Growth, Inequality and Social Development in India

Since the industrial revolution, the world has come to accept a steady rise in income per head as the ‘natural’ state of an economy. Following Kuznets’s hypothesis — also known as the “inverted U” hypothesis — inequality is expected to rise initially and then fall with growing income levels. It is also believed that social development would improve in some proportion to the rise in per capita income; as the demand for social services increases; and as governments acquire a rising share of output as taxes, their ability to augment social services would go up.

With per capita income of US$1,124 at the current exchange rate in 2009 (Government of India, 2010), India is the world’s eleventh largest economy in nominal GDP, and the fourth largest in terms of purchasing power parity (IMF, 2009). With 1.1 billion people accounting for one-sixth of the world population, India’s ranking in per capita income stands at 142nd; its ranking in the human development index is 119th among 169 countries in the Human Development Report, 2010 (United Nations Development Programme, 2010). As with most large countries, India remains a domestic oriented economy with exports of goods and services constituting 26.2 per cent of GDP in 2009–10 (RBI, 2010).

The extent of economic inequality in its different dimensions is one parameter that has an effective bearing on (1) the choice of policies and strategies; and (2) the very development process, both form and spread, in a democratic society. Some pertinent questions from an economic perspective would be:

What is the nature and extent of economic inequality? What are its policy imperatives in a welfare state?

What would be the secular behaviour of wealth and income distribution during the development process?

How far would this pattern differ in a context marked by state intervention, as given by the Indian experience, in pursuit of ‘growth with distributive justice?

What would be their implications for economic inequalities and human development?

Public debates about the relationship between economic strategies, social policies and within them, social protection, date back to at least the nineteenth century.¹ These debates have often been fiercely fought. From the watershed 1834 Poor Law in England and Charles Dickens’s workhouses for the indigent poor through the variants of social policy that evolved in continental Europe (Bismarckian versus social democratic approaches to entitlements), and in the US during Roosevelt’s New Deal followed by the Kennedy-Johnson expansion of entitlements, to their reversal during the Reagan years in the US, such debates have covered a wide range of issues in the countries of the North. In the South, while debates around social policy are more recent and unevenly developed in different regions, they have often been equally contested. The intensity and scope of such debates within a country usually depends on its economic situation and its historical evolution, the strategy for growth and development and the conjuncture of its political economy.

India today presents a striking contrast of development and deprivation. Nearly two decades after the unleashing of economic reforms, there is no doubt that GDP growth has accelerated. The rate of GDP growth has consistently been above five per cent during the last two decades (Nagaraj, in this volume). India is the 12th largest economy in the world in terms of GDP and is also one of the fastest growing economies in the world today (World Bank, 2008). In terms of indicators of quality of life as well, India has had some successes. Life expectancy at birth has nearly doubled from around 36 years in 1951 to about 65 years in 2001 (NHP, 2002). The infant mortality rate, which stood at 146 in 1951, has come down to 58 according to the recent estimate (SRS, 2006). Under-five child mortality rate has declined to 17.8 from 57.3 at the time of independence. Similar improvements are also found in literacy levels and school enrolment ratios.

The relation between organised interests and the state has been a major theme for research for some time now. It has naturally coalesced around the two major forms of state witnessed in the capitalist world during the twentieth century — the welfare state in advanced industrial countries and developmental state in the global South. The former has largely been an accompaniment to the onset of social democracy during the inter-war period, though earlier steps toward its institutionalisation were taken during the late nineteenth century, most notably in Bismarckian Germany. Starting with the wave of labour radicalism that took off after the Great Depression, and continuing into the immediate post-war period, social democratic parties gained influence in large parts of the Western world. At the heart of their agenda was an extremely ambitious programme of social welfare legislation, which was implemented as a direct response to their main social base, the industrial working class. Developmental states, unlike their wel-farist counterparts, did not arise as a direct response to working-class pressure, though labour did sometimes figure as part of the political coalition supporting them. The most important constituency behind developmentalism was the domestic capitalist class. This difference in political base reflects the quite distinct dilemmas faced by social interests in advanced and developing countries of the world economy — the former being mainly concerned with accelerating the pace of capitalist development, and the latter with managing its social effects.

States in the developing world play an essential role in moulding patterns of development. The Indian state is no exception. Over time, the state in India has shifted from a reluctant pro-capitalist state with a socialist ideology to an enthusiastic pro-capitalist state with some commitment to inclusive growth. This shift has significant implications for the possibility of development with redistribution in India. On the one hand, state’s warm embrace of capital has been accompanied by higher rates of economic growth. Since the levels of inequality in India are not enormously skewed, say, in comparison to Latin America, the recent growth acceleration is bound to be poverty reducing. Moreover, growth boosts public revenues that, in principle, could be channelled to the poor. On the other hand, however, the state-capital alliance for growth is leading to widening inequalities along a variety of dimensions: city vs the countryside; across regions; and along class lines, especially within cities. Not only does rapid economic growth then not benefit as many of the poor as it could if inequalities were stable, but the balance of class power within India is shifting decisively towards business and other property-owning classes. This creates the possibility of an even more unequal development in the future. An important question then arises: can democracy and activism of the poor modify this dominant pattern of development?