High GDP growth rate cannot be panacea for development, warns top economist

Kamal Nayan Kabra

At a time when the so-called Gujarat model is being touted as the sole panacea for India’s economic ills, a recent book by Kamal Nayan Kabra, Malcolm S. Adisheshiah chair professor, economics of development and decentralized planning, Institute of Social Sciences (ISS), New Delhi, has sharply argued against this type of “growth orthodoxy” which propagates that rate of growth of gross national product (GNP), as determined by the market forces, is the sole criterion of development. Such a GNP-centric model, he says in his book, “Appropriate Development: People First”, published by ISS, is based on the assumption of “trickle-down processes” which could be achieved by “increased public revenue as a fallout of higher GNP”, which would help run “state-led anti-poverty programmes.”
Without mentioning “Gujarat model”, Kabra, who is former professor of economics at the Indian Institute of Public Administration, New Delhi, says, GDP-centric growth is being considered not just as “the sole condition for the achievement of objectives such as a good quality of life, poverty reduction, increasing employment”, it is being advocated to achieve “geopolitical ambitions of a certain brand of nationalism.” He adds, “A lot of empirical evidence is often cited by the votaries of this school to show a positive correlation between the growth rate and some improvement in the socio-economic indicators in arenas such as reduction in absolute poverty levels, and improvement in nutrition, literacy, health and so on.”
The book acquires significance for the students of Gujarat “model”, especially when economists such as Prof Jagdish Bhagwati, Prof Arvind Panagariya and Prof Bibek Debroi have variously written about how trickle-down effect has been “helpful” in overcoming the state’s poor human development index. While their “neo-liberal” views have been sharply contested, among others, by Prof Indira Hirway, an Ahmedabad-based economist, Kabra’s book further seeks to provide much-needed theoretical explanation of how trick-down effect cannot be termed as “development.”
Kabra spoke on the subject at a seminar organized at the Gujarat Institute of Development Research (GIDR), Ahmedabad, on April 18 during the Pravin Visaria memorial lecture.
Pointing towards “partial and limited nature” of the GNP-centric approach, Kabra says, “Evidence in support of the primacy of the GNP approach is sought to be related to the well-known and by now exploded myths buoyed up by rising public revenue out of the increased national income, larger public provision of the essential social services is also supposed to be an additional string to the bow.” He adds, this viewpoint has lately found a new nomenclature – “of inclusive growth.”
He underlines, “These neoliberal measures are operated in terms of a poverty-line that shows scant respect for the bare minimum human needs. Hence, there does not arise any concern with the essential, inviolable human dignity and the inalienable rights even of the targeted people.” Suggesting that this viewpoint is an imitation of some western economists, he adds, “One still comes across the estimates of global absolute poverty arrived at in terms of the poverty line defined as per capita daily consumption of a little over US$ 2.”
Kabra argues, “The GNP growth disregarding its composition, even with the neo-liberal measures for enhancing some token inclusion, can hardly go far to improve the distributive justice, livelihood adequacy and security and contribute to appropriate development.” But “the accolades showered on the great virtues of wealth creation qua wealth creation get thrown out of the front gate the moment one asks questions such as what does the GNP consist of, how and by whom is its composition decided, what are its social and environmental costs and the sharing of all the costs and benefits between different sections of society and the present and the future generations.”
In fact, Kabra says, “Since the GNP-centric development policy regime implies a free hand to the market forces, they acquire a big hand in deciding the pattern of production, especially by way of imitating the pattern seen in the rich countries.” In the third world countries, “the elites … tend to take the attainment of the life style and consumption pattern prevalent in the rich world as the summit of accomplishment and they go all the way to imitate their pattern of production.”
Such a viewpoint seeks to undermine the need for “expansion of the home market”. It overlooks the fact that “increase in the proportion of wage goods in the total product of a country by engaging the available work force in the decentralized production of the poor persons’ goods and services” should be central to development. The result is that in many third world countries “inherited inequalities persist on account of various institutional impediments arising from the pattern of land holdings, slow growth of agriculture, growing concentration of assets and production in the hands of the MNCs and large indigenous business conglomerates and such like factors.”
Kabra emphasizes, “These are furthered by means of various public policies that consolidate and accentuate inequalities, leading to a pattern of industrial development based on high rates of growth of demand for conspicuous luxury and ‘semi-luxury’ products as the only way to maintain high growth, as for example in India and Brazil (as shown by KN Raj, for India and Furado for Brazil). These changes may lead to tightening of democracy as the governments committed to high rates of growth may give further concessions and incentives to the upper income groups to increase demand that happens apparently at the expense of the weaker sections.”
Kabra says, “Evidence seems to be accumulating (and brought to wider public notice by the UNDP’s Human Development Index and the annual world economic and social reports of various international agencies) that the pattern of enlarged production with changed sectoral composition in favour mostly of the services and marginally in favour of the industrial sectors in most third world countries has done precious little to make any perceptible positive contribution to the improvement of the quality of life… for the huge number of the poor.”
In fact, “the microeconomic or industrial policy and investment projects decisions are entrusted to the oligarchic market forces by reposing faith in the efficiency and energy of the market forces with the state making some soothing noises about the virtues of competition, or rather the so-called free competition in the markets with some feeble and showy attempts to bolster up competition. These policies do not seem to bother about restraining the hugely powerful oligopolistic agencies calling the shots and their degeneration in to cronyism, as though these are a part of the script.”
Kabra points out, “Little wonder the neo-liberal state seems to find it increasingly difficult to manage the show of democratic legitimacy and lives from crisis to crisis in every sphere. Actually, the vast social disparities and structural social exclusion, combined with the spread of the crony corruption virus, and reduced and misdirected levels of state activities. are making the common citizen lose faith in the honesty and legitimacy of the state.” The ground reality is that “rapid technical progress has helped only very few of the developing countries, and it has certainly made the task of catching up with the developed world even more difficult.” And all the frantic effort “at innovation new products, new processes, new services and changing organizations -- certainly does not create the greatest amount of happiness for the greatest number of people”.
He further says, “The expenses and transactions that arise in the course of the operating the marketized politics and have become visible in the form of the growing size and incursions of the formally illegal ‘black’ economy, which feeds into the (perverse) growth of the economy. A huge illegal and undeclared economy gives rise to growth outcomes that leave the majority of the people high and dry: the goods and services that are meant for the poor and are affordable by them are losing their relative share and thus prevent the employment generation programmes from acquiring meaning in the sense of becoming a means for giving the people access to the required goods and services.”
Actually, he points out, the history of the Indian political processes during the last two decades suggests that major political parties “are basically committed to similar social interests in varying degrees and rarely frankly admit their real position on the basic policy issues. They simply engage in shadow boxing over the outcomes, while sharing a common ground on the policy choices. As a result, they seem to have reduced the politics of development to providing essential civic services and infrastructure facilities.”

Given this backdrop, Kabra favours what he calls “appropriate development, based on products, techniques, locations, agencies and ethos consistent with appropriate development.” Calling “appropriate development” as a “holistic concept of development”, he says, “An appropriate product-mix and several closely and organically inter-connected factors may enable to capture the multidimensionality of development.” He believes, this would mean “a lot of exercise required to devise an index of appropriate development capable of a crisp, short-hand quantitative index, like the Gross Happiness Index (GHI), incorporating several normative, qualitative dimensions of social change.”