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V.S. Sambandan

V.S. Sambandan is Chief Administrative Officer, The Hindu Centre for Politics and Public Policy. He holds a PhD degree in Economics from the University of Madras, India, and an MBA degree from Bournemouth University, UK. During his journalism career he has reported and written extensively on economics and social issues and served as The Hindu's foreign correspondent in Sri Lanka for six years during the Sri Lankan separatist conflict.

sambandan.vs@thehinducentre.com

POVERTY Vs GROWTH

Bhagwati, Sen and India's fight against poverty

V.S. Sambandan
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A roadside vendor in Vijayawada, Andhra Pradesh, takes a break to have a quick lunch; the issue of eradicating poverty while ensuring economic growth remains a challenge for India.

V.S. Sambandan of The Hindu Centre for Politics and Public Policy critically assesses the implications of a recent debate, between distinguished economists Amartya Sen and Prof.Jagdish Bhagwati, that revisits issues of growth and equity, saying that to better understand, and gain, from the debate, it is essential to place it in the context of India’s fight against poverty and the performance of its social sector.

It’s been described as a war of words between India’s two internationally renowned economists: Amartya Sen and Jagdish Bhagwati. To the pessimist, it was a clamour to outsell books by the distinguished authors – not really an argument, but more of a cynical wag’s dismissive taunt. To the over-interpretative media, it was a proxy Rahul Gandhi Vs Narendra Modi for the real Congress Vs BJP clash of the political parties in the next Lok Sabha elections.

To economists it is a matter of much more significance as this relates to core policy-making in a developing economy that aims to reduce its stubborn poverty. The questions that arise are both economic and political. In the area of economics, the key ones are what economic tools does a state use to provide a boost to growth and reduce poverty, and what is the role of the state, specifically, in economic policy making that address social issues?

The debate has also strayed into the political discourse, with Bhagwati’s endorsement of the Gujarat model of development at a time when the world’s largest democracy heads to the polls, due by mid-2014. This gives rise to the important political question: is economic efficiency, even if borne out by official figures, an adequate enough measure of success to justify a political ideology?

Bhagwati contra Sen: an assessment

S. Subramanian

It is a perfectly defensible intellectual position to turn one’s back on the Sen-Bhagwati dispute and have nothing to do with it. However, if one chose to assess the nature and significance of the difference, then I’m not sure that it is accurate to characterise the dispute as one in which there wasn’t, after all, and at bottom, much of a difference in the positions of Bhagwati and Sen, and that, in the end, it was just a matter of relatively mildly differing emphases in their respective points of view.

To see what is involved, it is useful to ask what are the respective salient claims of Sen and Bhagwati that seem to have featured in the controversy involving the two economists and their respective supporters, and to ask also how exceptionable or otherwise these claims have been. On Sen’s side, it would appear that the following claims have been important aspects of his perspective on India’s development: (a) that ‘fetishizing’ growth for its own sake is unproductive; (b) that enhancing human capabilities, especially in the matter of improving people’s status with respect to poverty, inequality, health and education continues to be a priority item on India’s development agenda; (c) that the State has an active interventionist role to play in securing these aspects of human capability for its citizens; (d) that Kerala, Sri Lanka, Cuba and Costa Rica are examples of important sites in which public action, rather than growth in per capita income as such, has played an important role in human development; (e) that nutrition, education and health are vital inputs into the growth process, and wide-spread country evidence suggests this rather than that one has to wait for growth to happen before one can think of improving peoples’ standard of living; and (f) that democracy is important, both intrinsically and instrumentally, for human development.

I find it difficult to quarrel with any of these propositions. It could be held, of course, that the claims are somewhat trite, but it is hard to question their relevance or their rightness when the objective circumstances triggering their articulation have changed so little as to warrant silence on the subject.

