporate promoters now constitute a fifth of world’s billionaires with a tally of 70 – none in 1991 – and Mukesh Ambani leading the pack with $18 billion wealth and a billion dollar house. Despite the tsunami of billions of dollars and trillions of Rupee into the corporate sector, its share of GDP improved by just 3 per cent in 20 years to 15 per cent. Foreign investment was celebrated because it would generate jobs. And how much jobs the $317 billion foreign investment, $160 billion foreign borrowing, and `19 lakh crore bank credit – all adding to `47.6 lakh cr – that flowed into the corporates generate directly? Believe it. Just 2.2 million jobs in 20 years since 1991! A little over a lakh of jobs a year, according to the Economic Survey 2012-13. The private corporate sector added 3.7 million jobs over 76.7 million in 1991, but the public corporates dropped 1.5 million jobs reducing the net job addition to 2.2 million. Contrast this with socialist India’s record in the pre-reform period. In the 30 years from 1961 to 1991, the private corporate sector added 2.7 million jobs and public corporate sector’s 12 million – growth of 5 lakh a year. That was five times the annual rate of job growth in the corporate sector in the post-reform period. Question inevitably arises why FDI invited to generate growth and jobs and why private corporates pampered to generate jobs miserably failed.

Rs 30 lakh cr tax foregone

This is not the end of the story. Look at more facts. Not just that the private corporates received foreign investment and loans and bank credit totaling `47.6 lakh crore. They also received bonanza of tax cuts of `30 lakh crore in seven years from 2006-7 to 2012-13. The cuts averaged annually `2.6 lakh crore till 2007-8. But when the global meltdown occurred, the UPA government almost doubled the tax cuts to `5 lakh crore a year to stimulate the economy. These huge cuts dented the Budget with a deficit of almost `22 lakh crore between 2008-9 and 2012-13. But the corporates swallowed the stimulus tax cuts without passing it on to the consumer. Consequently, far from falling with the decline of national economy, the corporate profits rose by over `9 lakh crore in this period. But the corporates did not even invest their high profits to grow their business. Their investment actually slowed as their profits increased from 2007-8 to 2010-11.

Banks preferred over stocks

Now look at the stock market which spins capital for the corporate sector. The BSE Sensex, which closed at 5,740 in 2004-5 rose to 18,815 by 2013-14. Now it is over 25,000. What caused the Sensex to vault by over four times in 10 years – particularly when the national economy was in distress since 2009 and Indian families invested very little in stocks. The Indians are much like the Germans and Japanese who also do not risk their savings in stocks. In 1970s, Indian families invested 2% of their savings in stocks. In 1980s, 6%. In 1990s, 11%. Between 2000 and 2005, just 2%. Between 2005-2011, it was 4%. The Reserve Bank of India Working Group on Savings during the 12th Five-Year Plan (2012-17) has projected Indians to invest just 1.3% of their savings in stocks. Since 1991, the government had been cutting interest rates partly to dissuade the savers away from banks. Dr Manmohan Singh even asked the Indian families to buy stocks and not bank their money. But the Indian families did not pay heed to him and persisted with bank deposits.

As liberalisation deepened, the Indian families, instead of moving into stocks as the policies persuade them to, moved away. Rejecting the US model, which opts stocks over banks, Indians like Germans and Japanese prefer banks over stocks. The founding premise that liberalisation and globalisation would shift savers from banks to stocks has miserably failed in India. The result is bank-based – not market based – macro economic financial structure of the Indian economy – totally unlike the US. The bank deposit to GDP ratio in India actually doubled during the reform period – from 34% in 1991 to 68% 2012. It is clear that people’s lifestyle and financial habits produce economic model and not government policies.  What is the contribution of corporate sector – public and private together – to India’s GDP? According to Credit Suisse Asia Pacific/India Equity Research Investment Strategy paper (July 2013), the share of corporates in GDP is just 15 per cent and that of listed corporates is trivial, 4 per cent. In terms of employment or value addition or exports or manufacture the corporate sector is not a significant player. The Budget needs to look beyond the corporate sector and look at what really sustains India if it has to lift the Indian economy. What is that which sustains India? Await the next part.

Courtesy:- www.newindianexpress.com/CAIT email

FUTURE OF WORK AND WOEKERS

What will be the future of work and workers in developed and developing countries? The major shift in demographic profile of developed countries and increasing young population without skill in developing countries will pose a great challenge across the globe to over come the emerging problems. Please have a look on summary of Future of Work and Workers published by "THE ECONOMIST" - Vidyanand Acharya

Key findings from our research into the changing nature of work and the worker include the following:

• Demographic shifts pose conflicting challenges

An ageing population is very apparent throughout the developed world, raising concerns that the remaining working population will not be able to bear the strain of increased expenditure on elderly care and pensions.
Governments have responded to this reality through immigration and by raising the pensionable age. Meanwhile, much of the developing world is confronting a very different demographic challenge, and is seeking to devise the appropriate education systems to prepare an overwhelmingly young population for the workplace.

