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Stairway to prosperity

India’s record of reducing poverty pales in comparison to China, Brazil and Mexico. It needs to build social infrastructure capable of providing quality education, health, and nutrition to buck the trend.

Written by Subir Gokarn , Rohan Sandhu | Published: September 22, 2017 12:15 am
india poverty, india poverty alleviation, poor in india, india poor, india economic growth, india news, indian express news In the popular children’s game Snakes and Ladders (now called Chutes and Ladders), rapid upward mobility is matched by equally rapid descent. This is an apt metaphor for the resistance of poverty to rapid growth.

The World Bank’s Atlas of Sustainable Development Goals paints a striking image of India’s poverty reduction record in the past 25 or so years. India extricated 120 million people from extreme poverty between 1990 and 2013. However, this process was relatively slow. Over the same period, China reduced the number of people living in extreme poverty from 756 million to 25 million.

If we factor in economic growth, between 1995 and 2012, the growth elasticity of poverty reduction for India is just over 0.12. By contrast, countries such as Brazil, Mexico, Ecuador, and Thailand — that witnessed relatively low economic growth rates — emerge as positive outliers, exhibiting higher growth elasticities of poverty reduction than many high-growth countries, including India. While the growth elasticity of poverty reduction for China is a little over 0.28, the numbers for Mexico and Brazil are 3.28 and 1.14 respectively.

In the popular children’s game Snakes and Ladders (now called Chutes and Ladders), rapid upward mobility is matched by equally rapid descent. This is an apt metaphor for the resistance of poverty to rapid growth. Growth — the ladders — is an uncertain process for many individuals; benefits are elusive and, if attained, always at risk. Therefore, an essential element in any enduring poverty alleviation strategy is the prevention of large declines in household incomes that are caused by a variety of shocks — in effect, blocking off the chutes.

In each of the positive outliers mentioned above, state-sponsored anti-poverty and social protection schemes have played a significant role in reducing poverty. The World Bank’s Francisco Ferreira estimates that in the absence of redistributive transfers, the headcount index in Brazil would have been higher by approximately five percentage points in 2004. Research — most notably by Martin Ravallion — also contrasts Brazil’s experience with that of India, where rising inequalities have been found to dilute any impact growth had on poverty reduction. Studying poverty reduction in Kazakhstan, Kudebayeva and Barrientos (2017) find that growth was responsible for about four-fifths of the poverty reduction between 2000 and 2009. But, when the “poverty gap”, which takes into account the distance of households from the poverty line, is considered, the contribution of redistributive social assistance measures increases to nearly one-third of the reduction in poverty.

Conditional Cash Transfers (CCTs) have been proposed as an effective instrument in this situation. An added attraction of such schemes is that, beyond the immediate safety net objective, they could also serve longer term objectives through behavioural changes in households. Explaining the channels through which CCTs can reduce poverty, Ferreira and Robalini (2010) explain: “The objective is to alleviate current poverty while simultaneously seeking to break the inter-generational transmission of poverty by encouraging investment in the human capital of poor children.”

But do the desired behavioural changes actually take place? In Declining Inequality in Latin America, editors Lopez-Calva and Lustig conclude that while education attainment among the poor has increased, the redistributive momentum is at risk of being lost due to persistent divergences in the access to quality education: “The poor and middle ranges of the distribution receive an education of significantly lower quality than the top 10 per cent, members of which usually attend better-quality private schools.” Research from Brazil similarly estimates the failure to advance is higher by four percentage points for CCT-covered children than others.

india poverty, india poverty alleviation, poor in india, india poor, india economic growth, india news, indian express news C R Sasikumar

Even for health outcomes, research finds that the Brazilian CCT Bolsa Familia has failed to increase child immunisation rates, and has had no impact on health indicators of children between 12 and 36 months. Similarly, the impact of Mexico’s Oportunidades on health outcomes has been inconsistent, owing to variations in the quality of health infrastructure, scarcity of medicine, low level of care, and discourteous treatment by health professionals.

The lesson that emerges is the ability of cash transfers to serve as both “ladders” and for blocking off “chutes” depends on how education and health outcomes for the poor change, which in turn is predicated not just on the behavioural changes the transfers induce, but also on the quality of social infrastructure. Cash transfers are able to act as effective ladders and reduce long-term poverty only as long as they are supported by a social infrastructure that facilitates an improvement in outcomes. As Fiszbein and Schady (2008) write: “Policy makers and program managers for CCTs in Latin America, the region where such programs have the longest tradition and the most established status, increasingly are casting CCTs as part of a broader system of social protection.”

