Questions over $5 Trillion dream

IN PERSPECTIVE

New Chief Economic Advisor Anantha Nageshwaran has anticipated India becoming a $5 trillion economy by 2025-26 as the country has touched the $3.1 trillion mark. However, the economic policy towards making the equitable income generation is still opaque. The ambitious growth goal of the $5 trillion economy is celebrated widely in recent times while emerging facts of income and wealth inequality raises some obvious questions on the creation, possession, distribution of national prosperity among the masses.

The apprehensions over a K-shaped recovery and trickledown effects have led to a discussion on fiscal provisions on reducing the growing income inequality. The division between the rich and the poor has increased after the economy was shattered by the Covid-19 waves and this has become worrisome as 16 crore more people were pushed into acute poverty and surprisingly, 40 more people made their fortunes to become billionaires.

Moreover, with the obsolete measuring rods of poverty, the claims of its reduction don’t stand good eyeing in the international standards. Indians are going to stay poor in terms of living standards compared to their international counterparts, especially after the pandemic. The per capita GDP growth fell by 8.2% for India and raised 2.1% for countries like China.

What such figures don’t demonstrate is the divide within the country in terms of growth of income in the post-pandemic era. Acknowledgement of the same as a problem will certainly incentivise policy making towards an effective cure. And if the government wishes to make India a $5 trillion economy, it should plan for who will hold the chunk. If we grow with the inequality numbers intact, we won’t end up with better answers to the problem of inequitable growth of income.

While the political and ideological inclinations of the government are quite a debatable topic when viewed through the economic lenses, it is an unavoidable truth that to a larger extent, fiscal policies and governmental interventions influence wealth distribution. Along the same line, the projected growth rate of the agriculture sector is not convincing enough indicating the sector with the highest employment share shall have a very small contribution to the envisioned economy.

More likely is that a potential growth rate of double digits in agriculture can contribute towards the diversion of a large chunk of the trillion-dollar economy towards the rural sector and the villages, which otherwise shall get concentrated in fewer hands. Similarly, more youth empowerment in terms of employability and efforts towards exploiting India’s potential as the services sector hub can ensure a sharing of generated income of the larger mass.

Increasingly, states like Karnataka have demonstrated interest in the process of accelerated growth through various means (like Karnataka is hopeful of contributing significantly through start-ups). It is however crucial for the Centre to harness the potential of different sectors across states.

The unequal growth stories across states are popular as a bolstered economy of trillions demands equitable growth patterns which shall necessitate proper federal planning and implementation of state-specific objectives.

Planning towards the equitable generation of income: On the path to achieving the aspired growth targets, effective planning is crucial to address the questions of income inequality. Planning that attempts to develop local level economies is as crucial as efforts to increase the inclusive contribution of citizens across dimensions of gender, caste, class and religion.

Incidentally, the increased burden of the unemployed labour force (the reserve army) is going to make less remunerative employment opportunities attractive, thus a mild shift towards more labour intensive and favourable laws shall not only induce income distribution but will also increase the living standards of a large population chunk when done along with appropriate social security measures.

Indeed, in the choice between production by the masses and mass production by huge houses, the government has to balance to ensure equality of opportunity while avoiding hindrance to growth.

Lastly, no matter how much growth targets seem achievable, having created a mess of huge unequal nation (after achieving them) will burden fiscal policies with old problems.Thus, a nation with the prosperity of the masses should inspire government policies, and equitability should characterise our growth goals. The new CEA has numerous challenges before him to achieve equitable growth of income distribution while realising a $5 trillion economy. India needs to bring policy reforms towards achieving equitable growth with the introduction of progressive tax, wealth taxes, welfare and income support and compensation scheme for the low-income earners. The government should not miss the moon while counting the stars, the common people do matter when compared to the few capitalists.

(Mishra is Junior UGC Research Fellow and Raj is Professor of Economics, Centre for Economic Studies and Policy, ISEC, Bengaluru)