A healthy debate

Sen-Bhagwati positions

Though the so-called Amratya Sen-Jagadish Bhagwati debate on economic policy has been occupying a huge amount of media space in recent weeks, the truth is that the differences between these two best known Indian economists date back to much earlier times. 

For many decades, Sen, along with his co-author Jean Dreze, has been arguing that growth alone is not sufficient to bring about significant improvement in the quality of lives of the underprivileged. Growth, in order to be meaningful for the poor, needs to be supplemented by public expenditure and provision of food, nutrition, education, health, and sanitation for the masses. They cite evidence from inter-state (specially between Kerala and other states of India) and inter-country (between India and China and Bangladesh, in particular) differences in performance on growth and human development indicators in support of their position that substantial improvement in the quality of lives of people can be made, irrespective of the growth performance of a state. They emphasize, in particular, the role of education, information, agitation and involvement of the local people in improving the quality and delivery of public goods and services to the poor.

Bhagwati, along with Padma Desai and T N Srinivasan, apart from providing the intellectual rationale behind the economic liberalisation beginning in 1991, puts much greater emphasis on growth as the mechanism to bring about sustained reduction in poverty, as opposed to various subsidies and redistributive measures launched in the name of the ‘poor’ but benefiting a lot of the non-poor. According to this line of thinking, growth helps the poor in two basic ways. One, by directly creating more productive jobs and income for many, including the poor.  Two, by generating more tax revenue which can be used for financing social expenditures.

Regarding what  should come first (‘sequencing’ of policies), Bhagwati, for practical reasons, would first go for growth and then redistribution in a country like India where there are too few rich and too many poor which  limits the revenue-raising capacity of the government.  Otherwise, financing of over-ambitious schemes of redistribution would lead to fiscal disaster and flight of investment (both domestic and foreign) away from India which would eventually hurt the poor.

 As evidence, one can point to the recent slowdown in economic growth which is leading to unsustainably high fiscal and current account deficit, scaring away investors.  This would make it increasingly difficult to finance the ever expanding areas of entitlement in the form of food security ordinance (which seeks to provide highly subsidized food to nearly 70 per cent of the population), right to work (MGNRES), right to education  and so on, not to speak of  fertilizer and fuel subsidies.

Difference in positions

The difference in positions between Sen and Bhagwati, as they stand now (though the difference was much starker earlier, like before economic liberalization of 1991, which Bhagwati, justifiably, can point to), is not really that great. Sen has made it clear, in many interviews in recent weeks, that (like Bhagwati) he is in favour of growth and even cash transfers on the basis of UID card (rather than physical distribution of food grains through PDS which many left-wing activists strongly support), against controls like licence-permit raj (which he recognises as the biggest source of corruption and inefficiency, though he was not that outspoken on this earlier) and also against many subsidies in the name of the poor like those on fertilizer, cooking gas and diesel. But (unlike Bhagwati) he would like to put emphasis on public provision of subsidized food, education and health for the masses from the very beginning, instead of waiting for the high growth phase to ensue. Sen believes that public investment in education and health for the masses, apart from their immediate redistributive effects, would help broad-based sustained economic growth in the longer run by producing a better quality work force.

In other words, as of now,  both Bhagwati and Sen regard growth to be an important necessary condition for generating significant benefits for the poor but Sen would not consider growth to be as central or close to a sufficient condition (as Bhagwati does) for poverty reduction. In Bhagwati’s scheme of things, private investment climate and growth hold the centre stage and the scope of redistributive policies would be limited by the revenues generated by growth.

Bhagwati would insist that, despite China’s superior performance in human development indictors, relative to India, in  Mao’s redistributive China, poverty reduction took place at a fast rate  only after Deng’s economic reforms giving rise to the high growth phase of China. On the other hand, Bangladesh’s superior performance in human development indicators, despite its near-half per capita income level of India, can be mostly attributed to better performing government administrative machinery and the important role of NGOs and social activists in Bangladesh.

To sum up, both agree on the need for growth and redistribution. There is no necessary conflict between growth and equity, at least in the longer run and one can reinforce the other, giving rise to a virtuous cycle. The difference between the two stalwarts largely boils down to the extent to which redistributive policies can be carried out at any given point in time.  Here the level and growth of per capita income determining government revenue as also the administrative capacity to efficiently implement various social welfare schemes would be crucial considerations. The proper balance or the mix of public and private interventions in the economy, even for providing education and health services, is another area where the two would differ.

(The writer is a former professor of economics, IIM Calcutta)