Limits of Growth-centric Approach in Targeting Poverty and Inequality

Book Review

High growth, Rising Inequalities, Worsening Poverty: India’s ‘Development’ Experience by Kamala Nayan Kabra; Books for Change; 2008; pp. 130; Rs 190.

The disconnect between high growth and poverty reduction in India is precisely because of a strong belief in official circles that growth itself can take care of the issues related to poverty and inequality. And the belief itself stems from a specific political economy of understanding and defining poverty. This is what Prof Kamal Nayan Kabra has argued in his book which happens to be small in volume but provides a large canvass that can sensitise research in various dimensions. It is not only a critique of the whole approach that has been hitherto followed in the name of poverty alleviation; the book also throws light, although in a rudimentary form, to what could be the alternative path to include those left out in the peculiar trajectory of growth. India has not been able to make any worthwhile dent in the incidence of poverty, inequality and livelihood inadequacy over the post-Independence period. Despite the fact that significant achievements have been made in the past two decades in terms of GDP, there simultaneously exists the largest concentration of people without guaranteed and minimum subsistence. The author’s central argument is that the failure on this count is not a question of mere execution, the crux of the problem lies elsewhere: the very definition and measurement of poverty in terms of static absolute physiological norms based on daily energy replacement. The understanding of poverty at its core is thus a denial of sharing relative increments, the prophecy of demeaning human needs and legitimising deprivation by way of using a frozen yardstick.

The author elaborates how the fruits of growth have been hijacked by the privileged, how priorities changed accordingly and the kind of ‘economic obscenity’ that has surfaced in the blaze of concentrated wealth. The other side of the story is abysmal poverty and pervasive inequality, swelling regiments of unemployed and loss of livelihood of large sections of peasants, petty-producers and informal workers. The small book addresses a grand question: if the present structure of growth reproduces inequality and deprivation then what could be an alternative framework in which growth generates capabilities to the poor in order to get rid of their age-old livelihood deficit?

In the first chapter the author argues that the concept of poverty used in official circles is driven by growth fundamentalism. It is based on the notion that growth reduces poverty in the following ways: by incorporating people through labour market channels; through spread effects of higher demand and investment; and finally by provisioning of capability enhancing public and quasi-public goods by the state. This notion is insensitive to distributional aspects and because of the conscious neglect of such aspects neither resources had been allocated towards production of wage goods nor did social wage increase by adequate provision of public goods. The market failed to answer problems of social welfare and the political process being mesmerised with growth-centric parameters lost sight of the real issues of the poor. Prof Kabra refutes the energy-consumption based notion of poverty that uses consumption as a proxy of income. There is an implicit denial of the claims of the poor in such conceptual construct that assumes the poor has no savings and hence no contribution to growth. It grossly ignores redistribution in the sense that the official poverty line reflects a sharp decline in relation to per capita income over the years. The author argues that the calorie norm fixed in the year 1973-74 got periodically upgraded in terms of price index, but it represented 62 per cent of per capita income in the initial year which has come down to 17 per cent at present. And the argument goes that if the poverty line were fixed at a level that maintains the relative position of the poor as it was in the early 1970s, the actual number of the officially recognised poor and their proportion to the total population would have been far greater than the present number and proportion publicised by the policy-makers. What is more ridiculous, as the author says, is that a person capable of spending marginally higher than Rs 12 per day is considered above the poverty line according to the official definition.

The neglect of the relative claims of different strata in society is reflected in policies by treating poverty and inequality as separate issues. In the second chapter the author suggests that reducing inequality has never been considered a serious policy objective. As a result inequality increased and that can be captured by several indirect indicators. The share of labour income in both agriculture and non-agriculture GDP declined while the share of property income increased sharply during the liberalisation process. Profits of corporates increased much sharper than their sales and the share of wages in sales turnover declined. The rural-urban divide has increased and there is structural retrogression reflected in the increasing gap between the share in employment vis-a-vis output in the case of both agriculture and manufacturing. Concentration of wealth has increased manifold by way of which the wealth of 36 Indian global super-rich is equivalent to 25 per cent of India’s GDP.

