In advanced economies, following Global Financial Crisis a conflict came to be seen between economic growth and inequality, with inequality as a feature of capitalism. As Indian economy moves towards a market-based paradigm there is a debate on how to address this conflict. (Eco Survey 2020-21)
Advanced economic have low absolute poverty and low growth rates, however, India has high economic growth rates and high level of absolute poverty. Example: Gini coefficient in US (0.41) is higher than India (0.35) with growth potential of US lower than that of India. Hence, it is prudential for US to target inequality and India to pursue economic growth.
IN INDIAN CONTEXT, DATA SUGGESTS
- Unlike advanced economies, Indian economic growth and inequality converge in terms of their effects on socio-economic indicators.
- Economic growth has far greater impact on poverty alleviation than inequality.
Therefore, given India’s stage of development, India must continue to focus on economic growth to lift the poor out of poverty by expanding the overall pie. This does not imply that redistributive objectives are unimportant, but that redistribution is only feasible in a developing economy if the size of economic pie grows.