Growth Vs Development Debate

The question of growth vs development is in focus again, with the recent Amartya Sen–Jagdish Bhagwati debates regarding development vs growth and Kerala model vs Gujarat model. Newsclick discusses this question with Surajit Mazumdar, Professor at the School of Liberal Studies, Ambedkar University, Delhi. Mazumdar says growth does not automatically translate into development and that the idea of trickle down effect of growth has been discredited many decades ago. He feels that with the rise of neo-liberalism, the old view, 'all one needs to ensure is growth and development will follow', has seen a revival. But the historical experience earlier and even now shows this is not true. Mazumdar emphasises on the role of the State to re-distribute the fruits of growth.

Transcript:

Prabir Purkayastha: Hello and welcome to Newsclick. Today we have with us Professor Surajit Mazumdar from Ambedkar University, Delhi. Surajit good to have you with us. We are going to discuss what has been going around for some time in the press, the Sen-Bhagwati debates regarding development versus growth, the Gujarat model versus the Kerala model. Do you think that there is a substantive difference between the two or much of it is really a part of the media hype?

Surajit Mazumdar: Yes, of course, it is true that the question of growth versus development is a question, and that growth automatically translates into development is not something that even in the field of development economics is widely accepted. The idea of a trickled down effect of growth is something that was discredited many many decades ago.

 

PP: But that is Professor Bhagwati's position consistently.

SM: Yeah, so, of course, with the rise of neo-liberalism, that old view - that all you need to do is ensure growth and that development will follow - is something that has had a revival. Even though historical experience had shown that, not only before the rise of neo-liberalism but even afterwards, it showed that growth does not automatically translate into development. And the fact that it has not been the case even in India in the last twenty years, that you have had growth, periods of growth which have been unprecedented in India's history and yet the general conditions of large segments of the Indian population have not actually progressed during this period. That context has provided the basis for this kind of debate.

 

PP: That raises two important issues. Lets take the first one that you have raised. That what is meant by development? Does development just mean roads, infrastructure, electricity or also development means conditions of the people - education, health etc. So do you think there is also a debate as to what is development?

SM: Well, this, of course, is an old question that development is not just about growth. Even when you get growth in terms of share growth of income, how that income is distributed is of course a question. So it is entirely possible for a economy to grow and grow very rapidly, while the incomes of the large segments of population don't increase. And that has been the case in India.

 

PP: So much larger inequality has been created while the so-called called GDP growth has taken place.

SM: Yes

 

PP: So, effectively the benefits of the growth are going to a certain section and not percolating to the other sections of the people.

SS: When a certain segment of the population's income increases rapidly because of growth, even if the rest of the society is not experiencing a similar increase, it is still possible in principle to think of a process where the State enters into the picture to redistribute the benefits of that growth, so that, if some people grow, that can have a positive effect on the tax revenues of the State and those revenues can translate into expenditures by the State which would contribute to improving the living standards of the majority.

 

PP: Large scale, what would be called the redistributive aspect of a liberal State, not even of a very progressive State but a liberal State.

SM: Yes, that is true. But even that has happened on a very limited scale in India. Maintaining the so-called fiscal discipline, which is maintaining a regime where you have low taxes as well as a low fiscal deficit. When it comes to a choice between that, and spending on areas which have meaning for the large majority of the population, what we broadly call social sector expenditures, when it comes to a choice between two, the choice has always been clear; it is the expenditures of the social sectors, other expenditures that benefit the people that have always taken the axe. It is only in particular periods when the fiscal situation has been relatively comfortable, as happened for a period of time between 2003/4 and 2007/8 because of high growth. And what was the contributor to the government's revenue in that period? Corporate taxes. That provides some bit of revenue for a period of time which allows some increase in expenditure. No dramatic increases in expenditure happened even in that period, if you compare it to overall trends in the economy, but even that has dropped off as the economic situation has deteriorated. And if you look at the Indian government's budget in the last two years, agriculture, rural development, even things like NREGA - the actual expenditures are being cut.

 

PP: Also, in terms of the growth itself; if you take Indian infrastructure - roads, electricity, telecommunications, a lot of these ports - lot of this basic infrastructure which will lead to the manufacturing sector developing has not grown and acts as a huge bottleneck, and what has grown is really the service sector. So, even this aspect of the the growth which is divorced in that sense from physical growth, but really, growth in terms of profits and monetary growth - that's again really a serious imbalance in the Indian economy.

