now move to a comparison of India and Brazil and some explanations for their different performance.
Comparison and Explanations
Over the past two-and-half decades or so, India has grown rapidly, but disparities have also grown. Interpersonal inequality has increased, in whatever way we conceptualize and measure it, particularly in urban areas. Class-based disparities have also increased. One idea that has captured the imagination of both scholars and policymakers in India is ‘inclusion’ or ‘inclusive growth’. In fact, inclusive growth was made an objective by the erstwhile Planning Commission, although its conceptualization was too broad and not operationalized. Several scholars have tried to operationalize the idea of inclusion and examine whether Indian growth has been inclusive. Motiram and Naraparaju (2015) use a framework developed in the literature on pro-poor growth to argue that Indian growth in the 2000s has not been inclusive. They do so by examining whether the growth of quantiles of the poor is adequate or not (in comparison to the growth of the average person). They find that poverty has declined, but the poor have grown at slower rates compared to the middle and richer groups. The shortfall in the growth of the poor is particularly severe in urban areas. They also extend this framework to examine subgroups of the population and find that growth of the poor belonging to disadvantaged groups (castes and classes) has been inadequate. Other scholars (e.g. Jayaraj and Subramanian, 2012a, 2012b; Suryanarayana and Das, 2014) have used other methodologies to assess inclusion, and come to the same conclusion. I have discussed the details of these studies in Motiram (2015), so I will provide only a brief summary here. Jayaraj and Subramanian (2012a, 2012b) draw upon the literature on the “Talmudic Estate Problem” (that concerns the division of an estate among heirs) and the allocation of a poverty alleviation budget. They employ various fairness criteria and use NSS data on consumption expenditure to examine how the pie of Indian growth has been divided among various quantiles of the population and among socioeconomic groups. They conclude that the actual allocation among these sections of the population falls short of even the minimally fair criterion. Suryanarayana and Das (2014) examine two different elasticities (mean consumption with respect to mean income, median consumption with respect to mean consumption) and an “inclusive coefficient,” which depends upon the share of the population that has less than 60% of the median consumption. The above elasticities have to be greater than unity and the inclusive coefficient needs to be high for growth to be considered broad-based. They consider the entire population and disadvantaged caste groups and use NSS data on consumption expenditure to conclude that this is not the case — in fact, they find that the inclusive coefficient has fallen during the period 1993–1994 to 2011–2012.
Why has high growth in India not translated into inclusion? Why has Indian inequality increased? First, policies followed since the early 1990s (of course, in conjunction with other factors) have benefited the richer groups disproportionately. In particular, remunerative jobs that can absorb the rural or urban poor have not been created adequately. Creation of jobs in labor-intensive manufacturing would have gone a long way toward alleviating poverty and increasing the incomes of the poor. However, this has not occurred and manufacturing has been quite sluggish. Instead, jobs have been created in sectors like construction — in particular, rural construction — these jobs are not remunerative.21 To explain this, some have focused on labor regulations as the culprit, but this is in my opinion a red herring.22 Paradoxically, the nature of the growth process itself, and increasing inequality, is likely to be responsible for this. The growth process has disproportionately benefited the rich and created a demand for goods (e.g. foreign vacations, iPhones) that do not give a fillip to investment and job-creation in labor-intensive sectors.23 Second, policies toward the social sector and social welfare have been inadequate. The Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) (an employment guarantee scheme in rural India) put in place by the United Progressive Alliance government that came to power in 2004 elections has undoubtedly contributed to improvement in rural areas, but its implementation has varied across states. No comparable scheme exists in urban areas, where the fight against poverty has seen serious setbacks.24 Moreover, some of the welfare schemes suffer from poor implementation, e.g. Construction Worker Welfare Boards have been put in place, and money has also been allotted to them, but many construction workers are not even aware of their existence (e.g. see Naraparaju, 2015, for an example from Navi Mumbai).
Coming to Brazil, inequality continues to be high, but has fallen substantially. Both poverty and extreme poverty have fallen. Some studies that have rigorously examined whether Brazilian growth has been pro-poor or not have concluded in the affirmative, e.g. Kakwani et al. (2010) for the period 2001–2004. Why has inequality fallen and growth been pro-poor? Several studies shed light on this question. Barros et al. (2010) use a decomposition analysis to understand the various proximate factors that have contributed to the reduction in inequality. A major contribution has been made by change in the distribution of labor income per adult, which has in turn been driven by a reduction in skill premium and decrease in educational inequality. A second important component is the change in the distribution of non-labor income per adult. Non-labor incomes have increased considerably due to public transfers — pensions, social security benefits, and conditional cash transfers (Bolsa Escola and Bolsa Familia). Ferreira et al. (2009) provide evidence from several studies to show that social policies and their effective targeting have played a major role in reducing inequality and poverty.25 They also document expenditures on the social sector since the 1980s (Ferreira et al., 2009, Figure 1) showing that there is a sharp increase after 1988, when the constitution came into effect, e.g. during the period 1991–1998, the monthly benefit bill increased by more than four times ($180–750 million). Ferreira de Souza (2012) points out that social security and pensions comprised about 11% of the GDP in 2006. He also highlights the crucial role played in the reduction of inequality and poverty by the minimum wage, which is also linked to government benefits. Since the constitution came into effect, the minimum wage has increased considerably — in real terms it more than trebled (US $PPP 83 to US $295) during the period 1995–2011 (Ferreira de Souza, 2012, Figure 6). Cornia (2015, Table 8) also documents a substantial increase in real minimum wage in Brazil as well as in some other Latin American countries.
The comparison of India and Brazil illustrates the key role of social policy in the reduction of inequality and poverty — the success of Brazil despite much lower growth can be attributed largely to this. It is also worth commenting briefly about the role of ideology and the different political regimes that India and Brazil have witnessed. Indian state and elites have displayed only a lukewarm commitment toward the social sector and poverty alleviation. Rubrics like neo-liberal, pro-business, and predatory that have been applied to the Indian state in recent times are quite suggestive.26 By the standards of even developing countries, Indian public expenditure on the social sector is abysmally low. A good illustration of this can be provided by examining public expenditure on health, which in 2013 stood at 1.2% of GDP, much lower than the same for Brazil (4.2%), Mexico (2.9%), and China (2.7%).27 On the contrary, the Brazilian state (at least in some phases) has shown a more social democratic character. In this regard, Brazil has not been an exception, and many Latin American governments, which have been left-wing have shown a more serious commitment toward redressing inequality and alleviation of poverty. Cornia (2015) classifies Latin American countries in the decade of 2000s into four groups based upon the ideological profiles of the governing parties: Radical Left, Social Democratic Left, Centrist, and Center Right and Right. He shows that the sharpest decreases in inequality per year have been experienced by the countries ruled by the Social Democratic Left, followed by the Radical Left, Centrist, and Center Right and Right. He classifies Brazil under Social Democratic Left and shows that it experienced a decline of 0.65 percentage points per year in its Gini index during the period 2003–2009. He also conducted a regression analysis for the entire Latin American region to show that the nature of the regime (social democratic and radical populist) and quality of democracy are significantly associated with lower inequality.
Discussion and Conclusions
In the analysis above, I have provided an
