ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

The Role of Inequality and Growth in Determining Social Outcomes

The impact of inequality in hindering social outcomes is discussed. Although it may appear on the basis of limited data, in the Indian context, that growth alone is the main driver in improving social outcomes, including poverty reduction; and that increased inequality that is a by-product of the Indian non-inclusive growth process does not hinder social development, such a conclusion advanced recently in the Economic Survey 2020–21 is based on possibly insufficient analysis of the data. It is demonstrated that the apparent favourable association, which is counter-intuitive, between income inequality measures and social outcomes, is possibly due to both being associated with growth and could therefore be revealing a spurious relationship when considered in isolation.

 

India’s Economic Survey 2020–21 has attempted to make a strong case for growth as the main instrument for attaining social outcomes and tended to suggest that inequality need not be a worry for India as both growth and inequality “have similar relationships with socio economic indicators.” The following quote from the chapter titled “Inequality and Growth: Conflict or Convergence” (Chapter 4; pp 122–23) summarises the main thesis presented in the chapter.

By examining the correlation of inequality and per capita income, which reflects the impact of economic growth, with a range of socio-economic indicators, the Survey highlights that both economic growth and inequality have similar relationships with socio-economic indicators. Thus, unlike in advanced economies, in India economic growth and inequality converge in terms of their effects on socio-economic indicators. Furthermore, this chapter finds that economic growth has a far greater impact on poverty alleviation than inequality. Therefore, given India’s stage of development, India must continue to focus on economic growth to lift the poor out of poverty by expanding the overall pie. Note that this policy focus does not imply that redistributive objectives are unimportant, but that redistribution is only feasible in a developing economy if the size of the economic pie grows. In sum, for a developing country such as India, where the growth potential is high and the scope for poverty reduction is also significant, the focus must continue on growing the size of the economic pie rapidly at least for the foreseeable future.

The survey goes on to present a set of scatter diagrams with embedded regression lines as proof showing, for example, that health and education outcomes are related positively both with Indian states’ per capita net state domestic products (NSDPs) (which is not surprising) but also with Gini coefficient and other income inequality measures which appears to be counter-intuitive. The survey may have fallen into the common fallacy of identifying apparent relationships which are really spurious in nature.1

Dear reader,

To continue reading, become a subscriber.

Explore our attractive subscription offers.

Click here

Updated On : 26th Jul, 2021

Comments

(-) Hide

EPW looks forward to your comments. Please note that comments are moderated as per our comments policy. They may take some time to appear. A comment, if suitable, may be selected for publication in the Letters pages of EPW.

Back to Top