Interrogating Inclusive Growth

Poverty and Inequality in India

K. P. Kannan

• Publisher: Routledge India
• Year: 2017
• Print ISBN: 9781138679528
• eBook ISBN: 9781317341475
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

The high growth performance of the Indian economy since the launch of economic reforms in the early 1990s has been much lauded. But how much of this growth has made its way to the poor?

In a radical assessment of 'inclusive growth', this book probes the impact of neo-liberal policies on employment, poverty and inequality. It critiques the claim that market-friendly economic reform policies 'trickle down' to the poor and reduce poverty and deprivation. The author uses exhaustive data — from the formal and informal sectors — to create a profile of the aam aadmi. He advocates the need for a broad-based growth and development strategy that alone will address the many-sided social and economic inequalities in India.

The volume will be useful to scholars and students of economics, development studies, labour studies, and sociology.

I

Introduction

Ever since the adoption of a neo-liberal economic policy reform in India in the early 1990s, the overriding concern has been on maximising aggregate economic growth. This of course is based on the assumption, as well as strident propaganda, that all other dimensions of economic development will then be taken care of or facilitated. In operational terms this was based on what is known as the ‘Washington Consensus’ that refers to a core set of policies advocated by the Bretton Woods Institutions of the World Bank and the International Monetary Fund. The actual experience of many developing countries¹ and discontent with this Washington Consensus (WC) from the early 1990s to 2000 gave way to what is later called the ‘Post-Washington Consensus’ that blamed many developing societies and governments for failure of the policies under the WC. It then added a few additional agendas that advocated a set of governance reforms and a few targeted poverty alleviation measures. Later, a debate on pro-poor growth emerged that questioned the ability of the neo-liberal economic reform policies for poverty reduction and redistribution. It is this impasse that later got converted into an agenda of inclusive growth advocated principally, if not only, by the World Bank (for a discussion of the emergence of the term ‘inclusive growth’, see Saad-Filho 2011). However, the overwhelming consensus among the reformed neo-liberals is in favour of a growth that would qualify for being called ‘inclusive growth’ if it leads to any reduction in absolute poverty even if that happens to be considerably lower than the rate of growth in average income in the economy. This idea of ‘inclusive growth’ without regard to the question of inequality that is being actively promoted in India has already undermined the earlier national agenda of economic development that goes beyond the restrictive notion of growth. However, the inequality-sensitive pro-poor growth argument continues to throw a powerful challenge to this notion of inclusive growth. If the rate of growth in income of the poor (or any other indicator for poverty reduction/well-being) is less than the overall rate of growth in income (or any other indicator of well-being), then it is a case of inequality-insensitive growth because it leads to an increase in inequality even in the presence of some reduction in poverty. If both rates are equal then it is inequality-neutral growth because it leaves the initial inequality untouched. If the rate of growth in income of the poor is greater than that of the non-poor then it is inequality-sensitive in the sense that it leads to a situation of reduced poverty as well as inequality. The last one is the challenge countries like India are facing. Equally powerful is the challenge thrown up by the argument that advocates inclusive growth firmly rooted in achieving full employment of a decent kind (For an elaboration, see Felipe 2010). Here employment is seen as a powerful instrument to reduce not only poverty but inequality as well depending on the impact of such employment on the condition of the working as well as the underemployed poor.

The shift in national economic policy regime in India in favour of an inclusive growth strategy — where any reduction in absolute poverty is considered inclusive — is nothing less than a paradigmatic shift from an earlier vision and perspective that was rooted in national economic development in which growth was indeed a prominent objective but not the overriding one. Although electoral political exigencies dictate the introduction of a few schemes and programmes targeted at the poor, the overall thrust is on maximising aggregate economic growth. Ignoring the historical experience of present-day developed countries as well as the fast transforming developing countries especially in Asia, maximisation of aggregate growth is being projected as a necessary condition for any kind of increase in pro-poor expenditure.

In this book we take stock of the experience of neo-liberal growth including its ‘inclusive growth’ version in terms of the incidence of poverty and vulnerability, employment creation and its content, the hesitant and piece-meal steps in introducing social security and last, but not least, in the situation of inequality. In this sense, the yardstick applied to inclusive growth is indeed the relative one with a specific focus on the nature of employment creation and social security to the vast mass of the working poor in India’s economy.

