the rich get richer but why do the poor get poorer?

[vamsi@siliconcorp.com]

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By Sunil Jain, ExpressIndia

Close to two centuries after poet P B Shelley first
penned the lines which so influenced Karl Marx -- `the rich have
become richer, and the poor have become poorer' -- you find the
adage fits the Indian situation to a T. According to calculations
done by the World Bank, while the group of high-income states have
benefited tremendously from economic reforms, the low-income
states have actually suffered.

The per capita real income for the richer states, which grew by 3.2
per cent in the '80s, jumped to a whopping 6.1 per cent in the
nineties (see graphic). In sharp contrast, the poorer states saw their
per capita income growth fall from 2.8 per cent in the '80s to 1.8 per
cent in the nineties. Bihar, the worst of them all, saw not just a
decline in growth, but a negative growth -- growth in real per
capita income in Bihar fell from 2.6 per cent to minus 0.7 per cent in
this period.

The reason for this, however, is not really the rapaciousness of
capitalism, as Marx would have had us believe, but the
destructiveness of perverted socialism. The states which have had a
fall in growth are also the states which kept splurging on subsidies,
let their budgets get totally out of control and ran up huge debt
bills to square the circle. Understandably, they spent less on
infrastructure, as a result of which their economies collapsed.

Bihar, for instance, let its fiscal deficit shoot up from a high 5.5 per

cent of state GDP in 1991-92, to a completely unsustainable 8.2 per
cent in 1998-99. Its debt stock went up from 36.6 per cent of GDP to
an even worse 38.6 per cent during the period. Uttar Pradesh saw
its fiscal deficit shoot up from 4.4 to 7.2 per cent, and its debt stock

from 27.3 to 32.4 per cent. Rajasthan's fiscal deficit went up from 3.4
to 6.2 per cent, and debt stock from 28.4 to 33.8 per cent.

Go through the World Bank's latest India report and you'll find
that, state after state, the trend's the same: those whose budgets are
out of shape are the one's which have seen their income growth fall.
The state that looks an exception to the rule is Punjab -- its income
growth rate has fallen, but its fiscal deficit looks marginally better
in the period under study. But probe a bit deeper, and you see that
Punjab's no exception either. Its fiscal deficit, which fell from 4.8
per
cent of its GDP in 1991-92 to 3.2 per cent in 1996-97, then began to
rise to 4.3 per cent the next year, and then to a budgeted 4.6 per
cent in 1998-99. Not surprisingly, its debt stock, as a per cent of
GDP, also showed the same downward trend at first, and later a
rise.

Some others, like Madhya Pradesh, also seem a bit of an oddity. MP
has seen its per capita income growth increase, from 2.6 per cent to
4.1 per cent in the reference period, though its fiscal performance
has worsened. This increase in income, however, is probably
explained by the success the State has had in redistribution policies
over the past 15 years. It is clear, though, that if MP's budget
continues to get worse, its income growth will get hit.

The MP exception notwithstanding, not surprisingly, the states with
higher growth, are also the ones which have been the most
successful in reducing poverty. Maharashtra, to cite just one
instance, whose per capita income growth increased from 3.7 per
cent in the '80s to 7.4 per cent in the nineties, saw the number of
poor people decline from 68 per cent in 1978 to 43 per cent in
1994. Shelley would have called this poetic justice!


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