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October 22, 2012

The Effects of Growth in India on Its Most Impoverished People

India's economy has grown at a breakneck pace, but some observers wonder whether the country’s neediest citizens are being left behind.

Rebecca McReynolds

It’s common belief that India’s breakneck growth has left its poorest citizens behind. From 2001 through 2011, GDP expanded by 8.1 percent annually — an impressive rate by any measure over a sustained period. But the World Bank and other leading globe watchers worried that the benefits of growth weren’t reaching the country’s neediest people. “Given the recent record, it is simply not the case that continued rapid economic growth will automatically translate to commensurate improvements on human development outcomes,” concluded the World Bank’s 2011 Perspectives on Poverty in India.

But in fact, the opposite is true, says Megha Mukim, formerly with the London School of Economics and now an economist with the World Bank. Mukim and Arvind Panagariya, a Chazen Senior Scholar, studied poverty rates across all of India’s social and economic strata. Their paper, “Growth, Openness and the Socially Disadvantaged,” shows that not only have these groups benefitted from liberalized trade policies but that rising incomes among these groups are helping to narrow India’s economic gaps.

The Rising Tide

Mukim and Panagariya studied 20 years’ worth of data from India’s Census Commission and the National Sample Survey office, looking at data for “Scheduled Castes” and “Scheduled Tribes.” Scheduled Castes, as defined by the Indian constitution, were once more commonly known as untouchables within the Hindu religion. Scheduled Tribes refers to India’s indigenous groups, many of whom are still living in remote outposts following their traditional lifestyles. These groups are recognized by the government as especially disadvantaged because of their history and are entitled to certain rights and preferential treatment.

The researchers compared the poverty rates for these two groups with rates for the general population. Over the two decades studied, there was a 20 percent decline in the poverty rate among Scheduled Castes, and an 18 percent reduction in poverty among Scheduled Tribes. That's nearly identical to the average drop for the rest of the country.

That doesn’t mean these groups don’t continue to face profound challenges: the medium income in rural India is around $1.30 a day. Still, these results counter any claims that India’s accelerated growth since the early 1980s has failed to help the people most in need, Mukim says.

“We are not denying that these are still the poorest groups and that they remain disadvantaged,”she says. “But if you look at what is happening over time, they are, in many cases, doing better in terms of the decline in poverty over time.”

Liberalized Trade and Declining Poverty

That’s an important distinction, she says, because it directly impacts the ongoing debate over India’s trade policies. Much of the conversation is being driven by the persistent perception that even if openness is benefiting the population overall, it has been detrimental to those groups who are already disadvantaged, Mukim says.

Again, her research dispels that theory. When she and Panagariya broke their data down by region, they found that states with fewer import restrictions posted greater reductions in the poverty rate across all groups.

Growing the Pie

This research joins a growing body of evidence that the best, fastest, and most effective way to help disadvantaged groups pull themselves out of poverty is by expanding economic opportunity for all, Mukim adds.“Is growth an aim in itself or is it a means to something else?” she asks.

If one of the goals of economic growth is to fund critical human infrastructure, such as education and health care, then the focus should be on growing the whole pie, she says. Of course, progressive economic development also requires good government and smart policy decisions. “Our point is that, at least in a country like India, we need to be interested not only in seeing how the total pie is distributed, but also how quickly that pie is growing,” she says.

“That’s not to say that we can’t be doing better,” Mukim adds. “But this research should change the way the debate is being framed.”

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