TOPIC : THE PARADOX BETWEEN GROWTH AND POVERTY ERADICATION

THE CONTEXT: The discontentment with growth not being beneficial to all became a highly debated topic in the past few years and the arena of policy making also focused on reforms in a situation where India achieved higher economic growth but sluggish poverty reduction. Realising the importance of this debate, the government of India also envisioned “inclusive growth” as a strategy to ensure that economic progress is pro-poor and inclusive. This article explains various reasons for poverty in India and how can economic growth be of help in reducing the poverty.

WHAT IS ECONOMIC GROWTH?

Economic growth is an increase in the production of economic goods and services, compared from one period of time to another. It can be measured in nominal or real (adjusted for inflation) terms. Traditionally, aggregate economic growth is measured in terms of gross national product (GNP) or gross domestic product (GDP), although alternative metrics are sometimes used.

Economic growth refers to an increase in aggregate production in an economy. Often, but not necessarily, aggregate gains in production correlate with increased average marginal productivity. That leads to an increase in incomes, inspiring consumers to open up their wallets and buy more, which means a higher material quality of life or standard of living.

 INDIA’S GROWTH STORY

India’s economic journey since 1947 has seen its share of ups and downs. Once branded a “third world country”, a term for poor developing nation-states which has now fallen into disuse, India is now among the biggest economies of the world. In 1991, India was a leader of the G-77 (a group of poor countries constantly demanding more concessions to develop). Today India is in the T-20, the top 20 economies that lead the world.

FOOD PRODUCTION

• Achieving “self-sufficiency” in food grains has been Independent India’s biggest achievement. From receiving food aid in the 1950s and 1960s to becoming a net exporter, India has seen a turnaround in food production. The total food production, which stood at 54.92 million tonnes in 1950, rose to 305.44 million tonnes in 2020-21.

GROSS DOMESTIC PRODUCT (GDP)

• India’s GDP stood at ₹ 2.7 lakh crore at Independence. 74 years on, it has reached ₹ 135.13 lakh crore. India is now the 6th largest economy in the world and is on its way to becoming the third-largest by 2031, as per Bank of America. An unmissable fact is that there has been a 10- fold increase in the GDP (at constant prices) since the reform process began in 1991.

FOREX 

• India’s forex reserves (In foreign currencies and other assets like gold) stood at a meagre ₹ 1,029 crores in 1950-51. In fact, India’s low forex reserves played a catalytical role in kick starting the economic reforms. With just $1.2 billion worth of forex reserves in 1991, India just had enough reserves to finance 3 weeks of imports. Three decades since the reform process began, India’s forex reserves now stand at ₹ 46.17 lakh crore – the world’s fifth-largest.

START-UP ECOSYSTEM

• India has emerged as the third-largest startup ecosystem in the world after the US and China and the pace of growth is not showing any signs of slowing down.

POVERTY

• Poverty is a state or condition in which a person or community lacks the financial resources and essentials for a minimum standard of living. Poverty means that the income level from employment is so low that basic human needs can’t be met.
• According to World Bank, Poverty is pronounced deprivation in well-being and comprises many dimensions. It includes low incomes and the inability to acquire the basic goods and services necessary for survival with dignity. Poverty also encompasses low levels of health and education, poor access to clean water and sanitation, inadequate physical security, lack of voice, and insufficient capacity and opportunity to better one’s life.
• In India, 21.9% of the population lives below the national poverty line in 2011, however, this estimate of numbers might have increased in the aftermath of the Covid pandemic bringing many into the poverty net and still many poor were pushed deeper into poverty.
• Also, the Periodic Labour Force Survey for the years 2017-18, 2018-19 and 2019-20 shows that the Top 10% earn approximately equal to the bottom 64%. The top 10 accounts for one-third of the incomes earned. While income disparity is not the only trigger to descent into poverty, it boldly outlines the everyday experiences of inequality and inequities.

