Growth Vs Redistribution

imagesIf these crazy ‘left-leaning jhollawallahs’ are to be believed, striving for growth is absolutely immoral. Their logic is as India is already a  rich country, we should focus on redistributing wealth from the rich to the poor instead.

The question arises-  Is India rich enough? Let’s hypothesize an ideal situation in which India’s GDP is equally divided amongst the population. In this case, each one of us would get a share equal to the GDP per capita (which is calculated by dividing total GDP of a country by the population of that country). GDP per capita is one of the components of Human Development Index and it measures standard of living. India’s GDP per capita is even lower than countries like Maldives, Bhutan and Srilanka. In the year 2012, India ranked 116th out of 160 countries in terms of per capita income. Before dividing the cake into equal slices, it is evident that we need to increase the size of the cake first.

The most appropriate economic model for India to follow at this stage of development is to focus on wealth creation. Higher growth will generate employment in the economy which will in effect pull people out of the vicious cycle of poverty. In fact the chairman of the 13th Finance commission of India, Vijay Kelkar went to the extent of claiming that India needs to grow at a minimum of 7% to absorb the increase in its labour force. At 7% growth, employment will increase by 2.8% and it will be just sufficient to absorb the labour force growth rate of 2.5 %. Otherwise the demographic dividend will turn into a nightmare. He went on to add, India should strive for a 10% growth rate to improve its economic and political clout among its hostile neighbour.

Growth will also lead to higher tax revenues for the Government which can be utilised for welfare activities like health, education, infrastructure etc. According to a book  by Stephen Moore, “In the USA,  fewer than half of the homes built in 1970 had 2 or more bathrooms, by 1997, 9 out of 10 did. And in 1990 only 2% of homes enjoyed electricity.” These figures speak for themselves. The per capita GDP of US is now 16 times that of India and it has led to a visible improvement in the standard of living of people.

Growth need not necessarily be a target but an instrument to end poverty as well as to provide a a dignified living to all people.

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