POVERTY ALLEVIATION -- AN ESSAY
POVERTY ALLEVIATION -
Last week, the World Bank
released its latest report on global poverty. It
stated that "economic upheavals brought on by Covid-19 and later the war
in Ukraine" had produced "an outright reversal" in poverty
reduction across the planet. The pace of poverty reduction had been slowing
down anyway since 2015, thanks to a slowdown in growth rates but the pandemic
and war have caused an outright reversal. So much so that the "world is
unlikely to meet the goal of ending extreme poverty by 2030".
What is extreme poverty? How is it defined?
The World Bank (WB)
defines extreme poverty by particular consumption level. This is called the
poverty line and it is pegged at US$2.15. In other words, anyone living on less
than $2.15 a day is considered to be living in extreme poverty. About 648
million people globally were in this situation in 2019.
But if you did a mental
calculation - multiplying 2.15 by the rupee's current market exchange rate with
the US dollar (around 82) - and arrived at Rs 176 a day as the Indian
equivalent of the international poverty line, you'd be wrong.
That's because this $2.15
level is based on purchasing power parity (PPP). Simply put, the PPP equivalent
of $2.15 is the number of Indian rupees an Indian would need to buy the same
basket of goods in India that an American can buy with $2.15 in the US. That
equivalent in India is Rs 46, not Rs 176. This difference happens because the
price of the same goods is different in different countries and it is quite
likely that a dollar in India buys far more of the same commodity (say, an egg
or banana) or service (say, a haircut) that it buys in the US.
So, the international
poverty line of $2.15 implies that any Indian who spends less than Rs 46 a day
- in total - is considered to be living in extreme poverty. Try to recall the
last time when your daily expenditure was that low and you'd understand why
this is called the poverty line for abject or extreme poverty.
This international poverty
line is revised periodically to account for rising prices of goods and services
over time. The very first international poverty line - a dollar a day - was
constructed in 1990 using the 1985 prices. It was then raised to $1.08 a day in
1993, $1.25 a day in 2005 and $1.90 a day in 2011. The $2.15 one is based on
2017 prices.
What has the World Bank stated about India's
poverty levels?
According to the WB, India
is the country with the highest number of poor people (see CHART 1).
What's worse, when the
World Bank used the data from the Centre for Monitoring Indian Economy (CMIE),
it found that the number of people living in abject poverty increased by 56
million (5.6 crore) in 2020. That's almost 80% of the total 70 million the
world over that the World Bank estimates to have been pushed into poverty in
2020. In other words, according to this estimate, 8 out of every 10 people in
the world who were pushed into poverty during Covid were in India.
India's problem, however,
isn't just that it has the largest number of people in the world living below
the extreme poverty line. According to the Bank, close to 600 million Indians
survive at less than $3.65 (Rs 84) a day level of expenditure.
Now many may simply wish
to deny or dispute these figures, partly because they use CMIE data. But the
only reason why the World Bank was forced to use data from CMIE is that there
are no official estimates of poverty available since 2011. "The government
decided not to release the 2017/18 NSS round because of concerns about data
quality," it states.
Moreover, estimates of
absolute levels of poverty in India, albeit unofficial, had been going up even
before Covid and the war in Ukraine further impoverished Indians. Watch this episode
of The Express Economist with Prof. Santosh Mehrotra of the University of Bath
(UK) on what has been happening to poverty in India since 2011.
Who can India learn from?
Over the past week, there
has been some acknowledgement, albeit in the RSS, that India faces three rather
acute and growing problems: Widespread unemployment, widening inequalities and
deepening poverty.
And here's the genuinely
salient point: None of these will be resolved by electoral victories. They
require actual policy solutions. Without the right policies, India's
demographic dividend is looking more like a demographic bomb.
But there is one country —
China — which is not only comparable to India in terms of the population size
but is also globally recognised to have alleviated poverty at historically
unprecedented speed and scale.
Perhaps, understanding
what China did may provide some clues to Indian policymakers.
What did China achieve?
Intending to provide
lessons to other developing countries, the World Bank and China's Ministry of
Finance undertook a study in 2019 to understand what China achieved and how it
did it. This study was finally published earlier this year.
The World Bank found that
between 1978 and 2019, China's poverty headcount dropped from 770 million to
5.5 million people. In other words, China lifted 765 million (76.5 crore)
people from extreme poverty in the past four decades (see CHART 2).
