'Growth doesn't trickle down, it pulls up'

Saturday, January 21, 2006 22:14 IST
http://www.dnaindia.com/sunreport.asp?Newsid=1008893

India's post-1991 development strategy has been criticised by the left for being obsessed with growth and that the trickle down strategy doesn't work. Jagdish Bhagwati, professor of economics and law at Columbia University, has little patience for such criticisms. Bhagwati shines an optimistic spotlight on making India's growth sustainable in the long run. The growth strategy is not about trickle down, he says in this interview with Seetha, it's about pulling people up the economic ladder.

Is the Indian growth story on track and sustainable?

Growth is now more or less on track. That doesn't mean you won't get ups and downs. You can't say it's going to be sustainable over 15-20 years. The internal economic policies are moving in the right direction. Certain changes have been made; others still need to be done, but I'm optimistic. The present government is moving as much as it can in the right direction. This is a coalition with the communists and I'm particularly worried about the socialists inside the system. Everybody thought they were displaced, but they've all come back because of the 2004 elections being misinterpreted as a vote against reforms.

Wasn't it?

It was a vote for reforms. Once people see they can get more, they want to ask for more and they do it politically through the suffrage system. The fact that the incumbent government was pushed out was itself a sign of major changes in the system, that people are not going to sit around and relying on some exogenous, paternalistic events doing things for them. The demand for reforms from the poor, everybody, will continue. I don't see any reversals taking place. It's just a matter of adding to reforms than subtracting from them.

So, the effects of growth will trickle down with the right kind of reforms?

It is wrong to look at this particular growth strategy as a 'trickle down' strategy. That only the big fat guys grow and somehow when they're eating at the banquet, some crumbs will fall down to the poor and people who are not part of the growth process. That suggests it is a very conservative, neglectful-of-the-poor kind of strategy.

I prefer to call it an activist, pull-up strategy. When you have growth, it pulls up people. You go out on the streets and there is so much activity everywhere. That is good. And who is coming there, working in all those stalls and service sectors? It is the poor. You and I don't go there. They get possibilities. It translates into their income and that's what you're getting in the statistics.

But the fact that growth works doesn't mean that you can't argue for the other things that you believe. In my view, you need supplementary measures to draw more people into employment.

But how do you ensure that they don't become paternalistic and how will the kind you want be different from the present ones?

Some element of paternalism is inevitable. Take the employment guarantee scheme. We know from the experience of Maharashtra that muster rolls can be captured.

That's because employment is both input and output. It can be easily cheated upon, despite the panchayati raj. Focus on infrastructure. If you are building roads, you have the possibility of monitoring something. A road has to be built. We will have to keep experimenting. The experience will be different across different states.

There are a variety of things we can do. Like adjustment assistance programmes if poor people are going to be thrown out of employment because of restructuring. And they work reasonably well

....but there is also a lot of corruption.

Ultimately everything is subject to corruption. Politicians get into politics for altruistic reasons but because of the patronage which always goes with it, they will do something wrong.

We had a relatively high integrity system in the 1950s. But with this licence raj and so on, we created so many opportunities for wrong policies that now it's hard to reverse it.

But you shouldn't just put up your hands and say nothing is possible. You have to keep trying. Now you have panchayati raj, which is a little better than before. We can think of other monitoring mechanisms. We have the press, the non-government organisations, public interest litigations. You have more checks and balances now than 30 years ago.

Should government spending be focussed on the social sector?

We always wanted spending on the social sector. Look up the first and second Plans. We just didn't have money to spend on it. That we've neglected social sector spending is a fact of life.

Isn't it getting more neglected post-liberalisation?

On the contrary. The constraint on being able to spend was always money, not the fact that some people were wilfully neglectful.

You have to think of the direct impact of pulling people into gainful employment and then the indirect impact because you then earn the revenues that you can then spend on social sector. For that we need the reforms. You have to build up your economic strength and success.