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LATEST NEWS UPDATES | What Gujarat can learn from Bihar and Odisha-Himanshu

What Gujarat can learn from Bihar and Odisha-Himanshu

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published Published on Oct 25, 2013   modified Modified on Oct 25, 2013
-Live Mint


Not only have Bihar and Odisha grown faster they have also ensured that benefits accrue to the poorest; in Gujarat, growth has bypassed the poor

Going by logic, the poor in richer states should be better off than their counterparts living in poorer states. This is especially so when the country is seeing a welcome trend: Income growth in rural areas and poverty reduction has witnessed unprecedented acceleration.

Not necessarily.

Not only are erstwhile poor states growing at a faster rate, they are also performing better on other macroeconomic metrics. They have walked the talk on inclusion. The collateral benefit is that in the short run, it has helped cushion citizens from the stress in the economy due to double-digit food inflation and the general effect of an economic slowdown.

The shift of power away from urban and developed states has also meant that in terms of welfare outcomes, the economy continues to show better than average performance even during a time of slowdown. This is evident from the reduction in levels of poverty. Planning Commission estimates for 2011-12 show sharp poverty reduction between 2009-10 and 2011-12, which is double the rate observed in the previous decades.

A large part of this can be attributed to the sharp decline in poverty in Bihar, Uttar Pradesh, Rajasthan, Odisha and Chhattisgarh-the states with largest concentrations of the poor. What is remarkable is that these states were also afflicted, till recently, by a record of poor governance. Significantly, the traditionally better off states-Kerala, Gujarat, Karnataka, Delhi and Maharashtra-are the ones throwing up the lowest rates of reduction in poverty. While Bihar, Chhattisgarh and Rajasthan managed to reduce rural poverty by 21%, 11.5% and 10.4%, respectively, between 2009-10 and 2011-12, the comparative reduction in Karnataka, Kerala and Gujarat was only 1.6%, 2.9% and 5.1%, respectively.

A part of the reason for Bihar, Odisha and Chhattisgarh performing much better on this score has been the innovations in public service delivery introduced by these states. All of them now figure among states with low leakage in the notoriously leaky public distribution system (PDS). In contrast, Gujarat has fallen behind from being among the best states in 1993-94 to the list of states with highest leakage in PDS by 2011-12. The correlation between improvements in service delivery, such as reduction in leakages in PDS and poverty reduction in the states, is strong, but is only a partial explanation of the strong performance in poverty reduction by these states.

While redistributive politics is a major factor in poverty reduction in these states, they have also excelled in making growth pro-poor. It is well-known in Indian economics literature that a strong proxy as well as determinant of poverty, at least rural poverty, is the wage of casual workers. This group counts as the poorest in rural India. In fact, analysis of wage data from multiple sources only confirms the dynamics of high poverty reduction in these states.

Most recent data on wages of casual workers, captured by the National Sample Survey's (NSS) employment surveys, is revealing. Wages of private casual workers in rural areas rose by 12.6% a year between 2009-10 and 2011-12 in real terms. Even on a long-term basis, the growth rate of wages at 6.6% a year, between 2004-05 and 2011-12, for rural India should put to rest any doubts about the extent of poverty reduction. However, as in the case of poverty reduction, Bihar and Odisha take the lead in growth in wages. Wages of casual workers in Bihar rose by 20% per year between 2009-10 and 2011-12 followed by Odisha at 17% a year in real terms. On a long-term basis, these two states continue to outperform the developed states by a significant margin. Between 2004-05 and 2011-12, wage rate growth in Odisha and Bihar were 8.3% and 7.8% a year. Gujarat once again is a laggard-wages grew by just 3.3% a year during this period and ranked last among major states. Similarly, Maharashtra, Haryana, Kerala and Punjab, too, showed growth in wages that is less than the national average.

More recent data on this is available from the monthly wage series of the Labour Bureau. The verdict is similar. Between 2007-08 and 2012-13, farm wages of male workers grew at an average of 6.3% per annum at real terms. Wages of these workers in Odisha grew at 8.7% a year, while in Bihar the figure was 8.4%. Even in Rajasthan, Uttar Pradesh and Madhya Pradesh, it was close to 7%. However, it increased by only 3.3% in Gujarat-the second lowest in the country. In 2000-01, agricultural wages in Gujarat were 21% higher than that in Bihar. By 2012-13, farm wages in Bihar were 11% higher than Gujarat.

The analysis of wage data is not just a good metric for the poverty reduction story but is also an important indicator of who gained from growth of output and productivity. While the growth rate of wages for casual workers in Bihar and Odisha is the same or higher than the per capita growth rate of these states, it is less than half in states such as Gujarat. In other words, not only do Bihar and Odisha grow faster but they also ensure that the benefits also accrue to the poorest. On the other hand, in Gujarat growth has bypassed the poor and the marginalized, with most benefits going to the favoured few, namely the business class, in the name of extraordinary profits.

Most certainly, if Gujarat has to learn some lessons on inclusive growth, Bihar and Odisha are good starting points.

Himanshu is an assistant professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi.


Live Mint, 23 October, 2013, http://www.livemint.com/Opinion/pLWvymUouyR1sK94OHo3tL/What-Gujarat-can-learn-from-Bihar-and-Odisha.html


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