McKinsey lessons for the NAC

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SummaryUPA chairperson Sonia Gandhi and her friends in the National Advisory Council would do well to keep in mind the McKinsey estimate that three-fourths of poverty reduction between 2005 and 2012 took place due to an increase in jobs, not more dole

Sonia Gandhi’s Food Security Act, BJP prime ministerial hopeful Narendra Modi thunders in the script I have dreamt up for him, delivers each family a maximum of R500 of subsidies every month—that’s assuming a R20 per kilo subsidy on 25 kilos of wheat and rice. Why do you want to settle for just R500 per month when you can earn that much in one or two days from the jobs I will provide you? When the NDA was in power, it created around 12 million jobs each year on average compared to just 2.4 million jobs created a year by the UPA in its 10-year tenure.

The BJP’s prime ministerial candidate, it is clear, isn’t going to take speech tips from a journalist, and one who doesn’t even cover politics, but he may take a report just released by the McKinsey Global Institute a bit more seriously. And so he should, given the collective consulting experience, and across so many countries, of those involved in the study. Like any McKinsey report, this one too has a graph on every other page and complicated econometrics on many others. But if you don’t get lost in this, there are some very clear takeaways, not just for a Modi, but more so for those in the UPA who are convinced most problems can be solved by throwing more money at them.

It’s not as if the experts at McKinsey don’t believe public spending needs to be stepped up. Indeed, one of the graphics in the report From Poverty to

Empowerment, talks of how while the number of services used by a household rises as income levels do, the same cannot always be said about community services—it’s interesting that some of India’s richest cities (think Gurgaon) have the least access to community services like piped water and sewerage. Another graph talks of how it is expenditure on health that needs to be stepped up dramatically if India’s poor are to be brought out of poverty—the share of social services expenditure on health/water/sanitation needs to rise from around 21% right now to nearly 50% over the next decade.

But the really big takeaway, and this is where Modi’s imaginary speech comes in, nearly three-fourths of the reduction in the number of people below the poverty line (McKinsey uses the term Empowerment Gap since it hikes up the poverty line expenditure by what households need to spend on, for

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