India’s strategy to address both persistent and recurring poverty among households would be well served by addressing both the ladders and the chutes dimensions of the problem. India’s latest Economic Survey has mooted a Universal Basic Income as a “safety net against health, income and other shocks.” The UBI has been hotly debated on both feasibility and desirability considerations. However, drawing on the discussion above, at a conceptual level, it focusses squarely on the “chutes” aspect of the poverty problem.

The Survey makes clear that the primary function of the UBI is to block the chutes that threaten to subsume the poor. While blocking the chutes smoothens the consumption curve temporarily, even the most ambitious cash transfers will fail to reduce poverty permanently, unless they are complemented by a well-functioning social infrastructure that is able to provide quality education, health, and nutrition, across the board.

To maximise the bang for the buck, an effective poverty strategy should pay attention to the short-term safety-net aspects of any transfer-based programme, the medium-term behavioural effects, and perhaps most critically, the longer-term changes in outcomes.

The aim therefore should be to minimise the chutes and maximise the ladders — for this, access to the right mix of social services is critical.

Gokarn is executive director, IMF, and Sandhu is senior engagement manager, International Innovation Corps, University of Chicago

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  1. N
    no money
    Sep 23, 2017 at 10:43 pm
    millions indians hungry, no roof, no vehicle, no money. govt busy with grab public money, via demonetization, GST, gigantik taxing on home owners, petrol users, even basic foods, clothes, shoes, everything is bwing taxed. then moving public money to all frirnds goras, chini, japani friends.
    1. N
      Sep 23, 2017 at 9:38 pm
      It is all down to caste practices whereby by millions of intelligent, high acumen, even geniuses are being held down because they were born in the wrong caste. When you hold down over half the population with these outdated practices you hold down the advancement of the Indian economy and the eradication of poverty.
      1. Employ Ment
        Sep 23, 2017 at 7:26 pm
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        1. Raman Govindan
          Sep 23, 2017 at 1:42 pm
          we hate rich people and call them all names. if they were connected to a political party or a leader, media and opposition parties work overtime to connect them with corruption and influence pedaling if it s a standard official investigation, it is ok. but the media makes it colossal and headlines, prime time blares it, day in day out,. I remember the earlier years around 1950-60s , when Goenka and Dalmias were singled out in the then Madras Province and harassed for investing in Madras province. . there was no appreciation from the political leaders and parties for them, for their decision to invest in a province away from their native state. one of the Goenkas contested the election too in Chennai but lost. I admired their spirit then and now! they are the salt of earth. we need richer people to invest in business and industry and take risk and profit or lose. without it we cannot increase our economy. when economy is is not good, we cannot lift people out of poverty.
          1. Pradeep Chaturvedi
            Sep 23, 2017 at 1:39 pm
            33 EXTREME POOR IN 1993 and 13 extreme poor in 2013. Does not it tell all poverty has been reduced significantly. Statisticians do lie for their FAT pay packets. Highly educated do business in poverty. Many vested interests want India to be poor so that they can STEAL money from World Bank IMF ADB . Late famous film star Vinod Khanna said in 1996 that there is no poverty in India . Most of the poor have 12 kids many wives are drunk in the mornings have low self-esteem. India was never poor except for few JNU arm-chair intellectuals
            1. S
              Sep 23, 2017 at 7:04 pm
              Then why are a huge proportion of children malnourished? Why do people live in substandard n Unhygienic surroundings (by choice?) Why do elderly strive to work in spite of bad health? Why do people die to Malaria n TB which are completely curable? (By preference) Why farmers commit suicide? Are children who were born to blame for misdeeds of their parents? If population is a social problem, it's also partly related to poverty itself (In that more hands to earn). Such population of course is unsustainable. But whose responsibility is it to bring social change if the society isn't changing by appeal? Why not a strict population policy? I'm sure many would support this intervention in the name of NATIONALISM rather than to make people chant VANDE MATARAM n installing army tanks in universities. Your approach seems to be one of the Ostrich. Bury the head n forget the world!!
              1. N
                no money
                Sep 23, 2017 at 10:47 pm
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