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India’s inequality low thanks to more education

One of the remarkable features of India’s growth story,over the past three decades,according to Surjit S Bhalla,has been the fact that inequality levels haven’t risen much.

Written by Fe Bureau | New Delhi |
March 30, 2011 1:38:12 am

One of the remarkable features of India’s growth story,over the past three decades,according to Surjit S Bhalla,has been the fact that inequality levels haven’t risen much. The Gini coefficient,Bhalla pointed out in a presentation to NCAER,was 35.4 in 1983,fell to 33.2 in 1999-00 and then rose to 37.8 in 2007-08 (Bhalla’s findings were,however,contested by Himanshu,Assistant Professor at JNU).

Bhalla’s explanation for this is essentially two-fold. For one,he argued citing facts,that the poorer states’ growth has picked up dramatically over the past few years – nothing but the usual ‘catch-up’ process that resulted in poorer countries like India seeing their growth rising – and also the sharp rise in education levels over the past few decades. If Bihar’s growth rises more than that of a Maharashtra or a Punjab,this means the inequality between the average Bihari and the average Maharashtrian or the average Punjabi falls.

Bhalla cited figures to show the education inequality has also fallen dramatically over the past few decades. Since a higher education results in income levels rising,a higher education for the poor automatically resulted in their income levels rising in relative terms.

As a direction finder for policy reforms,Bhalla’s paper is significant. It shows the government is on the right track when it pushes for more education reforms. He notes that irrespective of gender or geographical differences like urban or rural,there has been a nearly 30% decline in educational inequality in India in the last twenty years. From 0.71 in 1983,educational inequality has steadily declined to 0.52 in 2007-08. He correlates that with reducing income inequality.

While Sudipto Mundle,a discussant for Bhalla’s paper,pointed out that the paper didn’t take into account the role of rising investment levels in India’s growth story,Bhalla pointed out that the role of the middle class was more important. His analysis,of countries across the globe,showed that when the middle class crossed a share of 10%,this resulted in less arbitrary policies and this,in turn,led to higher investment levels.

In overall terms,Bhalla’s model said each 10% rise in the size of the middle class resulted in an increase in GDP by one percentage point; and each one year increase in the average education-years results in a 2.3-3 percentage point hike in GDP growth rates.

Bhalla’s analysis also showed that while India needed to spend 7.8 % of its GDP to eliminate poverty in 1983-4,this is now down to 0.43% right now. This figure,Bhalla said,was roughly equal to the current spending being down on the MNREGA scheme. Does this mean Bhalla is in favour of the spending on MNREGA?

Not really. In a news story in this newspaper some weeks ago,Bhalla examined the record of the MNREGA and found that there were substantial leakages in the programme,and that its efficacy was not much higher than that for other non-MNREGA programmes.

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