Economic Growth vs Development: Stirring up the Sen-Bhagwati debate

By Raavi Aggarwal

Sen-Bhagwati1--621x414The Indian subcontinent is a land of antithetical diversity in terms of culture, linguistics and economic disparity. Rich and poor households are thread together in a contiguous fashion even in the most urbane and cosmopolitan of cities like Delhi and Mumbai. In times of such rapid economic advancement, which policy measures will definitively ensure an increase in the per capita income and a bridging of the income inequality in India? Is it a strong emphasis on economic growth or greater focus on wholesome development measures and an equitable distribution of income?

The popular debate between Amartya Sen and Jagdish Bhagwati, two eminent Indian economists centers on this tussle between growth and development. While Sen advocates economic policies that are more development oriented, with provisions for social welfare schemes and investment in the public sector, Bhagwati believes the prime focus ought to be on increasing the GDP growth rate and in turn reducing the headcount ratio of poverty. Sen prioritizes the development of human capabilities through quality education and health programs that would enhance labor productivity.

A more resourceful workforce would thus enhance GDP growth and attenuate income gaps. Moreover, Sen lauds the models of development followed by the states of Kerala and Tamil Nadu and emphasizes the importance of state interventionist policies through these models. In addition, Amartya Sen condemns the use of subsidies, particularly redundant ones, as he believes they hinder the growth process and place excessive burden on the government. He says, “What I don’t like is that when people talk about fiscal responsibility, they do it while sitting in their AC rooms, powered by subsidized electricity, eating food cooked by subsidized gas and travelling in subsidized diesel cars.”

On the other hand, Jagdish Bhagwati proposes a tacit approach to tackling the perennial challenge of poverty. He suggests an increase in the GDP, which would provide sufficient resources to then extirpate poverty. However, a fundamental question that comes to mind is whether a reduction in poverty comes about solely through economic growth. In 1993-94, India achieved a growth rate of 3.8% and observed a staggering 37% of its population below the poverty line. Two decades later, in 2013-14, the GDP growth rate increased to 4.9% but the poverty level, settled at 26%, has not declined nearly as commensurately.

Thus, other factors are clearly at play. During these ten years, the Congress party has brought about many reforms and launched various social welfare schemes that have contributed to reduction of poverty. The introduction of Mid-day Meal scheme, Sarva Shiksha Abhiyan, the National Rural Employment Guarantee Act and a revamp of the Public Distribution System have aided in ensuring food security and access to health and education for children.

Upon further extrapolation, one may ponder over the importance of investing in welfare schemes vis-à-vis in companies and infrastructure that would be economically rewarding for the government. But a dearth of funds allocated to the health and education sectors is exactly what deprives India of a high per capita income. The national income standing strong at $1.8 trillion exceeds that of many countries such as Singapore and Australia but the per capita income flags at a paltry Rs. 7,500 per month. This leads to stark income inequality with the richest 5% of the population living a life of luxury and the poorer sections of society slogging away to procure two square meals a day.

Due to our burgeoning population and a scarcity of jobs, a large portion of the workforce is employed in the unorganized sector and engages in disguised unemployment, a situation where a labourer performs work much below his potential. Thus, the gravity of India’s development lies in building human resource and developing a high quality workforce through education, nutrition and health schemes. In fact, renowned economists such as C P Chandrasekhar and K S James have argued that for India to truly realize its demographic dividend, the macroeconomic policy environment must facilitate the creation of a highly skilled labour force and a removal of institutional bottlenecks.

With that established, in which direction can India’s growth story be expected to head? The budget for this fiscal year presents a lucid picture of the key areas of focus for the Modi government. The government has placed tremendous importance on enhancing health and sanitation facilities through the initiation of welfare services for women, community water purification plants and “Swachh Bharat Abhiyan”, via which every household will have access to sanitation facility by 2019. Further, the government aims to tap into the Research and Development potential of India’s workforce and intends to construct several medical colleges and more AIIMS-like institutes to study the causes of local diseases in Indian villages.

Moreover, a national program will soon commence in order to tackle malnutrition and to improve the efficacy of the Public Distribution System. The government also plans to build sound and improved infrastructure in schools including a provision for toilets and safe drinking water. Further, a substantial allocation of Rs. 28,635 crores has been made to bolster the Sarva Shiksha Abhiyan scheme, along with separate allocations for building of several IITs and IIMs in various states. All in all, even though the allocation in the fields of human development is a modicum amount when compared to large investment projects for railways, ports and industry, it’s a positive initiative towards ensuring access to food, health and education to all-a fundamental right of every citizen in the country!

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