Realizing an Equitable and Prosperous India Needs Paradigm Shift by Prof. K.S.Chalam

(  Key note address at the International Conference on “ Equitable and Prosperous India: Challenges and Opportunities” organised by the Department of Commerce, Bombay University, 27-4-2017 )

The ideal of achieving an equitable society is always an exciting dream for those who are experiencing discrimination based on primordial ideas of inequality. The concepts of equity and justice are organically associated with the long struggle for a just society in Europe particularly after the 14th century. The realisation of an equitable society however, has been around in the Western philosophical moorings starting from Aristotle who wished to ‘treat like cases as like’ and considered it as a rational approach in a formal sense. He was also referring to formal and proportional equality, the former where individuals are indistinguishable and the latter in relation to a more problematic idea of distribution on the basis of due worth.

The idea of equity is related to justice while equality is connected with equal treatment of people, are basically qualitative in human relations between groups. Equity is considered intrinsically good and therefore egalitarian. Equity is different from identity or sameness.Most of the ideas were originated in the writings and discourses of Western thinkers attained universal recognition after the Reformation movement and French revolution. We Indians seem to have not been concerned about groups attaining equity, but absorbed in individuals’ getting liberation or nirvana. Buddha fought against this otherworldly ontology and appealed to his disciples to seek refuse in the social aggregate, the society. JyotiRao Phooley, Govind Ranade and Ambedkar of Maharashtra brought the western ideas of equality and justice to Indian soil. But, the metaphysical discourses for which we Indians are proud of for their abstract expositions are less anxious about our real empirical experiences like discrimination, inequity etc, dismissing them as sense experiences with little relevance to attain liberation (see my book ‘Economic Reforms and Social Exclusion’, Sage).Western thinkers like Locke, Hobbes, Dworokin and others had reasoned about natural rights, equal rights  with human concern and respect,  while Indian  sages and savants  during the corresponding period advocated for equality before god in a metaphysical rhetoric .

The concept ‘Equality’ appears to be an elusive term for scholars who are interested in its measurement and quantification. It is very easy to say that morally each individual is supposed to get his due and as per human dignity. But, how to operationalize it? Equality of What? Economists who are generally associated with quantification of different phenomena particularly those who had a Welfare Economic orientation  from the time of Bentham, Pigou, Pareto,  Kaldor, Amartya Sen and others considered Pareto optimum as that ‘exists whenever it is not possible to make somebody better off without making somebody worse off’ as the starting point for  a debate . This has satisfied the libertarians and some Indian thinkers who consider that a social structure is already ordained as to how the system should function and we cannot meddle with it without disturbing the optimum.  Let there be status quo. But, Amartya Sen found the flaw in the argument and said that, ‘a society in which some people lead lives of great luxury while others live in acute misery can still be Pareto optimal if the agony of the deprived cannot be reduced without cutting in to the ecstasy of the affluent’ and added that a state can be Pareto Optimal and still sickeningly iniquitous’. Sen has supported the system of caste –based reservations in India on the basis of this argument and capability approach in his book ‘Inequality Re-Examined’ in 1995. Sen in his analysis of ‘Equality of what?’ lecture has come out with a rational and universally accepted idea of ‘basic capability equality’ as an answer to the question, as distinguished from that of Utilitarians and Rawls primary goods.

The issue of equity as noted above is connected with Justice. Utilitarians like Bentham, J.S.Mill who had some influence over the civil servants of the British India where they had seized of the view that, ‘a society is just to the extent that its laws and institutions are helped to promote the greatest happiness of the largest number’. It appeared to be rational and practical. But, problems arise when it comes to the measurement of happiness as utility (ordinal and cardinal) and its application to administer economic, social and political freedoms. It is further accentuated when groups are involved in a capitalist society where gains and losses are disproportional and the same individual may not experience the gains all the time in a group. In order to address this problem and to substantiate the questions of Equality in the USA after Jencks ‘Inequality’ project study based on educational background of different racial groups in America, John Ralws, the Harvard Philosopher published “A Theory of Justice”. John Rawls has addressed the issues of justice as fairness in a libertarian society where undue burdens to get greater average utility will be avoided. Each person, Rawls says is to have the maximum liberties compatible with the same liberty for all, under what is called ‘the Difference Principle’. It is said that inequalities are permissible only if, 1. They can be expected to work to everyone’s advantage, especially to the advantage of the least well off, and 2.the positions, offices, roles, to which the inequalities are open to all under conditions of fair equality of opportunity.  By assuming an original position with a veil of ignorance, people often choose the maximum rule of choice. It means that one should choose that alternative whose worst possible outcome will be no worse than the worst possible outcome of another alternative. Here the question of discrimination does not arise as the treatment is fair. However the libertarians did not agree with it and argued that they should not be allowed to be discriminated or taxed simply because they have property and wanted that their right to property be respected irrespective of what may happen to the poor and disadvantaged in a social organisation.

