Rahul, Modi, Kejriwal all underplay how rising inequality threatens India’s future
One candidate rails against corruption. Another advocates redistribution and empowerment, while a third promises new national pride stoked by development and a sense of Hindu victimhood. Meanwhile, each leader sidesteps a glaring fact about the country they seek to lead: rising economic inequality threatens our future.
Tuesday in the US, President Obama made inequality a centrepiece of his State of the Union address, and tolerance for inequality has been steadily shrinking elsewhere - a trend embodied by Occupy movements from New York toJohannesburg. As politicians scrambled to res-pond, minimum wages rose for British food service workers, Manila housekeepers and Cape Town farmers.
Under international pressure, China addressed inequality by increasing domestic consumption, instead of relying on exports to drive growth. Taxes on the world's ultra-rich rose too, although it remains to be seen how such 'anti-inequality' baby steps will move Gini coefficient dials.
In the Indian election campaign, and in our political debate more generally, it's striking how divorced we seem from this recent global focus on inequality - even though OECD reported that India's income inequality doubled in the two decades to 2011. The word goes unmentioned in Arvind Kejriwal's book Swaraj, in Rahul Gandhi's recent TV interview, and in Narendra Modi's Republic Day blog on his 'idea of India'. It's a detachment that seems especially perverse in the context of our major cities, homes to some of the most extreme inequality in the world.
Perhaps it could be argued that inequality is a classic 'first-world' problem - that median living standards have to rise pretty high before concern over uneven distribution of wealth displaces issues like access to potable water in the hierarchy of policymakers' concerns. But our government doesn't even collect data on income inequality.
Admittedly, constructing such data poses difficulties in India, but by relying on consumption expenditure as a measure of inequality government statistics only soften the picture. Apter studies that exist - for instance, the first countrywide survey of income levels, conducted almost a decade ago - suggest that inequality is higher than Brazil.
Thanks in part to the caste system, Indian inequality has been more deep and pernicious than that of many other nations. And policy tools addressing it have been blunt instruments. In the 1950s, reservations were introduced - intended to be temporary. Two decades later, a punitive and ineffectual tax regime was enacted to redistribute wealth. More recently, rights-based legislations like MGNREGA and food security were passed to deal with inequality's effects.
But inequality's driving cau-ses stayed unaddressed - rooted in the two-tier education system that primes wealthy students to become global crorepatis while granting poor students skills as flimsy as their certificates (if they are lucky enough to get one).
Given a young-and-in-a-hurry population, uneven growth, and grotesquely lopsided wealth - more than 10% of GDP resting with 55 individuals - Indian inequality is provoking domestic tension. That's obvious. Less so is how inequality stealthily defines India's international options.
Globally, economic growth is increasingly seen as (in a reversal of the market liberal axiom) a zero-sum game. Indian and Chinese growth is viewed as a direct threat to the West's well-being: in terms of jobs, environmental conditions, access to resources, and more. That leaves India to pursue its economic fortunes in a world where other states seek ways to push their own inequality effects over to others. You might call this global trend the search for 'inequality offsets': ways to deny the domestic effects of inequality by exporting such effects elsewhere.
The US sought to compensate for stagnant wages by granting easy mortgage finance - creating a subprime bubble that wrecked the global financial system. Europeans turned protectionist, shoring up their own domestic subsidies and jamming the movement of peoples. Meanwhile, in India, our commitment to subsidies as a band-aid for inequalities jeopardises our trade horizons - yielding pyrrhic victories in WTO and possibly locking us out of emerging preferential trading blocs.
Looking ahead, advanced economy governments and their electorates will resist a replay of the China story. India won't be allowed to grow through exports, maintaining low-wage underconsumption among its own citizenry
Illustration: Jayachandran/Mint
One candidate rails against corruption. Another advocates redistribution and empowerment, while a third promises new national pride stoked by development and a sense of Hindu victimhood. Meanwhile, each leader sidesteps a glaring fact about the country they seek to lead: rising economic inequality threatens our future.
