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

The relation between growth, inequality and poverty is the central theme of the paper. While the fast economic growth under the neo-liberal policy regime helps reduce poverty, it increases inequality in income distribution in a way that retards the progress in poverty-reduction. The empirical validity of this proposition is examined by tracing trends in per capita income (NSDP) growth and Gini coefficients, estimated from the data on household consumer expenditure (taken as a proxy for income) of NSS surveys, in Kerala as compared to the pattern at all- India and major states during pre and post reform periods. The comparative scenarios of growth and inequality did not give clear evidence of any systematic pattern of association between growth and inequality in the case of Indian States. The focused study of growthinequality nexus in Kerala underlined the level of sacrifice on inequality made to achieve the current high levels of economic growth through excessive liberalization and globalization policies. A decomposition exercise of total poverty reduction into (1) growth effect and (2) distribution (inequality) effect revealed that the rising inequality retarded progress in poverty reduction. The results of growth and distributional elasticity of poverty, inequality growth trade off index, and other statistical tests showed that economic growth of Kerala is not “pro-poor” in nature. In short, findings emerging from the analysis of rising inequality with high growth signal some worrisome trends and send out a note of caution on the celebration of high growth rate with a blind eye on inequality, and also on meeting the goal of achieving the newly jostled “inclusive growth”. Key words: poverty, inequality, pro-poor growth, inclusive growth, economic growth JEL Classification:: I3, I32, I38