T N Ninan: Growth vs equity

WEEKEND RUMINATIONS

For the last 60 years, India has engaged in the growth vs equity debate. Even current debates on government initiatives hinge on the choice (or tension) between these two objectives.

The issue is crystallised in the problem of poverty, the question being: do equity-oriented policies lead to faster poverty reduction, or is economic growth the more effective answer?

This is a debate where ideology, personal predilections and set positions usually determine what is said. In India, the debate has been complicated by disputes about government data.

Fortunately, it is possible to move away from these arcane arguments, and look at some basic facts.

This month has seen two key documents come out: the annual Human Development Report (HDR), brought out by the UN Development Programme, and the World Development Report (WDR) published by the World Bank.

The striking point to note in the HDR is that the vast majority of countries that have a better score than India on the composite Human Development Index also have a per capita income. There are exceptions, notably from the Central Asian republics, which were part of the Soviet Union.

For almost all of the rest, higher income per head seems to translate into a better human development index. This would suggest that the primary driver of human development is income. Round one to those who favour growth.

Switch now to the Millennium Development Goals, drafted by the UN in 2000. It is no surprise that almost all the reduction that has been achieved in terms of people coming over the poverty line has been achieved because of China and India, which as it happens have been among the fastest- growing economies in the world since the millennium goals were set. Once again, the argument seems to favour growth.

Turn next to measurements of inequality, done by using the Gini co-efficient, where the more equal a society, the lower is its score on a scale of 0 to 1. India scores 0.33. Almost all the countries that do significantly better (i.e. those with a score better than 0.30) belong to the former communist bloc, or to Scandinavia.

Outside of these special categories, the only countries to emerge as significantly more equal than India are Japan, Taiwan and Pakistan.

As against this, almost all countries in South America and most countries in Africa (e.g. Brazil, Argentina, South Africa, and so on) are significantly more unequal""with a Gini co-efficient in all cases more than 0.50. Even China scores an unflattering 0.45.

This would suggest that India is a middle-of-the-road country when it comes to inequality, and significantly more equal than its main competitor country. Unless we want to be Olympic champions in the equality game, there is no heavy agenda waiting for action.

However, that conclusion must be tempered by the qualification that India measures consumption inequality, whereas some other countries in the WDR table measure income inequality.

Since the rich save more and consume less in proportion to their income, the comparisons are slightly flattering to India. This would suggest that there is in fact room for moving toward greater equality.

That last conclusion is buttressed by comparisons with countries in the same income band as India, on what percentage of the population lives on less than a dollar a day. India's per capita income is shown as $620, and 35 per cent of its people live on less than a dollar a day.

In comparison, countries like Yemen and Senegal, with comparable incomes (a 15 per cent variation), do better than India. And countries like Laos and Mozambique, which have much lower per capita income, compare with India on the percentage of people living on less than a dollar a day.

In other words, India can do better on the poverty ratio, even at current levels of income. This would suggest that those arguing for greater equity have a case.

The only fair conclusion can be that both sides of the argument have a point. India does need faster growth, and it does need to address the concerns of the poor. You can decide whether the UPA government is doing one or both or neither.