FE Editorial Growth matters

Written by The Financial Express | Updated: Aug 29 2008, 03:03am hrs
The World Bank has just released its updated numbers on global poverty. These seek to apply consistent standards of poverty across countries and over time. They are based on national household surveys, but make adjustments for the purchasing power over goods across countries. Compared with previous years, new evidence on prices across countries suggests that life in India, and elsewhere in Asia, is more expensive than previously thought. That also means poverty is greater than previously estimated for the purpose of international comparison. But this makes no difference to Indias internal assessment: it does not change anything for the official Indian poverty line.

It is not, however, specifics of the calculations, but the overall picture they give to Indias position and progress in an international perspective which matters. First, by international standards, India is still a poor country. At the most restrictive poverty line provided, of $1 a day at international pricesthat is not far from the official poverty linethere were some 270 million Indians living in severe deprivation in 2005. This amounts to 30% of the global total. Second, poverty has indeed steadily declined in India over the past 25 years, both pre- and post-reform. The decline in the proportion of population living in extreme poverty has been sufficient to reduce total numbers, from almost 300 million in 1981 to 270 million in 2005, despite the growth in population. Of course, the pace of decline in poverty was much faster in China, where those living in extreme poverty fell from 730 million in 1981 to 106 million in 2005. Third, progress has been relatively better for the poorest in India. The proportion of Indians living below $2 a day fell from 87% to 76% between 1981 and 2005, but the number rose from 610 million to 830 million. In middle-income countries, living below $2 a day would be considered a life of deprivationhowever, as India grows, this will increasingly become a relevant standardeven if the highest priority should continue to be for the poorest. All this underscores the centrality of growth that is both sustained and inclusive. It also highlights the failure of the state to implement policies which would promote inclusion in what is now a fairly sustainable rate of growth. The best way to further inclusion into the market economy is for the state to invest in high quality social infrastructure (education, health, etc) and physical infrastructure (roads, irrigation and power).