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Editorial: Growth versus dole

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SummaryIf growth slips, ADB warns, number of poor can grow

As India’s economic growth has risen, both the number of people below the poverty line as well as the proportion have fallen. And the pace at which this decline has taken place has risen with GDP growth picking up. Between FY94 and FY05, poverty levels declined by 0.74 percentage points (ppt) a year; this fell faster by 2.18 ppt between FY05 and FY12. But what happens if growth slows, more so in an environment of rising inflation? An estimate just out, from the Asian Development Bank (ADB), points to how 68.9% of India’s population would fall below the poverty line were this to be raised from the current $1.25 level to $2 per capita per day—as ADB puts it, a large chunk of India’s population is vulnerable to economic shocks that ‘may drive them back into extreme poverty’.

What is the minimum growth India needs to ensure this doesn’t happen? Analysis by IHD professor Rajesh Shukla shows that the number of ‘deprived’ households—those with, at 2009-10 prices, annual household incomes of under R1,50,000—will rise from 135,000 in FY11 to 140,000 by FY16 if annual GDP growth falls to 5%. Another way to look at it is to examine the growth in household expenditure for various income quintiles between FY05 and FY10, in real terms—this works out to R250 per month over five years or R50 per year. So, for a full year, the poorest quintile needs R600 of an increase in real incomes to be no worse off. That’s something, Shukla’s calculations show, which can be got only if GDP growth is a bit under 6%. In other words, India needs a 5-6% annual GDP growth if the number of poor is not to rise at even current poverty lines. Raise the poverty lines higher, as is desirable since the poverty line should rise in sync with overall prosperity levels, and the minimum required GDP growth will rise even further. The short point, of course, is that no amount of dole as in the Food Security Act can possibly compensate for slower growth.

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