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.
GS Paper III: Economy