Amartya sen who has published extensively on ‘Common Good’ and Welfare Economics has developed ideas relating to Human Development Index to indicate the status of a society in improving the well -being of people through three indicators, income, longevity and education. Though it is an aggregate term, the UNDP has been updating its data sets by incorporating inequality adjusted HDI, GEM etc over a period of time that gives sufficient insight in to inequalities. One of the important contributions of Sen is his capability approach to argue for entitlements for those who are deprived of the capabilities. Martha Nussbaum has listed 10 capabilities as central to human, 2. bodily health, 3.senses, imagination and thought, 4.emotions, 6. practical reason, 7. affiliation with groups and society, 8. relations with other species, 9. Play to laugh and enjoy leisure and 10. Control over environment, political and material. (The functioning of each capability is given in appendix)

The capability metric has been proposed by capability philosophers as an alternative for, and improvement on, the Rawlsian social primary goods metric, which focuses on general purpose goods, such as income and wealth, opportunities and liberties, and the social basis of self-respect. Sen argued that “the primary goods approach seems to take little note of the diversity of human beings. If people were basically very similar, then an index of primary goods might be quite a good way of judging advantage. But, in fact, people seem to have very different needs varying with health, longevity, climatic conditions, location, work conditions, temperament, and even body size. … So, what is being involved is not merely ignoring a few hard cases, but overlooking very widespread and real differences”. A person with a disability, however severe, would not have a claim to additional resources grounded in his impairment under Rawls’s two principles of justice. Sen argues that Rawls’s difference principle would not justify any redistribution to the disabled on grounds of disability. Sen noted that it is possible to argue with capability approach for special treatment of handicapped persons like a pregnant woman where we have institutional support in providing additional inputs to meet the nutritional deficiency. Thus, capability is able to express real deficiencies among people in society with different groups including socially disadvantaged and to overcome the deficiencies, collective action or state policy is needed. However, capability approach has the limitation of measuring certain functionings as noted below.

  • What goods and burdens are to be justly distributed (or should be distributed)? Which social goods comprise the object of distributive justice?
  • What are the spheres (of justice) into which these resources have to be grouped?
  • Who are the recipients of distribution? Who has a prima facie claim to a fair share?
  • What are the commonly cited yet in reality unjustified exceptions to equal distribution?
  • Which inequalities are justified?
  • Which approach, conception or theory of egalitarian distributive justice is therefore the best?

Social economists are able to address some of the questions noted above in justifying human dignity through capability support. Sen in his latest book on ‘The Idea of Justice’ brought in the Indian concepts of Niti , Nyyaya, the former as just rules and institutions and the latter as its realisation or instrumental justice. However, he has conceded that the idea of justice depends upon the philosophy of justice with which you evaluate transactions. Giving an example of how one flute is distributed among three girls looking at from utilitarian, egalitarian and libertarian orientations.

