Trickle-down Effects

Updated: Dec 25 2002, 05:30am hrs
Nobody will seriously dispute the fact that faster growth provides a more favourable context to reduce poverty than does slower growth. But this hardly implies that it is a magic bullet of sorts to solve the problem. Besides growth, waging a war on poverty also entails affirmative actions and direct interventions. In a poor agrarian economy like Indias, redistributive policies like land reforms impact on poverty. Often these policies reflect pressures from progressive movements mobilising poor farmers and rural wage labourers. But the point is that they also work best in the context of a growing economy, which throws up numerous opportunities to reduce poverty. The force of these propositions is reflected in the experience of most states on the poverty-growth question in 1999-2000 in comparison to 1973-74. According to the Tenth Plan (2002-2007) document, significant declines in rural poverty as a whole (30-40 per cent) have been recorded by the faster growing states of Maharashtra, Tamilnadu, Karnataka, Gujarat and Andhra Pradesh. In the case of Madhya Pradesh, moderate growth has been accompanied by a moderate decline in poverty over a long period. Clearly for such states, faster growth translated into declines in rural poverty representing support for trickle-down effects of development.

However, this broad pattern doesnt hold for states like West Bengal and Kerala which recorded significant declines in rural poverty despite weak to moderate rates of growth. As noted earlier, redistributive policies like land reforms can and do make a big difference to poverty. These two indeed happen to be states which have been run by leftist governments committed to pro-people policies. Not surprisingly, land reforms have been better implemented, besides other targeted interventions to improve quality of life. Kerala still remains a model of what can be done even with low income levels its citizens have universal literacy and access to health care. As rural-urban differences are also less striking in the southern state, the physical quality of life is far superior. West Bengal is not quite in that league, but redistributive policies have made a big difference. But can Kerala and West Bengal continue to experience rapid declines in poverty despite weak to moderate growth Hardly. Redistribution works only up to a point. It cannot deliver the goods as it were unless the productive forces in society are unleashed. When industry is languishing and jobs are scarce, of what use are higher wages They will only come at the expense of larger unemployment. Coincidentally, these states have high levels of unemployment, especially of educated people. For the Kerala and West Bengal model to succeed, redistribution must happen with growth. With faster growth, it may even work better.