“In the past 8 years our economy has grown at a record annual rate of 8.2 per cent. We have ensured that poverty has declined much faster, agriculture
has grown faster, and rural consumption per person has also grown faster.
We need to do more, and we will do more. But to achieve
inclusiveness we need more growth.”
-
Prime
Minister of India, Address to the Nation
Addressing the nation with a
televised speech, the Prime Minister, Dr. Manmohan Singh, made these remarks in
September 2012. These remarks are important in context of our analysis – does
growth necessarily lead to inclusivity? Or can there be growth without a
commensurate reduction in poverty?
While India is an emerging
economy in the world today, and has shown impressive growth rates in the past
decade, poverty remains a key concern. As per the Tendulkar Committee estimates
for 2009-10, poverty was at around 30%. While this is an improvement over the
37% figures just five years before in 2004-05, it is still a high figure. The
silver lining, nevertheless, is that it is during this period, India also
witnessed robust economic growth of 8.7%, in comparison with 6% in the five
years before.
Since this is a positive trend,
we take a deeper look at the figures at the state-wise level to see how far it
this correlation is validated at a state level. We consider two sets of numbers
– the 2004-05 and 2009-10 poverty figures, and the 5 year compounded annual
growth rate (CAGR) for India’s economic growth corresponding to the two years.
We find that a spurt in growth between 2004-05 and 2009-10 across states and
union territories (UTs) is indeed associated with a sharper lowering in poverty
rates. However, if we consider only 2009-10 data, the fastest growing states do
not necessarily have the lowest poverty rates.
Faster growth associated with sharper decline in poverty
For India as a whole, poverty
fell by exactly 7.4 percentage points in 2009-10 from 2004-05, while growth
accelerated by 2.7 percentage points. In the state-wise analysis, we look at
the top 10 states and UTs with a decline in poverty rate in excess of the all
India average. Seven of these, have also shown a higher than all India average
increase in GDP. While smaller states like Sikkim and Goa show an impressive
decline in poverty rates, as well as above average GDP growth rate (see table),
larger states like Uttarakhand, Maharashtra, Madhya Pradesh and Tamil Nadu are
not far behind either. Madhya Pradesh, for instance, has seen the sharpest
acceleration in GDP growth among these 7 states (of over 6 percentage points)
and a decline in poverty rate by almost 12 percentage points. A similar case is
seen in Uttarakhand as well.
However, it does need to be
noted, that a decline in poverty rate does not necessarily correlate with
sharper GDP growth. The most obvious example of this is Tripura (see table),
which has shown the highest decline in poverty rate over the half decade
between 2004-05 and 2009-10. Even though it has shown an over 22 per cent
decline poverty, Tripura’s GDP growth rate has barely moved. With the two
remaining outliers – Orissa and Himachal Pradesh – here too GDP growth has
improved, but at a somewhat sluggish rate.
While these trends indicate the
correlation between poverty rates and GDP on the whole – the real proof of the
trend lies when we look at poverty trends from the opposite direction. If we
consider states that have seen an increase in poverty over the period – states
like Delhi, Manipur, Mizoram, Meghalaya and Nagaland – three of these states
have a lower than average India change in GDP growth. Of these, Delhi is
probably not even a valid case, since increase in poverty is likely explained
in part by a high degree of migration to the city-state, which essentially
leaves us with the four North-Eastern states. Of these, Nagaland, which has
seen the sharpest increase in poverty rate by over 12 percentage points, has
actually seen a deceleration in GDP growth by 1.6 percentage points as well (see
table). And the only exception is Mizoram, which has seen a 3.8 percentage
point increase in GDP growth rate, but clearly, the fruits of the growth have
not been shared by all as seen from the increase in poverty rate.
States
with highest decline in poverty by
(2004-05 to 2009-10)
|
||
Change
in poverty (percentage point)
|
GDP
(percentage point)
|
|
Tripura
|
-22.6
|
-0.1
|
Orissa
|
-20.2
|
2.5
|
Sikkim
|
-17.8
|
12.7
|
Goa
|
-16.2
|
3.7
|
Uttarakhand
|
-14.7
|
5.8
|
Maharashtra
|
-13.7
|
4.9
|
Himachal Pradesh
|
-13.4
|
1.9
|
Puducherry
|
-13.0
|
6.1
|
Madhya Pradesh
|
-11.9
|
6.3
|
Tamil Nadu
|
-12.3
|
5.4
|
India
|
-7.4
|
2.7
|
Sources: Planning Commission, CSO,
Orbis Economics Estimates
|
States
with increase in poverty (2009-10 less 2004-05)
|
||
Change
in poverty (percentage point)
|
GDP
(percentage point)
|
|
Nagaland
|
12.1
|
-1.6
|
Manipur
|
9.2
|
1.8
|
Mizoram
|
5.7
|
3.8
|
Assam
|
3.5
|
0.9
|
Delhi
|
1.2
|
4.9
|
Meghalaya
|
1.0
|
1.9
|
Sources: Planning Commission, CSO,
Orbis Economics Estimates
|
High growth and poverty
The correlation between poverty
and GDP growth is not quite so obvious if we look at numbers only for 2009-10.