Are Equity and Prosperity Compatible

We have in India scholars and activists passing opinions and judgements that unless you have sufficient wealth created with incentives for merit and efficiency, there cannot be equity. It is possible to get the wealth thus accumulated to trickle down to the lower classes once it is full. The arguments and counter arguments made us to realise, of late that the inequity in India is widening (see Appendix Tables). Economics or Political Economy in the classical period starting from Adam Smith, Ricardo, Marx and others to Kuznets, Piketty etc are concerned not only with the wealth of nations, but also its distribution. Adam Smith has indicated how the self- interest of individuals would lead to division of labour and increase in productivity to make a nation wealthy. Ricardo had contested how during his time the share of national dividend among the three factors of production was inequitable as wages remained stagnant and profits falling. In other words, economists have been concerned with not only the creation of wealth but also its distribution from the beginning. But, there seems to be no ambiguous argument that let wealth be created and it would be distributed later. In fact Marx’s thesis of surplus value considers how inequity is built in in to the capitalist system in the process of production itself. Therefore, there is no tangible argument that equitable distribution would diminish wealth. But, the neo-classical models of growth through free trade advocated by scholars like Jgadish Bhagwati and others landed us in liberalisation of the economy in 1991 with an expectation that it would enhance our capabilities and reduce inequalities. The Kuznets thesis that ‘as an economy develops, inequity will rise and then at a later stage naturally fall back again’ has not been proved in many cases as noted by Piketty. This is also true in the case of the socially excluded in India who are now double marginalised after liberalisation.

Indian Economy after 1991

Theories of economic growth and development, the former explaining quantitative expansion of economic variables and the latter elucidating non quantitative factors such as institutions, culture, and status along with the former idea became popular discourse after 1945.Countries have been categorised as developed, undeveloped, developing etc., on the basis of certain parameters. Several scholars have made theoretical contributions as to how to break the vicious circle of poverty, break inertia in agriculture, introduce advanced technology in manufacturing etc and reap the returns in terms of increase in GDP. The strategy of export led growth, import substitution,, free trade and the so called Washington consensus have been advocated. The IMF, World Bank and other funding agencies persuaded India to abandon the planned growth models and adopt liberalisation and globalisation. India under the leadership of P.V.Narasimharao was forced to accept the Washington Consensus consisting of 10 commandments to privatise and globalise Indian economy. As noted by the Japanese economists Yujiro Hayami and Yoshisha Godo, in less than ten years the so called Washington consensus under market fundamentalism got replaced with post Washington consensus, advocating greater role to institutions and state sector. However, the damage done to the fundamentals of constitutionally arranged models of development seem to have not been evaluated. It is widely reported now that after more than two decades of liberalisation policies in India, inequalities particularly among the different social groups are widened and social tensions became order of the day.

Against this background, the UNCTAD 2102 report on trade has implications for India. It is reported that the merchandise trade of the world has declined from 5.5 per cent in 2011 to 3.5 percent in 2012. The growth rate has declined sharply from 4.1 per cent in 2010 to 2.7 per cent in 2012, mostly due to the growth rates of developing countries and China (developed countries confined to less than 2.5%). Financial frauds and weak demand in developed countries have lowered exports from developing countries, including India. Except gold, all mineral exports have declined during the period. The report has analysed the so-called Kuznets curve indicating that in the beginning inequalities increase and after some time, with increase in productivity, disparities decline; it seems to have failed. On the contrary, Dani Rodrik and Alesina have proved that inequalities in primary income would hamper growth. It is supported by historical data that the share of wages in the national income of the UK, the USA and Japan was around 60 per cent for a long period to sustain growth.

Impact of globalization and trade on Equity

                 The ideology of neo-classical economists that liberalization of labour laws to reduce wage rigidities in the Third World would affect development seems to have gone against it.  The UNCTAD report noted above after a review of the theories, has come to the conclusion that, “these alternative views, by challenging the conventional wisdom that rising inequality is the normal result of development within market economies, may contribute to a new understanding of the functioning of a market economy, and can lead to a paradigm shift towards a pattern of economic development that is both more equitable and more efficient”. The report has noted that the trade between advanced and the developing countries has caused inequalities in the latter. The estimates of proportion of top quintile share of income to the bottom quintile show that inequalities are higher in developing countries than in developed countries like the UK. It is supported by the Gini ratios (measure of inequality) ranging from 35% in the USA to 50 % in Malaysia, and India coming in between with 32.5%.

