Equity is Good for Growth

Economic Times, October 08, 2012

By Pradeep S Mehta

Policymakers must ensure that rules of the game favour the poor, while boosting growth

At a seminar on competition policy for promoting growth and equity, chief guest Yashwant Sinha asked why we have not used the conventional phrase: growth with equity. It was not a mistake, and my answer was simple, that even if there is growth, there is no guarantee that it would benefit all. The Bharatiya Janata Party’s election campaign ‘India shining’ was proof of this dichotomy and the Congress rode on the wave of aam aadmi. Promoting equity is as essential as promoting growth, and people should believe so.

Competition policy promotes economic equity and democracy, which is a building block for political democracy. While macro reforms have to be followed, micro reforms with effective meso-level institutions are as important to ensure that markets function well. In fact, the poor suffer more when markets do not function well. Businesses benefit from competition reform, so do the poor, as it leads to more equitable growth.

The current buzzword for economic planning and management is ‘inclusive growth’. A popular e-debate on growth and poverty ensued last year following a disagreement between Jagdish Bhagwati and Amartya Sen, on whether growth is a sufficient or a necessary condition for addressing poverty and inequality.

Bhagwati rightly felt that one needs growth to expand the cake and then invest in social sectors, while Sen felt that too much emphasis on growth may reduce our attention to poverty-reduction and inequality. Both are correct. It is a policymaker’s dilemma on how to fund social sectors without the wherewithal. Today, the government is struggling with high deficit and inflation. The poor suffer more and are, thus, despondent.

What is worse is the diminishing trust of people in the government and the private sectors, aided by exposes of scams. The other day, a taxi driver told me that if only trust can be restored among people, and netas and babudom reined in, animal spirits will be unleashed. Concrete action and not hortatory statements, in both policy and practice, will make sense to both the business and the people, which can restore such trust.

The root cause of political economy differences related with ‘policies and the need for change’ lies in the way ‘reform’ is perceived. For the common man, reform in general stands for changing the status quo to facilitate corporate interest, on which I have written frequently in these columns. They are unable to appreciate that such reforms can lead not only to creation of wealth, but also jobs, the equity agenda. We cannot ignore the imperative for optimal regulation and curbing crony capitalism and conspicuous consumption, which do create mistrust and scorn.

In terms of optimal regulation, we do need to unburden both businesses and consumers by maintaining minimalistic regulation, i.e., if one is applying for building permits, then the process should be swift with the caveat that violations will be dealt with strongly by demolitions and imprisonment.

Veerappa Moily’s suggestion that managers of the electricity system should be jailed for violation is a welcome step in this direction. Similarly, if the poor are violating any facility, then too harsh penalties should be levied. The only problem is that the powerful people can easily drag cases forever, as we have seen in many cases. On the other hand, the poor are weak and cannot do so easily.

In any event, if harshness is used against well-to-do violators, then the poor will feel that the government is doing something well and trust can be reinforced. On the other hand, there are many reforms happening in wider public interest, particularly benefiting the poor, but the message does not go out well. Such a strategy can also reinforce trust. Examples include reforms done or planned in the area of patents, medicines, food security, transparency, slum resettlement, etc. Furthermore, many states have reformed the PDS, launched free medicine schemes, other than offering free power, enacted laws for guaranteed redressal of public grievances and have tightened anti-corruption regimes. Problem areas include all types ofbasic needs.

Bringing the two groups together and finding a middle path is the need of the hour. For instance, if allowing FDI in retail can be taken as a policy reform, regulating the sector through adequate safeguards to address public concerns can also be said to be a regulatory reform.

The problem is that there is growing perception – thanks to the Anna anti-corruption movement and a proactive CAG – that the government is not a neutral party and, therefore, it will be very difficult to strike a balance between the two. Parliamentary debates are useful to bridge this gap, but they too are polarised or have shifted to TV channels.

Apart from corporate-versus-public interest, there is an additional dimension of domestic-versus-foreign interest. Even though it is not as deep-rooted as it was some years ago, we still hear of the East India Co syndrome, and from mature people.

However, the corporate-versus-public interest divide seems to have much more serious undercurrents in today’s political economy, than domestic versus foreign. FDI in retail is being opposed in spite of the fact that big domestic business houses are already in organised retailing. Whether it is labour reforms or 2G spectrum or mining and coal or land acquisition, the inherent opposition is on the issue of corporate versus public interest.

Clearly, the polity, government, business and civil society have a big agenda to speak to the people and also ensure that public interest is not sacrificed to private interest. People should be confident that equity remains at the core of governance, so that we can grow harmoniously.

The author is secretary general, CUTS International.

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