Of the salient claims made by Bhagwati and Co., one is that poverty has been well-served by growth in India. I believe it is right to entertain some doubt on two matters associated with such a claim: (i) has the reduction in money-metric poverty, based on the dubious official methodology of identifying the poverty line resorted to by both the 1993 Planning Commission Expert Group and the 2009 Tendulkar Committee, really been as dramatic as the official statistics suggest?; and (ii) even if there has been some reduction in money-metric poverty, how can it all be attributed to growth and not also to direct anti-poverty State policy?

Additionally, whether we speak of money-metric poverty, or multidimensional deprivation, are current levels of privation acceptable with respect to their absolute magnitude, and in relation to either India’s potential for poverty-reduction or the achievements of countries that started at comparable levels of under-development?

A second major claim [by Bhagwati & Co.] is that growth in India has not been seriously inequality-increasing. Trends in the evolution of interpersonal inequality in the distribution of both consumption expenditure and household assets, however, suggest an over-time increase if inequality is measured in terms of a ‘centrist’ index rather than a purely relative or ‘rightist’ index of inequality.

One supposes one can have a debate on how serious widening economic inequality is (both morally/politically and for its effects on efficiency, public health, and conflict), but it is altogether another matter to pre-empt such debate by altogether denying a rising trend of inequality. In short, in the Bhagwati-Sen debate, a responsible assessment would seem to suggest that (1) there is a genuine difference of opinion between the two camps; (2) there is more reason to question the claims of the Bhagwati than of the Sen camp; and (3) the dispute has been really rather one-sided: it is worth noting that it is Bhagwati who has accused Sen of paying lip-service to growth, not Sen who has accused Bhagwati of paying lip-service to poverty (or anything else, for that matter).

I feel it would be right to see the dispute as reflecting differing views of economics and politics: the media is perhaps justified in seeing the matter in these terms, though there is little to be said for sensationalizing the debate in the terms of a Clash of the Titans, and such gossip-value as is to be extracted from such a construction.

S. Subramanian is Professor, Madras Institute of Development Studies, and the author of The Poverty Line (2012: Oxford University Press, Delhi).

E-mail: subbu@mids.ac.in

To better understand, and gain, from the Sen-Bhagwati debate on economics, it is essential to place it in the context of India’s fight against poverty and the performance of its social sector. A caveat is also called for: Rather than cast either Sen or Bhagwati in the possible “pro-poor” or “pro-rich” moulds, and then view their positions on growth / development, it is important to also recognise that both economists see poverty alleviation as the end to which policies should be crafted, and then seek to find out what they stand for, and as a consequence, what their positions mean for India.

From this point of agreement arises the disagreement, which centres on two critical outcomes of economic policy making: growth and redistribution. The difference is not that one wants to ignore either of the two outcomes at the cost of the other. The difference is that of strategic approach and causal relationship. That there is varying evidence in favour of both sides of the debate only emphasises the complementary nature of these two approaches. And, the need for a more serious debate – both academic and public.

In this common goal of reducing poverty, according to Sen, redistributive justice, buffeted by institutional reform, should take precedence, which would, in turn, drive growth. For Bhagwati, “redistribution, as distinct from growth, cannot be the answer to removing poverty”. The single major point of divergence between the two economists is, therefore, one of accent and is linked directly to India’s stubborn poverty, which persists despite decades of state efforts.

This difference in emphasis, however, is also important. For, causation is at the core of economics. In addition, there is no one-size-fits-all in economic policy. A policy that may be excellent in a country, or even one State in India, could fail in another – an example being the implementation of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). The varied experiences of the MGNREGA, for instance, can be directly attributed to the role of the State and local level political factors, and administrative capabilities to implement the scheme.

To get a grasp on what the two are debating about, it is also important to locate the outcome of India’s economic policies in two broad areas – poverty alleviation and social sector performance – in independent India.

First, an overview to explain India’s economic policy framework since Independence. The first phase, from Independence to the mid-1980s, was marked by a planning driven, public sector dominated approach to running the country’s economic affairs –referred to as the Nehruvian model (or more caustically as the permit-quota-licence-raj). The second phase, since the mid-1980s, commenced with the Long Term Fiscal Policy initiated by the Rajiv Gandhi government and categorised as a market-friendly “reform” phase, which evolved into the economic reforms of 1991.