What follows is a brief introduction to the contents of the subsequent chapters.

India’s Common People and Their Poverty

In Chapter 2 we assess the impact of India’s high growth performance under the neo-liberal policy regime on the poverty status in this country. At the outset one should mention that there is a considerable body of work relating to the measurement of India’s poverty especially those based on the official poverty line. In fact, the official poverty line has almost led to a bivariate classification of the population into Below Poverty Line (BPL) and Above Poverty Line (APL) that has even gained currency in popular discourse on the subject. Notwithstanding such prolific writing on the subject, it is perhaps for the first time that the entire Indian population has been classified according to different thresholds of poverty by taking the official poverty line as a benchmark. While the estimate of poverty is found to be a low one when applying the official poverty line, a considerably higher estimate is found when one applies the international ‘extreme poverty’ definition of USD 1.25 PPP per capita per day (or 1.25 times the old poverty line as on 2005). What this means is the clustering of persons/households just above the official poverty line. By taking the international poverty line of USD 2 PPP per capita per day and characterising those above the USD 1.25 PPP as vulnerable, it was found that a little more than three-fourth of the Indian households/persons were either poor or vulnerable. This finding, first reported by the National Commission for Enterprises in the Unorganised Sector’s (NCEUS’s) Report on Conditions of Work and Promotion of Livelihoods in the Unorganized Sector (2008a), created a public furore at the state of poverty in a fast-growing India resulting in heated debates in and outside the Indian Parliament.

However, what was reported was only a tip of the iceberg of the continuing scenario of poverty and vulnerability. Therefore, an independent exercise was carried out, the results of which are presented in Chapter 2. The result of this exercise has, in my opinion, enormous consequences for public policy. First, the faith in the market mechanism to reduce poverty through the ‘trickling down’ process is valid only in the literal sense of ‘trickling down’ given the snail’s pace of poverty reduction. This is not something that is unknown in the literature. What is significant in this process is that the situation is not one characterised by being either poor (called BPL) or non-poor (called APL). It is a process whereby some of the ‘extremely poor’ becoming ‘poor’ and some of the ‘poor’ becoming ‘marginally poor’ and some of the ‘marginally poor’ becoming ‘vulnerable’ before they get out of a situation of poverty and vulnerability altogether. Second, there is a close correspondence between informal work status and poverty and vulnerability that in turn is closely associated with low levels of educational attainments. But the systematic and well-entrenched correspondence is with the social status group of the poor and vulnerable. What it shows is a systemic and hierarchical structure closely resembling the broad social status groups with those belonging to the Scheduled Castes and Tribes (SC/ST) at the bottom, followed by Muslims and Other Backward Classes and the residual called the ‘Others’ at the top.

As this introductory chapter was being drafted (August 2013), there has been a renewed debate on the estimation and the reported sharp decline in poverty in the country between 2004–5 and 2011–12 since the estimates for the latter year has now been published. It is, therefore, only pertinent that we place these findings in the larger context of this book. We may recall here that the Government of India constituted, in 2005, an expert committee under the chairmanship of Professor Suresh Tendulkar (henceforth, Tendulkar Committee [TC]) to revisit the poverty line. The Report of the TC led to a heightened public uproar as well as criticisms from the scholarly community. While the poverty line suggested by the TC was higher than the earlier one, the methodology was challenged on several counts. First, the 2004–5 urban poverty line was taken as the new poverty line and adjusted to the different states and rural/urban areas by taking implicit prices in the relevant State and area. Second, the observed calorie intake in the urban poverty line was found to be considerably lower than the one adopted earlier (1800 calories per capita per day for all as against 2100 calories and 2400 calories for rural and urban India respectively). Third, the claim that this poverty line satisfied the minimum educational and health requirements were also challenged.²

By applying this new poverty line, the incidence of poverty was 37.2 per cent (41.8 and 25.7 per cent for rural and urban areas respectively) in 2004–5. When the 66th Round (2009–10) of the NSS Consumer Expenditure Survey results were released, the incidence of poverty was found to be 29.8 per cent (33.8 and 20.9 per cent for rural and urban areas respectively). This was a complete surprise especially for those who believed in the mantra of the market and the ‘trickling down’ mechanism because the rate of reduction of poverty at a time when the growth rate of the Indian economy was the highest since the initiation of economic reforms in the early 1990s. It is widely believed that the official policy-makers did not want this result to be widely known and argued that 2009–10 was a severe drought year and another round of consumer expenditure survey (the 68th) was conducted two years later. The results showed a dramatic decline in poverty to 21.2 per cent (25.7 for rural and 13.7 per cent for urban) in 2011–12. However, the results only stoked further criticism of the exercise and the reported sharp decline in poverty on several counts.³

The Planning Commission, which releases the poverty estimates, has been faulted for releasing the numbers without waiting for the report of the Rangarajan Committee which was set up in response to the various criticisms levelled against the approach and methodology of the TC. Secondly, the specification of the poverty line as INR 33.33 per capita per day for urban areas and INR 27.20 for rural areas was criticised for being too low and even insulting to the poor at a time when the per capita income of Indians has been steadily on the increase. Some scholars have also criticised that the new poverty line of the TC continues to ignore the calorie norm of the earlier poverty line that, for example, leaves just ‘1400 calories per capita per day for a poor in Delhi after meeting his or her non-food requirements’ (Patnaik 2013). All these criticisms have deep political implications because the different states in India depend on the central government for allocation of subsidised food grains and other commodities based on the estimation of the poor. Therefore, the tension that has been generated has also been political especially since it comes at a time of heightened and uninterrupted economic growth for a period of well over a quarter century.

This continuing debate, as well as concern, regarding the estimation of poverty in India is intimately related to the theme of this book. The clustering of the poor is not along the poverty line but also just above it with the result that a modest increase in poverty line results in a significant increase in poverty by consumption expenditure as we have shown in Chapters 2 and 7. What this shows is that depicting the incidence of poverty in India with a ‘line’ is quite unrealistic since there are gradations of poor. In that sense, our estimation in terms of poverty bands gives a more realistic understanding of poverty. It also takes into account ‘the bad years’, such as the drought year of 2009–10 when there could be an increase in poverty just as in the ‘normal’ years there could be a clustering just above the poverty line. In a poor country with a majority of people living ‘at the edge’ the estimates of drought years should be seen as a test as to whether the system can take care of a weather-related vulnerability instead of conveniently rejecting such estimates, as the Planning Commission seems to have done in its latest press release on poverty (2013).

Poverty decline during 2004–5 and 2011–12 will have to reckon with two opposing trends. On the positive side, there has been acceleration in aggregate economic growth especially during the first four years, agricultural output as well as real wages of unskilled labourers. On the other hand, there has been practically no growth in employment during 2004–5 and 2009–10 (see, for example, Kannan and Raveendran 2012). Even if one drops the 2009–10 period and takes a longer period of 2004–5 to 2011–12, the growth in employment has been around three million per year as against a warranted increase of around nine million per year. Inflation, particularly for food and related wage goods, accelerated adding to the burden of those whom we call poor and vulnerable or the aam aadmi. It is in this context that one should note the findings of a latest piece of research by Himanshu and Sen (2013) that states:

We find that the poverty reducing impact of (these) food transfers has increased over time. Only 1.3 per cent of the population was lifted above poverty line as a result of such transfers in 1993–94, but this proportion increased to 2.6 per cent in 2004–5 and to 4.6 per cent in 2009–10. Further, although absolutely small, contribution of these to total poverty reduction is sizeable. For example, increased food transfers accounted for 32 per cent of reduction in the Tendulkar head-count ratio (HCR) between 2004–5 and 2009–10 and 52 per cent of reduction in the associated Squared Poverty Gap (SPG). While the number of people who would be poor without food transfers fell from 417 to 402 million, the number of poor after food transfers fell from 389 to 347 million, nearly thrice as much. The HCR and SPG in 2009–10 would have been 16 per cent and 45 per cent higher without in-kind food transfers, whose total fiscal cost was 1.2 per cent of GDP in that year.

