Critical Thinking

Economic over the period and the impact of

Economic growth and
poverty eradication in India

Poverty
is a significant issue in India, despite having one of the fastest-growing
economies in the world, clocked at a growth rate of 7.6% in 2015, and a sizable economy. The World Bank reviewed and proposed
revisions in May 2014, to its poverty calculation methodology and purchasing
power parity basis for measuring poverty worldwide, including India. According
to this revised methodology, the world had 872.3 million people below the new
poverty line, of which 179.6 million people lived in India. In other words,
India with 17.5% of total world’s population, had 20.6% share of world’s
poorest in 2011.Growth is considered pro-poor if the income share of the
poor rises with growth (their incomes grow faster than that of the non-poor).
We found evidence that inequality has declined slightly over the recent high
growth period in India, and that it has also been accompanied by reduction in
the poverty gap and severity. This evidence provides support for the view that
the recent high growth period in India has been pro-poor.

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Many economic studies have emphasized
the role of higher economic growth to tackle the problem of poverty. This has
been supported empirically by the work of Tendulkar (1998), Ravallion and Datt
(1996) and Besley and Robins (2000). Using data from nearly 80 countries, Kray
(2004) shows that in the medium-to-long-run, 66–90 per cent of the variation in
changes in poverty can be accounted for by growth in average incomes, and all
of the remainder is due to changes in relative incomes. The role of economic
growth in poverty reduction has also been supported by Deaton and Drèze (2001),
Bhagwati (2001) and Datt and Ravallion (2002). Sen (1996) has strongly emphasized
the need for higher government expenditure on social assistance to the poor,
especially in provision of education, as the most important determinants of
poverty reduction. However, since government social expenditure that helps the
poor is dependent on government revenue, which in turn grows with economic
growth, the key role of economic growth is likely.

The change in poverty over a period can
be broken into two components: the impact of income growth over the period and
the impact of change in income distribution over the period. Thus, if the
income distribution does not change much (which is often the case with most
countries), countries with higher growth rates tend to be associated with more
rapid reduction in poverty. We show with the help of national-level GDP growth data
in comparison with poverty eradication in India. Economic growth also generates
job opportunities and hence stronger demand for labour, the main and often the
sole asset of the poor. In turn, increasing employment has been crucial in
delivering higher growth. Strong growth in the global economy over the past 10
years means that the majority of the world’s working-age population is now in
employment. Nevertheless, since the early 1990s, global employment has risen by
over 400 million. While China and India account for most of this increase,
almost all of the new jobs have been created in developing countries (Global
Economic Prospects, 2007). While the relationship between growth and employment
remains robustly positive, the strength of the link has weakened slightly since
the turn of the millennium. This has raised concerns about ‘jobless growth’ in
some countries.

Table:
1

From the above table it is evident that
poverty in India over the years has declined sharply, hence it can be argued
that the growth has played its due part in eradication of poverty in India. The
GDP growth rate over one decade can be easily compared with the decline in
poverty shown in Table 2 below.

Table: 2

GDP Growth Rate at Base Year 2004-05 and Current

GDP Growth

Year

2004-05

Current

2013-14

4.74

11.54

2012-13

4.47

11.88

2011-12

6.69

15.77

2010-11

8.91

18.66

2009-10

8.59

15.18

2008-09

6.72

15.75

2007-08

9.32

15.91

2006-07

9.57

16.60

2005-06

9.48

14.10

2004-05

7.05

13.16

2003-04

7.97

12.03

2002-03

3.88

7.75

2001-02

5.39

8.72

2000-01

4.15

7.67

1999-00

8.00

11.35

1998-99

6.68

15.28

1997-98

4.30

11.20

1996-97

7.97

16.38

1995-96

7.29

17.08

1994-95

6.39

16.80

1993-94

5.68

16.23

1992-93

5.36

14.70

1991-92

1.43

15.37

1990-91

5.29

16.49

Source: Ministry of Statistics
and Programme Implementation

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