Although there is criticism that the first, Nehruvian phase, resulted in a low growth rate for decades, termed by the late Prof. Raj Krishna as the Hindu growth rate, it was during this phase that the foundations for the take-off stage of the economy were laid. Public sector-led industrialisation catalysed the process of social change by enhancing capabilities and by providing increasing access to social goods. This was a critical backdrop for the reforms to deliver results. For instance, literacy rate, which was 30.7% in 1961, rose to 51.6% in 1991 (Census of India, 2011, Primary Census Abstract). Similarly, the urban population, which was 18.0% in 1961 rose to 25.7% in 1991 (Census of India, 2011, Primary Census Abstract), and life expectancy at birth rose from 43.10 years to 58.62 years between 1961 and 1991 (World Bank).

One of the undercurrents to this debate is the validity or otherwise of trickle-down economics. Pronob Sen, the chairman of the National Statistical Commission sees the dynamics of trickle-down economics at work. Bhagwati [in Why Growth Matters, 2013, pp xviii] makes it clear that he would refer to this process by the “now-popular phrase of ‘pull-up’ strategy”, which Bhagwati used earlier in 1987 (Poverty and Public Policy, the 12th Vikram Sarabhai Memorial Lecture).

For Amartya Sen and Jean Dreze, the lead authors of An Uncertain Glory “a far better pattern of economic development is one in which GDP growth is to an extent traded off for more rapid improvements in health and education” [Partha Dasgupta, Prospect, July 15, 2013].

It is important, at the same time, to recognise that neither is Sen against growth, nor is Bhagwati anti-poverty alleviation. Witness, for instance, Sen’s appreciation for India’s post-reforms economic growth in The Argumentative Indian and Bhagwati’s assertion that the task of reforms is not complete without redistribution [India’s Tryst with Destiny, with Arvind Panagariya]. Bhagwati’s position on the growth-redistribution debate also can be traced back to the 1987 lecture when he said that both the direct and indirect methods to attack poverty were required. (The indirect method being the one associated with Bhagwati and the direct one to Sen in the present media debate.)

Bhagwati, in 1987, had also said: “the optimal policy design should generally involve a mix of these two approaches unless the ‘productivity’ of either in achieving the target substantially dominates the other”. This observation also provides a basis for academic research to be on the dynamics of the post-1991 policies and poverty alleviation. The importance of growth is not lost on Sen [and Dreze] either, evident from the assertion that “the relation between growth and development – their differences as well as their complementarities” – is central to the theme of An Uncertain Glory.

Evidently, both economists do not advocate one approach at the cost of the other. What is crucial, however, is that a policy set on the course of the indirect route, which focuses on growth, could result in a lower spending on the social sector – as explained by Barbara Harriss-White (Illfare in India, with S. Subramanian, 1999). Also of relevance in the current context is Harriss-White’s prescient observation that the social sector is “highly divisible” thereby making it easier for piecemeal cuts in expenditure to be made and “does not constitute a political constituency.”

To add to this, Sen and Dreze’s evidence that the post-reform years have not made a significant dent on, for instance, “India’s nutrition indicators for the last twenty years or so” adds weight to the need to strengthen direct intervention methods, particularly for the benefit of India’s millions of poor.

These observations by the two economists and India’s post-reforms experience only go on to re-emphasise the co-validity of both Bhagwati and Sen in India’s battle against poverty. If there has been an emphasis on growth, through liberalisation, there has also been emphasis on direct interventions, such as stepping up of interventions in healthcare and education.

However, rather than conclude that both are right, it is essential that the respective positions are critically examined for the effects that they would have on India’s war against poverty, particularly in the run-up to the elections. For, the difference in emphasis is not as simple as it appears. Take, for instance the hypothetical situation that the indirect approach (as advocated by Bhagwati) is given precedence. This would take away the argument for a nation-wide direct intervention scheme such as the MGNREGA, which has resulted in both assured employment for those in the rural sector and an accompanying rise in minimum agricultural wages.

