Dr Ashwani Mahajan
Though debate of Redistribution versus Growth is very old, these days, it has gained more importance; thanks to publication of a book entitled ‘An Uncertain Glory’ by Nobel laureate Amartya sen and activist cum economist Jean Drez and another book by Prof. Jagdish Bhagwati and his associate Prof. Panagariya entitled ‘Why Growth Mattters’; and their comments on each other, and some really very unpleasant ones, usually not expected from scholars of their level. It is notable that Prof Jagdish Bhagwati has been in the race for Nobel Prize for decades, while prof Amartya Sen has got one a few years back.
Today Governments all over the world; and Government of India in particular, are making attempts to some how raise the rate of growth. In this process, the task of poverty and unemployment reduction has been lagging behind. Therefore a number of economists believe that there is need to attack the poverty and unemployment directly. However, there is no dearth of economists, who argue that growth is a precondition for redistribution.
Those, who believe that growth is remedy for all economic ills, argue that if growth happens, benefits of increased GDP will percolate downward. With increase in production, its benefits percolate downward by way of employment, incomes and greater availability of goods and services. This process, so supposed is what we call, ‘Trickle Down Theory’. Protagonists of GDP growth tell this argument in different way. If size of GDP is small, even if we distribute it equally, everybody will get a small piece; however if size of GDP grows, there will be a chance of getting a larger piece out of the same. Same thing is being told by Jagdish Bhagwati, “redistribution is possible with growth, but growth is not possible with redistribution”.
Redistribution versus Growth Debate
A good number of economists do not agree with prontogonists of growth. They say that ‘Trickle down Theory’ is not a practical one. Growth without redistribution does not bring improvement in quality of life of masses. Amartya Sen elaborates the same view, when he says that though growth is important to improve life of people, but it must be accompanied by improvement in social indicators, such as literacy and health. Strongly objecting to this view, Bhagwati and his co-author Panagariya write that if growth is important than why Sen does not advocate policies for encouraging growth. In fact this hot controversy between two great economists, both of Indian origin, is nothing but a replica of age old debate of redistribution versus growth.
Prof. Jagdish Bhagwati writes that he prefers growth and likes ‘Gujrat Model’, as this only can improve life of people. He says, had redistribution been given priority, it was not possible to lift people above poverty line. Growth may not be directly eradicating poverty, but it definitely provides more revenue to the Government, which in turn can be used for eradication of poverty and unemployment; and for spending on education and health. He further tries to justify the new economic policy adopted by Government of India after 1991; as this only could raise the growth and lift millions up from poverty.
Amartya Sen on the other hand believes that Indian media has over-emphasised FDI and new economic policy and has in fact overlooked the problem of poverty. He also criticized the Government and the policy makers for their indifference towards the social indicators, namely; nutrition, health, education and extension of PDS for poor. Amartya Sen believes that policy of economic reforms adopted during UPA’s regime has failed to improve the condition of poor and policy paralysis has slowed the pace of growth too. Even the growth in revenue collection has slowed down. This has adversely affected the availability of funds for health, education and PDS meant for social welfare in general and to improve the condition of poor in particular.
Political Colour of Debate
Sen-Bhagwati war of words has started taking political colour, as Bhagwati has been praising Gujarat Model of development, whereas Sen does not find Modi worth Prime Minister Seat in the name of communal (dis) harmony.
But both Sen and Bhagwati models do not Suit India
Whereas Bhagwati Model is growth centric; and believes that poor can wait for improving their living standards, while Sen Model emphasises redistribution. Despite the fact that both models are of foreign origin, they are being advanced for India. However fact of the matter is that both these models have already failed in India.
In this debate of ‘Redistribution versus Growth’ & former Prime Minister of India, Indira Gandhi, gave slogan of ‘Garibi Hatao’ in 1972 and advocated for policies, which attack poverty and unemployment directly. In this context unemployment eradication programmes were initiated. These policies continued till 1980s. But with adoption of new economic policy in 1991, the whole philosophy of development underwent a U-turn. There is no doubt that Indira Gandhi’s policy, advocating Government intervention for public health, education, public distribution and rural employment programmes, fell short of targets and India laggard with regard to Human Development Index (HDI) and the same could increase by only 15 percent between 1975 and 1985; which was no better than any other country. In the post reform period situation worsened indicated by the fact that India which was at 123rd position in 1991, slipped to 136th in 2012.
After new economic policy of 1991, growth did pick up, but with regard to poverty eradication, we not only laggard, pace of poverty reduction also declined miserably. Not only unemployment increased employment standards also worsened. For instance between 2004-05 and 2009-10, in just five years self employment declined by 251 lakhs and the same was partially replaced by casual (low quality) employment to the extent of 220 lakhs (NSSO 66th Round). Regarding malnutrition Prime Minister himself has conceded it to be matter of national shame.
Third way
Prof. Sen’s model of redistribution relates with socialism, whereas Prof. Bhagwati’s first love is capitalism. Same ‘old wines’ are being served in new bottles, in the name of Sen and Bhagwati Models, despite their miserable failure in India. These models cannot do any good for masses in the long run. To raise employment, we cannot continuously depend on Government budget. Today we are following the policy of temporary employment creation in the name of MGNREGA. This type of policy may provide short term income support to unemployed, but this cannot be long term solution for eradicating unemployment in the rural areas. Similarly, food security through PDS or mid-day-meal, are all short term measures and continuously depend on public budget.
Under these circumstances we need a Government policy, which provides employment to poor on permanent basis; and which is productive too. For this we need to change the production system. A policy needs to be devised which creates more employment opportunities, along with increase in production. We need to end indifference towards agriculture and make efforts to increase food production and income of the farmers. A production system should not be one where per capita income is rupee 190 per day, but poor are defined to be those spending hardly rupees 27 per day. Fair distribution of income is possible only if labour gets fair wages farmer gets remunerative price for his produce and everybody is able to fulfill his/her basic needs. For this we do not need communism or socialism; what we need is integrated policy, where production, employment, investment and distribution are not separated, rather they are complementary to one another.
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