| Direction: Read the given passage carefully and answer the questions that follow. |
| It seems that our economic policy debate is forever stuck in a rather tedious jugalbandi between two dominant narratives on the state of the Indian economy. One centre is around growth and the other around poverty/ redistribution. Anytime one camp talks of double digit growth and catching up with China, the other points out that India fares worse than sub-Saharan Africa or a relatively poor neighbouring country like Bangladesh in certain social indicators. |
| As with any debate, each side ends up caricaturing the other. Any mention of poverty or human development and you will be called a jholawalla or a socialist who somehow does not understand the magical power of growth to lift people out of poverty or has a vested interest in keeping the poor in poverty (perhaps to attract NGO funds!). Any mention of growth or reform, and you are likely to be called a suit-bootwalla who is lobbying for reforms that will only help big corporations make more profits at the expense of the poor, who either does not care about poverty or believes in the voodoo economics of trickle down. |
| The problem with the growth-based narrative is that, while growth is necessary for poverty alleviation or improvements in social indicators, it is not sufficient. For example, take the dream growth rate of 10%. It will take 26 years of sustained growth of 10% per year in income (no country in history has had a quarter century of sustained double digit growth!) to bring an Indian who is right on the poverty line up to merely the current level of per capita income, which is low by global standards to start with. Growth can bring acche din, but you would have to wait for a quarter of a century for even a glimmer of that! |
| The problem with the redistribution-based narrative is that, if you focus just on redistribution, it would hardly make a dent on poverty. Yes, as attractive it may sound to some to tax the rich, the reality is if we took all of this wealth, and divided it among the poor (350 million Indians), each will get roughly the same as the amount marking the current poverty line (roughly $450 per year), and more importantly, this will be a one-time affair! |
| Growth is indeed necessary for long term poverty alleviation and the suit-bootwallas have that bit correct. But to take advantage of growth opportunities, the poor need access to human capital, the key inputs to which are education and health. Markets create opportunities for those with human capital and it is the responsibility of the government to ensure that the poor acquire the human capital necessary to take advantage of these opportunities. Fostering investment in the human capital of children is therefore a win-win strategy ? it helps achieve both higher growth rates and reduces poverty, and removes the apparent tension between these objectives as implied by the growth versus redistribution debate. |
A) Focus just on redistribution would hardly make a dent on poverty
B) Focus just on growth is not sufficient
C) Markets create opportunities for those with human capital
D) The government must ensure that the poor acquire the human capital necessary to take advantage
E) None of these
Correct Answer: C
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