The concern with the critical issues of the present pattern of growth in the commentary 'Predatory Growth' (April 19, 2008) is valid, but this rejoinder emphasises the need for an appropriate strategy to bring about mid-course corrections.
DISCUSSIONmay 24, 2008 EPW Economic & Political Weekly70C S Deshpande (dchandrahas@gmail.com) is with the Maharashtra Economic Development Council, Mumbai.Predatory Growth: A RejoinderC S DeshpandeThe concern with the critical issues of the present pattern of growth in the commentary ‘Predatory Growth’ (April 19, 2008) is valid, but this rejoinder emphasises the need for an appropriate strategy to bring about mid-course corrections.There is a tendency among a certain category of economists to dismiss the recent high-growth phase (HGP) from 2004 to 2008 of the Indian economy and to term this phenomenon as either inconsequential or to treat it as some unfortunate happening which will sow the seeds of future socio-economic destruction in India.Alas, an economist as eminent as Amit Bhaduri (AB) is no exception (‘Predatory Growth’, EPW, April 19, 2008). Let me add that there are a host of critical issues, which AB has raised, which deserve and need to be addressed seriously. His concern about the undue importance attached (deliberately or otherwise), to “senti-ments” of global financial markets is a case in point. Indeed, nobody would seri-ously argue that domestic monetary and fiscal policies should be governed only by considerations of “financial globalisation”, even in the globalised world of today. That said, the purpose of this rejoinder isto join issues withAB on some of his judgments and viewpoints.High Growth PhaseAt the outset, it needs to be re-emphasised that the recent high-growth of about 8.5 per cent between 2004 and 2008 is unprecedented in India’s economic history and there is sufficient evidence to believe – as of now – that the Indian economy has reached a higher growth plateau of a 7.5-8.5 per cent long-term average annualGDP-growth range. Needless to say, to improve upon this and, more importantly, to make it more broad-based and participatory is a huge and daunting challenge. However, to wish away the benefits of this growth – such as higher revenue-generation, raising of the perception of the Indian economy by foreign investors, growing job opportu-nities in sectors unthinkable just a short time ago, moderate inflation at least till very recently – does neither proper justice to the efforts on the farm and in the firm nor does it hide the fact that this is not just another “flash in the pan”.More fundamentally, as economists, we need to reserve our judgment about the “effect of high growth on structural indi-cators like employment, poverty and inequality”, to a later date, by which time the detailed macro and disaggregated data on these indicators become available for scrutiny. As is well known, the latest data on poverty, employment, etc, relates to 2004-05, a year in which the HGP had barely begun. Only after the National Sample Survey Organisation (NSSO) and other relevant data become available for 2007-08, can we legitimately answer the question “What effect did the HGP of 2003-08 have on poverty, employment and inequality during the same period?”. Is it totally unlikely that the subsequent period of 2004-08 of high growth, rising exports, improving fiscal situation and moderate inflation will have some positive impact on poverty, unemployment and consumption levels?Perform and DeliverAdmittedly, we do see a lot of despair, desti-tution and distress around us and the mere high growth of the economy is not an answer to raising the quality of life of the less privileged citizen. However, a deliberate, conscious policy of “inclusive growth” can be implemented in its true spirit only if all the governments – central and state – have the resources (and willingness!) to empower the poor. The HGP has at least indicated that such a possibility now does exist. It is especially up to the state governments to “perform and deliver” with prudent administration and effective governance. (Surely, the “market-oriented”, “private-sector-led” pattern has contributed to the existence of this unprecedented resource mobilisation in recent years.)The point to be made here is that the reforms post-1991 comprising internal deregulation, opening up to the external world, greater “economic” (as opposed to political and social) considerations in matters of economic policy and market-orientation have generated the HGP, which now needs to be consolidated further. Dis-missing this pattern of growth as only
DISCUSSIONEconomic & Political Weekly EPW may 24, 200871profit-driven and hence unhealthy is a deliberate distortion of the positive out-comes of growth itself. Is AB not aware of the steadily rising saving and investment rates in recent years – which are indicative of a structural, positive shift in the economy from earlier years? Or of the growing tax/GDP ratio and the increasing share of social sector expenditure (central + states) as percentage of total expenditure and as percentage of GDP?True, there are vexing issues of imple-mentation, the delivery mechanism, provision of public services to the poor, which need to be addressed effectively, etc. The abysmal failure of governance and execution virtually at all levels of govern-ment is surely not the intended outcome of high growth!AB has given examples of some private sector companies, which reduced employ-ment of workers between 1990s and 2004 (please note the period). While this may wellbefactual, did not the same compa-nies (and many others in the private cor-porate sector) go on a hiring spree which continues to date, along with their increasing capex and with their “profit-eering”, from 2004-05 onwards, as the wheels of the economy started moving again? Today, all the leading companies are in an expansionary mode and mood, and all of them are keen to hire and employ more people, – the irony being that of demand for labourexceeding its supply, or the emergence of a “skill-short-age”! This is an issue which calls for clos-er, more effective nexus between “higher education and employability”.As regardsAB’s observations on the Fiscal Responsibility and Budget Manage-ment (FRBM) Act, suffice it to say that itwas, at least partly, the rising fiscal deficits of the central and states together, which had brought us to the brink of dis-asterbytheearly 1990s! While one can have a legitimate grouse about the “actual” public sector borrowings (including off-budget bonds, etc), the FRBM Act has managed to successfully instil fiscal disci-pline into the central and, more important, reckless state governments, their books of accounts have, as a consequence, shown remarkable improvement (going by the latest RBI data), though the situation is far from ideal and desirable.As regards, “public expenditure on social services”, Tables 10.2 and 10.3 in the Economic Survey (2007-08), clearly point out that the central as well as the combined expenditure on social services (education, health, water supply, etc), has shown a steady increase in absolute terms and as a share of total expenditure, after 2004-05 till 2007-08 (BE), after a fall in the share between 2001 and 2004. Again, the higher growth of the economy in recent years has, at least on paper, created more resources for the essential expenditure on the poor.Indian BillionairesOn the aspect of the Indian billionaires, while the media may well bask in that glitter, glory and glamour, no serious economist and/or supporter of the economic reforms has, as yet, touted this development as “achievement of eco-nomic reforms”. AB’s allegations – that the increase in their wealth has been possible only because of “transfer of land” – needs further empirical, dispassionate investi-gation and analysis – to say the least.AB narrates, “after several years of highgrowth along these lines, India of the 21st century has the distinction of being only second to the US in terms of combined total wealth of its corporate billionaires coexisting with the largest number of homeless, ill-fed and illiter-atesin the world. Not surprisingly, for ordinary Indians at the receiving end, this growth process is devoid of all hope for escape”. Are we being (mis)led here to believe that these miseries and adversities are generated because of high growth? Are these not structural, chronic problems bothering India for last six decades, present as they were, even in the “paradise of socialistic pattern”? On the contrary, this growth process has gener-ated hopes among millions of Indians that they too can prosper. Indeed, several examples abound in agriculture, horticulture, manufacturing and services – where entrepreneurs are springing upat remarkable regularity, in turn, generating hope and confidence among many others.A gradual shift in employment from “agriculture” to “services” is becoming visible, though by no means at a desirable speed. The decade of 1993-04 has thus managed to successfully reduce the share of people dependent on unviable, low-paying agriculture.ConclusionsInsumming up, while conceding that AB has drawn our attention again to many critical concerns of the present pattern of growth, the appropriate strategy would be to bring about mid-course corrections, e g, making growth more inclusive and participatory, bringing about effective governance in the states and also at lower levels of government, while continuing with liberalisation, market-orientation, greater private sector participation, and of course, greater opening up of the economy.A true supporter of the present growth-oriented policies is as opposed to gov-ernment inaction in the social sector, misdirected subsidies, counterproductive intervention in the market, as he is to mindless land-grabbing for special economic zones, reckless exploitation of natural resources and to senseless financial globalisation.While there can hardly be any quarrel with AB’s contention about “…path to development that depends upon deepen-ing our democracy with popular partici-pation”, the devil lies in the detail of interpretation and implementation. The role of institutions assumes critical impor-tance as an interface between the people and the government. High growth creates the necessary conditions for strengthen-ing democratic institutions and taking care of the people. The fault lies even today, (more) in excessive government interference where it is not required and inexcusable inaction in sectors of the economy that are crying for inter-vention. The markets and the private sector are, with few exceptions, doing their job and contributing to growth, investment, exports, employment and higher resource mobilisation. If inequa-lities are perpetuated and the rate of poverty reduction has been dissatisfac-tory, it is not because of higher growth but, alas, in spite of it, the consequence ofcolossal government failure and not market failure.
