Rising inequality with high growth, isn't this trend worrisome? : analysis of Kerala experience

Abstract

The relation between growth, inequality and poverty is the central
\ntheme of the paper. While the fast economic growth under the neo-liberal
\npolicy regime helps reduce poverty, it increases inequality in income
\ndistribution in a way that retards the progress in poverty-reduction. The
\nempirical validity of this proposition is examined by tracing trends in
\nper capita income (NSDP) growth and Gini coefficients, estimated from
\nthe data on household consumer expenditure (taken as a proxy for
\nincome) of NSS surveys, in Kerala as compared to the pattern at all-
\nIndia and major states during pre and post reform periods. The
\ncomparative scenarios of growth and inequality did not give clear
\nevidence of any systematic pattern of association between growth and
\ninequality in the case of Indian States. The focused study of growthinequality
\nnexus in Kerala underlined the level of sacrifice on inequality
\nmade to achieve the current high levels of economic growth through
\nexcessive liberalization and globalization policies. A decomposition
\nexercise of total poverty reduction into (1) growth effect and (2)
\ndistribution (inequality) effect revealed that the rising inequality retarded
\nprogress in poverty reduction. The results of growth and distributional
\nelasticity of poverty, inequality growth trade off index, and other statistical
\ntests showed that economic growth of Kerala is not “pro-poor” in nature.
\nIn short, findings emerging from the analysis of rising inequality with
\nhigh growth signal some worrisome trends and send out a note of caution
\non the celebration of high growth rate with a blind eye on inequality,
\nand also on meeting the goal of achieving the newly jostled “inclusive
\ngrowth”.
\nKey words: poverty, inequality, pro-poor growth, inclusive growth,
\neconomic growth
\nJEL Classification:: I3, I32, I38