Skip to main content

Warning bells ring for India's top policy makers: IMF declares against trickledown theory, labour reforms

By Rajiv Shah
In an important research paper having major policy implications for India, International Monetary Organization (IMF) has declared that the “trickledown theory” -- which believes that economic growth would take care of poverty alleviation – is proving to be counter-productive. Top pro-Narendra Modi economist Arvind Panagariya, new vice-chairman of Planning Commission’s fresh avatar Niti Ayog (Policy Commission), and his Columbia University mentor, Prof Jagdish Bhagwati, are well known advocates of trickledown.
The IMF admits in its study, which encompasses both developed and developing countries, including India, that earlier IMF work had shown how income inequality “matters for growth and its sustainability”. But the top bankers now say, “Our analysis suggests that the income distribution itself matters for growth.”
The paper is titled “Causes and Consequences of Income Inequality: A Global Perspective”, and authored by Era Dabla-Norris, Kalpana Kochhar, Frantisek Ricka, Nujin Suphaphiphat, and Evridiki Tsounta.
The scholars say, their calculations show that “if the income share of the top 20 percent increases by 1 percentage point, gross domestic product (GDP) growth is actually 0.08 percentage point lower in the following five years”. Pointing out that this “suggests “the benefits do not trickle”, the scholars insist, “A similar increase in the income share of the bottom 20 percent (the poor) is associated with 0.38 percentage point higher growth.”
Also challenging the view about the need for labour “reforms” by adopting exit policy as the corner stone for industry to operate smoothly, the IMF says, the “reforms” can only “pose challenges for workers, especially those with low skills, and hence play an important role in explaining inequality developments.” It adds, “A decline in trade union membership (union rate) could reduce the relative bargaining power of laboir, exacerbating wage inequality.”
Income levels of the poor under various scenarios
The observation is significant, as it comes close on the heels of Government of India (GoI) strongly advocating exit policy as the cornerstone of labour “reforms” by allowing free hire and fire of workers a norm for industry. Already, several state governments, including Rajasthan and Gujarat, have changed labour laws, making them more industry-friendly, and the GoI is seriously thinking of going in that direction.
The IMF says, in several of the emerging markets and developing countries (EMDCs), “rigid hiring and firing” and “weak income protection systems” have encouraged informality, fueling wage inequality”, adding, “Evidence from a large sample of countries suggests that de facto labour market regulations (such as minimum wages, unionization, and social security contributions), on average, tend to improve the income distribution.”
The IMF further says, its study shows, “Easing of labor market regulations is associated with higher market inequality and income share of the top 10 percent. In particular, a decline in organized labor institutions and the resultant easing of labor markets measured by an increase in labor market flexibilities index by 8½ percent is associated with rising market inequality by 1.1 percent.”
Seen in this context, the IMF warns, “Extreme inequality may damage trust and social cohesion and thus is also associated with conflicts, which discourage investment. Conflicts are particularly prevalent in the management of common resources where, for example, inequality makes resolving disputes more difficult.”
It adds, “Inequality could result in poor public policy choices. It can lead to a backlash against growth-enhancing economic liberalization and fuel protectionist pressures against globalization and market-oriented reforms. At the same time, enhanced power by the elite could result in a more limited provision of public goods that boost productivity and growth, and which disproportionately benefit the poor.”

Comments

TRENDING

Insider plot to kill Deendayal Upadhyay? What RSS pracharak Balraj Madhok said

By Shamsul Islam*  Balraj Madhok's died on May 2, 2016 ending an era of old guards of Hindutva politics. A senior RSS pracharak till his death was paid handsome tributes by the RSS leaders including PM Modi, himself a senior pracharak, for being a "stalwart leader of Jan Sangh. Balraj Madhok ji's ideological commitment was strong and clarity of thought immense. He was selflessly devoted to the nation and society. I had the good fortune of interacting with Balraj Madhok ji on many occasions". The RSS also issued a formal condolence message signed by the Supremo Mohan Bhagwat on behalf of all swayamsevaks, referring to his contribution of commitment to nation and society. He was a leading RSS pracharak on whom his organization relied for initiating prominent Hindutva projects. But today nobody in the RSS-BJP top hierarchy remembers/talks about Madhok as he was an insider chronicler of the immense degeneration which was spreading as an epidemic in the high echelons of th

'Flawed' argument: Gandhi had minimal role, naval mutinies alone led to Independence

Counterview Desk Reacting to a Counterview  story , "Rewiring history? Bose, not Gandhi, was real Father of Nation: British PM Attlee 'cited'" (January 26, 2016), an avid reader has forwarded  reaction  in the form of a  link , which carries the article "Did Atlee say Gandhi had minimal role in Independence? #FactCheck", published in the site satyagrahis.in. The satyagraha.in article seeks to debunk the view, reported in the Counterview story, taken by retired army officer GD Bakshi in his book, “Bose: An Indian Samurai”, which claims that Gandhiji had a minimal role to play in India's freedom struggle, and that it was Netaji who played the crucial role. We reproduce the satyagraha.in article here. Text: Nowadays it is said by many MK Gandhi critics that Clement Atlee made a statement in which he said Gandhi has ‘minimal’ role in India's independence and gave credit to naval mutinies and with this statement, they concluded the whole freedom struggle.

