Chapter-5: Is there a “Late Converger Stall” in Economic Development? Can India Escape it?

The economic survey points in this chapter that India could be facing the so called “Late Converger Stall” in terms of economic growth. The key points from this chapter for your examination are as follows:

What is economic convergence and how India could be facing a Late Converger Stall?

Economic convergence refers to the process of developing economies catching up with developed economies. According to the survey, India is a low-middle income country aiming for a upper-middle income status in the current global economic growth period (which followed the great financial crisis of 2008). India can reach to upper-middle income level by late 2020s if its per capita income grows at 6.5% per year. However, there are several challenges, or risks, that can stall the growth rate of India- already a late converger in current environment. These risks (survey calls them headwinds) are as follows:

• A backlash against globalization which reduces exporting opportunities
• Difficulties of transferring resources from low productivity to higher productivity sectors (structural transformation)
• Challenge of upgrading human capital to the demands of a technology-intensive workplace
• Coping with climate change-induced agricultural stress.

Survey concluded that as of now there is no Late Converger Stall for India. But it would be wise to act to keep it away. These risks and challenges are as follows:

A backlash against globalization which reduces exporting opportunities

Survey points that developing countries began their upward mobility so later that by that time, most developed countries had already benefitted from the process of rapid globalization (aka. hyper-globalization). Due to this, countries like Japan, South Korea etc. posted huge growth in their exports and economic growth. Some countries like China got a 15% growth in their exports. This quietly ends the possibility of further benefits of the globalization to late convergers. Only early convergers could reap its benefits, specifically the ability to export at double digit rates of growth for three to four decades consistently. Such opportunities no longer seem to be available.

Difficulties of transferring resources from low productivity to higher productivity sectors (structural transformation)

According to survey, the structural transformation in the economy for late convergers is also very difficult. The successful development needs two types of transformations:

• a shift of resources from low productivity to high productivity sectors
• a larger share of resources devoted to sectors that have the potential for rapid productivity growth.

In many cases, however, resources do not shift in this way. They shift instead from informal, low productivity sectors to ones that are marginally less informal/more productive. These are cases of “thwarted structural transformation”. This phenomenon is particularly true for late convergers. In such countries, the manufacturing tends to peak earlier than expected. Survey further notes, that India also has been subject to early deindustrialization. In comparison with China, from 2008 to 2010, the share of India’s good growth has fallen to 32% from 37%, and China’s has risen to 53%.

Challenge of upgrading human capital to the demands of a technology-intensive workplace

As per the survey, when India began on path of becoming a developed nation, the human capital was by and far employed in the manufacturing sector. As the technological advances happened, the unskilled human resources are no longer need of the hour. Technology will increasingly favour the skilled human capital where requisite skills will include adaptability and ability to learn. This challenge is much more problematic for late convergers like India.

Coping with climate change-induced agricultural stress.

As per the survey, India’s agricultural productivity growth has remained stagnant over the last three decades. Farming in India is heavily dependent on rainfall for irrigation and the agricultural sector is intensely affected by increasing temperatures and climate change. The problem is complicated further by migration of people from rural areas towards urban centres. This problem is of almost all late convergers and they have to shore up agricultural productivity to fight off climate change and water scarcity.

What are survey observations on Learning Poverty Count (LPC) and Learning Poverty Gap (LPG) in Rural Primary Education?

With some statistical analysis, the survey paints a sobering picture of primary education in India, particularly in rural areas. Today, India has universal education for both boys and girls on elementary level, thanks to right to education. But the educational outcomes are not commensurate with the years of schooling.

The survey does an analysis of poverty in learning in two ways viz. Learning Poverty Count (LPC) and Learning Poverty Gap (LPG).

• LPC measures the number of children who don’t meet the basis learning benchmark. LPG measures how far a student is away from that benchmark.
• Survey finds that on math and reading, India’s absolute LPC is between 40-50%. This implies that 40-50% of rural India’s children going to class 3 to 8 cannot meet the basic learning standard. This LPC is worse in case of only math. There is not much difference between LPC of the boys and girls. Learning Poverty Gap is too high at around 25%.

Thus, survey laments that India’s future is grim with its future human capital suffering from 40% LPC and 25% LPG. Unless this huge human capital challenge is met, India won’t be able to take advantage of whatever demographic dividend we may have.

What can be done to tackle the Late Converger Stall?

Rapidly improving human capital–– healthy individuals, including all women, with the basic education to continually learn and adapt––will be key to sustaining India’s dynamic growth trajectory. Rapidly improving agricultural productivity––against the headwinds of climate change and water scarcity––will be another key to achieving good growth and hence sustainable growth. And, of course, the hyperglobalization backlash in advanced countries, over which India has little control, must recede to create a favorable external climate to sustain rapid growth.