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Updated: April 26, 2012 00:19 IST

Public goods as the way to welfare

Pulapre Balakrishnan
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The Hindu

There is evidence to show that growth is slowly becoming inclusive. But for the quality of life to improve, incomes must be complemented by infrastructure.

For close to at least five years now inclusive growth has had a central place in the official discourse on the economy. The UPA II has itself worn its self-proclaimed success in delivering an inclusive growth as a badge of its effectiveness, not to mention its commitment to improving the lives of those at the bottom of the pyramid. However, at a recent international seminar on the economic reforms held at the prestigious Administrative Staff College of India, Hyderabad, one of India's leading financial journalists announced that whatever may be the case on the ground, the political class as a collective believes that the current growth process in India is not inclusive. He saw this as failure on the part of India's economists to express and communicate the actual position. While accepting readily that economists are not always and everywhere the least opaque of interlocutors, one must also reckon with the proclivity of the political class to paint the picture in ways that appeal to its constituencies. Be that as it may, it is incumbent on professional economists to say it as it is, and it is to this task I turn first.

Narrow view

The most widely accepted definition of inclusive growth is likely to be that of a growth process that lifts the incomes of all households in a society. As with the proverbial rising tide, now no one is excluded. As rising household incomes — prices staying constant — imply declining poverty, inclusive growth is also poverty reducing. This is the definition of inclusive growth encountered most often in the public discourse. The point of this article is to argue that this is too narrow a view of inclusive growth to satisfy us.

However, I first sift through the evidence on the impact of growth on poverty since the early 1990s, that is, what do the data show? There is overwhelming evidence that the decline in poverty that had set in in the 1980s has continued since the launch of reforms in 1991. Among poverty researchers, Angus Deaton and Jean Dreze, upon whom the majority of professional economists would rely on for veracity, have shown that the decline in poverty has continued at more or less the same pace before and after. In fact, they are at pains to emphasise that extreme positions such as that “the poor have become poorer” or “the reforms have unleashed the poor” are untenable in light of their finding. The latter establishes conclusively that growth by reducing poverty has been inclusive. Apart from wilful disbelief, the scepticism towards accepting this finding may well derive from a sense that India is a country of major contrasts, contrasts straddling regions and persons. In particular, social stratification is evoked. Such scepticism is healthy, and must be encouraged till it is shown to be without foundation. So, when it comes to ascertaining whether growth is inclusive or not, it is a natural to ask whether poverty is declining across all social groups. As caste has historically been a seemingly durable barrier to individual advancement, we would want to see how, when growth takes place, poverty is affected across the principal social groups of the country.

Study on poverty

Recently published research of Sukhdeo Thorat and Amaresh Dubey sheds light on precisely this issue. They study the trend in poverty across social groups and demonstrate that there has been a decline in poverty across all sections of the population grouped by caste and religion. Interestingly, according to their results, over the period 1993-2010 the decline in poverty in rural India has been the highest among the religious minorities. And, for the period of very high growth over 2004-10, the rate of decline in poverty among the Scheduled Tribes was higher than the national average. Finally, for both rural and urban India, the decline in poverty across all of India's social groups accelerated as the noughties progressed.

So from the most recent and up-to-date of the studies on poverty we get a picture of inclusive growth, inclusion being defined as the spreading of income across the population as growth occurs. At the same time, India being a large and varied country these results are consistent with growth having bypassed some groups and possibly even whole regions. For instance, we cannot be so confident of how the Scheduled Tribes have fared in parts of India that have attracted the extractive industries, notably mining. There is also the knotty issue of how we are to square a decline in income poverty among the tribals when it is accompanied by a permanent loss of their original sources of livelihood. Clearly, a case-by-case approach would be needed to assess such special situations. But for the country on the whole the emerging picture is that of an inclusive growth, as defined. However, this is no cause for complacency. The levels of income at the bottom of the pyramid are currently very low. To remedy this fast enough we must seek a growth process that can rapidly raise these incomes. The challenge is to bring this about at a time when growth is slowing as appears to be the case right now.

One response to the claim that growth has been inclusive in the sense of the income being shared is that this is happening in a milieu of rising inequality. This would be worrying in itself even if a rising inequality does not slow the decline in poverty as the growth gets concentrated at the top. However, the point is that inequality is yet about income, and a focus on income diverts our attention from the non-income factors that determine our well-being, perhaps better understood as ‘the quality of life'. Towering over all non-income factors are public goods. Economists see public goods as non-rival in consumption, which renders them egalitarian in their impact on a population. They are important to us as they add to our sense of well-being. Think of roads, pavements, parks, and every kind of urban civic infrastructure including especially sanitation. It is not as if our villages abound in them, only that being less congested we miss their absence less. Public goods enter into the economic imagination in the following way. Such goods are defined by the characteristic that access to them cannot be restricted. With unrestricted access they are rendered unattractive to potential private providers guided by the profit motive.

