Figuring out distribution

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SummaryWe need to debate how we define access to opportunities

We need to debate how we define access to opportunities

President Barack Obama recently kicked off a series of speeches to start a new conversation on economic policy in the US. It seeks to outline the cornerstones of “what it means to be middle class in America and rebuild a society where everyone who works hard, can get ahead”. This is no less relevant for India. For a nation shadow-boxing with the twin spectres of economic gloom and political despair and distracted by non-debates between stalwart economists, the times beseech a new economic and social policy conversation.

A word cloud of the mainstream debates on economic reforms here will reveal the easing of foreign direct investment norms, financial deregulation, liberalisation of labour laws, corporate tax reforms and infrastructure creation as the priorities. This, while undoubtedly important for economic growth, betrays a narrow and short-sighted approach that overlooks other, equally important determinants of growth.

Primarily, any serious debate on a development model has to go beyond aggregate measures of growth and also address distributional issues. We need a conversation that holds out the promise that all Indians can benefit from economic growth. Apart from its normative appeal, this is also sound economics.

Economies grow sustainably when markets expand — more people demanding goods and services attracts investment, raises production, creates jobs and employs people, increases purchasing power, creates demand for more and newer goods and services and so on. The critical factor is “more people demanding goods”. The base of the “demand pyramid” has to broaden, eventually encompassing all Indians.

But people can enter the market only if equipped with a basic set of human capital resources to access the opportunities that arise from economic growth. In all successful growth stories, including most recently from East Asia, governments have laid this platform by making large and effective investments in human capital formation. They have generally been in the form of investments in education, healthcare, nutrition and skills development. Our Constitution too promises to secure for all Indians “equality of access to opportunities”. It is, therefore, the responsibility of the state to enable this access, so that every Indian can get to the starting line.

It is, of course, possible that in a continental economy like India, high growth rates can be sustained for some time by a much narrower pyramid base in relation to its potential size. But as World Bank economist Martin

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