SV is a former RBI governor. His role was under question during the Securities Scam of early 1990s. I am sure that he accepted hospitality of Stanchart Bank in London during the scam when he was RBI Gov.
I am not linking this to what he has opined in this piece but I am one of those who would throw off his sermon.
SR
Dilemma of growth vs equality by S. Venkitaramanan (http://www.thehindubusinessline.com/2008/02/18/stories/2008021850550900.htm)
The political economy of India is dominated by discussions between those who favour growth-oriented policies and those who are on the side of poverty alleviation. The apparent conflict between these two schools of thought is not that really sharp. Many economists all over the world have argued that growth itself helps to reduce poverty. But there are still convinced ideologues who believe that policies in favour of reduction of poverty are justified in themselves and they need not necessarily reduce growth, indeed they may promote growth.
The debate has taken a rather classic ideological flavour in West Bengal. The present Chief Minister, Mr Buddhadeb Bhattacharya, has almost declared himself in favour of higher growth and there are other prominent associates of his in the Government who share the same view. Against this school of thought are dyed-in-the-wool radicals.
India's dilemmas
I came across an interesting piece, a lecture, by Dr Kaushik Basu at the Madras School of Economics, which has been reproduced in the Economic and Political Weekly of February 2, 2008. It is entitled "India's Dilemmas: The Political Economy of Policymaking in a Globalised World."
Dr Basu cites the statements of some prominent members of the Communist Government of West Bengal that socialism is not feasible in the States ruled by the Left Front and so they have to run on the basis of Capitalist line since the bulk of the nation is on such lines. An attempt at redistributive tax policies will cause flight of capital and jobs. This is, no doubt, valid but as Dr Basu points out, even if the Left Front dominated all India, the conflict would continue. Capital and jobs can go to other nations.
The lecture starts by commenting on the rather 'astonishing' (the adjective is Basu's) rate of growth of the Indian economy in recent decades. Dr Basu points out that India had risen in the roster of nations ranked low on the basis of rate of growth in the early 1980s, although even today it ranks lower compared to China and a bit better than Vietnam. Dr Basu points to various studies that have surveyed the record of growth of India over the decade. India recorded a rate of growth of 1 per cent or so in the period up to Independence and thereafter its rate of growth grew to 3.5 per cent till the period of reforms.
Dr Basu has also pointed out that surprising as it may seem, the year of emergency recorded a rate of growth of 9 per cent, which was considerably higher than the previously recorded rate. Perhaps, stricter enforcement of rules accounted for better performance. Suffice it to say, the reforms of the 90s led to the acceleration in the rate of growth to nearly 9 per cent. This is sustained on the basis of domestic savings and domestic investment. What is more impressive is the fact that India's external situation has improved, as shown by the growth of forex reserves.
Growth in inequality
Dr Basu has pointed out that while all this has been achieved, there has been a growth in inequality. While the percentage of people below the poverty line may have decreased, the inequality indices have become worse. Dr Basu poses the conflict between inequality and poverty reduction. In effect, he asks: Is it necessary to tolerate a bit of growth in inequality if we have to achieve poverty reduction? In a scholarly exercise brimming with theory beloved of economists, Dr Basu examines this conflict in a tightly argued manner.
The conclusion that Dr Basu reaches is that we may have to tolerate a little bit of inequality in order to attract the rich in a highly globalised world. We have to keep the tax rate low if the riches are to stay in our jurisdiction. West Bengal learned this lesson at its cost. For about 30 years, the State took a tough line on industrialists and if they wanted to stay in the State they had to abide by the tough labour laws and the like.
It was this realisation that led to corporates leaving the State. The State authorities invited capital with open arms, as for instance, in the case of Tata's small car project, by offering land at concessional rates. This would mean that the Communist leadership of West Bengal is accepting the inevitability of coexisting with capitalism in the context of competition for capital and labour, from both other States and other nations. When capital can freely move from one jurisdiction to another in search of lower tax rates and better labour conditions, it is difficult for a State to enforce its policy in favour of equity.
