25 December 2010
…the naysayers, among them the socialists in the currently ruling Congress Party, have rejected the ‘miracle’ produced by the reforms by asserting darkly that the growth ‘lacks a human face’, that it is not ‘inclusive’, that the gains have accrued to the rich while the poor have been immiserized, that inequality has increased, and that India stands condemned before the world.
Perhaps the most articulate critics are the ‘progressive’ novelists of India, chief among them Pankaj Mishra whom the op-ed page editors of The New York Times regularly and almost exclusively invite to write about the Indian economy, a privilege they do not seem to extend symmetrically to American novelists to give us their profound thoughts on the US economy!
Mishra’s latest Times op-ed on October 2, 2010, writes of the ‘alarmingly deep and growing inequalities of income and resources in India’, ‘the waves of suicides of tens of thousands of overburdened farmers over the last two decades’, ‘a full-blown insurgency . . . in central India’ to defend tribals against depredations by multinationals, ‘the pitiless exploitations of the new business-minded India’, and much else that is allegedly wrong with India!
While economic analysis can often produce a yawning indifference, and Mishra’s narrative is by contrast eloquent and captivating, the latter is really fiction masquerading as non-fiction.
But are the opponents of the reforms right to complain that the reformers have been focused on growth to the neglect of the underprivileged; and that the latter have been bypassed or immiserized?
It has become fashionable to say that this must be so because the Human Development Index, produced by the UNDP, puts India at the bottom, at 135th rank, in 1994. But this is a nonsensical index which reduces, without scientifically plausible weights, several non-commensurate elements like literacy and health measures to a single number.
It is a fine example of how bad science gains traction because of endless repetition by the media: it must be dismissed as rubbish.
There is no substitute for hard, scientific answers to the questions concerning what has happened, during the period of reforms and enhanced growth, to the poor and the underprivileged: and these answers, as I will presently sketch, are more benign.
After a considerable debate, it is now generally accepted that the enhanced growth over nearly 25 years year was associated with lifting nearly 200 million of the extreme poor above the poverty line. By contrast, consistent with commonsense, the preceding quarter century with abysmal growth rate witnessed no perceptible, beneficial impact on poverty.
Then again, at a narrower level, the political scientist Devesh Kapur and associates have studied the fortune of the Dalits (untouchables) in India’s most populous state, Uttar Pradesh, between 1990 and 2008, to find that 61 per cent of those surveyed in the east and 38 per cent in the west said that their food and clothing situation was ’much better’.
Most striking is the finding of the political scientists Al Stepan and Yogendra Yadav, drawing on polling data produced by the Center for the Study of Developing Societies in Delhi, that for every disadvantaged group including women, the response to the question ’Has your financial situation improved, worsened, or has remained the same’ posed in 1996 and again in 2004, shows that every group has overwhelmingly remained the same or improved: those who claim to have worsened are invariably less than 25 per cent of the respondents.
As for the relative economic outcomes of the disadvantaged groups, the economist Amartya Lahiri and associates have studied India’s ’scheduled castes’ and ’scheduled tribes’, two particularly disadvantaged categories, and conclude that the last twenty years of major reforms ’have seen a sharp improvement in [their] relative economic fortunes’.
Then again, using household expenditure data for 1988 and 2004, the Johns Hopkins economists Pravin Krishna and Guru Sethupathy conclude that inequality, using a well-known measure invented by the Dutch econometrician Henri Theil, while showing initial rise, had fallen by 2004 back to the 1988 levels: a straight rise in inequality cannot be asserted.
I should also add that many reforms help the poor more than the rich because the rich can cope with the results of inefficient policies better than the poor.
If the public sector generation and distribution of electricity is inefficient, and the electricity goes off in the middle of the night in Delhi’s summer, the rich turn on their private generators and their air-conditioners continue working.
But the poor man on his charpoy swelters as his small Usha fan is not working. Those who object to letting in Coke and Pepsi forget that the common man derives his caffeine from these drinks while the well-off critics get theirs from the Espresso and Cappuccino coffee in the cafes.
The most interesting political implication of the success in finally denting poverty significantly, though nowhere enough, is that poverty is now seen by India’s poor and underprivileged to be removable.
India is witness finally to what I have called the Revolution of Perceived Possibilities. Aroused economic aspirations for betterment have led to political demands for the politicians to deliver yet more.
This suggests, as my Columbia University colleague Arvind Panagariya and I have hypothesized, that voters will look to vote for the politicians who can deliver growth, so that we would expect growth before the vote to be correlated with vote now.
In an important paper, Poonam Gupta and Panagariya have recently tested for this hypothesis and indeed found that it works. So, this implies that politicians should be looking to augment reforms, not reverse them as misguided anti- reform critics urge.
So, politicians would do well to strengthen the conventional reforms, which I call Stage 1 reforms, by extending them to the unfinished reform agenda of the early 1990s. In particular, further liberalization of trade in all sectors, substantial freeing up of the retail sector and virtually all labour market reforms are still pending. Such intensification and broadening of Stage 1 reforms can only add to the good that these reforms do for the poor and the underprivileged.
But these conventional reforms have also generated revenues which can finally be spent on targeted health and education so as to additionally improve the well-being of the poor: these are what I call Stage 2 reforms.
When ’progressive’ critics argue that Stage 2 reforms must replace Stage 1 reforms, because they appear superficially to be more pro-poor, they forget that Stage 2 reforms have been made possible only because Stage 1 reforms have been undertaken.