Return of India’s poverty challenge
When Narendra Modi guided the Bharatiya Janata Party (BJP) to a parliamentary majority in 2014 – the first time a party received a majority in the Lok Sabha in 30 years – the word “aspiration” entered the political economy lexicon with a bang. The larger idea was simple. The first two decades of economic reforms delivered gains in terms of poverty reduction front. But the fruits of economic reforms had not been shared equally across class and region. The new regime believed that the time was ripe to improve living standards with a two-pronged policy approach: higher growth and enhanced welfare endowments. The idea could have worked if the first part of the plan had delivered. A pre-Covid slowdown followed by the pandemic’s economic shock is likely to have derailed even the gains on poverty front and triggered a sharp increase in inequality. Business as usual is not an option anymore. Here are three charts that explain this.
1. Regional inequalities have worsened during the post-reform period
The Gross State Domestic Product (GSDP) of Bihar was almost the same as that of Gujarat in 1990-91. By 2018-19, the latest period for which we have Gujarat data, the state’s GDP was two times the combined GSDP of Bihar and Jharkhand. This trend holds even when a larger comparison of India’s southern and western states’ GSDP is made with the traditional laggard states, often clubbed together as BIMARU (Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh). The increasing divergence in GSDP has translated itself into diverging living standards as well. Per capita GSDP estimates capture this inequality well. Per capita GSDP of industrialised states such as Gujarat or Tamil Nadu is three to five times more than that of laggards such as Uttar Pradesh and Bihar.
2. Growing demands on the budgets of the poor
What the per capita GSDP type numbers do not capture well is the aspiration-driven sense of deprivation in the economy today. Thanks to the removal of restrictions on private production and consumption in the post-reform period, there are no limits to private consumption today. This was not the case before 1991. For example, foreign exchange restrictions put a limit on the number of foreign holidays even a rich family could take. Similarly, there was only a limited pool to choose from when it came to buying vehicles. None of that holds today. The ‘have-nots’ increasingly aspire to consume like the ‘haves’, thanks to what is termed as demonstration effect by economists. To be sure, liberalisation also has ushered in some sort of equality. Only a handful of Indians had telephones at the beginning of the 1990s. Today, even smartphones are hardly a preserve of the rich. While the rich spend more on procuring better gadgets, there is no class divide in the quality of service being provided. This also means that the budgetary burden could be disproportionately higher on the poor at times. Extra consumption of mobile data for home-based learning (more so when there is more than one child) is a good example of this. Official statistics of household expenditure, which are now a decade old, might not capture these realities and their implications for the poor. While the basic challenge of food, shelter and clothing still remain important for a lot of Indians, the ability or the lack of it, to partake in what can be referred to as the “aspiration economy” is bound to be an important driver of both consumer and political psychology going forward.
3. Has India seen retrogression on poverty front?
The first warning bell on this count came much before the Covid-19 pandemic. In November 2019, findings of the 2017-18 Consumption Expenditure Survey (CES), the first large sample round after 2011-12, were leaked in the media. Because official statistical agencies in India do not publish income data, CES is the basis of ascertaining poverty and inequality levels. The leaked findings suggested that average monthly per capita consumption expenditure (MPCE) levels had fallen between 2011-12 and 2017-18 in real terms, something which had never happened in four decades. The government scrapped the report citing data quality issues, also a first in the country’s history. A reduction in MPCE levels entailed a rise in poverty levels. The subsequent slowdown in the economy — GDP growth went down from 8.3% in 2016-17 to 4% in 2019-20 — even before the pandemic hit, is bound to have made matters worse. A report released by the Azim Premji University has estimated that the number of people who earned below .375 per day (one measure of poverty) increased by 231 million compared to the pre-pandemic period. While the official poverty numbers will only be available once a fresh CES is conducted, and that may not happen anytime soon, evidence from other sources confirms that things might have gone downhill. For example, the indicators of malnutrition worsened between the last two rounds of the National Family and Healthy Survey (NFHS) in several states/UTs. Out of the 22 state/UTs for which results have been published, the share of stunted children (low height for their age) increased in 13, the share of wasted children (low weight for their height) increased in 12, and the share of underweight children (low weight for their age) increased in 16. Growing aspirations at a time when a significant section of society has experienced deterioration in well-being levels is going to be a difficult challenge going forward.
This is the second of a four-part data journalism series on three decades of economic reforms in India. The first part looked at the question of economic growth in the post reform period.