Is it reasonable to posit that in a still-poor country poverty alleviation is of greater consequence?
With the rhetoric already heating up almost to boiling point ahead of next year’s general election, it was inevitable that seemingly esoteric questions on economic theory and policy were going to become politicised. Nor is this new.
Some readers will remember the “Bhagwati-Sen debate”, which broke out in 2013, in the run-up to the 2014 general election, pitting advocates for growth before redistribution (Jagdish Bhagwati) against advocates of redistribution before growth (Amartya Sen).
The two views were linked, perhaps more tenuously than was thought then, to prime ministerial candidate for the Bharatiya Janata Party (BJP), Narendra Modi, and Prime Minister Manmohan Singh, respectively. (Full disclosure: I am a student of Bhagwati, and put my oar in the water in this debate on his side of the divide.)
This time around, the political economy of federalism and the “North-South divide” seem to be two key and linked issues, as is the related debate around widening inequality in India. As it happens, this round of the debate has been sparked off by differing reactions to a new book by British author James Crabtree, who claims that “India is one of the world’s most unequal countries”.
The evidence for this claim is based on various sorts of evidence. First, the proliferation of billionaires in India (a higher per capita share than comparable emerging economies); second, high Gini coefficients, which is a measure of inequality in wealth and income distribution (made famous most recently in the work of celebrated French economist Thomas Piketty and his co-author Lucas Chancel) ; and third, widening inter- and intra-state inequality in India (political economist and the Congress party’s data czar, Praveen Chakravarty, and myself have delved on this).
The proverbial spanner was thrown in the works by economist and member of the Prime Minister’s Economic Advisory Council, Surjit Bhalla, who argued that all of the above evidence was bunkum, and that there is no compelling proof of rising inequality in India.
Two rebuttals were offered: first, in these pages, I countered Bhalla’s understanding of our research and re-stated the Chakravarty-Dehejia findings on widening spatial inequality in India; second, Chakravarty produced new findings on the Gini coefficient, showing a sharp increase in inequality in the past decade, using hitherto unutilised, publicly available data from the Central Bureau of Direct Taxes (CBDT).
The matter, however, took a strange turn when Bhalla took to Twitter to accuse Chakravarty of “jugglery”, alleging that his data analysis was faulty.
1/n Jugglery (data lies?) by chief economist of @INCIndia Mr Chakravarty ; @pravchak uses ALL income (individuals+corporate) to obtain Gini of .63 in FY14/15; uses INDIVIDUAL income to get Gini of .48 in FY 12/13! See @TheJaggi for more details on jugglery https://t.co/HIk25uLSlO
— Surjit Bhalla (@surjitbhalla) August 24, 2018
Bhalla was referencing a piece in Swarajya, written by its editorial director R. Jagannathan, which made similar allegations.
In response, Chakravarty put out a series of clarificatory tweets, sharing his methodology and data, and demanding an apology from Bhalla for his “malicious slander”.
I’ve put out the dataset, results & method
Clear that no data “jugglery”, as alleged
Dr.Bhalla, await your apology for the malicious slander https://t.co/zWSoDw8d5U
— Praveen Chakravarty (@pravchak) August 25, 2018
In turn, Bhalla fired back, restating his critique.
4/4 Of course not – and one should not because that would be data jugglery Bottom line: you cannot mix the two Ginis at all; The nation wants to know about the data jugglery in your article, @TheJaggi also pointed out this fact @dravirmani @vdehejia @jamescrabtree
— Surjit Bhalla (@surjitbhalla) August 26, 2018
At the time of filing, the Twitter slugfest involving parties on all sides of this debate appeared to be only in its warm-up rounds.
This is where taking the proverbial step back provides much-needed perspective. As a matter of economics, it is a widely held tenet (which does not, of course, mean it is necessarily always true) that in the early stages of economic development there is a positive correlation (and, likely, causal relationship) between per capita income (or its growth rate) and the level of inequality, as measured, say, by the Gini coefficient. This is the famous “Kuznets curve” hypothesis.
When the peak is reached, as an economy reaches middle or upper-middle income status, further increase in prosperity corresponds to falling inequality. (Although recent evidence from advanced economies such as the US suggests that the Kuznets curve may have an elephant’s tail at very high levels of income, where again one sees rising inequality.)
The fact that as income per capita has risen in India, inequality has also risen should not, therefore, be seen as a bizarre finding, but rather the norm for an economy at our level of economic development. Indeed, if one did not find this, it would be strange. Having said that, in the absence of a consistent data series on income distribution, it remains a matter of conjecture. My own hunch is that if we could correctly measure an income Gini coefficient for India, it would have gone up in the post-liberalisation period, but others may disagree.
However, what is surprising is that centre-right economists associated with the current government do not take their stand on the much more plausible argument – one to which I am sympathetic – that it is far more important that poverty has declined dramatically in India as income per capita has risen, and that rising inequality – if, indeed, that is the case – is a small price we must pay for this. In a sense, this is a version of the argument that Bhagwati and some of us have made on numerous occasions in critiquing Piketty and others sounding the alarm bell on inequality.
While one can engage in an endless debate on whether it is more important to worry about poverty (an absolute measure) than inequality (a relative measure), it is perfectly reasonable to posit that in a still-poor country, poverty alleviation is of greater consequence — economically and ethically — than rising inequality. (My own view is that while one may perhaps be a little sanguine about inter-personal inequality, spatial inequality is indeed a major cause for worry, given the way it plays out in the political economy of Centre-state relations.)
The reality is that, under governments of various stripes, income per capita has risen rapidly, poverty has fallen dramatically and, in the past decade or so, income inequality has also grown. These facts need not be in dispute and most certainly should not be politicised.
It is no indictment of either the Manmohan or the Modi government that as the economy has grown apace, inequality has possibly risen even as poverty continues to fall. Rather, this is exactly what we should expect.
Vivek Dehejia is a resident senior fellow at IDFC Institute, Mumbai. Views are personal.