Clearly, given India’s continued battle against extreme poverty, of which employment is a critical ingredient to move people out of poverty, it is imperative that the direct intervention mode needs continued emphasis, although not at the cost of growth. A meaningful trade-off is called for, but with the accent on the Sen-Dreze mode.

The reforms process, as Prime Minister Manmohan Singh pointed out in his Independence Day address of 2013, has been “continued by all governments that came to power” since 1991. This leads us to the political consequences of the observations made by both Bhagwati, an endorsement of the Gujarat development model and Sen, of not preferring Mr. Modi as the country’s Prime Minister.

By themselves they mean little, but seen against the context of an upcoming election, in which the Opposition BJP, of which Mr. Modi appears to be the party’s forerunner as candidate for the premiership, it has an important implication. Economic efficiency, for instance, cannot be the overwhelming attribute for popular backing at the poll.

Moreover, to view this debate as merely an exchange of differing economic views, which can be compartmentalised from the political situation, runs two risks. Firstly, it would perpetuate a viewpoint that economics can be seen in isolation, divorced of a larger political ideology and the state in which economic policies operate. Secondly, it would mean holding out economic efficiency as a justification for the larger political thinking of those in power.

The political overtones of the Sen-Bhagwati economic policy debate are not easy to ignore either. Particularly in the run-up to what is expected, according to preliminary surveys, to be a battle between the present Opposition, the Bharatiya Janata Party and the incumbent Congress. These two parties are largely in sync in respect of economic policies. But their differences, both in ideology and in actions, on a core idea of India’s nationhood – secularism – exacerbates the consequences of any broad endorsement to Mr. Modi’s economic policies, caveats notwithstanding, given that he represents a divisive and polarising political ideology.

More than economic reasoning, which tends to place the accent on the Sen approach, the political leaning of the Bhagwati argument holds out the dangerous proposition of an untested assertion – that the Gujarat model is indeed successful and calls for replication at a national level – capturing the popular imagination. This is a fallacy that can lead the unsuspecting Indian electorate down the garden path and cause irreparable damage to the Indian political and economic fabric.

To give John Maynard Keynes the last word:

“The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.” - (The General Theory of Employment, Interest and Money,1936)

(V.S. Sambandan is Chief Administrative Officer, The Hindu Centre for Politics and Public Policy. He holds a PhD degree in Economics from the University of Madras, India, and an MBA degree from Bournemouth University, UK. During his journalism career he has reported and written extensively on economics and social issues and served as The Hindu's foreign correspondent in Sri Lanka for six years during the Sri Lankan separatist conflict.)

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The article is all about the poverty eradication process in India. Both the two eminent economists tried their level best to find out two approaches,but here the main thing is to focus on administrative system. If it functions according to the will of the people, then only in the near future, we can see a poverty-free India....

from:  m.k.simha
Posted on: Oct 22, 2013 at 13:01 IST

Both approaches are derived by the thought of making India poverty-free. But both are unavoidable. I think the government must attack poverty directly with schemes like MNREGA, which have delivered, at least indirectly by raising wages in rural areas. Such schemes are helpful for demography also which is our asset. Such schemes must continue with proper implementation. And this time implementation is the only question which helps critics of such schemes to point fingers. So apart from promoting such schemes government must also work in making executive accountable so that all such schemes may deliver to its full potential.

from:  Bhor
Posted on: Aug 29, 2013 at 02:45 IST

Good article. Giving away freebies to the non working population de-motivates the working class. Empowering the poor to move up from poverty is more sustainable than providing freebies which only temporarily solves the problem and creates even bigger problem in future. But i do not understand the intention of the author to bring in Modi and concluding that Modi's policies are divisive without sufficient emphasis.

from:  Sudarshan
Posted on: Aug 26, 2013 at 21:36 IST

Individual (here poor)'s preference list is very different and wider than grains, rice, LPG, oil etc. according to his utilities and available resourses. This way direct cash transfer will increase poors welfare more than what in case of food supply, considering they do not use money in sin-things. Education and medical related transfer should be conditional. As far as possible such investments must be public, rather being exclusive. A proposal can be asked before granting cash to youth groups under skill development schemes. This is better than distributing laptops and free money in any way.