Of the top 10 states and UTs with the lowest poverty rates, only half have
higher than India average GDP growth of 8.7 per cent. And even these five have
more UTs than states (see table), with Delhi being a special state. This then
suggests that high growth does not necessarily mean low poverty.
However, there is some case to
suggest that high poverty rates do go hand in hand with below average growth. If
we turn the data around and analyse the eight states with higher than average
India poverty rates – Bihar, Chhattisgarh, Manipur, Jharkhand, Assam, Uttar
Pradesh, Orissa and Madhya Pradesh, we find that only one of them – Orissa –
has growth equal to all India average, while the rest lie under that growth
rate.
While it is debatable whether we
should strictly consider the 8.7 per cent mark as the dividing line for GDP
growth when states like Bihar, Chhattisgarh and Madhya Pradesh have in fact
shown robust growth of over 8 per cent over the period, it does provide a
framework for analysis. In fact, it also goes on to providing further evidence that
even with high growth (higher or lower than India average not withstanding),
poverty does not magically disappear. Moreover, large state economies like
Maharashtra, Gujarat and Andhra Pradesh all have poverty rates in excess of
20%.
Poverty
and GDP across states in 2009-10
|
|||
Poverty
(%)
|
GDP
(%, yoy)
|
||
A&N Islands
|
0.4
|
12.1
|
|
Puducherry
|
1.2
|
10.7
|
|
Goa
|
8.7
|
8.6
|
|
Chandigarh
|
9.2
|
10.1
|
|
Jammu and Kashmir
|
9.4
|
5.8
|
|
Himachal Pradesh
|
9.5
|
8.3
|
|
Kerala
|
12.0
|
8.2
|
|
Sikkim
|
13.1
|
20.4
|
|
Delhi
|
14.2
|
11.5
|
|
Punjab
|
15.9
|
7.4
|
|
Meghalaya
|
17.1
|
7.9
|
|
Tamil Nadu
|
17.1
|
10.0
|
|
Tripura
|
17.4
|
8.0
|
|
Uttarakhand
|
18.0
|
15.4
|
|
Haryana
|
20.1
|
9.8
|
|
Nagaland
|
20.9
|
7.7
|
|
Andhra Pradesh
|
21.1
|
9.1
|
|
Mizoram
|
21.1
|
9.6
|
|
Gujarat
|
23.0
|
10.2
|
|
Karnataka
|
23.6
|
8.2
|
|
Maharashtra
|
24.5
|
9.9
|
|
Rajasthan
|
24.8
|
7.6
|
|
Arunachal Pradesh
|
25.9
|
8.6
|
|
West Bengal
|
26.7
|
6.9
|
|
India
|
29.8
|
8.7
|
|
Madhya Pradesh
|
36.7
|
8.3
|
|
Orissa
|
37.0
|
8.7
|
|
Uttar Pradesh
|
37.7
|
7.1
|
|
Assam
|
37.9
|
5.3
|
|
Jharkhand
|
39.1
|
5.3
|
|
Manipur
|
47.1
|
5.7
|
|
Chhattisgarh
|
48.7
|
8.3
|
|
Bihar
|
53.5
|
8.0
|
|
Sources:
Planning Commission, CSO, Orbis Economics Estimates
|
|||
Note:
Lakshadweeep, Dadra and Nagar Haveli and Daman and Diu are not part of the
analysis due to non-availability of data
|
|||
Conclusion
It does seem, therefore that while
a pickup in GDP growth can in fact reflect in sharper declines in poverty, high
growth by itself does not ensure that poverty will be low. On the other hand,
sluggish increases in growth in GDP are correlated with increases in poverty
rates. And slower than average growth rates are also seen in high poverty
rates. While robustness in GDP growth (both in change and absolute levels)
might be largely a necessary condition for improving poverty in India, they are
hardly sufficient.
A version of this story first appeared on IndiaSpend
A version of this story first appeared on IndiaSpend
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