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Economic Survey 2021 says India must focus on economic growth rather than redistribution to tackle poverty

The survey highlighted both economic growth – as reflected in the income per capita at the state level –and inequality have similar relationships with socio-economic indicators

January 29, 2021 / 03:41 PM IST
Twitter (@BrookingsIndia)

Twitter (@BrookingsIndia)

Economic growth has a far greater impact on poverty alleviation than inequality and given India’s stage of development, it must continue to focus on economic growth to lift the poor out of poverty by expanding the overall pie, the Economic Survey 2020-21 said.

"... that this policy focus does not imply that redistributive objectives are unimportant, but that redistribution is only feasible in a developing economy if the size of the economic pie grows," the survey, drafted by Chief Economic Advisor Krishnamurthy Subramanian and his team, said in the chapter titled Inequality and Growth: Conflict or Convergence?

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The survey said the relationship between inequality and socio-economic outcomes, on the one hand, and economic growth and socio-economic outcomes, on the other hand, is different in India from that observed in advanced economies.

The survey examined the correlation of inequality and per-capita income with a range of socioeconomic indicators, including health, education, life expectancy, infant mortality, birth and death rates, fertility rates, crime, drug usage and mental health.

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The survey then highlighted that both economic growth – as reflected in the income per capita at the state level –and inequality have similar relationships with socio-economic indicators.

"Unlike in advanced economies, economic growth and inequality converge in terms of their effects on socio-economic indicators in India," the survey said.

The survey said inequality refers to the degree of dispersion in the distribution of assets, income or consumption. Poverty refers to the assets, income or consumption of those at the bottom of the distribution.

The Economic Survey 2020-21 was tabled in Parliament on January 29. It pegged real gross domestic product (GDP) growth at 11.5 percent in FY22, making it one of the world's fastest-growing economies in the aftermath of the COVID-19 pandemic.

For FY21, the economy is expected to contract by 7.7 percent, the survey said. This is in line with the estimates of the Reserve Bank of India (7.5 percent contraction), and the National Statistical Office (7.7 percent contraction).

For the first half of FY22, the RBI had forecast a real GDP growth rate of 14.2 percent.

In what can be seen as a precursor to fiscal expansion by Finance Minister Nirmala Sitharaman in the Union Budget 2021-22, the survey also called for more relaxed norms about debt and fiscal spending during economic slowdowns.
Kamalika Ghosh
first published: Jan 29, 2021 03:41 pm

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