A World Bank poverty clock study published in a Brooking blog says that India can be a poverty free nation by 2030. The study claims India has one of the fastest rates of poverty reduction in the world. Several print and electronic media’s cover page adorned this story with a hope and surprise too, soon after the study results came in the public domain. India’s successful growth story was regarded as one of the responsible factors behind higher rate of poverty reduction. Although the study has its own complex methodologies of poverty estimation and projection, its findings on India as a poverty free nation open a new door of growth-poverty relation debate. Scholars from think tanks such as National Institute of Public Finance and Policy support the theory that India can be poverty free by 2030 by citing India’s sustained growth momentum during post-economic reforms as the primary reason.
Here is an attempt in the direction of India’s poverty projection for 2030 using its past economic growth and poverty records. The projection is important looking at India’s commitment to reach the first and also, important milestone set in the Sustainable Development Goal (SDG). In this projection, the Tendulkar Committee estimate of poverty line is used in place of World Bank’s definition of extreme poverty line of $1.9 a day, which was used in the poverty clock study.
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Growth Elasticity of Poverty
One of the sound measures to present growth-poverty interaction is growth elasticity of poverty. This measure shows how much does poverty decline in percentage terms with a given percentage rise in economic growth. For example, if economic growth is 5% and poverty reduction is more than 5% in the same period, growth elasticity is more than one and is elastic. If poverty reduction is reduction is less than 5%, growth is less elastic or inelastic. Growth elasticity in other words, measures the re distributive effect of economic growth and shows how economic growth of a country is redistributed among the people and particularly among the lower income groups.
According to Central Statistical Organisation estimate, during the year 2011-12 and 2004-05, with 2004-05 as the base year, average annual growth of India’s GDP at constant i.e. 2004-05 prices was 10.9 percent. During the same period total number of people living below the poverty line had come down from 407 million to 270 million which means annual average rate of poverty reduction is 4.8 percent. Growth elasticity of poverty is estimated to be 0.44 during 2004-05 and 2011-12. This growth elasticity estimate shows that every one percent rise India’s economic growth led to less than one percent i.e. 0.44 percent reduction in poverty during this period. In this respect, India’s economic growth is considered as less elastic or inelastic to poverty reduction.
The inelastic nature of growth shows uneven and skewed distribution of economic growth across all sections of the population in the country. It also presents a picture of poor trickledown effect of economic growth during 2004-05 and 2011-12. According to NSS household consumption expenditure survey, gini index of inequality in urban India has increased from 0.348 to 0.376 during this period. The rising inequality partly supports the argument of poor trickledown effect of economic growth.
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Poverty projection for 2030
It is found average annual economic growth in India has relatively come down since 2011-12. According to Central Statistical Organisation(CSO), during 2011-12 and 2017-18, the estimated economic growth is 8.1 percent per annum. With the same growth elasticity of 0.44 as estimated during 2004-05 and 2011-12, the expected total number of people living below poverty line would be 224 million by 2017-18 which would be approximately 17 percent.
Poverty projection for 2017-18 onward is possible either through projected or assumed economic growth. International Monetary Fund has projected India’s average growth of approximately 8 percent per annum during 2018 and 2023. In the effort of poverty projection for 2030, the annual average growth is assumed to be 8 percent. With a constant growth elasticity of 0.44 and with a sustained growth of assumed 8 percent per annum, the estimated number of poor in 2030 would be 141 million. The projection shows that approximate 10 percent of population would be expected to be below poverty line by 2030.
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Limitations in the above poverty projections
The poverty projection made here using the growth elasticity measure is an attempt to observe an approximate poverty scenario for 2030. However, the projection has many limitations.
First, there is no direct trade-off between growth and poverty as presented in the poverty projection. Various poverty alleviation and employment generating programs such as MGNEGA, and many others like free and subsidized food, free education and health programs, which may not be growth inductive factors but contribute to a larger extent in the direction of poverty reduction.
Second, growth rates used for poverty projection here are not adjusted with inequality. Rise or fall in inequality contributes to a larger extent on growth poverty relation. Higher growth and lower inequality could improve growth elasticity and thus could reduce level of poverty and the vice versa is true.
Third, economic growth in India is not homogeneously distributed across the states and at district level. The regional level differences in growth are not adequately captured in estimating growth elasticity which could have impact on poverty projections.
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Fourth, poverty projection is made for 2030 using distant past figures of estimated growth elasticity during 2004-05 and 2011-12. Growth figures are available till 2017-18, but there are no reliable sources which could provide the poverty estimates for this year. The 75th round of National Sample Survey on Household Consumption Expenditure is on progress. Once the survey information is on the public domain, there will be a better projection in poverty estimates for the year 2030.
Although the poverty projection here has some limitations like many other projections have, one thing is clear that with a lower growth elasticity of poverty; even with an annual average of 8 percent sustained growth may not be adequate to eliminate poverty by 2030. There is need of improving growth-poverty relationship. Adequate efforts need to be made in the direction of making growth more inclusive and pro-poor. There is need of a balanced strategy to raise level of growth and its redistribution through various wage-employment generation and other development programs. In this way, it will not be a difficult task to reach the goal post of poverty elimination which is a significant part of SDG.
Article written by Dr. Sridhar Kundu
Senior Research Officer,
Center for Budget & Governance Accountability