The debate on whether India’s current growth phase has been ?inclusive? or ?lopsided? will remain unresolved because the extent of inequality, either in terms of income or any other measure, has always been large. Improvements at the bottom of the scale are undoubtedly taking place, with GDP growth as rapid as it is today. But is the improvement significant enough to relieve large enough numbers of their poverty in a sustained manner? When the initially estimated sharp decline in poverty in 1999-2000 turned out to be rather optimistic, the need for measures besides just growth was obvious. The results from the 2004-05 consumer expenditure survey show that the rate of poverty reduction between 1993-94 and 2004-05 was quite high, at about 0.6 percentage points per year. In another 10 years, at this rate, poverty would decline by 6 percentage points from the 27% of 2004-05 to about 20%. This is, of course, too mechanical a calculation and would just about meet the millennium development goal of halving poverty to 18% by 2015. The point to note is that poverty reduction between 1993-94 and 2004-05 has been significantly faster than between 1983-84 and 1993-94. Yet, the performance pales in comparison with what has been achieved elsewhere, and the averages also hide the persistence of poor performance in some states and regions. At this rate of progress, it will take another 12-14 years beyond 2015 to bring the ratio below 10%.
While growth alone may not achieve poverty reduction, it does help in the elimination of demand constraints on output. Output growth, in turn, creates demand for such factors of production as labour that the poor can supply. Besides, a bigger economy means bigger Budget allocations. The current phase of economic growth has also created an exceptional opportunity for more concerted government efforts towards poverty elimination. This is reflected in more comprehensive efforts at building rural infrastructure and putting more money into education and health programmes. These efforts are consistent with the well identified exit routes from poverty: higher real wages, more employment, education and better health. Indeed, what makes the current sizeable approach to poverty alleviation more likely to succeed where the previous efforts did not is its comprehensive nature. It makes for sustainability.
Just as poverty has exit routes, it also has entry slip-slides?ill-health, natural calamities and deterioration in the economic environment. Poor access to exit routes keeps people trapped in poverty. The levels of income may be too low to seek or even see an exit path. Such dynamics imply that poverty reduction may often be tenuous with an ever-present possibility of slipping back into poverty.
One major problem in poverty reduction is that after reaching below a ratio, further reductions start getting harder and harder to achieve. Tackling ?hard core? poverty requires a series of specific interventions, not just generic solutions. In this sense, programmes such as India?s employment guarantee or supply of foodgrains at low prices only help in supplementing the income of the poor. But the impact of these in leading the poor out of poverty in a sustained manner is indirect. For example, the poor might let their children go to school rather than work to supplement incomes, and they may spend a little more to treat illnesses rather than just ignore them, and so on.
The problem of chronic poverty is harder to redress. In fact, it is the persistence of poverty that draws attention to the need for sustained and comprehensive efforts at poverty eradication. Quick solutions are unlikely simply because big increases in income are required to exit poverty, and maintaining higher incomes would require an improved economic environment at the local level or efficient access to labour markets so that the poor can benefit from higher wages elsewhere. Of course, the effect of labour migration on the acquisition of human-resource assets such as education and health would depend on the pattern of labour mobility.
Far better assured is the role of poverty reduction, per se, in the overall economic scenario. India needs to scale up current efforts to improve rural infrastructure, hurry towards achieving universal literacy, ensure greater access to vocational education and health services, and thus create a better enabling environment for a more productive use of the factors of production. The impact on growth would be direct, as the new facilities open up access to new markets for both goods and labour. The impact on the income of the poor and productivity of labour force will, however, be realised over a longer time horizon. Also needed is a set of measures that will limit the potential for slipping back into poverty. The scaling up has meant a need for even more resources, but constraints on these should not take away attention from the regions where the problem is large and persistent.
The supply-side story of poverty alleviation effort will require employment growth to sustain poverty reduction. The faster-growing sectors will get to absorb the better trained and healthier workforce.
?The author is senior research counsellor, NCAER. These are his personal views