The Financial Express, January 13, 2011

The annual tete-a-tete of finance minister Pranab Mukherjee with economists ahead of presenting the annual budget has got dwarfed this time by a huge debate that’s sprung up on the Internet among some of the global top economists tracking the India story.

The motion: Does India’s growth story need to make a pause to push social equity? More loosely, it is the Jagdish Bhagwati versus Amartya Sen line, though economists like Kaushik Basu say the distinction is not that sharp. Framed in whichever way, the dominant point of view emerging from the to-and-fro is that Indian policy makers should not do anything to upset the growth engine they are riding.

They have a point. The UPA government has already rolled back several multi-billion dollar investment projects citing environment, land and tribal rights issues while others like the urban renewal missions are facing question marks. Some members of the ruling Congress party including cabinet ministers have said the reforms for pushing growth are increasing social inequality.

An indication of where this could lead is the recently finalised check-list the National Advisory Council, chaired by Sonia Gandhi has lined up for 2011. “Displacement of both tribals and non tribals (for setting up industry) is an issue but the former needs a special reference because that is where all the land, mineral and forest wealth is”, said NC Saxena, member of National Advisory Council.

Yet, as Bhagwati says, focussing on growth matters for India as it “pulls the poor into gainful employment and also provides the revenues with which one can finance direct programmes on health and education, which I called Stage 2 reforms.”

The names involved in the Internet debate are formidable, including Arvind Panagariya of Columbia University, Sumit Majumdar, University of Texas, Indira Rajaraman, NIPFP, Abhijit Banerjee of MIT and Martin Wolf of Financial Times. For the UPA government, buffeted by competing interest groups, this could act as the most decisive line of support to move on with growth-enhancing policies. The debate is sort of just-in-time as the government has to set in place policies that will run through for at least three years or more (unless there are mid-term elections), setting the tone for the most crucial decade for India.

It was spurred by Bhagwati’s lecture in the central hall of Parliament to the MPs, explaining his thesis that only reforms, and therefore growth, can produce the necessary funds for the state to invest in health and education.

His position, he has explained in the course of this debate, contrasts that of Amartya Sen, who has argued that the primary focus of the State should be on sectors like these instead of worrying too much about growth. The Internet forum was facilitated by CUTS International, one of India’s leading think-tanks on trade and development.

Commenting on the differences, chief economic advisor to the finance ministry, Kaushik Basu told FE: “I believe that the differences between Sen and Bhagwati are less substantive than what is popularly made out to be. On a variety of important policy matters, they use different languages but say very similar things. My only worry is that even on this Sen and Bhagwati will agree that I am wrong.”

But Bhagwati, in his characteristic style, is more forthright. On the issue of sequencing reforms, something the UPA government is struggling with now, he says: “The true scandal is that people who continue to condemn the reforms that can help are the true scandal. But…in Economics, there is no accountability for the consequences of your advice! And that is particularly so in an ascriptive society like India: the eminent are revered and rewarded, not condemned, despite the harm they cause.”

* One way to think about this question is that governments will in any case continue to do a bunch of stuff, driven by their own compulsions, some of which promote growth while others probably retard it. — Abhijit Banerjee

* Obviously, higher incomes are a necessary condition for better state-funded welfare, better jobs and so forth. This is simply not debatable. Indeed, only in India, do serious intellectuals dream of debating these issues. — Martin Wolf

* Even if the maintained hypothesis is that the government has limited capacity, the answer is not that reasonable people could choose to focus on different areas of policy but that reforms should still proceed on as many fronts as possible but take forms that make minimal demands on the government for their execution. — Arvind Panagariya

* The real revolution India needs is in efficiency and productivity, whether in government sector or private sector activities. — Sumit Majumdar

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