The growth-equity dialectics

Does the Gross Domestic Product (GDP) number by itself tell the whole story of a nation’s development? How do you rate the comparative achievements of two countries except through their economic growth rates, the commonly used macroeconomic barometer? And more importantly, in the dialectics of growth and equity, which should predominate the discourse?

These and other related questions have assumed greater significance in the wake of two reports released last week almost simultaneously by the WEF and Oxfam. Both have painted India in dull colours, giving grist to critics of the current government.

Inequality in India has been the subject of debate since we gained Independence. An apocryphal story of Sardar Patel states that his classical response to proponents of socialism was to divide the wealth of India by the number of people, arrive at a figure of 4 Annas and tell them: “Here’s your share of the loot...now, off with your ideology”. Unless wealth is generated, there will be nothing to distribute. National income remains the most important concept and the highest comprehensive measure of the aggregate economic activity in a country. The Wealth of Nations is not merely a standard text of reference, but a well-founded basis for measuring economic advancement. 

The State’s prime role should be to ensure that fruits of development reach everybody almost equally and structures of inequality are deconstructed progressively. The Indian State has been largely focused on this exercise though one may quibble with the results and the effectiveness.

Even when we embarked on the boldest of economic reforms since Independence, in 1991, one of the constant refrains of the architect of those changes, Dr Manmohan Singh, was “structural adjustments with a human face”. In fact, the recurring motif of his 1991 July 24 budget speech — arguably the best ever in recent memory by any finance minister — was“the human face”. The Mahatma Gandhi Rural Employment Guarantee Act was a game changer. Governments down the line, including the current one, have only increased their emphasis on equity though there could be contradictory views regarding the degrees of emphasis. Getting accounts opened for the largely unbanked was in itself a major step. Admittedly, it is but a necessity and not a fully sufficient condition for inclusive growth. Next came the government’s push for funding the under-funded through the MUDRA loan scheme. It was a major step towards providing access to credit for those who would not have otherwise been served by the formal sector.

A host of other welfare schemes like the Awas Yojana (housing for the poor), the rural roads scheme (the Gram Sadak Yojana), and the Maternity Benefit scheme and so on form the continuum in the Indian State’s response to the challenge of ensuring equity even as we grow. Uniquely, among the emerging economies, India has managed to do this balancing of growth with equity even while holding steadfast to the system of democratic governance. No other peer country has achieved this distinction. However, in the ultimate analysis, one must not forget that we are just a $2.4 trillion economy playing catch up with China’s $12 trillion and the US’ $ 20 trillion. Unless we grow, we can’t distribute. And undoubtedly, we have to grow first. The WEFs and Oxfams of the world may please wait a while.

(The author is a banker)