French economist Thomas Piketty, in his bestselling book Capital in the Twenty-First Century, says that when the rate of capital accumulation grows faster than the economy, inequality increases. His argument has generated a lot of debate across the world.
Piketty’s book is based on painstaking research and analysis that would make social scientists, economists, policyplanners and political leaders question the standard mode of development and devise new and innovative ways of growth strategies, investment and governance for countries. While a global testing of the basic hypothesis of the book is farfetched, its relevance to an individual country like ours is particularly interesting.
Creation of wealth is an offshoot of growth. In the last 62 years, India has experienced an average 4-5% growth rate with periodic highs and lows. If in the process, wealth (defined as abundance of valuable resources or material possessions and measured simplistically by net worth) has accumulated at any given point of time at a rate higher than the growth of the economy and the surplus has not benefited the common good, it has bred inequality and poverty. As a percentage of total population, the poverty rate, irrespective of the specific tool measuring it, has improved in India. But then in sheer volume, the number of poor people who are left out of the development process is still substantial.
We no longer hear the term wealthy nation. It has been replaced by rich nation and the term is now more in use to define an individual. We have an increasing number of billionaires, some of whom are also known to be great philanthropists, a trait which contributes in a limited way to improve the quality of life of the lower strata of our population.
The corporate sector utilises a part of their surplus under social responsibility as required by the Act. But a major impact on eradication or minimising of the curses of poverty and inequality can be visible by judicial allocation of resources in priority areas of education, health, housing and job opportunities, and close monitoring of their implementation. This way, the spending on infrastructure building (covering energy/rail/road/ port/pipeline network, communication and storage) and on real estate, including low cost housing, would go a long way in fulfilling the aspirations of the people.
The tardy growth in manufacturing and processing industries is shrinking job opportunities and putting a heavy strain on the education system, which needs a thorough overhauling to cut down the increasing distance from industry requirements.
Thus, creation of an enabling environment for the growth of industry is also a focused area of investment by both the government and private corporate sector. The dilemma of allocating investment between social sectors and commodity sectors can be partially resolved if genuine asset creation forms an inseparable part of social sector activities (extending the scope of Bharat Nirman) and hence could enhance the plan component of budgetary expenditure.
Historically, the single pursuit of metal-intensive investment in India in the 1950s till the mid-70s in building permanent assets had led to inadequate allocation of resources in some other critical areas. Time and experience have taught us the optimum mode of resource allocation keeping in view the inequality and poverty aspects of development.
The fruits of economic growth can percolate down to the lowest level if the focus of investment is weighed in favour of the secondary sector (mining and quarrying, manufacturing, construction, electricity, water and gas supply), with private entrepreneurs chipping in agriculture, transport and communication sectors. It would thus be a good experiment in marrying the varied interests of growth, wealth and equality.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal