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India’s real economic dynamo: A silent force that brings in 2% of GDP

India’s GDP growth has been better than in the decade before.

ET CONTRIBUTORS|
Apr 15, 2019, 01.48 PM IST
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There is a popular belief in educated circles in India that Indian politicians are central to India’s advancement.
By Saurabh Mukherjea

Over the last 40 years, India has seen the largest internal migration that any country has witnessed in any era. Even on conservative assumptions, India’s 100 million internal migrants are sending ‘home’ vast sums of money, eight times larger than the Government of India’s healthcare and education budgets combined.

Internal Migration: India’s biggest intangible Asset
There is a popular belief in educated circles in India that Indian politicians are central to India’s advancement. Data belies that belief. In each of the last five decades, India’s GDP growth has been better than in the decade before. Assuming that it is not the sagacity of our political leaders which has transformed us into the world’s sixth largest economy, what exactly has been the driver of this sustained acceleration in GDP growth? After all, it isn’t as if we have invested extensively in education, healthcare and safety of our people – India’s dismal showing year after year in the UN’s Human Development Index (ranked among the 60 lowest countries in the world and that too thanks to South India dragging up India’s score) highlights the country’s appalling deficits in that regard.

One notable facet of India’s renaissance stares us so obviously in the face that we tend to overlook it. Over the last 40 years, India has arguably seen the world’s greatest internal migration seen in any country and in any era – greater (both in absolute numbers and relative to the broader population) even than the westward migration of people which created the United States in the 19th century. As per India’s 2017 Economic Survey, internal migration accounts for 100 million people in India i.e. nearly one-fifth of India’s labour force.

As Chinmay Tumbe says in his excellent book India Moving: A History of Migration, “In 2011, a quarter of India’s urban population was enumerated as being migrants…”

In fact, India’s internal migratory workforce is nearly four times larger than the more celebrated and obviously more prosperous Indian diaspora spread around the world.

The economic impact of internal migration
The rise in internal migration in India – basically the movement of vast numbers of people from the impoverished North and East of the country to the more prosperous South and West – accelerated sharply post-1991 as economic liberalisation created heightened incentives for workers to move. The economic impact of this migration has been enormous.

The minimum wage in most of the Western and Southern Indian states is around Rs 15,000 per month. Even if we assume that the average migrant worker is working at a wage of Rs 10,000 per month (due to employers who pay them in cash and keep them in black economy), total earnings of India’s internal migrant workers is around $170 billion per annum i.e. around 6 per cent of India’s GDP. Assuming further that these workers are sending home (to Northern and Eastern India) around one-third of these earnings, it implies that nearly 2 per cent of India’s GDP is being transferred from the most prosperous states in the country to the least prosperous.

Based on the Union Budget 2019 documents, the Government of India’s budgeted spend on healthcare plus education is around Rs 150,000 crore or $22 billion i.e. less than 1 per cent of GDP! The fact that even on conservative assumptions, India’s internal migrant workers are sending ‘home’ a sum of money nearly eight times larger not only underscores how successive governments have let the country down but also how we as a society fail to celebrate the most enterprising and industrious people in our country.

India’s internal migration has had two other positive economic consequences:

  • In a country where successive governments have failed to provide both an economic safety net and jobs (or even skilling), India’s most vulnerable people have taken matters in their own hands. In doing so, they have made the Indian unskilled labour market highly responsive to economic signals. To quote from Chinmay Tumbe’s book: “The word ‘seasonal’ refers to the gap in the agricultural calendar where people begin to migrate outside for work, usually between November and April. These are India’s most vulnerable migration stream affecting 5% of households and over 10 million migrants. Relatively poorer and landless households, STs and SCs are over-represented in this form of migration… one-third of the seasonal migrants in India work in the construction sector, a fifth work in agricultural activities and one-sixth in manufacturing activities.”

  • Not just labour, capital too is mobile in India in a manner which would be the envy of any European government (the EU has tried in vain to promote internal migration for the past 30 years and ironically is unravelling due to migration into the EU from people outside). In most of India, risk capital and entrepreneurial flair is provided by four highly mobile communities –Sindhis, Marwaris, Gujaratis and Muslims. As early as 1844, the Times of India noted, “These Marwaris leave their own country for the purpose of trading and they are spread all over Hindostan. A Marwari’s shop maybe seen in a hamlet… in fact, were you to search all of Hindostan, it would be difficult to find an agricultural village without a Marwari. When they arrive here, they commence by selling gram, and in the course of four or five years, they become opulent bankers.”

As India goes through another general election, we understand that investors are fretting about the outcome. At Marcellus we remain confident about the ability of Indians to move forward with or – as is usually the case – without enlightened leadership.

(Saurabh Mukherjea is the author of The Unusual Billionaires and Coffee Can Investing: the Low Risk Route to Stupendous Wealth. He’s the Founder of Marcellus Investment Managers, a Sebi-regulated provider of Portfolio Management Services.)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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