Once we comprehend fully the role of public goods we can see why it is necessary to broaden the ambit of the discourse on inclusive growth beyond the customary inter-personal income comparisons. We can visualise a society with a relatively equal income distribution that is yet short of public goods. That this is not academic in its import becomes clear to anyone observing the development of India over the past couple of decades. While the economy has grown, public goods provision has not expanded commensurately. In fact, our cities where growth is concentrated are getting close to becoming unlivable. Amidst the host of problems making life difficult for the ordinary Indian, a new one has emerged. Almost overnight, the management of solid-waste in our cities has sprung up as a formidable challenge. Aesthetics apart, and it is perfectly human to desire a beautiful habitat, rotting garbage is despoiling our water supply and contributing to the spread of communicable diseases. From the evidence on the incidence of dengue and chikungunya we may infer that the public health system is unable to cope with the situation. This infrastructural deficit is the obverse of a public good. Exactly as access to public goods cannot be restricted, no one is exempt from the ill-effects of the public bad so to speak.

No escape from public ‘bads'

Santosh Mehrotra and Ankita Gandhi, authors of India Human Development Report 2011, put it pithily when they state: “Even if a single household defecates in the open, it can be a source of diarrhoea in all neighbouring households.” There can be no escape from public bads, a less immediately obvious manifestation of which is climate change. Their salience to our lives arises from the twin feature that they affect us even when we are not their cause, and those who cause it do not bear a private cost. The trouble with laissez-faire as a social arrangement is that it is niggardly when it comes to public goods and liberal with the ‘bads'.

A widening of the definition of inclusive growth has implications for the discourse on public policy. It is far from sufficient to aver that growth is not inclusive as income is not getting spread in order to justify a whole host of schemes that amount to handouts by the government of the day. Firstly, we have conclusive evidence that income is being spread though perhaps not at the rate at which we desire. But, more importantly, in democracies we elect a government primarily to provide public goods which the private sector has no incentive to do. This is far more difficult than handing out money. It requires negotiation among all stakeholders and bringing in technical expertise. India's political class needs to turn to this task to justify its existence.

Distributive politics fuelled by borrowing is not ‘inclusive growth' even if it can be sustained, which it can never be. Moreover, it is far from being democratic in a meaningful way. The success of democracy in India will be judged by the availability of public goods.

(The author is on the faculty of Economics at the Centre for Development Studies, Thiruvananthapuram.)

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What about maintenance of public goods after they have been created at a cost from
competing resources? "Free" is a concept mistakenly equated with government's responsibility alone. Users have to pay for upkeep as otherwise the quality will suffer and the goods will fail to deliver over time, as too often happens in India. Free water and free electricity have already played havoc with the financial health of public utilities, crippling their capacity to deliver and to build to meet growing demand. Public-private partnerships may be the way forward if an effective regulatory mechanism can be instituitionlized.

Posted on: Apr 24, 2012 at 00:32 IST

Inequality of income will always be there no matter what kind of society one live in. The inclusive growth is well explained here and no one can disagree with the importance of the public infrastructure.

from:  subodh
Posted on: Apr 23, 2012 at 09:53 IST

Kudos to the cartoon which says it all!

from:  Periasamy
Posted on: Apr 23, 2012 at 07:27 IST

The public discourse on inclusive growth is really appreciable today even after 5 years of Government of India's declaration that the benefit of economic growth has not peculated to certain sections of population (Ref. 11th Five Year Plan Approach Paper). Fundamentally, our poverty estimation assumes that government as a welfare state take care of primary health, education and other basic services. Moreover, the role of public goods in this regard is assumed to be significant. But, in fact, the situations at grassroots level especially in Primitive Tribal Groups and slums do not corroborate with the above assumption. The access to basic services and "non-excludable" and "non-rival" nature of public goods are no more experienced. Finally, the poverty number and inclusive growth statements need to reflect the specific socio-economic and geographical context.

from:  Damodar Jena
Posted on: Apr 22, 2012 at 13:04 IST

"not always and everywhere the least opaque of interlocutors" ? You
could have just put it as the most transparent. I think the language in
this article is intentionally made a little convoluted and puffed up
with big words to make it look smarter, but I believe that if the aim is
to get your message across to many people as clearly as possible, it is
best to avoid such words unless absolutely necessary. The article does
actually raise a vary valid point, which would be a good reason to get
it across to as many people as possible.

from:  Shyam
Posted on: Apr 22, 2012 at 01:01 IST

I couldn't agree more. The public goods are the best ways forward for
the Govt of day to make the lives of Aaam Admi better not just through
through handouts.

from:  Binit Rath
Posted on: Apr 21, 2012 at 19:41 IST

'Income' per se as a criteria to assess the inclusive growth is not a sufficient measure, and it must be supplemented with 'availability' and 'access' measures of basic/necessary services. With special reference to tribal areas, there is critical issues on poor infrastructure, growing extremism, and dilapidated local governance which excludes them from mainstream growth process. Public good can be a good solution to the problem, but again the question comes 'Will they be real public good, non-rival and non-excludable?'.

from:  Alok Kumar Dubey
Posted on: Apr 21, 2012 at 19:04 IST

Bravo. Well stated. Authors comments on rising income levels across
sections are consistent with the changes we observe on the ground, and
consistent with a whole array of statistics that have been reported
over the last year (per-capita income, ownership of motorized
vehicles, cell phones). One needs to then agree and arrive at a
political consensus that the wave of reforms over the last two decades
have been instrumental in alleviating poverty.

