The experience of inclusive growth creates support for responsible economic stewardship. It is not necessarily expressed in that manner — it is more often presented as support for a status quo, or for an existing policy architecture to which in India, more often than not, all political parties implicitly subscribe. In the absence of inclusive growth, that support erodes.
The experience of jobless growth — a form of non-inclusive growth — is particularly problematic. This is because the large army of job-seekers become the most politically sought-after constituency. The temptation to build up the government salary bill in order to partially satisfy them will be great. In the absence of confidence that incomes will be secure and increasing, the sort of confidence provided by the experience of job-creating inclusive growth, voters will demand that the state step in to protect and increase their incomes. There is considerable cross-country empirical work that shows voter assumptions about the link between individual action and future incomes play into their political preferences in terms of economic policy. If in India voters have been led to believe that there is no link between building up human capital or ambition and their future income prospects, then they will hardly vote to support an economic consensus that assumes such a link. No politician will say in 2019 that responsible economic policy will provide income security. This is because both “sides” have had a chance to implement responsible economic policy over the past decade, and India has endured jobless growth for at least that same period of time.
Is India therefore stuck in a downward spiral? The lack of inclusive growth leads to pressure towards welfarism, which reduces the chances for inclusive growth further, and so on? There is a good chance of this coming to pass.
However, there is also a way out. This depends upon accepting the failure of inclusive growth in the recent past, and on the political necessity of welfarism today. It also however requires the form of welfarism to be intelligently and rationally designed to increase the chances of re-creating an observed link, for voters, between building up their human capital and future income security. It would also require, at the macro level, ensuring that welfarism is structured to increase the Indian workforce’s potential productivity. This might go some way towards ameliorating the negative macro-economic effects of greater spending. In the best case scenario, it will more than pay for itself in the long run.
It is not certain whether income support is the best way to go about this. But it will at least have the effect of improving the ability to spend time away from active work in order to build up human capital, reduce the costs of search and matching in the job market, and increase risk-taking.
More effective will be increasing government spending on health and basic education, as well as on the administrative machinery required to properly implement these policy priorities. Universal health care will enhance productivity. It cannot be done on the cheap, however, as it will require the government to closely monitor private providers (if any) or to pay for more of its own healthcare employees. Education, meanwhile, especially primary education, requires a more direct focus on improving outcomes — the RTE was a “cheap” solution that will not work in the long run. Financing for adult training, including online education, also needs to be bountiful in order to incentivise the choice to build up human capital.
If there is no sign of a political consensus for reformist or responsible economic policy-making, then we have to realise this is a consequence of the failure to deliver for the past decade or more on disposable income growth and security. Instead of bemoaning the entirely predictable consequence of this failure, it is time to ask how to shape the welfarist agenda in a manner that long-term Indian growth is assured.
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