Anatomy of Growth
MONTEK SINGH AHLUWALIA & ARVIND PANAGARIYA
The forthcoming election is seen as a battle between two contrasting economic philosophies. Under the UPA, nearly half of India is now entitled, theoretically at least, to free water, electricity, jobs, education and healthcare. The welfare measures continue to be rolled out despite the country recording a growth rate of less than 5 per cent over the last two years. Should India now focus on steering its way back to a high growth rate of over 9 per cent or should its priority be providing a better life for its multitudes of poor?
Two of the world’s best economists crossed swords over this argument: Columbia University professor Arvind Panagariya, a vocal supporter of BJP prime ministerial candidate Narendra Modi’s brand of economics, spoke for the high-growth approach while Montek Singh Ahluwalia, the Deputy Chairman of the Planning Commission, defended UPA’s model. Though it was billed as a contest between two contrarian viewpoints, the two economists’ arguments were nuanced. Both broadly agreed on what India needed, differing only over how it should be done. “We have a passion for growth because we have compassion for the poor,” Panagariya said, pointing out that growth was the best instrument to reduce poverty. The crux of his argument was this: In the past 20 years, per capita income nearly quadrupled and poverty reduced drastically in India. Equally, if India were to grow at the rate it had over the past
decade, even accounting for a slowdown over the past two years, it would be the world’s third largest economy in 15 years and that would be the end of poverty as we know it. So, he said, India should aim to return its economy to a 9 per cent growth track. Panagariya conceded that social expenditure on health and education is important, but said it is better to raise income and give people the chance to choose between private and public providers.
Ahluwalia, on the other hand, argued that everyone in the Government is pushing for high growth but emphasising that it should be inclusive. In other words, he argued, a high growth rate will be no good unless it improves agricultural productivity, encourages development of all regions, including the BIMARU states, and generates employment for all. Ahluwalia insisted that though many in business circles look at MNREGA as unemployment insurance, it’s actually aimed at building productive assets for agriculture. Similarly, he said, welfare schemes in health and education sectors are investments to ensure people have easier access to these services. Excerpts from a lively conversation: Arvind Panagariya Saying that you believe in growth is not enough. What have you done in the last 10 years to spur growth? You just haven’t done anything. Just allowing the private sector to operate in education and healthcare is not the equivalent of facilitating, being an enabler, for the private sector to operate successfully. You’ve got to give power to the people. Montek Singh Ahluwalia You got a lot of applause for asking me what we have done in the last 10 years to spur growth. But you yourself said that in the last 10 years, we have had the highest growth ever. Are you going to say... Panagariya I didn’t say it was thanks to you. Ahluwalia Ahh! So what are you saying? Panagariya This is a result of P.V. Narasimha Rao and Atal Bihari Vajpyee’s policies. You tell me five policy measures that you have taken to make this happen. Ahluwalia You shouldn’t be allowed to get away with the proposition that the entire performance of the last 10 years is because of decisions taken in the previous 20 years. Panagariya The government’s affidavit to the Supreme Court says about half the roads built in the last 20 years were built by the NDA government. Ahluwalia No, Let’s be clear about this. Half the roads built were commissioned in the last year of the NDA government. I think the important thing is that if you compare the last 10 years with any previous 10 years, the difference in
Just allowing the private sector to operate in education and healthcare is not the equivalent of facilitating. You’ve got to give power to the people.
You should not be allowed to get away with the proposition that the performance of the last 10 years is because of decisions taken in the previous 20.
growth is huge. Then, people say, ‘Oh, UPA 1 did a good job, but UPA 2 didn’t’. If you compare UPA 2 with NDA, we fare better except in one dimension—inflation. An important reason for this is that the period of NDA rule was of low global inflation and during the period of our government, global inflation has been very high. Despite this, most people only focus on the last year and say that it’s been a bad year. Panagariya I am sorry Montek, I don’t agree. Take your manufacturing policy, which you say will result in manufacturing contributing a 25 per cent share to GDP. What are the policy reforms you are willing to do to ensure this? This is not new. You know about labour reform and labour market rigidities. You spoke about these when you sat in the Opposition. Ahluwalia I agree with this. These reforms are needed. Panagariya On employment, you, Montek, did a fantastic report some years ago that I wrote columns about, but then in the last 10 years, you have never said anything about labour market reform. Ahluwalia That’s not true. The Government’s position, repeated by the Prime Minister, is that labour market flexibility is necessary. We have, however, said that this is a sensitive issue, on which we need to build political consensus. But in the past 10 years, we haven’t been able to build consensus and that is the problem.