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[Answered] Economic survey 2019, pitch for wealth creation as a means of prosperity and welfare for all. Critically comment.

Demand of the question Introduction. Contextual introduction. Body. Discuss how wealth creation is a measure of welfare or not. Conclusion. Way forward.

An increasing GDP and wealth creation in a nation is often seen as a measure of welfare and economic success. According to the Economic Survey 2019-20, wealth creation can act as a means of prosperity and welfare for all. However, one can’t be sure that wealth creation means welfare. Recently released Oxfam Inequality Report has highlighted that the richest 1% in the world have more than double the wealth of 6.9 billion people combined. In India, 9 billionaires own as much wealth as the bottom 50% of the country’s population, reflecting wealth creation does not necessarily mean welfare.

Wealth creation- a measure of welfare:

  1. Demand creation: Wealth created by an entrepreneur correlates strongly with raw materials procured by the entrepreneur’s firms. The demand of raw material, benefits the suppliers by supplying raw materials to the entrepreneur’s firms benefiting others.
  2. Capital expenditure: Wealth created by an entrepreneur correlates strongly with the capital expenditures made by the entrepreneur’s firms, which proxies the benefits that manufacturers of capital equipment reap by supplying such equipment to the entrepreneur’s firms.
  3. Benefit common citizens: Wealth created by an entrepreneur helps the country’s common citizens. Tax revenues enable Government spending on creating public goods and providing welfare benefits to the citizens.
  4. Purchasing power: Wealth creation in the economy ultimately enhances the livelihood of the common person by providing him/her greater purchasing power to buy goods and services.
  5. Reduce poverty: More wealth means more taxation and thus more revenue in the hands of the government. This can be used by the government in a targeted way to uplift millions out of poverty through welfare measures like MGNREGA and subsidies or cash transfer.
  6. Employment: There is a direct relationship between trade and employment.  More capital investment and wealth creation lead to growth of economy and lead to creation of jobs. This ensures the welfare of many and helps many come out of poverty.
  7. Investment in social sectors: More wealth with companies ensures more spending in sectors like health, education etc. Further, more wealth means more Corporate social spending through Corporate Social Responsibility.
  8. Redistribution:Wealth from rich and some sectors of economy can be redistributed to poor and other sectors. For example, IT sector wealth creation helps the government to earn revenue from the sector and allow it to spend it on sectors in crisis like agriculture.

Wealth creation- not a measure of welfare:

  1. Inequality: Sustained increase in the wealth, concentrates income in the hands of the few owners of capital. It doesn’t necessarily mean welfare for the poor. It is in a way is restricted by lower wages of workers and high wages of company owners.
  2. Crony capitalism: If left unchecked, growing inequalities can not only slow down growth, but also generate instability and disorder in society. The consequence of the rich accumulating ever more capital and wealth, is that economic and, consequently, political power become increasingly concentrated in the hands of a wealthy few. This skews policy making processes towards overly representing the interests of these wealthy elites.
  3. Sustainability:A high GDP level does not necessarily ensure that the living conditions of future generations will be as good as they are now, i.e. there is no guarantee of sustainable development. Standards of living can be sustained over time by maintaining the existing production facilities and by ensuring future access to the necessary commodities, environmental benefits and well-educated labour (human capital).
  4. Taxation:Wealth doesn’t necessarily mean more welfare. As the rich accumulate wealth, they tend to not give tax to the government and use various means for tax avoidance. For example, tax havens are used by corporations in order to not pay tax.

Wealth creation is a necessary evil. Merely wealth creation doesn’t ensure welfare. It fails to account for the multi-dimensional nature of development or the inherent short-comings of capitalism, which tends to concentrate income. Without real redistribution wealth creation only increases inequalities in real terms. Full-proof mechanisms are necessary to ensure wealth creation as a measure of welfare.

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