• Young populations neither in education nor employment will elevate concerns of a lost generation and the potential for social and political unrest in the near future

Many commentators have argued that mass youth unemployment was a contributing catalyst for the recent social and political turmoil in the Middle East and Southern Europe. Similar concerns will arise throughout the world whenever there is insufficient supply of employment opportunities to meet the demand of young populations. With a very significant proportion of the youth population unemployed or underemployed, the future workforce may be negatively impacted and lead to a shrinking labour-force participation.

• Burgeoning workplace diversity requires sophisticated managerial response

Diversity is on the rise throughout the organizational world, not just along gender, generational and cultural lines, but in companies’ working arrangements with employees. Longer life spans are likely to result in employees staying in the workplace until a later age. Meanwhile, expert opinion and workplace surveys continue to show that Generation Y or millennials, the cohort of employees who have entered the workplace in recent years, are restless and difficult to retain. Women are poised to enter the workplace in the developing world in vast numbers, posing disparate challenges for companies that have to date failed to find a way to utilize female potential fully. And a substantial proportion of these women will form a part of a growing army of temporary and part-time workers, many of whom are not physically present in the workplace. Such a surge in workplace diversity will necessitate a multi-layered, carefully thought out, managerial approach as companies strive to get the most out of their people in a highly competitive environment.

• Disconnect between educational standards and organizational demand

Educational authorities are battling to remold their systems according to the needs of the modern economy. The expansion in tertiary education in the developing world is rapid. China and India alone will account for 40 percent of young people with a tertiary education in all G201and OECD2 countries by the year 2020. However, doubts persist about the quality of graduates in certain regions and countries. Technical and engineering skills, and the soft skills that facilitate integration into the workforce, are both deemed in short supply. Major companies are turning to rigorous internal training systems to bridge the gap between education and the demands of the modern workplace. Governments, meanwhile, are moving to relax immigration requirements for the highly skilled.

• Services sector on the rise globally at the expense of agriculture and industry

With incomes rising in both the developed and developing world, demand for basic services, healthcare and education increases, resulting in the expansion of the services sector and the declining importance of industry and agriculture. In the developing world, the growth in the services sector has been dramatic. The proportion of jobs contributed by the services sector in China, for example, has almost doubled in the last two decades. In the developed world, the employment share of the services sector has also been on an upward curve, although moving more gradually from a much higher base.

• Technology transforms workforce composition and culture

The proliferation of communication technology is slowly diminishing the proportion of employees who work from a central company location. Remote working is on the rise, particularly in the developing world, enabling companies to access a deeper pool of available labor. Technology also allows companies to maintain contact with clients in distant lands, permitting the global expansion they crave. However, the technology-dependent crossborder teams that now permeate major companies throw up wholly new and complex managerial challenges, such as how to exploit cultural differences for maximum economic advantage, while avoiding potential discord and conflict.

• Wage expectations conflict with increased focus on shareholder value

While large increases in productivity have created substantial economic growth over the last few decades, workers’ wages have not kept pace. Several factors explain this phenomenon. Technological advances allow higher returns with a fewer number of workers; globalization has allowed companies to look for cheaper labor elsewhere; and the focus on shareholder value has led to pressure for higher profits. This pressure on wages is likely to continue, resulting in lower expectations from workers and possibly to reduced expenditure by individuals on education.

• Inequality on the rise as technology decimates the mid-skilled tier

Technological advances have also automated many routine tasks formerly performed by mid-skilled workers. At the same time, companies bemoan a shortage of highly skilled workers in certain positions, such as technical workers and the senior executives entrusted with corporate decision-making. With automation of jobs set to expand further as technology advances, and a persistent skills deficit for specialized jobs, inequality is likely to increase, raising widespread concerns about social and political stability.

• Companies balance pros and cons of investment in new regions of development

Companies in the developed world are constantly investigating where best to outsource their operations. China’s steep rise in wages has made it a less obvious destination for the outsourcing of production. It is likely that India and Brazil will further consolidate their already strong position over the next five years, with relatively new players, such as Vietnam and Indonesia, also becoming more attractive. Central and Eastern Europe, meanwhile, is building its appeal as an outsourcing destination, particularly for highly skilled work. HR managers will need to find sufficiently reliable data and analytics about human-capital issues in new potential markets in order to make sound strategic business decisions and minimize risk.