Tuesday in the US, President Obama made inequality a centrepiece of his State of the Union address, and tolerance for inequality has been steadily shrinking elsewhere - a trend embodied by Occupy movements from New York toJohannesburg. As politicians scrambled to res-pond, minimum wages rose for British food service workers, Manila housekeepers and Cape Town farmers.
Under international pressure, China addressed inequality by increasing domestic consumption, instead of relying on exports to drive growth. Taxes on the world's ultra-rich rose too, although it remains to be seen how such 'anti-inequality' baby steps will move Gini coefficient dials.
In the Indian election campaign, and in our political debate more generally, it's striking how divorced we seem from this recent global focus on inequality - even though OECD reported that India's income inequality doubled in the two decades to 2011. The word goes unmentioned in Arvind Kejriwal's book Swaraj, in Rahul Gandhi's recent TV interview, and in Narendra Modi's Republic Day blog on his 'idea of India'. It's a detachment that seems especially perverse in the context of our major cities, homes to some of the most extreme inequality in the world.
Perhaps it could be argued that inequality is a classic 'first-world' problem - that median living standards have to rise pretty high before concern over uneven distribution of wealth displaces issues like access to potable water in the hierarchy of policymakers' concerns. But our government doesn't even collect data on income inequality.
Admittedly, constructing such data poses difficulties in India, but by relying on consumption expenditure as a measure of inequality government statistics only soften the picture. Apter studies that exist - for instance, the first countrywide survey of income levels, conducted almost a decade ago - suggest that inequality is higher than Brazil.
Thanks in part to the caste system, Indian inequality has been more deep and pernicious than that of many other nations. And policy tools addressing it have been blunt instruments. In the 1950s, reservations were introduced - intended to be temporary. Two decades later, a punitive and ineffectual tax regime was enacted to redistribute wealth. More recently, rights-based legislations like MGNREGA and food security were passed to deal with inequality's effects.
But inequality's driving cau-ses stayed unaddressed - rooted in the two-tier education system that primes wealthy students to become global crorepatis while granting poor students skills as flimsy as their certificates (if they are lucky enough to get one).
Given a young-and-in-a-hurry population, uneven growth, and grotesquely lopsided wealth - more than 10% of GDP resting with 55 individuals - Indian inequality is provoking domestic tension. That's obvious. Less so is how inequality stealthily defines India's international options.
Globally, economic growth is increasingly seen as (in a reversal of the market liberal axiom) a zero-sum game. Indian and Chinese growth is viewed as a direct threat to the West's well-being: in terms of jobs, environmental conditions, access to resources, and more. That leaves India to pursue its economic fortunes in a world where other states seek ways to push their own inequality effects over to others. You might call this global trend the search for 'inequality offsets': ways to deny the domestic effects of inequality by exporting such effects elsewhere.
The US sought to compensate for stagnant wages by granting easy mortgage finance - creating a subprime bubble that wrecked the global financial system. Europeans turned protectionist, shoring up their own domestic subsidies and jamming the movement of peoples. Meanwhile, in India, our commitment to subsidies as a band-aid for inequalities jeopardises our trade horizons - yielding pyrrhic victories in WTO and possibly locking us out of emerging preferential trading blocs.
Looking ahead, advanced economy governments and their electorates will resist a replay of the China story. India won't be allowed to grow through exports, maintaining low-wage underconsumption among its own citizenry
Using inequality to engineer growth
Income and wealth inequalities have thrown a dark shadow on the support and enthusiasm for the current approach to GDP growth
Illustration: Jayachandran/Mint
Income and wealth inequalities have thrown a dark shadow on the support and enthusiasm for the current approach to gross domestic product (GDP) growth. From a whole range of places—UN-led as well as from other global agencies and scholars. Fact-based arguments are appearing that dramatic and intense increases in national as well as international inequalities in wealth and income are responsible for many of the crises that shook the world recently and earlier.
