Saturday, Dec 20, 2014

‘Even if everyone is immoral, there are ways of reducing corruption by changing institutional rules’

AAP chief Arvind Kejriwal AAP chief Arvind Kejriwal
Posted: March 5, 2014 12:16 am | Updated: March 5, 2014 5:14 pm

By: Pranab Bardhan

Q: Issues of growth and welfare are likely to come up again in the election campaign. The Sen-Bhagwati argument was a marker of the deba­te. Is it really about welfare versus growth?

A: People like Bhagwati believe we should concentrate on  economic growth and the poor will ultimately be helped; whereas, if you concentrate on other things, growth might suffer and as a result, so will the poor. In that chain of arguments there is a dual process. One is that high growth means more jobs. So if the poor have more jobs, they will have more income. Two, if there’s growth, the economy expands and taxes go up.

With that money, you can fund anti-poverty programmes. On the face of it, this is a plausible argument. But it doesn’t always work. For instance, even in the highest growth period in India, say between 2003-08, most of the evidence shows that employment didn’t grow much. Now, from a poor person’s perspective, what’s the point of growth if you cannot get a job? For example, the highly cited Gujarat model claims a high rate of growth. But employment grew only marginally. That is the general trend: high growth doesn’t necessarily lead to higher employment. Bhagwati’s first channel needs to be shown to be working. If you look at the employment data, the only industry in India that created significant jobs in the high growth period is the construction industry. Let me not go here into the issue why employment grows so sluggishly in India.

Regarding the indirect channel, my objection is that it’s not automatic. Most of the data show that in India, much of the revenue goes towards subsidies. Analysis shows that the overwhelming proportion of subsidies in India go to the relatively better off, the rich, the corporate sector and the middle class. So it’s not necessarily true that just because the government gets more money, it will spend on the poor. Again, let’s look at Modi’s Gujarat government. Under Modi’s tenure, I saw data that the total amount of subsidies to the corporate sector, especially in the form of tax concessions and capital subsidies, was 10 times what was spent on subsidies to agriculture and  food subsidies etc.

In that context, people like Sen say that since it is not automatic that the money coming to the government is spent on the poor, we have to shout for it. In my judgement, they are trying to give strength to the voices of the poor, so that more money is spent on them. The problem is that even if they succeed in getting the government to spend more money, it may not always reach the poor. So there is the question of delivery mechanisms. Sen and Dreze should emphasise this more. Also, they give the impression that all you need to do for growth is spend more money on health, education and continued…

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