Equity: the unaddressed agenda

Indian economists and policy makers have debated the relationship between GDP growth, poverty and inequality right since Dandekar and Rath published their landmark study of poverty in India in 1971, outlining its structural (and persistent) character. A rich, robust and extremely contentious debate has emerged on the extent, causes and measures of and remedies for India’s poverty. The debate suggests that official figures such as 26-28 per cent (or even the 39 per cent suggested by the Tendulkar committee) significantly underestimate poverty, and that the translation of National Sa­mple Survey data into poverty numbers through estimates of calorie consumption based on aggregation of food prices across districts is open to question. Using disaggregated data, researchers have reached pov­erty estimates as high as 50 per cent plus. The national commission on employment in the unorganised sector estimates the ratio at 77 per cent, based on a daily expenditure of Rs 20.

However, economists who dominate policymaking tend to ignore these huge differences. Only slightly less contentious is the relationship between GDP growth and poverty reduction. There is overwhelming evidence that rapid GDP growth is no longer the principal driver of poverty reduction, if it ever was. The past two decades have seen 6 per cent-plus growth—the highest in a century. But the income and employment effects of this process are weak, skewed and inadequate in addressing poverty. Thus, even 6-7 per cent growth has meant only a 1.1-1.3 per cent rise in employment in the recent past—well below the 2 per cent rise during the 1950s and 1960s when growth clocked the “Hindu rate” (3-3.5 per cent). Growth has become more skewed, inequality enhancing and disempowering of the poor than 20-30 years ago.

Recent high GDP growth has failed to raise the nutrition level of the population, a third of which is under-nourished, with a body mass index under 18.5. The proportion is well over half among Dalits and Adivasis. Little improvement has taken place in the appalling nutritional status of children or lactating mothers, almost half of whom are underweight, stunted or anaemic—a record worse than sub-Saharan Afr­ica’s after a quarter century of civil war and famine in many countries.

Clearly then, “trickle-down” from “normal” growth cannot substantially reduce, leave alo­ne eradicate, poverty or reduce unconscionably widening inequalities—unless its distribution is consciously directed towards equity. This demands concerted public action thro­ugh a massive expansion of basic services so they become universally accessible, and a well-designed, comprehensive, frontal assault on poverty thr­ough assets (especially land) redistribution, and generation of employment and income with social security. The scale of finances needed to sustain such programmes was considered daunting by conservative economists 10 or 15 years ago. Wrongly, because the requirement is of the order of 5-8 per cent of GDP, which is eminently affordable, indeed in line with the state’s obligation to the underprivileged.

Today, even that excuse cannot be advanced. Government is better placed than ever before to fund large-scale anti-poverty schemes. Under the latest budget, the Centre’s revenues are estimated to rise by Rs 104,918 crore to Rs 682,212 crore in 2010-11. Last year, the increase was about one-third. To fully appreciate the Centre’s revenue-richness, its net tax and total revenue receipts have risen by an unprecedented 290 and 270 per cent since 2003-04. Put simply, the state is capable of spending almost thr­ee times more on social services and poverty eradication. Luckily, it doesn’t even have to bother about stimulating GDP growth, which has recovered from the slowdown.

Yet, Pranab Mukherjee’s fir­st full budget has failed to seize this precious opportunity and raise social spending by a decent magnitude. The increase in the allocation for the flagship NREGA is a measly 2.5 per cent. Only Rs 1,000 crore has been earmarked for the National Social Security Fund, meant to support over 600 million. The food and fertiliser subsidies have been cut by Rs 3,400 crore.

Agriculture, in acute distress, gets a mere additional Rs 900 crore. This won’t arrest fast-rising farmers’ suicides or bring temporary relief to dryland pulses and oilseeds growers. Even literacy and primary education get only 2.8 per cent of GDP, up from 2.7. The central health budget has dro­pped marginally, ensuring sta­gnation in the national he­alth allocation at 1.4 per cent of GDP, the same level as war-ravaged Afg­hanistan, Rw­anda or Co­ngo. Rural development allocation has been raised by under 6 per cent when food inflation rages at 18 per cent.

Even worse is Mukherjee’s approach to equity. The direct-indirect tax ratio, which unsteadily improved a bit for a few recent years, has got ske­wed with the tax breaks of Rs 26,000 crore to the top 10 per cent of the population, which already enjoys among the lowest tax rates in the world, estimated to average under 11 per cent in 2002. Mukherjee’s eagerness to ple­ase the 30 million-odd individuals in the income tax net at the expense of the other 1,100 million Indians is only mat­ched by his soft treatment of the private corporate sector—which pays astoundingly low tax rates—and increases in iniquitous indirect taxes. Muk­herjee doesn’t even begin to address In­dia’s obscene rich-poor, inter-sectoral and geographical inequalities. Th­is is a rec­ipe for descent into more social stri­fe, chaos and violence.