What this latest finding underlines is the importance of public intervention for poverty reduction. Along with this provisioning of some food articles, mention should also be made of the impact of the National Rural Employment Guarantee Scheme (NREGS). Despite providing roughly half the maximum days of employment of 100 per household, the real income equivalent in 2010 has been around 10 per cent of the then poverty line expenditure (see Kannan and Jain 2013: 35). Then there are such other transfers as old age pension, supplementary food for pre-school children and pregnant/ lactating mothers. Some states, especially in the south, have many other pro-poor transfers and higher coverage ratios than other states. What these interventions bring out is the role of redistribution through public intervention in reducing absolute poverty rather than leaving it to the mantra of the market through its trickle down mechanism.

Some scholars have pointed to the calorie dimension of poverty arguing that this is a much more crucial problem than the expenditure norm. While acknowledging the need to reduce calorie deficiency, the Indian scenario also throws up very difficult questions about this dimension of poverty. By this standard, Bihar and Odisha would be the least poor and states like Kerala and Tamil Nadu would be some of the most poor. Consumption of food grains alone is not a sufficient condition for avoiding poverty. This brings out the need to examine the various outcome indicators, such as Chronic Energy Deficiency, Infant Mortality, Undernutrition among children, and so on. Education and health which are basic human capabilities will have to be seen in this perspective as instrumentalities for reducing poverty as transformative agents between inputs and desirable outcomes.

In this book we have emphasised the powerful association of poverty with education as an explanatory factor. We have also highlighted the ‘humiliating’ nature of some outcome indicators such as access to a private toilet facility in different states in the country. Our concern has been to analyse the gradations of poverty and its association with various dimensions of human development or lack of it. Two powerful associations are social identity and education in which the former continues to be a summary indicator of many historical deprivations especially at the bottom of the social hierarchy.

A Regional Socio-economic Profile

For a country that is truly subcontinental in its spread as well as population, national averages of poverty and vulnerability — not to speak of other indicators of human development or deprivation — need not necessarily represent the ‘average’ picture unless the gap between the well-performing and ill-performing regions is small. This is hardly the case in India. On the contrary, there is an increasing tendency for the gap between regions to widen. It is, therefore, important to look at the regional profile of the core problem of poverty and vulnerability. That is what has been reported in Chapter 3. The findings suggest a three-way classification by taking into account the gap between the best performing state and the least performing state. The fact that there were at least three states in 2005 at the top (which rose to five by 2010 as reported in Chapter 7) points to the possibility of reducing the problem of poverty and vulnerability in an otherwise depressing scenario amidst all the euphoria of a fast growing ‘Shining’ India. On the other hand, there were nine states at the bottom accounting for 47 per cent of the total poor and vulnerable that underlines the enormity of the challenge facing India today.

However, the real divide in performance is not across states but can be traced to the broad four social groups that have been adopted here. When the population belonging to the SC/ST categories are examined, none of the states qualified to come to the top level. Moreover, except four states, all the states occupied the bottom position as far as poverty and vulnerability among SC/ST groups were concerned. The message that it gives is that even those states who have managed to come to the top could not pull their SC/ST segment along with them although their condition is somewhat better than their counterparts in the poorly performing states. This, of course, is small consolation viewed from the lens of social inclusion. Such a result also brought to the fore the increasing inequality among the well performing states.

Education, of course, comes out as a powerful factor in levelli...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Abbreviations
• Tables
• Figures and Maps
• Preface
• Acknowledgements
• 1. Introduction
• 2. India’s Common People?: Who are They, How Many are They and How do They Live?
• 3. More on India’s Common People: A Regional Profile
• 4. Growth sans Employment: A Quarter Century of Jobless Growth in India’s Organised Manufacturing
• 5. Dualism, Informality and Social Inequality
• 6. The Long Road to Social Security
• 7. How Inclusive is Inclusive Growth in India?
• 8. Low Participation and High Informalisation: Is this a ‘Virtous Circle’ in the Growth–Employment Interaction?
• Notes
• Appendix
• Bibliography
• About the Author
• Index