The report notes that inequality of personal income distribution is generally more pronounced in developing countries than in developed or transition economies. As in developed countries, the income gap narrowed during the first three decades after the Second World War, but between 1980 and 2000 there was a general increase in inequality in all developing regions. The observations of the report on FDI are mixed. The prescriptions proposed by UNCTAD are radical and go against the fundamentalist ideas of the neoliberals: “Since the turn of the millennium, trends in income distribution have diverged among developing regions. Greater taxation of wealth and inheritance is a potential source of public revenue that can be tapped in many developed and developing countries to reduce inequality of both income and wealth distribution and enlarge the government’s fiscal space. “For example, taxes on real estate, large landholdings, luxury durable goods and financial assets are normally easier to collect than taxes on personal income, and can represent an important source of revenue in countries that have high inequality of income and wealth distribution. In resource-rich developing countries, incomes from exploitation of natural resources and gains resulting from rising international commodity prices are another important source of public revenue. “By appropriating their fair share of commodity rents, especially in the oil and mining sectors, governments in such developing countries can ensure that their natural resource wealth benefits the entire population and not just a few domestic and foreign actors”. It is hoped that the prospective governments of the future should take this advice in right earnest.

Along with the report, one needs to look at the two most important influential books on Economics that appeared during 2012-14.  The MIT and Harvard economists Daron Acemoglu and James A.Rbinson book on “Why Nations Fail”, and Thomas Piketty book on “Capital in the Twenty-First Century” worth mention here. Acemoglu and Robinsonn have established in their work how inclusive institutions are responsible for prosperity and development as against authoritarian states. Some critics say that India being a democratic state lagged behind China and others appear to be the lack of reflection of experts on the socially exclusive and undemocratic institutions of India that has driven as a causal factor for underdevelopment and not the spirit of democracy.

Thomas Piketty book on Capital as per Paul Krugman is a powerful case how patrimonial capitalism is re-emerging through inherited wealth. Piketty has made a simple calculation as to how the difference between the growth rate of profit and growth rate of GDP lead to inequality in many countries. By definition Piketty noted that “in all societies income inequality is the result of adding up of income from labour and income from capital, statistically the greater the correlation, the greater total inequality.” Providing data from Scandinavia, Us and Europe on the three variables, he inferred that in the egalitarian societies like Scandinavia, inequality is less and in US and Europe it is high and medium. He noted that, “to judge the inequality of a society, it is not enough to observe that some individuals earn very high incomes. For example, to say that the’ income scale goes from 1 to 10’ or even ‘1 to 100’ does not actually tell us very much. We also need to know how many people earn the incomes at each level. The scale of income (wealth) going to the top decile is a useful index for judging how unequal society is, because it reflects not just the existence of extremely high incomes or extremely large fortunes but also the number of individuals who enjoy such rewards.  He has introduced the concept of patrimonial capitalism as a result of inherited income that is due to the property rights and the highly paid super managers from Anglo-Saxon countries. Comparing the Forbes millionaire’s wealth at $5.4 trillion with Sovereign Wealth fund of $ 5.3 trillion ($3.2Tr of OPEC) as the two entities that may ultimately own the World? Speaking the language of human rights and social state, Piketty mentioned that modern redistribution does not consist in transferring income from the rich to the poor, at least not in so explicit way. It should therefore, consists of rather financing public services and replacement of incomes that are more or less equal for everyone, especially in the areas of health, education and pensions. The right solution in reducing inequity is progressive annual tax on capital. He sounds like a social democrat. We have in India Nehru, Ambedkar, Lohia and several other indigenous thinkers who provided solutions to our iniquitous society through Constitutional morality. It seems the political class and their cronies in judiciary and executive consisting of the Dvija community had conspired against the constitution and allowed fraud. They were supported by the paid intellectuals of the same category who theorised and formulated the present paradigm of development.  The total agreement on the contours of development model by the political class irrespective of political party is a critical moment in the history of India. There is a need to change this model or paradigm to help the common man and the poor to get relief from the vulnerability of further inequities and social tensions.

Need for a paradigm shift

The neo-classical economic rhetoric and with the influence of World Bank and IMF, policies for the benefit of MNC’S led the world to get back to protectionism once again. But, we in India had a different paradigm or frame work of growth through the process of planning commission. Though the model did not bring rapid growth, it has not widened inequalities as we observe in recent times particularly after 1991. As noted in the Tables one per cent of the top richer section control 58.4 per cent of wealth and top 10 percent 81 per cent of the country’s wealth. This has happened after the implementation of the New Economic Policy that benefitted largely the  upper social class. Therefore there is a need to relook at our present growth models.

