Economic growth is a moral obligation to the poor

Importance of economic growth in eliminating poverty:

  • According to research by some economists, 1% increase in GDP per capita reduces poverty by 0.78%, that is potentially lift about 3 million Indians out of poverty.
  • A near 10% growth in GDP per capita over the current levels can help eliminate extreme poverty in a decade.
  • This shows that boosting the rate of economic growth is the most important and urgent need in India.

Examples of east Asian countries reducing poverty through high growth:

  • A sustained period of high economic growth brought millions of Asians out of poverty in South Korea, Taiwan, and most notably China.
  • Thanks to the liberalization of the Chinese economy and its integration into global trade, China lifted over 800 million out of poverty.

 

Great amount of poverty till 1991:

  • After two centuries of colonial oppression and half a century of failed socialist policies, hundreds of millions of Indians were consigned to dire poverty.

Growth after 1991 reforms led to poverty reduction:

  • This started changing with the economic reforms (LPG reforms) initiated in 1991.
  • Since those reforms, a higher rate of GDP growth sustained over the years has lifted over 170 million Indians out of poverty.

But much poverty yet left in India: 

  • Extreme poverty: About 75 million Indians still live below the $1.90-a-day threshold in what is termed extreme poverty by the World Bank.
  • Poor and vulnerable: Using a different figure by the World Bank of $3.20 a day for “lower middle income” countries like India, about one-third of all Indians (450 million) are poor and vulnerable to economic stress that could push them back into extreme poverty.

 

Growth is also important for social welfare:

  • According to the Handbook Of Statistics On Indian Economy 2016-17, since the 1991 reforms, the Union government’s revenue has increased 25 times while the state government revenues have increased 28 times in nominal terms (and about 4 times in real terms).
  • High economic growth led to his increase in revenue which has enabled a huge increase in the expenditure of the governments on social welfare programmes and cash transfers.
  • This has helped reduce the vulnerability of the poor, especially in the agrarian and informal sectors.

 

But economic grwoth is ignored in most political conversation:

  • Boosting economic growth is thus not just a policy imperative, it is a moral obligation.
  • Unfortunately, policies raising the growth rate are rarely appear in the country’s current political dialogue, which is mostly focused on populism and pandering to interest groups.
  • Most candidates for the 2019 elections have not even bothered to bring up the need economic progress.

 

Sustained growth needed to enlarge middle class:

  • Economic growth, while dramatically reducing extreme poverty in India in the recent years, has not pushed them into the safety of the middle class.
  • India’s harsh regulatory environment creates an enormous informal sector, leaving those lifted out of extreme poverty trapped in that sector highly vulnerable to economic stress.

Need labour and industrial regulatory reforms:

  • To elevate the vulnerable into the middle class, there is a need for long and sustained period of rapid economic growth, coupled with a reforming the labour and manufacturing regulatory system.
  • Reforming India’s myriad labour and industrial regulations might boost the pace of the economy’s growth while also bringing the informal sector out of the shadows.

 

Conclusion – India is on right path but has a long way to go

  • While India is the fastest growing large economy, it is today only as large as the Chinese economy was back in 2002.
  • And from 2002 until its recent slowdown, China managed to consistently grow at over 8% a year, even passing the magical 10% figure for many years.
  • So, India has a long way to go.
  • For this, the most important thing is for political class and people to understand and talk about the importance of reforms towards economic growth for poverty reduction and welfare.

 

Importance:

GS Paper III: Economy

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