Page 156 - ES 2020-21_Volume-1-2 [28-01-21]
P. 156
Inequality and Growth: Conflict or Convergence? 139
4.18 Experimental evidence suggests that the maximin principle is not how people in the
“original position” would choose. In experiments in which five or so participants are placed
in a situation approximating Rawls’ “original position,” most participants do not choose based
on this distributive principle. Instead, they choose a principle in which the average income
is maximized with a floor under the incomes of those at the bottom (Frohlich, Oppenheimer,
and Eavey, 1987). In this view, as long as the poor have “adequate” incomes, an increase in
the incomes of the rich need not benefit the poor to be considered just. The results of such
experiments suggest that (absolute) poverty should be of greater concern than inequality.
4.19 Of course, it is possible that if the incomes of the rich pull too far away from the rest of
society, growing frustration may lead to rising crime, withdrawal from civic engagement, and
loss of social cohesion (Krugman 2002). In this context, the evidence provided in Section 2
above against the conflict between inequality and income per capita among the Indian states
suggests that at the level of development that India is currently in, the focus on poverty alleviation
through growth must be central to India’s economic strategy.
RELATIVE IMPACT OF ECONOMIC GROWTH AND INEQUALITY
ON POVERTY IN INDIA
4.20 Given the above discussion, which highlights that poverty alleviation through growth
must remain the economic focus for India, this section examines whether income per capita
or inequality impacts poverty the most in India. The correlations between income and poverty
and inequality and poverty in the Indian states is estimated. To analyse the relationship between
income and poverty, per capita NSDP (actual series and spliced series) and the official head
count ratio are plotted (Figure 15-16). The data for four years (1993, 1999, 2004 and 2011)
suggests an overall strong negative relationship, implying that the states with greater income or
high per capita NSDP experienced low rates of poverty and vice versa. However, such strong
Figure 15: Relationship between income (NSDP per capita at constant prices,
non-spliced series (INR)) and poverty (Head count ratio) in Indian states
70
60
50
Head Count Ratio 30
40
20
10
0
-10
-20
0 20 40 60 80 100 120 140
NSDP per capita at constant prices, non-spliced series (₹, '000)
1993 1999 2004 2011
Source: Survey calculations based on MoSPI data on NSDP and official poverty estimates of erstwhile
Planning Commission.