In the next chapter the author critically evaluates the Plans in three phases: 1950-1966, 1967-1990, and 1991 onwards. The planners in the initial phase were conceptually agreed that there needs to be a two-pronged strategy of achieving growth and redistribution of gains but in the end they prioritised growth assuming that issues of poverty can be taken care of once the economy moves to a higher growth path. Researchers and scholars during the early planning period recognised the fact that policies aimed at reducing poverty in our country should be supported by measures that restrict the wasteful consumption of the rich so that resources don’t get diverted to lesser priorities. But postponement of the elites’ agenda was compromised in policies with the fear that this would be counterproductive to growth because they are the sources of savings, entrepreneurial talent and technical skills. As a result policies that attempted to address the issues of the poor remained as adjuncts to the dominant growth strategy. The author argues that poverty reduction was never considered a separate target till the Fifth Five Year Plan and significantly for a long period of time there was no systematic statistics on poverty and inequality from official sources. In the second phase there was no directional departure in handling issues of poverty; nevertheless, a large number of anti-poverty income transfer and small scale income generation programmes were introduced. Because of the fact that anti-poverty programmes introduced during this period were not based on objective criteria, they fostered a kind of patron-client relationship between the state agencies and the targeted beneficiaries. In this context the author questions the notion of transfer payment since it remains a question whether there is any net transfer actually taking place. Because indirect taxes constitute a major source of revenue in our country and on the other hand inflation continuously weakens the purchasing power of the poor so it is not that the net burden of financing these programmes is placed on the better-off sections.

The third phase, qualified by neoliberal reforms, marks the shift in goal posts from poverty alleviation to inclusive growth. It addresses the issues of poverty by linking it with a grand programme of shifting people from agriculture to non-agriculture. The author questions the assumed trajectory as the industrial sector in India yielded poor employment elasticity and resulted in increased unemployment. Hence what remains unresolved given the pattern of growth and composition of output is how people shifted from agriculture would be absorbed in non-agriculture. The author, however, acknowledges that during this period owing to the fact that the Left acquired leverage in influencing policies in a coalition regime, policies such as NREGP came into force which is arguably the most visible initiative on the issue of poverty despite all its limitations in terms of coverage and execution.

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The concluding chapter proposes an alternative trajectory based on the evaluation of existing policies. It is argued that growth can be inclusive either by linking growth to increments in employment or by contributing to the consumption basket of the poor. On both counts the existing policies failed miserably. Given the technological choices in favour of capital, growth has not led to higher employment and at the same time the commodity composition of output, especially of its incremental part, prevented it from entering the consumption basket of the poor. Hence policies aimed at addressing issues related to poverty and inequality should favour production of wage goods that assure access to a minimum level of consumption to all and create employment supported by an appropriate innovative policy that does not depend upon transferring technologies, that is, those created in the context of an altogether different factor of endowments. The author further argues that total rejection of modern industry and infrastructure in any case would actually exclude the poor in receiving the benefits of modern science and technology. Hence, a policy of walking on two legs, simultaneously following the path of expansion of the traditional sectors and the modern sectors on the basis of innovative organisational and technological models is required.

The book is an excellent exposition of the dilemmas in policy circles in targeting poverty and inequality, the limits that arise because of the growth-centric approach and the way issues of the majority are marginalised by conspicuous absence of related data and the hegemony of the elite agenda. But what Prof Kabra proposes as an alternative is a marked shift, if not a radical shift, in prioritising objectives, a shift in allocation of resources that leads to restriction on elite consumption and favours production of wage goods and this shift to a certain level reduces the use of capital intensive technologies resulting in higher employment. Not denying the fact that such a sketch of an alternative can provide a directional change to the policies, it must be pointed out that this obviously relates to the broader question of degree of engagement of the Indian economy in the process of globalisation. In this context the issue of reframing priorities has to be linked to the dynamics of conflicting forces constituting the structure of policies. The choice of technology is again a difficult issue to resolve because relative closure to global changes might throw producers in a perpetual technology-gap that also hampers future course of competitiveness. In the present context a question also arises regarding the feasibility of ‘walking on two legs’—can large scale industrialisation really go together with the expansion of traditional petty production? And if they can, what could be the possible ways in which simultaneous expansion does not remain locked in an exploitative relation and proliferation of informal segments does not necessarily signify swelling of the ‘reserve army’? These are some of the issues that can be taken up for further research which perhaps the author has not entered into given the limited scope of the book.

Finally, this book is worth reading for all those who still take lots of pains in their quest for an alternative and have not given up the intellectual battle in the terrain of contesting policies either because of mindless hibernation or due to mind-blowing lofty ideals having no faith on small things such as influencing policies.

The reviewer is an Assistant Professor, Institute for Studies in Industrial Development, New Delhi.