These reports are supplemented by many academic papers and books, the latest to catch attention being ‘Capital in the Twenty-First Century’ by Thomas Piketty who calls attention to the fact that in the last 30 years inequality has exploded almost everywhere, especially in the United States and the United Kingdom. A review of these current reports from major global economic institutions offers significant lessons for course correction of the Indian economy, and of the macroeconomic policies that are driving it.
A striking report by the UN’s Department of Economic and Social Affairs, called ‘Inequality Matters: Report of the World Social Situation’, presents data on the increase in inequality within nations and globally and argues that “in addition to inhibiting economic growth over time, inequality can also generate greater market volatility and instability.” The report also suggests a relationship between inequality and the onset of economic recession.
The United Nations Development Programme’s 2013 Report, ‘Humanity Divided: Confronting Inequality in Developing Countries,’ shows how the sharpest increases in income inequality have occurred in those developing countries that were especially successful in pursuing vigorous growth and managed, as a result, to graduate into higher income brackets. It says, “Economic progress in these countries has not alleviated disparities, but rather exacerbated them.”
Oxfam has provided the most pertinent comment on the subject. Its 2014 briefing paper ‘Working for the Few: Political Capture and Economic Inequality,’ argues that inevitably, deep inequalities, where a few control the economy, will necessarily lead to decisions in economic policy which would support their interests.
However, into this gloom, a call that can provide the breakthrough comes from the International Labour Organization (ILO), in a paper titled ‘Wage-led Growth, An equitable Strategy for Economic Recovery.’ The ILO makes a strong argument that “It is time to reconsider the validity of these pro-capital distributional policies, and to examine the possibility of an alternative path, one based on pro-labour distributional policies, accompanied by legislative changes and structural policies that will make wage-led growth regime more likely, that is, pursue what we call a wage-led growth strategy, which, in our view, will generate a much more stable growth regime for the future.”
There are of course additional arguments supporting a broad-based employment programme—that the dispersed demand would generate demand for a broad range of goods and services which in turn propels the economy, especially the manufacturing sector and the agricultural sector.
The Indian economic landscape offers a fertile soil for reversing the current reform process, and putting on the ground broad-based growth that does not exacerbate inequality. The Indian economy, despite the prominence given to the corporate sector in public policy, is still tethered in a deeply embedded landscape of ‘small.’
In the farm sector, small and marginal farmers account for more than 80% of total farm households and are crucial in stimulating output as well as food security and livelihoods in India.
The largest employer after agriculture in India are the small and medium enterprises. It is estimated that this sector contributes about 45% of manufacturing output and 40% of total exports of the country and employs about 69 million people. The micro, small and medium enterprises sector has been consistently registering a higher growth rate than the overall growth rate of the industrial sector.
Opportunities for earning a livelihood in hand-driven industries rose between 2005 and 2010-11. The handloom sector as of June 2011, employed 4.3 million weavers/workers, with women contributing a majority (85%) of the pre- and post-loom labour and accounting for over 50% of weavers/artisans in the country. Employment in the handicrafts sector rose from 4.76 million in 2005–06 to 6.88 million in 2010–11. A significant mass of weavers/artisans belong to the scheduled castes, scheduled tribes, and other backward classes and religious minorities.
The khadi and village industries sector also provides a livelihood to about 12.2 million people (1.1 million in khadi and 11.1 million in village industries) by 31 December, 2012.
This review of contributions of the small and low-end sectors clearly indicates the potential in India to develop a wage-led strategy for enhancing gross domestic product growth. What is missing is not just efforts providing visibility to this space and support by various government stimulus programmes to companies, but also the fact that wages and protection by labour laws are grossly lacking in these sectors. Once these are provided, then it would be an opportunity for India to reverse the terms of agreement between capital and labour, the crux of the debate.
No comments:
Post a Comment