Importance of economic growth in eliminating poverty:
- According to research by some economists, 1% increase in GDP per capita reduces poverty by 0.78%, that is potentially lift about 3 million Indians out of poverty.
- A near 10% growth in GDP per capita over the current levels can help eliminate extreme poverty in a decade.
- This shows that boosting the rate of economic growth is the most important and urgent need in India.
Examples of east Asian countries reducing poverty through high growth:
- A sustained period of high economic growth brought millions of Asians out of poverty in South Korea, Taiwan, and most notably China.
- Thanks to the liberalization of the Chinese economy and its integration into global trade, China lifted over 800 million out of poverty.
Great amount of poverty till 1991:
- After two centuries of colonial oppression and half a century of failed socialist policies, hundreds of millions of Indians were consigned to dire poverty.
Growth after 1991 reforms led to poverty reduction:
- This started changing with the economic reforms (LPG reforms) initiated in 1991.
- Since those reforms, a higher rate of GDP growth sustained over the years has lifted over 170 million Indians out of poverty.
But much poverty yet left in India:
- Extreme poverty: About 75 million Indians still live below the $1.90-a-day threshold in what is termed extreme poverty by the World Bank.
- Poor and vulnerable: Using a different figure by the World Bank of $3.20 a day for “lower middle income” countries like India, about one-third of all Indians (450 million) are poor and vulnerable to economic stress that could push them back into extreme poverty.
Growth is also important for social welfare:
- According to the Handbook Of Statistics On Indian Economy 2016-17, since the 1991 reforms, the Union government’s revenue has increased 25 times while the state government revenues have increased 28 times in nominal terms (and about 4 times in real terms).
- High economic growth led to his increase in revenue which has enabled a huge increase in the expenditure of the governments on social welfare programmes and cash transfers.
- This has helped reduce the vulnerability of the poor, especially in the agrarian and informal sectors.
But economic grwoth is ignored in most political conversation:
- Boosting economic growth is thus not just a policy imperative, it is a moral obligation.
- Unfortunately, policies raising the growth rate are rarely appear in the country’s current political dialogue, which is mostly focused on populism and pandering to interest groups.
- Most candidates for the 2019 elections have not even bothered to bring up the need economic progress.
Sustained growth needed to enlarge middle class:
- Economic growth, while dramatically reducing extreme poverty in India in the recent years, has not pushed them into the safety of the middle class.
- India’s harsh regulatory environment creates an enormous informal sector, leaving those lifted out of extreme poverty trapped in that sector highly vulnerable to economic stress.
Need labour and industrial regulatory reforms:
- To elevate the vulnerable into the middle class, there is a need for long and sustained period of rapid economic growth, coupled with a reforming the labour and manufacturing regulatory system.
- Reforming India’s myriad labour and industrial regulations might boost the pace of the economy’s growth while also bringing the informal sector out of the shadows.
Conclusion – India is on right path but has a long way to go
- While India is the fastest growing large economy, it is today only as large as the Chinese economy was back in 2002.
- And from 2002 until its recent slowdown, China managed to consistently grow at over 8% a year, even passing the magical 10% figure for many years.
- So, India has a long way to go.
- For this, the most important thing is for political class and people to understand and talk about the importance of reforms towards economic growth for poverty reduction and welfare.
Importance:
GS Paper III: Economy
