Debate on the Role of Growth and Redistribution in Poverty Alleviation in India

Wednesday, July 27, 2011

The capacity of Indian intellectuals to argue even when they lack data either to refute the opponents’ position or support their own far exceeds that of their counterparts anywhere else in the world. This means that issues that have been largely settled elsewhere remain subject of endless heated debate in India. Nothing illustrates this better than the debates on the role ofgrowth and redistribution in alleviating poverty, which go unabated in the real and virtual forums around the country. Thus, judge just four propositions offered in these debates against the facts.

Proposition 1: Growth is not necessary forpoverty alleviation.

If you are a rich country like those in North America or Europe, this is surely a defensible proposition. In that case, you have already experienced more than two centuries worth of growth and eliminated abject poverty. Moreover, the high levels of income made possible by the past growth generate enough revenues to finance Medicaid,Medicare and Social Security programme for the disadvantaged even without further growth. But if you are a poor country like India, starting with an income of Rs 555 (in 1999-2000 rupees) per month per individual in 1951-52, you do not have much choice except grow. Those asserting the contrary must confront two key questions.

First, at this low level of income, is any significant redistribution of income politically feasible? Growth sceptics rushing to respond in the affirmative better ponder the fate of our land reform programme first. The post-independence idealism notwithstanding, our land reform utterly failed because politically powerful landowners could not be persuaded to part with their land; until as late as 1992, we had redistributed land worth only 1.25% of the operational holdings. When you are poor and stagnant, redistribution is politically far more difficult than when you are richer and the pie is growing.

Second, even if redistribution were feasible, what could it possibly achieve at such a low level of income? Allowing for 15% of the income in tax revenues to finance the minimal necessary expenditures on central and state administrations, defence, education, health, electricity and water and for 5% in savings to replace capita stock, an entirely uniform income distribution would give barely Rs 444 per month to each individual. This would leave the rural folk barely at the poverty line and the urban folk well below it, using the recently revised poverty lines.

Source: The Economic Times (link opens in a new window)