Why India needs to take technology seriously

by Nilanjan Banik,
In the recent years, rising income inequality and jobless growth have been subjects of discussion and debate. A February 2018 New World Wealth report (‘Global Wealth Migration Review’, goo.gl/R9x5qX) claimed that India is the second-most ‘unequal’ country in the world, with millionaires controlling 54% of the wealth. In Japan, the most equal country, millionaires control only 22% of national wealth.

India’s average national income is $1,800 (about Rs 132,300) a year. However, 80% of Indians earn less than the average. Only 6% Indians earn more than Rs 240,000 a year. To get into the top 1% bracket, one needs to make just over $20,000 (Rs 1,469,600) a year. And this top 1% is generating 73% of the wealth.


With a widening income inequality, it may not be possible to sustain growth that India is witnessing at present. A country that neglects rising income inequality cannot sustain its long-term economic growth. Things are going to get worse with an escalating cost of living, healthcare and education, and the fact that less than 2% of Indians who apply for jobs each day get one.

The rich do not spend nearly as much of their income as the middle-class and the poor. This has a direct implication on consumption expenditure. In the demand side of GDP, consumption expenditure is the most important component, explaining more than 60% of the variation in aggregate demand, and hence growth.

A paradigm shift is in the offing and technology is going to be a spoilsport, unless we make our workforce more skillful. India’s labour productivity-—economic output per hour of work— is just 15% of US levels. The case of falling productivity is slowly marking its presence in India’s export growth.

This year, the yuan has appreciated against a strong dollar by as much as 6%. And yet Chinese exports are growing at an average of 8%. For India, despite the rupee depreciating more than 10% the last six months, exports are not picking up. This is because of the lack of technology that goes into our exports.

A closer look suggests that in India, gross fixed capital formation is falling. Growth in capital formation has fallen from a high of 17.5% during 2004-2008 to a lowly 4.3% during 2014-2016. A part of the fall in the value of investment has to do with lower input costs. Technology has ensured that inputs come at a cheaper price.

In today’s age of big data analytics, machine and deep learning, machines are increasingly taking jobs of humans. With technology changing so fast, no one knows where jobs of the future are going to emerge from and what they will look like.

US regulators have already approved smart pills that send highly accurate diagnostic information from inside a patient’s body to doctors via Bluetooth. Tesla has recently announced bringing out an engineless electric car that costs only $35,000. This may change the entire dynamics of the automobile industry. GoI acknowledges a significant societal disruption coming India’s way.

Importantly, agriculture, the mainstay of India’s livelihood, is not performing well. Indian farmers grow crops using more land, labour and animal inputs than technology. For a long time, output per hectare, a common measure of agriculture productivity, remained low in India. In potato farming, the productivity of an Indian farmer is less than half of that of the US, Germany and the Netherlands. In the case of rice, it is less than half of that of the US and Egypt. For wheat, it is less than half of that of Britain and Egypt.

The problem is aggravated, as 83% of Indian farmers are marginal, and small farmers (holding less than 2 hectares of land) do not have the wherewithal to understand technology. This has prevented many farmers from entering into contract farming with corporates such as ITC and Coca-Cola, as the latter were not sure about the quality of the former’s produce.

Reforming the agriculture sector will not help without embracing technology. With more than 50% of India’s population still earning their livelihood from agriculture, lower productivity means an adverse income distribution.

With the agriculture sector not performing well there is an increased propensity to migrate from rural to urban areas. During the mid-2000s, the construction sector in urban India came as a respite. It was able to absorb agriculture labourers and convert them into construction workers. Today, though, even the construction sector is suffering.

Technology, the key to raising productivity, is here to stay. As much as 90% of increases in per capita income come from technological innovation. Now to find a strategy that will make technology inclusive.

(The writer is professor, Bennett University)