India’s growth Vs Social equity

(Inclusive growth)
 Debate
• Basically it is the Jagdish Bhagwati versus Amartya Sen
line, though economists like Kaushik Basu say the
distinction is not that sharp.
• Framed in whichever way, the dominant point of view
emerging from the to-and-fro is that Indian policy makers
should not do anything to upset the growth engine they
are riding. They have a point.
• The government has already rolled back several multi-
billion dollar investment projects citing environment, land
and tribal rights issues while others like the urban
renewal missions are facing question marks.
• Some members of the ruling Congress party including
Cabinet ministers have said the reforms for pushing
growth are increasing social inequality.
 Participants
The names involved in the Internet debate are
formidable, which include:
Arvind Panagariya of Columbia University,
Sumit Majumdar, University of Texas,
Indira Rajaraman, NIPFP ,
Abhijit Banerjee of MIT and
Martin Wolf of Financial Times.

The Internet forum was facilitated by Cuts International, one of India's

leading think-tanks on trade and development.
 Government
• An indication of where this could lead is the
recently finalised check-list the National Advisory
Council, chaired by Sonia Gandhi has lined up
for 2011.
• "Displacement of both tribals and non tribals (for
setting up industry) is an issue, but the former
needs a special reference because that is where
all the land, mineral and forest wealth is", said
NC Saxena, member of NAC.
 Growth/Stage 2 Reforms
• Bhagwati says, focussing on growth
matters, as it "pulls the poor into gainful
employment and also provides the
revenues with which one can finance
direct programmes on health and
education, which I called Stage 2 reforms.“
 Government Line
• For the UPA government, buffeted by competing interest
groups, this could act as the most decisive line of
support to move on with growth-enhancing policies.
• The debate is sort of just-in-time as the government has
to set in place policies that will run through for at least
three years or more (unless there are mid-term
elections), setting the tone for the most crucial decade
for India.
• It was spurred by Bhagwati's lecture in central hall of
Parliament to the MPs, explaining his thesis that only
reforms, and therefore growth, can produce the
necessary funds for the state to invest in health and
education.
 Jagdish Bhagwati
• His position, he has explained in the course of this
debate, contrasts that of Amartya Sen, who has argued
that the primary focus of the State should be on sectors
like these instead of worrying too much about growth.
• Bhagwati, in his characteristic style, is more forthright.
On the issue of sequencing reforms, something the UPA
government is struggling with now, he says:
"The true scandal is that people who continue to condemn the
reforms that can help, are the true scandal. But in Economics,
there is no accountability for the consequences of your advice!
And that is particularly so in an ascriptive society like India: the
eminent are revered and rewarded, not condemned, despite the
harm they cause."
 A tale of two Indias

The state in its earlier avatar failed to

bridge the socio-economic gap between
‘modern' and ‘traditional' sectors. The
duality persists in the current regime of
market-led prosperity.
 A tale of two Indias
• In 1954, William Arthur Lewis, arguably the father of
development economics, proposed a theory of the ‘dual
economy' in developing countries that constituted a
‘modern' sector of manufacturing, mining and
commercial agriculture, driven by profit, and a traditional
agrarian sector blessed with “unlimited labour supply”
that he concluded could be used to drive the modern
sector.
• When Gunnar Myrdal adopted the concept in his
seminal work Asian Drama to describe India, he provided
the context for a development plan based on the
laudable objective of bringing the ‘great unwashed' into
the mainstream and eventually creating a unified
economy of equitable prosperity.
 TWO DISTINCT CULTURES
1. THE MODERN STATE
India's twentieth-century modernism, based on a
typically confused social democratic platform, began at
the point when the state assumed the awesome
responsibility of growth premised on distributive
justice. Successive governments were judged by their
capacity to carry out this self-assigned task; when
ordinary citizens perceived the failure of the modern
state's welfarist contract, they took to the streets; in
the mid-1960s and early 1970s, the social compact,
quixotically termed “democratic socialism”, came
under threat.
 TWO DISTINCT CULTURES
2. THE POST-MODERN STATE
Then two things happened to give the tattered image
of the Indian state a new life. Internet-based services
and the phenomenal rise of the Indian IT enterprise
meshed to fruition in unprecedented GDP growth,
fortuitously coinciding with the UPA's first term in
office.
As the first term wore on, it became difficult to
separate the state from its discourse of wealth
creation, and both from the narrow band of urban-
based beneficiaries; each spoke the same language,
and still speak to one another in the narrow confines
of air-conditioned halls, global talk-fests, the
meaningless rhetoric of a magical world of growing
numbers alien to more than 700 million on the leeward
side of the glittering lights.
 Epilogue
• But the post-modernist state has failed as much as the old one in
resolving Lewis' duality. Attempting to create the illusion that it is
meaningless, the New Age discourse let the duality mutate into two
separate ‘countries'.
• One, a narrow strip of privilege consisting of no more than a third of
the population with its own cultural benchmarks (life as Spectacle,
Bollywood as life), value systems (the superfluous as necessity and
vice-versa) a universe constantly honed by television;
• ‘Other' a vast hinterland behind the broken lights of GDP numbers
and home-grown billionaires, the ‘invisible republic' of the
dispossessed and symbol of the failed social democratic project.
• For the new age UPA-II, entwined in the discourse of wealth
accumulation, that large area of darkness will have to wait for the
market to reach its shores. Problem is: the Maoists have
already landed.