DISCUSSIONmay 24, 2008 EPW Economic & Political Weekly70C S Deshpande (dchandrahas@gmail.com) is with the Maharashtra Economic Development Council, Mumbai.Predatory Growth: A RejoinderC S DeshpandeThe concern with the critical issues of the present pattern of growth in the commentary ‘Predatory Growth’ (April 19, 2008) is valid, but this rejoinder emphasises the need for an appropriate strategy to bring about mid-course corrections.There is a tendency among a certain category of economists to dismiss the recent high-growth phase (HGP) from 2004 to 2008 of the Indian economy and to term this phenomenon as either inconsequential or to treat it as some unfortunate happening which will sow the seeds of future socio-economic destruction in India.Alas, an economist as eminent as Amit Bhaduri (AB) is no exception (‘Predatory Growth’, EPW, April 19, 2008). Let me add that there are a host of critical issues, which AB has raised, which deserve and need to be addressed seriously. His concern about the undue importance attached (deliberately or otherwise), to “senti-ments” of global financial markets is a case in point. Indeed, nobody would seri-ously argue that domestic monetary and fiscal policies should be governed only by considerations of “financial globalisation”, even in the globalised world of today. That said, the purpose of this rejoinder isto join issues withAB on some of his judgments and viewpoints.High Growth PhaseAt the outset, it needs to be re-emphasised that the recent high-growth of about 8.5 per cent between 2004 and 2008 is unprecedented in India’s economic history and there is sufficient evidence to believe – as of now – that the Indian economy has reached a higher growth plateau of a 7.5-8.5 per cent long-term average annualGDP-growth range. Needless to say, to improve upon this and, more importantly, to make it more broad-based and participatory is a huge and daunting challenge. However, to wish away the benefits of this growth – such as higher revenue-generation, raising of the perception of the Indian economy by foreign investors, growing job opportu-nities in sectors unthinkable just a short time ago, moderate inflation at least till very recently – does neither proper justice to the efforts on the farm and in the firm nor does it hide the fact that this is not just another “flash in the pan”.More fundamentally, as economists, we need to reserve our judgment about the “effect of high growth on structural indi-cators like employment, poverty and inequality”, to a later date, by which time the detailed macro and disaggregated data on these indicators become available for scrutiny. As is well known, the latest data on poverty, employment, etc, relates to 2004-05, a year in which the HGP had barely begun. Only after the National Sample Survey Organisation (NSSO) and other relevant data become available for 2007-08, can we legitimately answer the question “What effect did the HGP of 2003-08 have on poverty, employment and inequality during the same period?”. Is it totally unlikely that the subsequent period of 2004-08 of high growth, rising exports, improving fiscal situation and moderate inflation will have some positive impact on poverty, unemployment and consumption levels?Perform and DeliverAdmittedly, we do see a lot of despair, desti-tution and distress around us and the mere high growth of the economy is not an answer to raising the quality of life of the less privileged citizen. However, a deliberate, conscious policy of “inclusive growth” can be implemented in its true spirit only if all the governments – central and state – have the resources (and willingness!) to empower the poor. The HGP has at least indicated that such a possibility now does exist. It is especially up to the state governments to “perform and deliver” with prudent administration and effective governance. (Surely, the “market-oriented”, “private-sector-led” pattern has contributed to the existence of this unprecedented resource mobilisation in recent years.)The point to be made here is that the reforms post-1991 comprising internal deregulation, opening up to the external world, greater “economic” (as opposed to political and social) considerations in matters of economic policy and market-orientation have generated the HGP, which now needs to be consolidated further. Dis-missing this pattern of growth as only 
DISCUSSIONEconomic & Political Weekly EPW may 24, 200871profit-driven and hence unhealthy is a deliberate distortion of the positive out-comes of growth itself. Is AB not aware of the steadily rising saving and investment rates in recent years – which are indicative of a structural, positive shift in the economy from earlier years? Or of the growing tax/GDP ratio and the increasing share of social sector expenditure (central + states) as percentage of total expenditure and as percentage of GDP?True, there are vexing issues of imple-mentation, the delivery mechanism, provision of public services to the poor, which need to be addressed effectively, etc. The abysmal failure of governance and execution virtually at all levels of govern-ment is surely not the intended outcome of high growth!AB has given examples of some private sector companies, which reduced employ-ment of workers between 1990s and 2004 (please note the period). While this may wellbefactual, did not the same compa-nies (and many others in the private cor-porate sector) go on a hiring spree which continues to date, along with their increasing capex and with their “profit-eering”, from 2004-05 onwards, as the wheels of the economy started moving again? Today, all the leading companies are in an expansionary mode and mood, and all of them are keen to hire and employ more people, – the irony being that of demand for labourexceeding its supply, or the emergence of a “skill-short-age”! This is an issue which calls for clos-er, more effective nexus between “higher education and employability”.As regardsAB’s observations on the Fiscal Responsibility and Budget Manage-ment (FRBM) Act, suffice it to say that itwas, at least partly, the rising fiscal deficits of the central and states together, which had brought us to the brink of dis-asterbytheearly 1990s! While one can have a legitimate grouse about the “actual” public sector borrowings (including off-budget bonds, etc), the FRBM Act has managed to successfully instil fiscal disci-pline into the central and, more important, reckless state governments, their books of accounts have, as a consequence, shown remarkable improvement (going by the latest RBI data), though the situation is far from ideal and desirable.As regards, “public expenditure on social services”, Tables 10.2 and 10.3 in the Economic Survey (2007-08), clearly point out that the central as well as the combined expenditure on social services (education, health, water supply, etc), has shown a steady increase in absolute terms and as a share of total expenditure, after 2004-05 till 2007-08 (BE), after a fall in the share between 2001 and 2004. Again, the higher growth of the economy in recent years has, at least on paper, created more resources for the essential expenditure on the poor.Indian BillionairesOn the aspect of the Indian billionaires, while the media may well bask in that glitter, glory and glamour, no serious economist and/or supporter of the economic reforms has, as yet, touted this development as “achievement of eco-nomic reforms”. AB’s allegations – that the increase in their wealth has been possible only because of “transfer of land” – needs further empirical, dispassionate investi-gation and analysis – to say the least.AB narrates, “after several years of highgrowth along these lines, India of the 21st century has the distinction of being only second to the US in terms of combined total wealth of its corporate billionaires coexisting with the largest number of homeless, ill-fed and illiter-atesin the world. Not surprisingly, for ordinary Indians at the receiving end, this growth process is devoid of all hope for escape”. Are we being (mis)led here to believe that these miseries and adversities are generated because of high growth? Are these not structural, chronic problems bothering India for last six decades, present as they were, even in the “paradise of socialistic pattern”? On the contrary, this growth process has gener-ated hopes among millions of Indians that they too can prosper. Indeed, several examples abound in agriculture, horticulture, manufacturing and services – where entrepreneurs are springing upat remarkable regularity, in turn, generating hope and confidence among many others.A gradual shift in employment from “agriculture” to “services” is becoming visible, though by no means at a desirable speed. The decade of 1993-04 has thus managed to successfully reduce the share of people dependent on unviable, low-paying agriculture.ConclusionsInsumming up, while conceding that AB has drawn our attention again to many critical concerns of the present pattern of growth, the appropriate strategy would be to bring about mid-course corrections, e g, making growth more inclusive and participatory, bringing about effective governance in the states and also at lower levels of government, while continuing with liberalisation, market-orientation, greater private sector participation, and of course, greater opening up of the economy.A true supporter of the present growth-oriented policies is as opposed to gov-ernment inaction in the social sector, misdirected subsidies, counterproductive intervention in the market, as he is to mindless land-grabbing for special economic zones, reckless exploitation of natural resources and to senseless financial globalisation.While there can hardly be any quarrel with AB’s contention about “…path to development that depends upon deepen-ing our democracy with popular partici-pation”, the devil lies in the detail of interpretation and implementation. The role of institutions assumes critical impor-tance as an interface between the people and the government. High growth creates the necessary conditions for strengthen-ing democratic institutions and taking care of the people. The fault lies even today, (more) in excessive government interference where it is not required and inexcusable inaction in sectors of the economy that are crying for inter-vention. The markets and the private sector are, with few exceptions, doing their job and contributing to growth, investment, exports, employment and higher resource mobilisation. If inequa-lities are perpetuated and the rate of poverty reduction has been dissatisfac-tory, it is not because of higher growth but, alas, in spite of it, the consequence ofcolossal government failure and not market failure.
