Study links faster poverty rate decline to high economic growth

Study links faster poverty rate decline to high economic growth
Comment E-mail Print Share
First Published: Tue, Aug 19 2008. 12 33 AM IST

Focus on inclusiveness: Planning Commission deputy chairman Montek Singh Ahluwalia. (Photograph: Ramesh Pathania / Mint)
Focus on inclusiveness: Planning Commission deputy chairman Montek Singh Ahluwalia. (Photograph: Ramesh Pathania / Mint)
Updated: Tue, Aug 19 2008. 12 33 AM IST
New Delhi: An expanding economy and robust agriculture spurred the country’s poverty rate to decline in one year—between 2005 and 2006—at twice the pace it did on average in the previous 11 years, says a Planning Commission study that is yet to be made public.
The rate, or the percentage of population that is below the official poverty line, fell by 1.6% between fiscal 2005 and 2006, according to the study conducted by K.L. Datta, adviser, perspective planning division at the Planning Commission. The annual average decline was 0.8% between fiscal 1994 and fiscal 2005.
Focus on inclusiveness: Planning Commission deputy chairman Montek Singh Ahluwalia. (Photograph: Ramesh Pathania / Mint)
Experts say it could be more than a statistical blip, linking the quickening of the decline in the poverty rate to the trickle-down effect of economic expansion, especially the farm sector growing at 5% and more for three years in a row.
“I feel the elasticity of decline in poverty to income growth would be higher in a situation where agricultural growth has been high and food prices stable, although 1.6% rise in one year seems a bit high,” says R.S. Srivastava, professor of economics at the New Delhi-based Jawaharlal Nehru University. “At the same time, it won’t be wrong to predict a decline in poverty ratio of 1-1.2% for 2006-07, and to some extent also for 2007-08 because of these factors.”
The poverty level in the country averaged 36% in 1993-94, then dropped to 27.5% in 2004-05, according to official figures. In 2005-06, the figure slid to 25.9%, says the study. According to official figures, an individual is below the poverty line if his/her income is less than Rs356.30 a month in the villages and Rs538.60 a month in the cities.
The report credited the rapid decline in poverty in 2005-06 to high economic growth. “Economic growth rate in 2005-06 has been 9.4%, and this is the first time in the history of independent India that the growth rate was 9%-plus on the back of a high growth rate of 8% per year in the previous two years,” says the report, titled An Estimate of Poverty Reduction between 2004-05 and 2005-06.
The economy expanded 9.6% and 9%, respectively, in the following two years, but is set to slow this year in the face of inflation that is at a 16-year high and rising interest rates.
High growth in agriculture in 2005-06—of 5.9%—on top of average growth of 5% in the previous two years, played a significant role in poverty reduction, the study says.
The report estimated the poverty ratio for 2005-06 by updating the state-specific poverty lines in 2004-05 and taking inflation during the year as a variable. Specially constructed price indices were also used, according to the report. While the study used the consumer price index of agricultural labourers for rural areas to arrive at poverty figures, for urban areas, it used the consumer price index for industrial workers.
Poverty figures are based on surveys carried out by the National Sample Survey Organisation and released by the Planning Commission. Since the exercise of conducting surveys and compiling data is huge, poverty data are not released every year but once in five years.
The Planning Commission poverty data for 2005-06 could come in handy for the ruling United Progressive Alliance to demonstrate that it has made a dent in poverty. The Congress-led coalition came to power in 2004.
“Even if we keep this report aside, poverty rates should come down with inclusiveness as the main focus of the 11th Plan,” says Montek Singh Ahluwalia, deputy chairman of the Planning Commission. “Poverty alleviation is one of the major components of 27 national targets and 13 state targets set by the Planning Commission for the Plan. We should also ensure that quality and essential services are made available to the poor.”
Comment E-mail Print Share
First Published: Tue, Aug 19 2008. 12 33 AM IST