The Economic Survey 2021 (https://bit.ly/2OfqfVQ) does not seem to be a policy document derived straight from the empirical data of the economy or the social compulsions embedded in it. On the contrary, the Survey rings with policy postulates based on strong ideological overtones. Of interest would be Chapter 4, captioned ‘Inequality and Growth: Conflict or Convergence?’ which is ostensibly “an effort to identify the correct policy objective for India”.
Need for desirable outcomes
Following the COVID-19 pandemic, India has fallen into the vortex of a ‘once-in-a-century crisis’ as the Survey forcefully puts it. It projects a V-shaped growth of recovery and reiterates the call of the Economic Survey 2019-20 for “ethical wealth creation by combining the invisible hand of markets with the hand of trust”. Given the great truth that trust is broken more in an unequal society, (on this, see Wilkinson and Pickett cited in the chapter), it is unrealistic to abstract from the crony capitalism and corruption that dominate the political society and proceed from there to ethical wealth production (which indeed is an important instrumental value). It is hoped that market-mediated growth will take the country to desirable socio-economic outcomes that include not only reducing poverty but also a wide spectrum, ranging from infant mortality to mental illness.
A silence on poverty
Even so, concerned scholars remain confused at the silence of the Survey on the nature and magnitude of poverty which is a multi-dimensional phenomena of deprivation, confounded much worse by the pandemic crisis. The graphic picture of migrant families trudging home hundreds of kilometres away from the cities in the wake of the lockdown seems forgotten. At the same time, Chapter 1 of the Survey documents elaborately the structural reforms (achievements include the controversial three farm laws) to take the economy and the people forward.
Scholarly estimates on the increase in the extreme poverty under the pandemic in India have ranged from 400 million (a study by King’s College London) to 620 million ( The Hindu , OpEd article, July 7, 2020). Oxfam’s study on the Virus and Inequality (https://bit.ly/3rcAF7p) points out that while it took nine months for the top 1,000 billionaires to return to pre-COVID-19 times, it will take over a decade for the poorest class to resume normalcy. Interestingly, India’s stock exchanges have scaled unprecedented heights in mocking disregard to the informal sector already in deep distress following the demonetisation episode.
Anyone familiar with the vast literature on economic growth and inequality will find the claims of the Economic Survey, that unlike in advanced countries, in India economic growth and inequality converge in terms of their effects on socio-economic outcomes, as simply outrageous. Because the 44 figures of correlations and regressions occupy more than two-thirds of the space of the chapter and form the ‘scientific’ base to substantiate the arguments, I may probe further into them. Correlation between two real scalar variables x and y does not measure any type of relationship between x and y. The measure of variance (square of standard deviation) in x is the square of a measure of scatter or dispersion or spread in x.
Faulty conclusions
Correspondingly, the joint dispersion or joint scatter in the couplet (x,y) is measured by covariance between x and y. A scale-free covariance is the correlation where degenerate variables are excluded. Hence, correlation can only measure joint scatter in (x,y) and it cannot measure any type of relationship between x and y. Also, correlation as a measure of joint scatter can make sense only when the variables involved have a joint distribution in the statistical sense. All the conclusions of the chapter by computing correlations are faulty.
Another set of analysis is based on fitting linear models, calling them as “linear regression”. In the regression models used, variables are selected according to convenience and linear models are fitted and t-statistics are computed without checking for the validity; all sorts of conclusions are made. Such misuse of statistical tools is a dangerous game, certainly in a democracy, which as J.S. Mill famously said is a government by discussions. Discussions are relevant and truthful only when they are well-informed and reliable.
Social justice is an intrinsic value of universal relevance. Box 1 of Chapter 4 that goes to justify the poverty and inequality trade-off in totalitarian China is obviously introduced to support the inegalitarian policy options. Thomas Piketty (2020), referred to in the chapter, tells us that inequality increased much more sharply after 1980 in India than in China. This is conveniently forgotten.
A sidelining
Although the works of great thinkers on justice and equality such as John Rawls, Piketty and Wilkinson and Pickett are mentioned, they are sidelined. It is concluded that “poverty alleviation through growth must be central to economic strategy”, rather than inequality because “in India, economic growth and inequality converge in terms of their effects on socio-economic indicators”. This is untenable. Rawls’ A Theory of Justice (1971), treats justice as fairness which is the basic core of democratic traditions the world over. The chapter refers to the idea of “original position” of equality of Rawls but fails to note that it will have to be judged by the whole theory of justice. The book, The Spirit Level , by the two doctors Wilkinson and Pickett, based on 50 years of research has the meaningful subtitle, ‘Why equality is better for everyone’, ought to have been discussed further because they argue that inequality breeds mistrust, mental illness and many such outcomes, which needs to be reduced for human well-being.
Instead of dismissing it, a discussion on Piketty’s Capital and Ideology is certainly warranted for three valid reasons: it is a well-documented historical study on inequality which comes to the striking conclusion that “inequality is neither economic or technological, but ideological and political”; India is elaborately studied; it discusses a wide range of policy issues relevant for a democratic society facing the COVID-19 pandemic like universal basic income, progressive taxation of income, carbon emission, property and inheritance, universal access to fundamental goods such as health, education and housing and so on.
The Economic Survey has all the right to suggest what it considers relevant. But democracy demands informed debate especially when it comes to economic inequality which has been admittedly growing exponentially in India. Legitimising it by policy think-tanks is indeed questionable.
M.A. Oommen is Honorary Fellow, Centre for Development Studies, Thiruvananthapuram
