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Day 13 – Q 1. Overemphasis on achieving high economic growth can often ignore the need for equity and lead of disparities. Elucidate. 

  • IASbaba
  • June 24, 2020
  • 0
GS 3, Indian Economy, TLP-UPSC Mains Answer Writing
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1. Overemphasis on achieving high economic growth can often ignore the need for equity and lead of disparities. Elucidate. 

उच्च आर्थिक विकास प्राप्त करने पर जोर देने से अक्सर समानता की आवश्यकता की अनदेखी हो सकती है। स्पष्ट करें।

Demand of the question:

It expects students to write about the debate between growth and redistribution along with effects of overemphasis on high economic growth and need to account measures to reduce inequality and disparities. 

Introduction:

Economic growth has raised living standards around the world, but modern economies have lost sight of the fact that the standard metric of economic growth, gross domestic product (GDP), merely measures the size of a nation’s economy and doesn’t reflect a nation’s welfare. Yet policymakers and economists often treat GDP as an all-encompassing unit to signify a nation’s development, combining its economic prosperity and societal well-being.

Body:

The debate between growth and equity and redistribution is one of the oldest in economic development. The common citizens of any country care more about the real  impact of growth in terms of improvement in their standard of living, provision of basic facilities such as electricity, drinking water, healthcare systems etc. 

Focusing exclusively on GDP and economic gain to measure development ignores the negative effects of economic growth on society, such as climate change and income inequality. It’s time to acknowledge the limitations of GDP and expand our measure development so that it takes into account a society’s quality of life.

Fallacy of GDP growth as indicator national progress:

  • Ineffective trickle down of benefits earned from economic growth. There is increasing disconnect between economic growth and social development. As per popular development economist Jean Dreze, India’s high economic growth has failed to bring about any significant improvement in the quality of life of the common people.
  • GDP cannot differentiate between an unequal and an egalitarian society if they have similar economic sizes. As rising inequality is resulting in a rise in societal discontentment and increased polarization.
  • Despite the high growth rates in India, almost half of the children younger than 5 years are stunted due to improper nutrition and sanitation. As of 2018, more than 163 million Indians do not have access to safe drinking water. Over the decade ending 2011, water availability reduced by 15% and it is estimated that India will become water-scarce by 2050. As per the Tendulkar methodology, 22% of Indians live on less than $1.25 a day.
  • Economic growth of lower strata should be faster than the affluent class; however India has experienced one of the highest rates of growth of inequality. As per OXFAM survey India’s richest 1% holds four times of the wealth held by 70% of bottom population which is around 1 billion. Certainly in GDP growth fails to account pie of growth of shared by different sections of society which makes it ineffective indication of national progress. 

Though, it is necessary to generate wealth in the first place to redistribute it, however overemphasis on high growth rate may create huge inequality and disparity. 

  • Labour reforms: Time of the crisis is often used by rulers as opportunity to push unpopular policy decisions in democratic countries. Recent labour reforms pushed by UP, MP may create inequality faster than growth. It  reduces the bargaining power of labour via different conditions like contract labour, ability to hire and fire, relaxation on working hours, lesser inspection from government officials for working conditions ultimately making lives of unskilled and lower skilled population worse for high economic growth for so called stress on cheap labour as ease of doing business indicator. 
  • Regressive tax system: Where rich pay lower taxes as compared to poor.  Increased efficiency of indirect taxes with the coming of GST which is burdened by larger base rather than stress on improving direct tax efficiency. Higher proportion of indirect taxes in overall tax collection, absence of wealth tax or inheritance tax indicates regressive taxation. 
  • Lack of universal education and Health: Lack of universal free college education makes it impossible to generate equal opportunity for students from poorer section to achieve high skill set in new technologically advanced economic models and journey towards industrial revolution 4.0. Out of pocket expenditure on health is one of the major reasons for chronic poverty in India, despite of which high economic growth has failed to improve health infrastructure or provide universal healthcare.  
  • Financial sector reforms: Privatisation, increased focus on fiscal consolidation, more scrutiny of loans for lower sections like farmers, labourers. Financial sector reforms often designed in way to squeeze cash from lower section to higher level of pyramid. 

Overemphasis on GDP growth ignore account of inequality, 

  • India’s National Indicator Framework Baseline Report, 2015-16 for measuring progress towards Sustainable Development Goals shows India has not developed most of the indicators required to measure and mitigate inequality.
  • The National Indicator Framework Baseline Report reveals that India does not have data to measure growth rates of household expenditure per capita among the bottom 40% of the population or the total population.
  • The government of India has no data on the proportion of people living below 50% of median household expenditure. The report further reveals that no national indicator has yet been developed to ensure equal opportunity and reduce inequalities of outcome.

India need alternative metrics to complement GDP in order to get a more comprehensive view of development and ensure informed policy making that doesn’t exclusively prioritize economic growth. Bhutan’s attempt to measure Gross National Happiness, which considers factors like equitable socio-economic development and good governance, and UNDP’s Human Development Index (HDI), which encapsulates health and knowledge apart from economic prosperity.

As a step in this direction, India is also beginning to focus on the ease of living of its citizens. Ease of living is the next step in the development strategy for India, following the push towards ease of doing business that the country has achieved over the last few years. 

Conclusion:

Covid-19 pandemic has brought in sharp focus the extent of income inequality, especially in poor countries like India. The economic philosophy of “growing the pie” followed by successive Indian governments has turned India into a 1% economy. Moving away from GDP numbers and collecting and publishing data on the income, wealth and wages, by decile and centile, will be the first step towards creating a model of equitable growth. The end goal should be more just and equitable society that is economically thriving and offering citizens a meaningful quality of life.

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