But there is a huge amount of work to be done. There needs to be a
significant increase in personal income for access to piped water,
education and health to improve. And this needs to be matched by a
better availability of public goods. The difference in infrastructure
in metros vs tier 2/3 towns and villages needs to narrow. Basic
amenities such as sanitation & 24/7 power, paved roads, and
comfortable bus travel should not be a privilege of the middle class,
but percolate across classes.

from:  Anand
Posted on: Apr 21, 2012 at 19:02 IST

Dear Sir,The author is right to hold that "growth has been inclusive in the sense of the income being shared is that this is happening in a milieu of rising inequality". Still,instead of harping on the inequality angle,the author has rightly chosen to concentrate on provision of public goods by governments.He reasons well that "the point is that inequality is yet about income ,and a focus on income diverts our attention from the non-income factors that determine our well-being,perhaps better understood as the quality of life".But provision of public goods is not the prerogative of governments alone,for in that case we will be promoting "statism" which equally will spoil quality of life.

from:  Chidambaram Kudiarasu
Posted on: Apr 21, 2012 at 18:31 IST

Well-written. The compelling argument, succinctly stated, is that public infrastructure development, rather than public charity, should be the raison d'etre of government. It is the only way to sustainable inclusive growth but one must work much harder to achieve it.

from:  Samir Mody
Posted on: Apr 21, 2012 at 13:21 IST

Inclusive growth is a broad narrative. Inclusive growth cannot just be limited to income levels or inequality. The first task though is to ensure we reduce our poverty rate. A correct measurement of this that is undertsood by larger section of society is important. Merely by defining that any one earning less than USD2 a day is poor will raise criticism. A better bet would be to define the lorenz curve and measure how near or far we are from the lorence curve defined through the gini ratio. Every state shud know where they stand on this to ensure measures for improvement. Inequality is a curse of economics which thrives only on the principle of self interest. here again govt intervention is necessary. As we have cap on carbon emission , we must ensure cap on income say not exceeding income of USD5mn. The rest shud be taxed and invested fruitfully by govt. This is on the assumption that the govt is honest and sincere

from:  Jaypal
Posted on: Apr 21, 2012 at 12:17 IST

It is for us to decipher what kind and sort of "substantial growth" we
require.While some categories developing towards better standards and
good income lifestyle face criticism from others towards the means
undertaken, some are totally forgotten in the race, and others enjoy the
luxuries.They forget their role.In this question of inclusive economic
growth, yes,it is there in some parts,although in many economic progress
is an untouched dream.

from:  payal
Posted on: Apr 21, 2012 at 11:58 IST

The lessons of this muddled thinking on infrastructure are that it is
not enough to allocate astronomical sums for infrastructure,. Ministers,
civil servants, technocrats must evolve suitable schemes that are
benefiting the vast sections of the population and not niche schemes of
some monumental nature!

from:  s subramanyan
Posted on: Apr 21, 2012 at 10:42 IST

The recent fire in Kurla suburb of Mumbai has shown the weak spots in
our thinking and planning for infrastructure. Goods that had arrived
in the Mumbai Port have not been taken out of the city because the
harbor line is standstill and goods traffic will not resume until the
rail system is put to normal schedule. Worse is that the state
government which had earlier planned a road cum rail bridge between
Nava Sheva and Sewree has dropped the rail portion. That would have
meant an alternate rout in emergencies of the current type. Amusing
still is the decision of the state to patronise water transport by
running big boats from Borivli to Nariman Point and constructring
jetties in various locations in between at the state cost and
alllowing private transport companies to run a boat service that will
be available only for nine months. The state misleadingly calls this
move as a ‘game changer’. Actually, apart from the waste of public resources this will serve only foreign tourists.

from:  s subramanyan
Posted on: Apr 21, 2012 at 10:40 IST

This is an interesting perspective. Administering public goods to the population has been
lacking severely in our country. This is one of the reasons why we see the rich moving into
their own gated communities, their own super cities. If the govt had provided the necessary
infrastructure in its cities and towns, this sort of an inequality might perhaps have not sprung

from:  Dhimant
Posted on: Apr 21, 2012 at 09:44 IST

A good facts based article instead of the usual political/emotional
claims. All social groups (on the whole) are gaining from recent
economic growth. However, income inequality is also increasing - and
this increase in inequality (while substantial) cannot be captured by
looking at caste related social categories - because each caste group
is internally more stratified today. So many Dalits and lower castes
are doing better than before, whereas many others are not - income is
replacing caste as the primary marker of economic/social
stratification in Indian society - and it is income we should focus
on, not caste. So WHY is income inequality increasing? The author
comes close to spelling out the answer, but stops short of it. It is
increasing because poor people lack access to public goods like health
and education - think of the abysmal state of government schools and

from:  Taneja
Posted on: Apr 21, 2012 at 07:06 IST
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