Why has high growth in India not translated into inclusion? Why has Indian inequality increased? First, policies followed since the early 1990s (of course, in conjunction with other factors) have benefited the richer groups disproportionately. In particular, remunerative jobs that can absorb the rural or urban poor have not been created adequately. Creation of jobs in labor-intensive manufacturing would have gone a long way toward alleviating poverty and increasing the incomes of the poor. However, this has not occurred and manufacturing has been quite sluggish. Instead, jobs have been created in sectors like construction — in particular, rural construction — these jobs are not remunerative.21 To explain this, some have focused on labor regulations as the culprit, but this is in my opinion a red herring.22 Paradoxically, the nature of the growth process itself, and increasing inequality, is likely to be responsible for this. The growth process has disproportionately benefited the rich and created a demand for goods (e.g. foreign vacations, iPhones) that do not give a fillip to investment and job-creation in labor-intensive sectors.23 Second, policies toward the social sector and social welfare have been inadequate. The Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) (an employment guarantee scheme in rural India) put in place by the United Progressive Alliance government that came to power in 2004 elections has undoubtedly contributed to improvement in rural areas, but its implementation has varied across states. No comparable scheme exists in urban areas, where the fight against poverty has seen serious setbacks.24 Moreover, some of the welfare schemes suffer from poor implementation, e.g. Construction Worker Welfare Boards have been put in place, and money has also been allotted to them, but many construction workers are not even aware of their existence (e.g. see Naraparaju, 2015, for an example from Navi Mumbai).
Coming to Brazil, inequality continues to be high, but has fallen substantially. Both poverty and extreme poverty have fallen. Some studies that have rigorously examined whether Brazilian growth has been pro-poor or not have concluded in the affirmative, e.g. Kakwani et al. (2010) for the period 2001–2004. Why has inequality fallen and growth been pro-poor? Several studies shed light on this question. Barros et al. (2010) use a decomposition analysis to understand the various proximate factors that have contributed to the reduction in inequality. A major contribution has been made by change in the distribution of labor income per adult, which has in turn been driven by a reduction in skill premium and decrease in educational inequality. A second important component is the change in the distribution of non-labor income per adult. Non-labor incomes have increased considerably due to public transfers — pensions, social security benefits, and conditional cash transfers (Bolsa Escola and Bolsa Familia). Ferreira et al. (2009) provide evidence from several studies to show that social policies and their effective targeting have played a major role in reducing inequality and poverty.25 They also document expenditures on the social sector since the 1980s (Ferreira et al., 2009, Figure 1) showing that there is a sharp increase after 1988, when the constitution came into effect, e.g. during the period 1991–1998, the monthly benefit bill increased by more than four times ($180–750 million). Ferreira de Souza (2012) points out that social security and pensions comprised about 11% of the GDP in 2006. He also highlights the crucial role played in the reduction of inequality and poverty by the minimum wage, which is also linked to government benefits. Since the constitution came into effect, the minimum wage has increased considerably — in real terms it more than trebled (US $PPP 83 to US $295) during the period 1995–2011 (Ferreira de Souza, 2012, Figure 6). Cornia (2015, Table 8) also documents a substantial increase in real minimum wage in Brazil as well as in some other Latin American countries.
The comparison of India and Brazil illustrates the key role of social policy in the reduction of inequality and poverty — the success of Brazil despite much lower growth can be attributed largely to this. It is also worth commenting briefly about the role of ideology and the different political regimes that India and Brazil have witnessed. Indian state and elites have displayed only a lukewarm commitment toward the social sector and poverty alleviation. Rubrics like neo-liberal, pro-business, and predatory that have been applied to the Indian state in recent times are quite suggestive.26 By the standards of even developing countries, Indian public expenditure on the social sector is abysmally low. A good illustration of this can be provided by examining public expenditure on health, which in 2013 stood at 1.2% of GDP, much lower than the same for Brazil (4.2%), Mexico (2.9%), and China (2.7%).27 On the contrary, the Brazilian state (at least in some phases) has shown a more social democratic character. In this regard, Brazil has not been an exception, and many Latin American governments, which have been left-wing have shown a more serious commitment toward redressing inequality and alleviation of poverty. Cornia (2015) classifies Latin American countries in the decade of 2000s into four groups based upon the ideological profiles of the governing parties: Radical Left, Social Democratic Left, Centrist, and Center Right and Right. He shows that the sharpest decreases in inequality per year have been experienced by the countries ruled by the Social Democratic Left, followed by the Radical Left, Centrist, and Center Right and Right. He classifies Brazil under Social Democratic Left and shows that it experienced a decline of 0.65 percentage points per year in its Gini index during the period 2003–2009. He also conducted a regression analysis for the entire Latin American region to show that the nature of the regime (social democratic and radical populist) and quality of democracy are significantly associated with lower inequality.
Discussion and Conclusions
In the analysis above, I have provided an overview of changes in inequality and poverty in India and Brazil in roughly the past two and half decades. In India, inequality has increased, and although poverty has decreased, the reduction has been disappointing given the high growth. On the contrary, in Brazil, inequality and poverty have both reduced substantially, although inequality still continues to be quite high. This chapter highlights the crucial role played by social policies in these differential outcomes.
Before concluding, it is important to make two caveats. First, as we have discussed above, Brazil has made only modest progress in the reduction of ethnic/racial inequality. While social policy has been effective in reducing interpersonal and class-based inequalities, it did not contribute much on this front. Based upon a rigorous methodology and after considering various types of fiscal measures, Pereira (2016) concludes that: “Fiscal interventions did not have a significant impact in reducing the divide between whites and non-whites in Brazil.” Brazil therefore serves as a good example of why horizontal inequalities merit serious attention and are distinct from vertical inequalities. Second, scholars have argued that some of the Brazilian policies have reached their limits, e.g. see Ferreira de Souza’s (2012) discussion on the minimum wage. This issue and the fiscal concerns involved in sustaining the social programs currently in place, require further discussion.
References
Anand, I. and A. Thamphi (2016). “Recent trends in wealth inequality in India,” Economic and Political Weekly, LI(50): 59–67.
Balakrishnan, P. (2010). Economic Growth in India: History and Prospect, New Delhi: Oxford University Press.
Barbara,