SM: Its one of the least industrial economies of the world; per capita levels of industrial production also are even lower, relative to other countries, because in this, per capita income or GDP is also significantly lower than even many other developing countries. So, in such a country, you have this particular trend of course, that services, and its not just services, of in the last 15 years or so another major sector of growth has been the construction sector..

 

PP: Real Estate..

SM: Real Estate, reflecting the real estate boom, which is largely speculative kind of boom. So construction has been one of the largest growing sectors in the last 15 years. So services and construction have accounted for roughly 73% of the increase in output over the last 20 years. And industrial growth has accounted for a very small proportion, about 18%. So there has, of course, been that imbalance which has reflected itself in other spheres of the economy, for eg, the much talked about current account deficit problem also has a lot to do with that, because India's trade in manufactured products - it has been importing a lot of products and not being able to export significantly and that has been the source of serious problems as far as the India's backwardness is concerned. So, this imbalance in the sectoral growth is also matched by other kinds of imbalances that are there. So, if one looks at the last 20 years, the fastest growing segment of the economy has been the corporate sector. It has grown at a pace at which it has never grown in the past. And in periods of relatively higher growth, at about double the rate of the rest of the economy. And the corporate sector of course, this is the private corporate sector, this is a sector which employs barely 12 million people in a country with a work force of over 450 million. And even the people it employs, even if you look at the distribution of the income generated within that corporate sector, virtually the entire benefit of this growth has gone to the profits or surplus segment of incomes, not to the wages or salaries. Of course, there is a segment of white collar employs whose salaries have grown; but the larger story of the corporate sector, if one looks at the wages of the blue collared workers, real wages, then it has been for 20 years, including in this much talked about period of 2004/5 to 2011/12 when poverty is supposed to have declined rapidly, even in that period what you see is the real wages per worker in the organised industrial sector of the Indian economy have remained flat.

 

PP: Surajit, the last part of the Sen-Bhagwati debate, leaving out the issue of Modi for prime minister, Sen has pointed out that even for the countries which have got lower per capita income than India, basic indicators of health and others have been relatively better. He's given the case of Bangladesh where for instance, infant mortality has come down below that of India's, starting with much higher figure, talked about open defeacation, how 50% of India's population don’t have access to toilets; Bangladesh its only 8 %; also the hunger index shows India to be 15 from the bottom and well below countries which have at least even, probably leas than 2/3 of our per capita income. All of this indicating that growth by itself does not contribute to the improvement of the lot of people.

SM: Yes, of course, that is true. Growth by itself does not contribute; but even as far as this is concerned; in principle - yes, even with this growth and this kind of distribution of income that is there in India, it may have been possible for the State to have done a little bit better as some other lower incomes had managed to do. But that’s still missing the real point, which is, that suppose I am interested in correcting that, what is the impediment to that? The impediment that one faces, and that's got to do with the nature of the growth trajectory also. The impediment to that is, if you are going to pursue a growth trajectory where you are going to rely on private sector to drive the growth in the development process, where you are going to rely on foreign capital to bring in money into the economy, to investment, to finance your current account deficit and things like that, if you are going to rely on them , then how is it that you are going to move towards the situation where you are going to tax them adequately and spend on social sector. The nature of the growth trajectory itself pushes you in a different direction. So if you have a problem as you have today, you have a current account deficit what are you prompted to do? You are prompted to give concessions to foreign investors. When you have a problem, investment is slackening, you are prompted to give concessions to the private corporate sector so that they may invest. So if concessions is the way in which you are going to drive the economy, how is it that you are going to be able to find the way to mobilise adequate resources to do this kind of expenditure? For various historical reasons some countries may be doing better, some countries may be doing a little worse as far as this is concerned. But given the situation that exists, if you pursue the current kind of growth trajectory, there is no way that, that problem can be corrected. That's the point being missed. When you simply talk about the fact that it could be better; of course, it can always be better.

 

PP: So, there's really not much wriggle room given the kind of growth trajectory been followed. So, though it appears to be a huge difference in outlook between Sen and Bhawati, both in effect are not very dis-similar when it comes to the issue of growth. They do differ on the issue of redistributive role of the State.

SM: Yes, that would be a correct way of putting it, that there is some difference in the nature of emphasis they have, but neither is really questioning the essential character of growth process and neither is taking into account the fact that many of the disturbing phenomenon as far as India is concerned on the development front are not despite, but precisely because of the kind of growth trajectory.

 

PP: Thank you Surajit for discussing with us the issue of what should be the India's growth trajectory and the implications thereof. We will follow this issue and this debate as we go along.

SM: Thank You.