The founding fathers of our nation and the Constituent Assembly have deliberated upon the issues of social and economic inequalities in our society and provided solutions without affecting our prosperity. In addition to the preamble where socialism, secularism and democracy are enshrined as goals of our nation, the Directive principles of State Policy in Art 38, 39, 41, 42, 43, 46 are considered as instruments of instruction in making laws to achieve the constitutional goals. These goals are aimed to bring equality, fraternity and prosperity.


India has experienced a modern democratic life through parliamentary process with a written Constitution to guide our efforts. The history of the country being pluralistic and diverse in geography and in societal features has been experiencing wide disparities both in our economic and social life. Economists have been deliberating on the issues of growth and justice have realised that institutions that were not inclusive and relied on the accumulation and distribution of wealth through market mechanisms have further accentuated inequities. The data on poverty, income, social oppression and related issues in India have not supported the thesis that a rapid economic growth would reduce inequalities and oppression automatically.  It can safely be vouched that as deviation from our constitutional and inherited legacy of planning for growth with justice takes place due to external and internal pressure, the disparities and despairs are widening. Social democracy and adhering to Constitutional morality might help us not to get into the trap of Patrimonial Capitalism or Crony capitalism that does not fit in to our ethos.

Appendix I

Martha Nussbaum’s the Central Human Capabilities

  1. Life. Being able to live to the end of a human life of normal length; not dying prematurely, or before one’s life is so reduced as to be not worth living.
  2. Bodily Health. Being able to have good health, including reproductive health; to be adequately nourished; to have adequate shelter.
  3. Bodily Integrity. Being able to move freely from place to place; to be secure against violent assault, including sexual assault and domestic violence; having opportunities for sexual satisfaction and for choice in matters of reproduction.
  4. Senses, Imagination, and Thought. Being able to use the senses, to imagine, think, and reason – and to do these things in ‘truly human’a way, informed and cultivated by an adequate education, including, but by no means limited to, literacy and basic mathematical and scientific training. Being able to use imagination and thought in connection with experiencing and producing works and events of one’s own choice, religious, literary, musical, and so forth. Being able to use one’s mind in ways protected by guarantees of freedom of expression with respect to both political and artistic, speech, and freedom of religious exercise. Being able to have pleasurable experiences and to avoid non beneficial pain.
  5. Emotions. Being able to have attachments to things and people outside ourselves; to love those who love and care for us, to grieve at their absence; in general, to love, to grieve, to experience longing, gratitude, and justified anger. Not having one’s emotional development blighted by fear and anxiety. (Supporting this capability means supporting forms of human association that can be shown to be crucial in their development.)
  6. Practical Reason. Being able to form a conception of the good and to engage in critical reflection about the planning of one’s life. (This entails protection for the liberty of conscience and religious observance.)
  7. Affiliation.
  8. Being able to live with and toward others, to recognize and show concern for other human beings, to engage in various forms of social interaction; to be able to imagine the situation of another. (Protecting this CAPABILITES AS FUNDAMENTAL ENTITLEMENTS capability means protecting institutions that constitute and nourish such forms of affiliation, and also protecting the freedom of assembly and political speech.)
  9. Having the social bases of self-respect and non- humiliation; being able to be treated as a dignified being whose worth is equal to that of others. This entails provisions of non-discrimination on the basis of race, sex, sexual orientation, ethnicity, caste, religion, national origin.
  10. Other Species. Being able to live with concern for and in relation to animals, plants, and the world of nature.
  11. Play. Being able to laugh, to play, to enjoy recreational activities.
  12. Control Over One’s Environment.
  13. Political. Being able to participate effectively in political choices that govern one’s life; having the right of political participation, protections of free speech and association.
  14. Material. Being able to hold property (both land and movable goods), and having property rights on an equal basis with others; having the right to seek employment on an equal basis with others; having the freedom from unwarranted search and seizure. In work, being able to work as a human being, exercising practical reason, and entering into meaningful relationships of mutual recognition with other workers.