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LATEST NEWS UPDATES | Inclusive growth, an exaggerated claim -Raghav Gaiha, Manoj K Pandey and Vani S Kulkarni

Inclusive growth, an exaggerated claim -Raghav Gaiha, Manoj K Pandey and Vani S Kulkarni

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published Published on May 23, 2014   modified Modified on May 23, 2014
-The Hindu Business Line
 

Claims that the economic gap in India is being bridged are not borne out by NSS data

Recent accounts of poverty reduction - especially during 2004-11- triggered by the release of the 68th round of the NSS data, have been euphoric. Growth acceleration not just resulted in more rapid poverty reduction over this period than during 1993-2004 but it was also more inclusive as the most disadvantaged groups, the SCs and STs, benefited more than others as the gap in poverty declined. A Panagariya and his collaborators are overemphatic about these and other claims - for example, inequality has not impeded poverty reduction - on the basis of cross-tabulations.

Conclusions based on such tabulations fail to control for other factors. While we question some of these claims, our analysis has a broader scope. It is confined to 17 major states, based mostly on the NSS data for 1993-94, 2004-5, 2009-10 and 2011-12.

Distribution of the poor

Poverty remains a rural problem with a vast majority of the poor located in rural areas. According to the Planning Commission, the total number of poor in 2011-12 was 270 million of which 217 million lived in rural areas (80 per cent).

If the states are classified into low-, middle- and high-income groups based on per capita income in 1993-94, each group recorded a reduction of 7-8 percentage points in the share of rural poor in total poor over the period 1993-2011 (in low-income states, for example, from about 86 per cent to 79 per cent).

However, the incidence of poverty in rural and urban areas (i.e., the proportion of poor, say, in rural population) varies across these income groups. First, in each income group, the incidence of rural poverty is considerably higher than that of urban poverty, especially in low- and middle-income states. Reductions in both rural and urban poverty were lower in low-income states (2-3 percentage points) than in the two remaining groups (4-8 percentage points). These are illustrated in the chart.

Rural poverty

The higher the per capita expenditure (as a proxy for income) in a state, the lower was the headcount ratio of the poor (or proportion of poor in the rural population). So growth matters. Besides, if the preceding three years of the NSS records showed an annual growth rate of income of more than 2.5 per cent in a state, the poverty reduction was greater. These findings illustrate that not just growth but also its duration matter in poverty reduction.

Contrary to the assertion by Panagariya, the higher the inequality in consumption expenditure distribution, measured as the Gini coefficient, the lower was the poverty reduction. In other words, if a fast-growing state also experiences a rise in income inequality, poverty reduction would be weaker relative to a state with the same growth rate but lower inequality.

We tried to capture the effect of rural-urban migration on rural poverty by considering the difference in urban-rural incomes. This effect is positive and consistent with the conjecture that younger and better-off individuals tend to migrate to urban areas and thus poverty rises among those left behind.

Continuity of the political regime was measured in terms of whether the same party ruled in each sample year. While both the Congress and BJP accomplished poverty reduction in equal measure, it was the continuity of the former (and its policies) that was more effective.

Although the socio-economic profile of BIMARU states has improved, they still account for a higher incidence of rural poverty than other states. So even with growth acceleration, rural poverty persists. Besides, while states with higher proportions of SCs in the rural population achieved faster reduction in poverty, those with higher proportions of STs did not. This finding is important as the latter are generally more deprived given their social and economic exclusion.

Urban poverty

The results for urban poverty are similar in some respects. Higher per capita expenditure as also growth spells less poverty. What is surprising is that not only is higher inequality associated with higher prevalence of poverty but also has a much larger (absolute) effect than growth of income. In other words, a sharp rise in inequality more than offsets the favourable effect of income growth on urban poverty.

Somewhat surprising is the absence of empirically robust relationships between nature of political regime (Congress, BJP or any other) and its continuity, and poverty. While the urban bias of policies and welfare schemes remains pervasive, it cannot be dismissed out of hand that livelihoods at low wages/earnings in urban areas are not so dependent on these schemes as in rural areas. A case in point is the Mahatma Gandhi National Rural Employment Guarantee Scheme.

Deeper doubts are raised about the inclusiveness of growth in urban areas. While the BIMARU states continue to be associated with a higher incidence of poverty in urban areas too, it is not confirmed that there are higher benefits of growth in states with higher proportions of SC and ST populations. In other words, such states did not benefit more than others, and thus assertions of inclusive growth are further undermined.

In conclusion, emphatic assertions of inclusiveness of growth uplifting the poor across diverse states and belonging to socially and economically disadvantaged groups, and the outright dismissal of the offsetting effect of higher income inequality are dubious, if not misleading.

Kulkarni is a research associate in the department of sociology at Yale University, Pandey is a doctoral candidate in economics at Australian National University, and Gaiha was a professor of public policy in the faculty of management studies, Delhi University

The Hindu Business Line, 22 May, 2014, http://www.thehindubusinessline.com/opinion/inclusive-growth-an-exaggerated-claim/article6037467.ece


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