Hocus-focus: India’s growth story is marred by bad distribution. Here’s how

The Chief Economic Advisor (CEA) to the Government of India recently gave a long interview on television during which a wide range of economic issues of current significance were discussed.

The host - a lapsed economist, as he termed himself - focused on a set of economic issues of interest which were revealing not only in what was focused on but also in what was completely ignored.

The contents of the interview

Negative credit growth - indicative of sluggish private investment - was deemed disturbing, as was fiscal tightening by the central government, accompanied by the Reserve Bank of India’s insistence on not reducing the repo rate. This despite the welcome drop in inflation levels below the 3% mark.

Export growth in the face of a strengthening rupee was lauded as it was considered a necessary, though not presumably, a sufficient condition for overall growth.

Rating agencies that ignored our ‘macro- economic stability’ and rated us poorly vis-a-vis China with a much higher credit to gross domestic product (GDP) ratio were trashed. The Goods and Services Tax (GST), despite its plethora of rates, was lauded.

The subject of demonetisation was dodged with some reference to long-term potential benefits.

‘Televisionitis’

Towards the end, the CEA was asked what kept him awake at night. He said two things: one short term, on the NPAs of banks and the related over-indebtedness of the private sector.

But, before he could elaborate on the long-term issue, the host interrupted him.

Here, it is essential for a viewer to categorically express his dismay at the ‘televisionitis’ that afflicts all TV hosts in Indian media - the term being defined as the inability of hosts, even senior ones who should know better, to let the interviewee speak without interruption especially when the latter is articulate, informed, intelligent and has something important to say.

Ignoring issues of distribution entirely can be a symptom of many possible maladies

We could not therefore, get what long-term issue kept the CEA awake at night and the loss was ours.

More important, however, was what was entirely ignored in this otherwise extremely interesting discussion. Both the host and the distinguished interviewee focused on macroeconomic issues of growth and neither thought to talk about distribution and the wide range of issues related thereto.

The distributional consequences of growth

It can and has been argued that growth is a necessary condition for poverty reduction and therefore takes precedence over distributional issues. However, the manner in which growth occurs, the structures within which it happens determine the distributional consequences of growth and it is fairly well established that our growth pattern has not been especially ‘distribution friendly’.

Growth of skill-intensive services and capital-intensive industry - with a ‘missing middle’ (labour-intensive mid-sized firms) - has left far too many people behind over the years. A rising tide does lift all boats, but not those which can no longer float! Growth does trickle down but only to the catchment areas of a limited ‘middle class’ - the rest remain outside looking in.

Economists do not always take social issues seriously but why else would agriculturally dominant castes be demanding reservation? The burgeoning working age population has nowhere else to go.

Need for equal distribution

Ignoring issues of distribution entirely can be a symptom of many possible maladies. One extreme view can be that it indicates a complete lack of concern about the issue - if we can grow, the World Bank and the IMF will be happy and over time the poor too will somehow benefit, we trust.

A less cynical reality may be one in which growth is brought about without any structural changes - it’s too expensive politically to do major course corrections - and the task of uplifting the less fortunately endowed can be left to minimum wage public works programmes and other such ‘poverty alleviation ‘ measures.

Such ‘anti- poverty’ instruments, if well funded and efficiently managed with minimum leakages, can of course ensure a near subsistence survival for the reasonably able-bodied in dire straits.

They cannot, however, even pretend to bring about ‘sab ka vikas’ because ‘vikas’ is more than subsistence - it requires an equitable distribution of opportunity, a freedom from poor education, ill health and the inability to acquire any marketable skill. 

Changing ground realities is a difficult, if not impossible task, but one lesson our politicians and their attendant bureaucrats have learnt very well over the years is that a strong catchy slogan delivered with a touch of charisma can carry them a long way. And who knows, miracles do sometimes happen and Godot may actually appear-someday, somehow.