Paradoxical progression

India’s growth march following the 1991 economic liberalisation has progressed at a substantial pace but is paralleled by a persistent rise in inequality necessitating a well-balanced policy reorientation

- ALOK RANJAN

The debate between growth and equity is an age-old one that has occupied the minds of economists for decades. Ever since I began studying economics nearly 50 years ago as an economics honours student at Delhi University, I recall that we used to discuss and hold divergent opinions on whether growth should be the objective of economic development for countries or whether the focus should be on redistributing resources to achieve equity. In those days, the balance was in favour of a socialist economy, and thus, the emphasis was on measures to redistribute resources within the economy to reduce inequality and usher in a better quality of life for all. Progressive taxation was suggested by many as one of the major means of achieving economic development with equity for all citizens.

However, the 1970s and 80s demonstrated that economic growth itself is of great importance because if the size of the pie is not large enough, there will be nothing to redistribute.

The Indian economy, because of its License Permit Raj and restrictive industrial and trade policies, had reached a stage by 1991 where, if it did not reform itself, it would have become one of the poorest performers among the world's economies. India was in the throes of a serious economic crisis. The 1991 reforms are perhaps one of the most important policy decisions in contemporary Indian economic history because they opened up the Indian economy, and the vast number of changes we see in the economy today are due to this opening up. I recall that before this, there were only Fiat and Ambassador cars in the country, and Maruti had just made an appearance.

However, after 1991, with the opening up of the economy, we could see a huge number of cars and carmakers around, so much so that customers now face a problem of choice.