Only Inclusive Growth Can Cut Subsidy Burden

The success of peninsular states in fostering growth is why they must pay attention to reducing inequality of participation in delivering growth, not of consumption through redistributive subsidies

- RATHIN ROY

ALL the peninsular states have dramatically reduced extreme poverty and made considerable improvements in living standards, human development, and economic modernisation. These are fantastic achievements when measured against the abysmal state of affairs in North and East India. However, the next phase of economic transformation necessitates a strategy of prosperity that secures higher incomes for the majority of people to improve the lives of their families—without relying on public subsidies. And the biggest challenge to executing such a strategy will be reversing the persistent and ubiquitous inequality that characterises the contemporary economic landscape of the peninsula.

To understand this better, it is essential to distinguish between inclusion and redistribution. Consider a family of working adults. One earns 80 percent of the family income, and the rest, 5 percent each. The top earner will subsidise the others, but that will make the family entirely dependent on this single earner. In a family where all four members contribute 25 per cent each to the total income, the question of dependence does not arise.

When growth enriches the few at the expense of the many, governments spend more on redistribution to compensate for inequality. This gives rise to "schemes" to provide the majority with subsidised medicines, affordable meals, pensions, income support, and free transport, among other benefits. These subsidies are more affordable the richer a State. Hence, a lot of people who suffer from unequalising growth in the peninsula are better off than those in poorer states.