Commentators in recent months have been in the thick of the age-old debate on whether growth or redistribution is the key to dealing with poverty. At one level, the United Progressive Alliance's emphasis on redistributive mechanisms, many of them legally enshrined as rights, is being provided analytical foundations by those who argue that the country simply cannot wait for the fruits of growth to trickle down. At another, those who despair the government's apparent dilution, for whatever reason, of its commitment to growth-accelerating structural reforms do so because they see the cause of poverty reduction suffering as a result. As with any debate, ultimately the facts are the judge.
The analysis of poverty trends between 2004-05, 2009-10 and 2011-12 recently published by the Planning Commission provides some insights into which of these forces has the greater impact. The National Sample Survey Office, which conducts large-sample consumer expenditure surveys roughly every five years, changed its routine to do one after a gap of only two years. This was motivated by the perception that 2009-10 was a drought year and that, by capturing the effects of drought on poverty, this survey would underestimate the positive impact of sustained growth. In effect, the "growthists" would have a stronger case for their policy platform if the poverty decline over a high-growth period was substantial. Ironically, though, the 2011-12 survey suggests that facts work in favour of the "redistributionists". Over the two years between surveys, growth slowed, while the flagship redistribution programme, the rural employment guarantee scheme, spread throughout the country. Against this backdrop, poverty at the all-India level declined by a massive 7.9 percentage points in these two years, with rural poverty declining by 8.1 percentage points. In comparison, during the period 2004-04 to 2009-10, when the economy's growth performance was stellar, poverty declined by 7.4 percentage points. On a per-year poverty reduction metric, the redistributionists clearly win.
But somewhere between these two extremes, the "realists" must assert themselves in this debate. It is naive to think that a two-year pattern of redistribution can be sustained indefinitely without the financial capacity that only sustained growth can create. In fact, it was the enormous fiscal space emerging from rapid growth that allowed redistributionist programmes to become a reality. As this space diminishes, which is inevitable if growth continues to be sluggish, the government will find it increasingly difficult to meet the promises it has made. On the other hand, it is equally naive to expect social acceptance of an association between growth-oriented policies and a highly unequal access to the benefits of those policies. These policies and, consequently, the outcome of sustained and rapid growth can only be persisted with if large numbers of people benefit and are enabled to benefit. This is not just a matter of co-opting political support; it is the essential purpose of good economic performance. While the growthists and redistributionists may want to engage in the debate by putting as much distance between them as possible, the politicians who draw inspiration from these debates for their strategic choices would be best served if they recognised the fundamental complementarities between growth and redistribution.