I don't see any contradiction between Sen and Bhagwati's ideology untill they approach poors with different yard-sticks. Critically it can be said that Sen doesn't think a begger poor if he is fed with a finite calorie bread given by a rich, Bhagwati lures the begger to jump and sit in a fast running growing economy to become rich. but essentially both carry a whole of economy within their soln.

from:  vivek tyagi
Posted on: Aug 26, 2013 at 18:07 IST

I agree that these two theories are not contradictory but try to seek same outcomes. They are elemantary same but their approches are as different as is 'giving alms' with 'giving jobs'. Spending money unconditionally on poors, without expecting any return responsibility or contribution in economy or otherwise, although might fetch few poors out from tortuous poverty trap, most others will remain same or may become even worse (keeping in mind negative externalities like inflation, supply constraints and others). Apart from wealth, physical and skilled human capital, infrastructure, markets (or lack of these) are other constrictive causes which will hardly allow poors to cross the line and must be addressed simultaneously.

Framing of these policies has remained victim of multiple objectives. Even recent Food Security Bill has not set its goals clear and feeding them (by charity) only to survive but not for eradicting of poverty.

from:  vivek tyagi
Posted on: Aug 26, 2013 at 17:29 IST

The academic arguments of neither of the economists really matters, for the real problem of India is the deep rooted corruption, black money, and lack of professionalism and integrity at all levels. If these are not fixed, then no policy can help. Every Indian needs to look himself and herself in the mirror and ask if they can step up to the nation's challenge in some small way at least as far as they themselves are concerned. Buy Indian, be Indian, and think Indian for a start, please!

from:  V. Ramaswami
Posted on: Aug 26, 2013 at 06:29 IST

Much has been said about the so-called Gujarat model of development with little focus on the states that are leaps and bounds ahead of Gujarat. Take the case of Tamil Nadu and Kerala - these states, all their shortcomings notwithstanding, have adopted a redistributive model of growth. In Tamil Nadu, industry co-exists alongside social systems like the PDS and efficient healthcare. Sadly, the media seldom looks to the deep south for inspiration. In this season of middle-class angst, the person who shouts superficial promises from the rooftops steals the day. The Gujarat model is nothing but a successful marketing campaign fit to be replicated by ad agencies not a development model for the country.

from:  Howard
Posted on: Aug 25, 2013 at 16:16 IST

The so-called Gujarat model is not one in which the State is investing its financial resources in public sector industries at the cost of social sectors such as education and health. Modi's emphasis is on improving governance in such a manner that private sector investment in industrial growth is encouraged and accelerated. All State governments, irrespective of their political complexion, are trying to do this with various incentives, but the difference is that because of quicker decision-making and uninterrupted power supply, the Gujarat government enjoys greater credibility with the investors. Industrial growth, through investments by the private sector, will generate more revenues for the governments enabling them to tackle social sector issues more aggressively. The basic issue, therefore, is efficiency in governance and not >difference in economic or political philosophy.

from:  KS Ramakrishnan
Posted on: Aug 24, 2013 at 18:01 IST

Recall the maxim, don't give away fish, but teach them fishing. Aid distribution can't be a sustainable poverty eradication tool in any society, which only perpetuates dependency and drains out both productive resources and self-esteem of the recipients. The government's duty must be to educate and empower the poor to make them productive and self-reliant rather than a benevolent donor. Direct interventions are needed in our situation where mass deprivations still exist. But the long-term policy must be to reduce it and limit to areas of education, healthcare and job creation. A welfare state is a good dream but affordability of the state is an important factor which decides the extent. Growth without development and development without growth, both are economically and socially indefensible propositions.

