Growth versus entitlement: Poverty data give verdict

Odisha, Bihar & Rajasthan, which have grown at impressive rates between 2004-05 and 2011-12, have done well to reduce poverty

The numbers may seem unrealistic, but the broad indication is loud and clear: Among all available remedies, growth seems to be the most effective against poverty at the moment.

According to the recently-released data on poverty, Odisha, Bihar and Rajasthan have done well when it comes to reducing poverty in the last seven years. During this period, these states also grew at impressive rates. Among the less developed states, Jharkhand and Uttar Pradesh failed to see substantial improvement on the poverty front because of their below-par growth performance. The case of Chhattisgarh is unique in that it registered good economic growth and had a decent entitlement programme in place but the state did not do well in its fight against poverty. It is likely Jharkhand and Chhattisgarh suffered because of the Naxalism issue.

According to the data released by the Planning Commission, Odisha recorded the sharpest decline in poverty levels between 2004-05 and 2011-12, followed by Bihar and Rajasthan. These states performed exceptionally well in reducing rural poverty. The reduction in rural poverty was by 25.1 percentage points in Odisha, 21.6 percentage points in Bihar and 19.75 percentage points in Rajasthan. Jharkhand, on the other hand, could reduce poverty levels by a mere 8.34 percentage points, Chhattisgarh by 9.47 percentage points and Uttar Pradesh by 11.6 percentage points, against the national average of 15.3 percentage points during this period.

What is the correlation between growth and poverty levels? It is quite visible in the case of Bihar. The Nitish Kumar-led state recorded the highest average growth of 11.42 per cent between 2004-05 and 2011-12 and also one of the sharpest falls in poverty levels. What worked in Bihar’s favour was good agriculture growth of 15.17 per cent during this period. What helped Odisha’s fight against poverty was its impressive growth of 9.04 per cent.

“While Odisha benefited from mining activities, Bihar and Odisha have been major beneficiaries of migrant workers sending money back home,” says V Upadhyay, professor of economics at the Indian Institute of Technology-Delhi. “The significant fall may also be attributed to the fact that there are a lot of people just marginally below the poverty level. An additional income of a few rupees can change their status.”

However, Anirban Kar of the Delhi School of Economics doesn’t quite agree with the direct growth-poverty correlation. “Globally speaking, there is not much empirical support in favour of the growth–poverty reduction thesis. There are as many success stories as there are failures. In India, so far, the growth-poverty reduction connection has remained pretty weak. Before 2005, poverty reductions in fast-growing states such as Gujarat and Maharashtra were not significantly more than in the so-called Bimarou (Bihar, Madhya Pradesh, Rajasthan, Odisha and Uttar Pradesh) states. The same can be said about the relation between growth and employment growth.”

Executive director of the Centre for Budget and Governance Accountability, Subrat Das, agrees. “Growth is not the only factor when it comes to poverty reduction. There are factors such as government spending on social sector and key economic areas such as rural development and agriculture that play a role in reducing levels of poverty.”

Rajasthan benefited from growth rates of 7.36 per cent between 1994-95 and 2000-2001 and 6.75 per cent between 2004-05 and 2011-12. The desert state reaped the benefits of way-above-the-average performance on the agriculture front. The state’s agriculture and allied sector grew 7.34 per cent from 1996-97 to 2004-05 and 6.42 per cent from 2005-06 to 2011-12. That is why the state’s poverty level is on par with those of more developed states. Observers also say Rajasthan was the first less-developed state to augment government spending in the social sector; its per capita government spending on the social sector is quite high. The process began in 2001 and the reduced poverty level is a result of that.

Jharkhand’s cause suffered a great deal because of lacklustre growth. The state recorded meagre gross state domestic product (GSDP) growth of 6.34 per cent from 2004-05 to 2011-12, much below the national average of 8.28 per cent. Uttar Pradesh, with growth of 6.81 per cent, also fared worse than the national average. That is the reason why poverty levels in these states fell much slower than the national average. Observers say Jharkhand may have suffered because of Naxal activities that may have kept the government away from many areas, depriving these regions of the benefits of a number of central and state welfare programmes.

What is most surprising is the performance of Chhattisgarh. The state registered above-average GSDP growth of 8.69 per cent and robust 7.27 per cent growth in agriculture and allied sectors from 2005-06 to 2011-12. It also has a much talked about public distribution system in place. Yet, the about 40 per cent of its people are below the poverty line, almost double the national average. The state already has food security legislation in place, which covers about 90 per cent of the population. “While Chhattisgarh has not done well despite a relatively better working PDS (public distribution system), Tamil Nadu and Kerala would be examples of low poverty-good public service states,” Kar says. Economists feel in the case of Chhattisgarh, growth numbers tend to be misleading, as there are only a few growth centres and nothing much has changed in most other areas. This explains the depressing poverty levels, despite the seemingly good macro numbers.

Does this introduce a new twist to the growth-versus-entitlement debate? Does this data afford us an opportunity to look at the food entitlement legislation in new light? Politicians may choose to ignore the data in the form it is presented here, but following the release of the data on poverty, the ongoing debate between two noted economists, Amartya Sen and Jagdish Bhagwati, may become livelier in the days to come.