McKinsey study says at least 680 mn Indians lack access to basic amenities

Says next govt should target poverty, better delivery of services can enable turnaround

A report by McKinsey Global Institute points to daunting challenges for India’s next government, as it suggests the spending of Rs 3.3 lakh crore over the next 10 years to empower 680 million Indians who are only marginally better than those under the poverty line.  

With the government’s spending on various development schemes not effectively reaching much of the public, the study suggests a rise in expenditure on the social sector by 91 per cent, to Rs 10.8 lakh crore by 2022. Currently, it says, only 36 per cent of public spending on health reaches the public, as does 52 per cent of that on the national rural job guarantee scheme (MGNREGS) and 64 per cent of the spending on food.  

The report, published on Wednesday, presents a grim picture of the country. It says at least 680 million continue to lack the means to meet essential needs, including food, health and sanitation, housing and education. The study was conducted across all 640 districts and measured the availability of social services.

Uttar Pradesh and parts of Bihar have emerged as the most deprived states. The coastal belts of Karnataka and Kerala and the hilly terrains of Jammu & Kashmir, Uttarakhand and Himachal Pradesh rank among the least deprived. The ‘BIMARU’ states — undivided Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh — continue to be extremely deprived.   

“There are leakages in the system and we need to ensure the programmes reach the people. Various measures, such as accelerating job creation, are some of the ways to improve social welfare,” said Shirish Sankhe, Director at McKinsey.

“India needs reforms that unlock the economy’s potential to add 115 million non-farm jobs by 2022. Increasing investment in agriculture infrastructure can help improve average year farm yield per hectare from 2.3 tonnes to four tonnes in 2022. Public spending on social services needs to double from Rs 5.7 lakh crore to 10.8 lakh crore by 2022 to fill critical gaps in social infrastructure, which will entail an annual real growth rate of 6.7 per cent in public spending for basic services,” the study said.

It says the share of social spending on health, water and sanitation services need to increase drastically from 21 per cent in 2012 to 50 per cent by 2022. Public spending on health care now accounts for 15 per cent, while the government spends 42 per cent on education. The study has suggested the spending on health care be raised to 40 per cent, while spending on education be brought down to 23 per cent of the total by 2022. The study pegs the empowerment income for Indians at Rs 1,336 per capita monthly.

While the stress has been on creating additional jobs, the study has also said the manufacturing sector needs to be ramped up, as it fares poorly in comparison with other developing economies. India’s manufacturing sector currently has less than 11 per cent of firms employing more than 200 people; in China, 52 per cent of companies employ more than 200 employees each.

“The path of inclusive reforms could potentially allow India to achieve an average (annual) GDP (gross domestic product) growth of 7.8 per cent between 2012 and 2022. This could lift 580 million people above the empowerment line, leaving 100 mn or seven per cent of the population below the empowerment line by 2022 and 17 million or one per cent below the official poverty line, virtually eliminating extreme poverty in just a decade,” it says.

India has a lack of infrastructure, including power and logistics. The report has said the gaps in power and transportation need to be reviewed and state governments can play a crucial role. It says China's poverty declined 94 per cent between 1981 and 2010, when its economic rise unfolded.