Dr Basu examines the consequences of this view in regard to manoeuvrability of political economy. He points out that the State cannot ignore the fact that other States can offer a better environment from the tax point of view, and labour conditions.
This is true not only as between States, but as between nations. While efforts have been made to coordinate tax policies between States in order to reduce tax competition, the same is not the case in respect of nations. Dr Basu hints at the need for international collaboration to bring into being a mechanism to make tax rates equitable and comparable between different nations so as to reduce competition on this ground.
Role of culture
An interesting aspect of Dr Basu's lecture is that it emphasises the role of culture in economic growth — culture in the sense of trust between individuals and governments and investors.
It is true that, to a large extent, lack of trust is endemic in India, as disclosed by the kind of restrictions on businesses. India ranks low in the list of nations in respect of feasibility of starting, conducting and closing businesses. Much can be done in this regard.
Turning to the question of inequality versus poverty reduction, Dr Basu points out that high tax rates as a means of reducing inequality may be counterproductive for growth and hence increase poverty. In this context, he examines the comments made by certain observers that had India opened up as China did in 1978, India would have generated decades of growth.
He points out that, on the contrary, we may have been reduced to the fate of Latin American countries, which opened up early and were savaged by the multinational and international capital movements.
The lesson that Dr Basu's illuminating lecture provides is that political dilemmas in a globalising world are really serious. As long as capital is free to move to other countries, it is not easy to have policies in favour of equality for one State or one nation.
As Mr Basu points out, it is one thing to know the measure of poverty, but another to know what is to be done about it. Obviously, much depends on Government investment for health and educational services in respect of which Indian States rank low amongst nations of the world. There is much to be done to upgrade our educational and health facilities if inequality and poverty are to be addressed.
All in all, Dr Basu's lecture is an intellectual feast, which raises more questions than it answers. But that, after all, is the hallmark of an "argumentative Indian".
__._,_.___
*****************************************
Sign the Petition : Release the Arrested University Teachers Immediately : An Appeal to the Caretaker Government of Bangladesh
http://www.mukto-mona.com/human_rights/university_teachers_arrest.htm
*****************************************
Daily Star publishes an interview with Mukto-Mona
http://www.mukto-mona.com/news/daily_star/daily_star_MM.pdf
*****************************************
MM site is blocked in Islamic countries such as UAE. Members of those theocratic states, kindly use any proxy (such as http://proxy.org/) to access mukto-mona.
*****************************************
Mukto-Mona Celebrates 5th Anniversary
http://www.mukto-mona.com/Special_Event_/5_yrs_anniv/index.htm
*****************************************
Mukto-Mona Celebrates Earth Day:
http://www.mukto-mona.com/Special_Event_/Earth_day2006/index.htm
*****************************************
Kansat Uprising : A Special Page from Mukto-Mona
http://www.mukto-mona.com/human_rights/kansat2006/members/
*****************************************
MM Project : Grand assembly of local freedom fighters at Raumari
http://www.mukto-mona.com/project/Roumari/freedom_fighters_union300306.htm
*****************************************
German Bangla Radio Interviews Mukto-Mona Members:
http://www.mukto-mona.com/Special_Event_/Darwin_day/german_radio/
Mukto-Mona Celebrates Darwin Day:
http://www.mukto-mona.com/Special_Event_/Darwin_day/index.htm
*****************************************
Some FAQ's about Mukto-Mona:
http://www.mukto-mona.com/new_site/mukto-mona/faq_mm.htm
****************************************************
VISIT MUKTO-MONA WEB-SITE : http://www.mukto-mona.com/
****************************************************
"I disapprove of what you say, but I will defend to the death your right to say it".
-Beatrice Hall [pseudonym: S.G. Tallentyre], 190
Change settings via the Web (Yahoo! ID required)
Change settings via email: Switch delivery to Daily Digest | Switch to Fully Featured
Visit Your Group | Yahoo! Groups Terms of Use | Unsubscribe
__,_._,___