from:  Yathy Pattali
Posted on: Aug 24, 2013 at 15:37 IST

In this intellectual debate, it is uncalled for to bring Modi and castigate him as divisive. Modi, as said many times, stood for India, first. The media may continue their onslaught on him as divisive, non-secular, without any real meaning of these words. As rightly said in the article, the success or otherwise of any model depends on the individual state, local factors and the administrative machinery. Congress ruling the country for around 60 years has not contributed to significant development whereas Modi in Gujarat in 10 years has brought visible improvements. The reason the media does not believe the Gujarat model is a success is because they do not like Modi.

from:  Bala
Posted on: Aug 24, 2013 at 09:32 IST

It is my understanding that the debate is whether to focus on schemes like PDS and MNERGA to directly help the poor sections or to invest in industry and corporates so that they in turn will propagate the benefits.

Currently, there is a debate whether schemes like the Food Security Bill make any sense or not. There are reports that the expenditure to roll out this scheme is very huge and has problems in logistics. So, shouldn't we as a nation be investing in industry to create jobs? Will investing in industry not lead to more money for the govt (by the mode of exports, taxes etc.). Right now, the way the govt. plans to help the poor is to provide them subsidies. But where will it get that money from? Taxes can be raised only to a certain extent. Can someone please explain this?

from:  Mihir Vyas
Posted on: Aug 22, 2013 at 11:16 IST

I think it was a fine analysis, until the author brought up the issue of secularism. Disappointing.

from:  Abhishek D
Posted on: Aug 21, 2013 at 16:16 IST

The debate between the two ideas is indeed fascinating. Having read both books carefully, I fear I must disagree about the simple conclusion you make, terming it a "dangerous proposition of an untested assertion." I don't see Bhagwati/Panagriya making the case that the Gujarat model needs to be replicated nationally. What they are saying is that more reforms are needed nationally, especially in sectors such as the labour market, which would enhance employment, and increase growth rates, thus providing more resources for redistribution. Indeed one might argue, that it is possible to implement reforms that enhance economic growth and provide redistribution at the same time. Why are these seen as either/or choices? By labelling some of the necessary national reforms as the "Gujarat model" is false, because even Gujarat does not have these in place, as it is part on the Indian union.

from:  Sujoy Roy
Posted on: Aug 20, 2013 at 23:22 IST

Replication of a State-level policy at the national level owing to its success in the former is a rather unsure basis for advocating one. This catchphrase of Mr.Modi's campaign quietly misleads the electoral population, who buy it as a Gujarat-tested and tried product with assured returns in the future for the whole country. Glad that this has been pointed out.

from:  radhika
Posted on: Aug 20, 2013 at 21:11 IST

The fight between two renowned economists clearly shows the difference between two schools of thought. The current economic policies are being implemented by the government with dual mind. The phenomenal rise in numbers of the middle class clearly spells that more & more people from the lower class have moved up to the middle class. The problem is that if we follow the policies of freebies, it will not justify the rationale to earn by working. It can harm the work culture and finally affect the nation. We should spend on free education, providing more jobs, creating better medical facilities, etc., as a better option to help the have-nots.

from:  Dr R B Singh
Posted on: Aug 20, 2013 at 15:38 IST

As rightly pointed out, the political overtones of Sen-Bhagwati Economic Policy debate in the run-up to 2014 Lok Sabha polls assume more significance. Sen's concept of re-distributive justice supported by institutional reforms focusing on areas like education and health for a qualitative improvement in human development index seems to be more relevant in the present Indian context. Such a growth strategy with more 'trickle down mechanisms' of the fruits of development alone can fight poverty at grass root level. On the other hand more mechanical and urban-centrist growth strategy devoid of human face, largely on the pattern of Gujarat model would further help to concentrate the accumulation of wealth on a microscopic section of Indian society, especially the corporate lobby. This will not help to seriously fight poverty, nor contribute much in building an inclusive society.

from:  K V Thomas
Posted on: Aug 20, 2013 at 11:50 IST

Brilliant article.

from:  Avishek Deb
Posted on: Aug 19, 2013 at 22:56 IST
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