ABSOLUTE POVERTY

• A condition where household income is below a necessary level to maintain basic living standards (food, shelter, housing). This condition makes it possible to compare different countries and also over time. It was first introduced in 1990, the “dollar a day” poverty line measured absolute poverty by the standards of the world’s poorest countries. In October 2015, the World Bank reset it to $1.90 a day.

RELATIVE POVERTY

• It is defined from the social perspective that is living standard compared to the economic standards of the population living in its surroundings. Hence it is a measure of income inequality.
• Usually, relative poverty is measured as the percentage of the population with income less than some fixed proportion of median income.

CAUSES OF POVERTY IN INDIA

GROWTH FACTOR 

• As development proceeds, the earnings of different groups rise differently.
• The incomes of the upper-income and middle-income groups rise more rapidly than those of the poor. This happens in the early stages of growth which India is passing at present.
• The explanation lies in the shift of population from agriculture which is a slow-growing sector to the modern large industrial sector which grows more rapidly.
• The capital-intensive type of growth leads to the concentration of income in those few hands who supply capital.

PRIVATE OWNERSHIP OF PROPERTY

• India being a mixed economy, has guaranteed the right to private property to its people Accordingly, tangible wealth like land, buildings, automobiles, white goods etc. are owned by a private individual.
• Inequalities of income have resulted from the ownership of private property in the following manner:

Ø  Inequalities Arising Out of Concentrated Land Ownership and Concentration of Tangible Wealth in the Rural Sector.

Ø  Private Ownership of Industries, Trade and Real Estates.

Ø  Inequalities in Professional Knowledge and Training

PREVALENCE OF THE LAW OF INHERITANCE

• The prevalence of the law of inheritance perpetuates income inequalities to a significant level.
• As per this law, the property of the father is usually inherited by his sons and daughters and thus children of the richer class automatically become richer and the children of the poorer class remain poor.

CLASS-BASED DEVELOPMENTS

• The upper classes were the main beneficiary of the nation’s surging economic development and poverty rates are also significantly lower among the upper caste Hindus rather than in the others classes
• One-third of Muslim and Hindu scheduled castes and tribes are in poverty compared to 10% of the upper castes Hindu. Altogether, 28% or around 360 million Indians are living in conditions of severe poverty.

OTHER FACTORS

Ø  SOCIAL FACTORS: Apart from economic factors, there are also social factors hindering the eradication of poverty in India. Some of the hindrances in this regard are the laws of inheritance, caste system, certain traditions, etc.

Ø  CLIMATIC FACTORS: Most of India’s poor belong to the states of Bihar, UP, MP, Chhattisgarh, Odisha, Jharkhand, etc. Natural calamities such as frequent floods, disasters, earthquakes and cyclones cause heavy damage to agriculture in these states.

Ø  POVERTY TRAP:

CONSEQUENCES OF POVERTY

SOCIO-ECONOMIC IMPACTS

• It is estimated that 300 million Indians live in abject poverty. This is the largest number in the world.
• India has the highest number of homeless people.
• Gender inequality leading to violence against women, the burden of unpaid care work, fiscal injustice for women and other marginalised groups. Inequality leads to increased crime and workplace accidents.
• It stems from class, caste and gender inequalities.

INADEQUATE DEVELOPMENT

• The gap between the rich and the poor has created “Club States” with Gujarat, Punjab and other rich states forming the richest clubs.
• Madhya Pradesh, Orissa, Bihar and other such states being left behind in terms of development.

INEQUALITY MAKES THE FIGHT TO END POVERTY MUCH HARDER

• Higher income inequality impedes class formation and poverty reduction.
• Unless growth benefits the poorest people more between now and 2030, the World Bank forecasts that the first Sustainable Development Goal (SDG) to eliminate extreme poverty will be missed.
• Access to social amenities such as decent shelter, clean water, nutrition and food as well as healthcare and education has become difficult for the poor.