Modi govt intimidating US citizens critical of abuses in India: NY Christian group to Biden

Counterview Desk  the New York Council of Churches for its release of an open letter calling on the Biden administration to “speak out forcefully” against rising Hindu extremist violence targeting Christians and other minorities in India. In the letter addressed to President Biden, Secretary of State Antony Blinken, and other major elected officials, the NY Council of Churches expressed "grave concern regarding escalating anti-Christian violence" throughout India, particularly in Manipur, where predominantly Christian Kuki-Zo tribals have faced hundreds of violent attacks on their villages, churches, and homes at the hands of predominantly Hindu Meitei mobs.

Buddhist shrines were 'massively destroyed' by Brahmanical rulers: Historian DN Jha

Nalanda mahavihara By Our Representative Prominent historian DN Jha, an expert in India's ancient and medieval past, in his new book , "Against the Grain: Notes on Identity, Intolerance and History", in a sharp critique of "Hindutva ideologues", who look at the ancient period of Indian history as "a golden age marked by social harmony, devoid of any religious violence", has said, "Demolition and desecration of rival religious establishments, and the appropriation of their idols, was not uncommon in India before the advent of Islam".

Green revolution "not sustainable", Bt cotton a failure in India: MS Swaminathan

MS Swaminathan Counterview Desk In a recent paper in the journal “Current Science”, distinguished scientist PC Kesaven and his colleague MS Swaminathan, widely regarded as the father of the Green Revolution, have argued that Bt insecticidal cotton, widely regarded as the continuation of the Green Revolution, has been a failure in India and has not provided livelihood security for mainly resource-poor, small and marginal farmers. Sharply taking on Green Revolution, the authors say, it has not been sustainable largely because of adverse environmental and social impacts, insisting on the need to move away from the simplistic output-yield paradigm that dominates much thinking. Seeking to address the concerns about local food security and sovereignty as well as on-farm and off-farm social and ecological issues associated with the Green Revolution, they argue in favour of what they call sustainable ‘Evergreen Revolution’, based on a ‘systems approach’ and ‘ecoagriculture’. Pointing ou

Link India's 'deteriorating' religious conditions with trade relations: US policymakers told

By Our Representative  Commissioners on the United States Commission on International Religious Freedom (USCIRF) raised concerns about the “sophisticated, systematic persecution” of religious minorities by the government of Prime Minister Narendra Modi at a hearing on India in Washington DC.

Swami Vivekananda's views on caste and sexuality were 'painfully' regressive

By Bhaskar Sur* Swami Vivekananda now belongs more to the modern Hindu mythology than reality. It makes a daunting job to discover the real human being who knew unemployment, humiliation of losing a teaching job for 'incompetence', longed in vain for the bliss of a happy conjugal life only to suffer the consequent frustration.

A Hindu alternative to Valentine's Day? 'Shiv-Parvati was first love marriage in Universe'

By Rajiv Shah*   The other day, I was searching on Google a quote on Maha Shivratri which I wanted to send to someone, a confirmed Shiv Bhakt, quite close to me -- with an underlying message to act positively instead of being negative. On top of the search, I chanced upon an article in, imagine!, a Nashik Corporation site which offered me something very unusual. 

Why is green revolution harmful for nutrition, food safety, environment, climate change

By Bharat Dogra*  A lie repeated a hundred times will not turn a lie into a truth. The big media should realize this and stop perpetuating the lie of the green revolution saving India from hunger, long after the world has awakened to the reality of how harmful the green revolution has been from the point of nutrition, food safety, environment and climate change.

Alarming Odisha arrests, 'illegal' detentions ahead of Vedanta bauxite public hearing

Counterview Desk  More than 80 lawyers, legal academics and researchers have written to the Governor of Odisha raising concerns about the “alarming arrests and illegal detentions” of about two dozen persons from Rayagada district in Odisha in anticipation of the upcoming public hearing for the Sijimali bauxite mine proposed by M/s Vedanta Ltd.