It means, on average,
every year China pulled 19 million (1.9 crore) poor people out of extreme
poverty for the past 40 years. In doing so, China accounted for almost 75 per
cent of the global reduction in the number of people living in extreme poverty
during this period.
In 2021, China declared
that it has eradicated extreme poverty according to the national poverty
threshold, lifting 765 million people out of poverty since 1978, and that it
has built a "moderately prosperous society in all respects."
Decades of progress in
China are also reflected in substantial improvements in other measures of
well-being.
Life expectancy at birth
went from 66 years in 1978 to 77 years by 2019, and the infant mortality rate
dropped from 52 in 1978 to 6.8 per thousand infants in 2019.
Education achievements in
China were also relatively higher than in its peers before 1978 and progressed
further since, as the country universalised basic and secondary education.
Taken together,
improvements in health, education, and income over the four decades are
reflected in China's rising position in the Human Development Index from 106
(out of 144 countries) in 1990 to 85 (out of 189 countries) in 2019, and the
narrowing of the gaps with other large developing countries.
How did China do it?
The main conclusion is
that China's poverty reduction success relied mainly on two pillars.
1. The first pillar was
rapid economic growth, supported by broad-based economic transformation, which
provided new economic opportunities for the poor and raised average incomes
(see CHART 3).
The report states that
China's poverty reduction story is primarily a growth story. But rapid and
sustained economic growth was accompanied by a broad-based economic
transformation. In other words, reforms began in the agricultural sector, where
poor people could benefit directly from improvements in productivity associated
with the introduction of market incentives.
"The development of
low-skilled, labor-intensive industries provided a source of employment for
workers released from agriculture. Urbanization helped migrants take advantage
of the new opportunities in the cities, and migrant transfers boosted incomes
of their relatives remaining in the villages. Public investment in
infrastructure improved living conditions in rural areas but also connected
them with urban and export markets," states the report (see CHART 4).
A crucial point to note
here from India's perspective is that reforms were gradual. Reforms in all
these areas were incremental, which may have helped businesses and the
population adjust to the rapid pace of change. "The gradualism adopted by
China in reforming the economy (associated with Deng Xiaoping saying 'Crossing
the river by feeling the stones') was reflected in the incremental approach
toward the liberalization of agricultural and industrial product markets, the
managed approach toward migration and urbanization, and a much larger role for
the state in ownership of key assets and the allocation of resources than in
other market economies," finds the World Bank.
2. The second pillar was
government policies to alleviate persistent poverty, which initially targeted
areas disadvantaged by geography and a lack of economic opportunities, but
subsequently focused on poor households, irrespective of their location.
"Broad economic
reforms were complemented by strategies, policies, and programs directly
targeted at poverty alleviation. China's poverty alleviation strategy can be
characterized as 'development oriented,' implying a focus on creating economic
opportunities as a means to escape poverty. It evolved from an area-based
approach, targeting poor counties and villages as a whole, to a set of
interventions targeted at poor households," states the report.
A component of these
policies were social protection policies for poor households and they included
specific programs in social assistance, social insurance, social welfare, and
other targeted social policies
Two other factors mattered heavily.
3. "China's success
benefited from effective governance, which was key to the successful
implementation of the growth strategy as well as the evolving set of targeted
poverty reduction policies," states the World Bank. This meant that the
institutional arrangements China developed to deliver outcomes were shaped by its
specific context.
For instance, China's size
necessitated decentralised implementation arrangements, with significant scope
for local experimentation, and a high degree of competition among local
governments. Of course, to achieve coherence, local experimentation was subject
to strong monitoring and accountability between levels of government.
4. China also benefited
from some favourable initial conditions at the time of opening up, such as a
relatively high level of human capital, which is widely recognised as a
critical input for the population to rapidly benefit from new economic
opportunities once market reforms set in.
The World Bank finds that
for a country with a level of per capita income among the lowest in the world,
China's population in 1978 had relatively high human capital endowments. In
1949, only 7 percent of those ages 15-64 had completed primary school in China.
"Massive investment
in education and expansion of health care since the 1950s resulted in real
achievements: in 1978, the infant mortality rate was 52 per 1,000 births, less
than half of the average in China's income group; life expectancy at birth at
66 years far exceeded that of other developing countries; the primary school enrolment
rate was 96 per cent; and the secondary school enrollment rate was 49.9 per
cent," it states.
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