Case study

The growth of the middle class plays a significant role in strengthening democratic structures and cultures. But rising income inequality in India is hampering the formation and growth of the middle class. If one were to take an income of $10-$20 per day in 2011 purchasing power parity as an indicator of the middle class, then India has not done as well as Malaysia, Indonesia and China in growing its middle class.

DISPARITIES IN SOCIAL SERVICE

• The highest-quality medical care is only available to those who have the money to pay for it.
• The country is a top destination for medical tourism. At the same time, levels of public spending on health are some of the lowest in the world.
• The poorest Indian states have infant mortality rates higher than those in Sub-Saharan Africa.
• The shortage of health specialists in rural areas, the report compares India’s 0.7 doctors per 1,000 people to the UK’s 2.8.
• The dropping enrolment ratio in government schools, particularly for girls, while private schools see an uptick in admission.

THE ANALYSIS: THE GROWTH – POVERTY PARADOX 

• The surging economic growth has improved the living conditions of its citizens, but these improvements were not uniformly distributed among India’s diverse population. Despite being among the richest countries in the world, India has attracted negative attention in recent years and ranked 66 out of 109 countries in Multidimensional Poverty Index 2021.
• On the surface, India’s story of growth and its triumph over poverty is enviable. India’s income per capita has increased fourfold in the last two decades, and its absolute poverty – measured on the international poverty line – reduced sharply from 40 per cent in 2000 to 13.4 per cent in 2015 but while India is no longer chronically poor, its growth has not been inclusive. The segment of the population that ‘graduated’ from poverty is largely still vulnerable, with consumption levels very close to the poverty line, and far from becoming a ‘middle class.’
• Poverty is concentrated more and more in urban areas, as now one-in-three poor is living in urban areas, which was about one-in-eight in the early 1950s. In the post-liberalisation period, urban growth and non-agricultural growth has emerged as major driver of national poverty reduction including rural poverty.
• Unlike in advanced economies, economic growth and inequality converge in terms of their effects on socio-economic indicators in India i.e. with economic growth the inequality in income and asset distribution also increases; however economic growth helps in reducing the poverty.
• Manifestation of unequal growth is also growing inequalities:
• Growing Rich: During the pandemic, the wealth of Indian billionaires increased from Rs 23.14 lakh crore to Rs 53.16 lakh crore.

ü  India has the third-highest number of billionaires in the world, just behind China and the United States.

ü  There is a 39% increase in the number of billionaires in India in 2021.

• Growing Poor: More than 4.6 crore Indians are estimated to have fallen into extreme poverty in 2020. This is nearly half of the global new poor according to the United Nations.

ü  Also, in the same year, the share of the bottom 50% of the population in national wealth was a mere 6%.

• Unemployment in India has also increased.

CASE STUDY OF TWO GOVERNMENT PROGRAMS AIMED AT POVERTY REDUCTION

PRADHAN MANTRI GRAM SADAK YOJANA (PMGSY)

• PMGSY, state-wise allocations are fixed based on pre-determined gaps in road infrastructure. That automatically ensures more money is released and roads get built.
• PMGSY is less prone to leakage because it is a specific asset-focused programme.

MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT GUARANTEE SCHEME (MGNREGA)

• MGNREGA is supposed to be demand or need-driven, the reality is that it is being successfully implemented only in better-governed states even with lower levels of poverty.
• MGNREGA is general dole-based and not amenable to monitoring beyond a point.

MGNREGA may have a role in mitigating immediate rural distress on account of drought and other unforeseen calamities. But programmes like PMGSY provide more effective long-term poverty alleviation solutions, through raising overall productivity and expansion of non-farm employment opportunities.

BHAGWATI – SEN DEBATE

Bhagwati Model:The idea in the book ” Why Growth Matters: How Economic growth in India reduced Poverty and lessons for other developing countries” is in consonance with Adam Smith’s theory of the invisible hand of the market. It believes that increasing the pie of growth can ultimately lead to an increase in income and consequent development. In other words, it believes in the trickle-down effect.

