Redistribution and growth

The baniya is excellent at accumulating capital but not particularly good at giving it away.

Aakar Patel July 27, 2013
The writer is a columnist. He is also a former editor of the Mumbai-based English newspaper Mid Day and the Gujarati paper Divya Bhaskar

Should growth in India precede redistribution or does redistribution precedes growth?

The first holds that an economy should be allowed to run freely and the state should not take much out of it and ‘redistribute’ it to the poor. The second believes that without strong public spending on nutrition, health and education, a robust economy with long-term growth isn’t possible.

The Indian economist Jagdish Bhagwati has written that he has always believed in the former, while Amartya Sen has backed the latter. This redistribution is something Bhagwati says is damaging India’s growth.

Sen does not agree with this formulation at all, and says it isn’t necessary that growth come at the expense of redistribution. However, I want to look at something which Bhagwati says right at the beginning of his piece.

He writes: “I also believe that the Gujarat template is ideal: its people believe in accumulating wealth but they believe also in using it, not for self-indulgence but for social good. This comes from the Vaishnav and Jain traditions that Gandhiji drew upon as well. The best ‘foreign’ model of this type is exemplified by my most distinguished Columbia University colleague, Simon Schama, who wrote about the Dutch burghers who had similar values and lifestyles. It is also a great model for India, I believe.”

What exactly is this Gujarat template? Bhagwati does not tell us, but even so, there are two problems with this.

First, Bhagwati (who is Gujarati) appears to have the same utopian idea about his state that many Gujarati immigrants have about their homeland. The reality is different. The baniya is excellent at accumulating capital but not particularly good at giving it away.

There are no great philanthropists in Gujarat. Here’s the most obvious, but by no means most uncommon, example. The Ambanis built a home worth a billion dollars for themselves (“not for self-indulgence”?) and fees at the Dhirubhai Ambani International School they built are Indian Rupees (INR) 500,000 a year. A wellness check-up at the Kokilaben Ambani hospital costs INR 5,000. How is this ‘social good’?

It could be argued that this mentality is changing (for instance, the superb philanthropic work of Azim Premji, also a Gujarati). But this is hardly from the Vaishnav and Jain tradition. It ensues from a liberalism akin to Sen’s.

The second problem is less easy to resolve. Gujarat has mercantile castes, the basis of its economy. It has mercantile castes among its Hindus, Jains and even among its Muslims. Bengal, Bihar and Orissa don’t have this asset. There is not a single Bengali, Bihari or Oriya in the Forbes list of Indian billionaires but there are a dozen Gujaratis from four religions.

How does the ‘Gujarat template’ apply to these states? Again, we don’t know.

In response to Bhagwati, writer Debraj Bhattacharya made some excellent points. First, Bhagwati has not “tried to show how a country such as India, which is largely dependent on internal market rather than export, can continue to grow if a large section of the population simply cannot have their basic needs of life fulfilled.

“There is an assumption in what Bhagwati has written that if an economy (read GDP) keeps growing, it will ultimately lift people out of poverty. He does not, however, explain how when the global economy is facing a recession, Indian economy will keep growing at double digit rate and for how long.”

This is a good question. Bhattacharya then asks another: “Let us for the sake of argument assume that Bhagwati is right about Gujarat’s ‘Vaishnav and Jain traditions’ that believes in making money and also sharing that money. His own argument is that this is a historical phenomenon. So, how can this be replicated in, say, Arunachal Pradesh? So, in order to make the ‘Gujarat model’ replicable, one would need to transplant the ‘Jain and Vaishav’ tradition into Arunachal Pradesh? Clearly, this is not possible.”

I think Bhagwati has, in this instance, succumbed to the narrow Gujarati position. Though I am also Gujarati, I think the Bengali view of Sen is the right one instead.

Published in The Express Tribune, July 28th, 2013.

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