Amartya’s Sen Model:The idea is propounded in his book ” An uncertain glory: India and its contradiction”. It proposes an increase in the capacity and capability of people as the prime mover of development. Thus Government needs to invest in public health, infrastructure, education and democratic participation. It fosters the idea of a bottom-up approach. The ability of each individual as a change agent. It is about empowerment.

THE WAY FORWARD: ELIMINATING POVERTY IN INDIA

FIXING MINIMUM WAGE 

• Guarantee each citizen a minimum wage consistent with a minimum standard of living.
• In India in 1948, the Minimum Wages Act was passed in pursuance of which minimum wages are being fixed for agricultural labour and labour in what is called the ‘sweated trades’. This is a step which will level up the incomes from below.

SOCIAL SECURITY 

• Introduction of a comprehensive social security scheme guaranteeing to each individual a minimum standard of economic welfare.
• The government includes progressively making school education free; ensuring reduced out-of-pocket expenses on health, and meeting global benchmarks of 6% and 3.5% of GDP on education and public health respectively.
• Strengthening quality public healthcare, strict enforcement of the Right to Education norms, stopping the commercialisation of education and health, and an increased focus on gender budgeting.

PROMOTION OF LABOUR-INTENSIVE MANUFACTURING

• The proportion of the labour force in agriculture has come down, but the workers who have left farms have not got jobs in modern factories or offices. Most are stuck in tiny informal enterprises with abysmal productivity levels.
• If India could somehow reverse this trend and promote labour-intensive manufacturing then inequality could fall.

MORE INCLUSIVE GROWTH

• The promotion and adoption of an Inclusive Growth Agenda is the only solution to the rising inequality problem. Economic growth which is not inclusive will only exacerbate inequality

SKILL DEVELOPMENT

• The development of advanced skills among the youth is a prerequisite if India wants to make use of its demographic dividend. The skilling of youth by increasing investment in education is the only way we can reduce inequality. India needs to become a Skill-led economy

PROGRESSIVE TAXATION

• Higher taxes on the Rich and the luxuries will help reduce income inequalities.
• Getting the richest one per cent in India to pay just 0.5 per cent extra tax on their wealth could raise enough money enough to increase government spending on the heath by 50 per cent

EQUAL OPPORTUNITY FOR ALL

• The Government may devise and set up some sort of machinery which may provide equal opportunities to all rich and poor in getting employment or getting a start in trade and industry.
• In other words, something may be done to eliminate the family influence in the matter of choice of a profession. For example, the government may institute a system of liberal stipends and scholarships, so that even the poorest in the land can acquire the highest education and technical skill.

LEARN FROM OTHER COUNTRIES

China’s case study

• Meta’s narrative for China’s economic development is that its leadership combined the drive for growth with the spreading of human capital.
• As the human capital endowment was relatively equal, most people could share in this growth, which accounts for the relative equality of outcomes in China when compared to India.
• The greater participation of women in the workforce of China

THE CONCLUSION:

India’s dominant economic growth over the last 30 years continued to pull millions of people out of poverty. Due to the unexpected impact of COVID-19, India experienced a spike in its poverty rate. Moving forward, the elimination of poverty in India over the next decade is within reach in spite of the challenges ahead.Rapid economic growth and the use of technology for social sector programs can help make a significant dent in extreme poverty in the country.

MAINS PRACTICE QUESTION:

1. Given India’s stage of development, India must continue to focus on economic growth to lift the poor out of poverty by expanding the overall pie. Comment.
2. Poverty in India is an ever-present problem throughout the country’s history, and unfortunately, it seems that it will continue to be a problem as long as income inequality continues to exist. Suggest measures to reduce income inequality in light of COVID-induced increased inequalities.

 

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