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Poverty and the Economic Growth of India


Poverty and the Economic Growth of India!

Despite significant economic growth achieved during the last half a century, there still prevails widespread poverty in developing countries.

The poor people suffer from under-nourishment, poor health, illiteracy. Freedom from under-nourishment, freedom from illness and freedom from illiteracy are the essential requirements of economic development.


It is the building up capabilities of the poor to gain freedoms in these respects which Amartya Sen calls development Now, an important question is whether faster economic growth will necessarily solve the problems of poverty and development.

In the fifties and sixties of the last century it was widely held that benefits of economic growth would trickle down to the poor. This is generally referred to as ‘trickle down theory’. It was then maintained that if you take care of economic growth, poverty will take care of itself.But in the nineteen seventies there was a drastic change in the views of prominent development economists. They pointed that economic growth of GNP though necessary was not sufficient for eliminating poverty. This has been generally referred to as ‘Dethronement of GNP’. Therefore, to remove poverty measures for making ‘direct attack on poverty’ were suggested.

For this purpose development economists suggested special anti-poverty schemes such as starting of employment schemes, especially construction of rural public works and strengthening of public distribution system for providing to the poor the food grains and some other essential commodities at subsidized prices.

However, in the late eighties and nineties some world bank economists with the officials of US Government at Washington again reverted to the old view that economic growth benefits poor substantially even if no special pro-poor measures are adopted. This provided a rationale for what is popularly called Washington Consensus which envisaged fiscal and structural adjustment re­forms to accelerate economic growth in developing countries, first imposed on the Latin American countries and then on the developing countries of Malaysia, Indonesia and India.


In India there was an economic crisis in 1990-91 resulting from serious balance of payments problem and reduction of foreign exchange reserves to a very low level and flight of capital abroad. There was an urgent need for foreign aid from IMF and World Bank to tide over the crisis. But IMF and World Bank provided aid only if certain conditionality’s were fulfilled.

These conditionalities were nothing but implementation of fiscal and structural adjustment programme (SAP) as contained in Washington Consensus. These economic reforms of fiscal consolidation and structural adjustment involved reduction in fiscal deficit and carrying out the policies of economic liberalization and privatisation. In 1991-94 most of these policies were implemented in India to accelerate economic growth and thereby to reduce poverty.

It may however be noted that the data collected by World Bank reveals that economic growth has led to the reduction in absolute poverty where it has been accompanied by more equal distribu­tion of assets, especially land. Stressing this point Michael Bruno and Lyn Squire, two development economists of World Bank write.

“Using the new data, we found that developing countries with a more equal distribution of assets—specifically land – grew more rapidly than countries with a less equal distribution of assets. Why is a more equal distribution of assets good for growth? One likely explanation involves credit. We know that investment is crucial for growth. The poor often cannot invest because they lack capital and they lack the collateral to borrow. In countries with a very unequal distribution of assets, many people find it difficult or impossible to invest, even in their own health or education.”


They further write, “Economies in East Asia that had comparatively equal land distribution and aggressively pursued economic growth have achieved dramatic reductions in. poverty. In Latin America, land distribution has generally been less equal, growth has been slower and less consistent, and poverty has remained stubbornly high”.

To reduce absolute poverty and to accelerate progress in human development, economic growth is of course necessary but not enough. World Development Report 2004 by World Bank rightly stresses that broad improvements in human welfare will not occur unless poor people receive wider access to affordable, better quality services in health, education, water sanitation, and electricity. Without such improvements in services, freedom from illness and freedom from illiteracy — two of the most important ways poor people can escape poverty – will remain elusive to many.

As we shall see below poverty in India declined during the nineties but to attribute this decline in poverty to economic growth alone is not correct. In fact various special employment schemes, promotion of literacy, strengthening of public distribution system to provide food grains at subsidized prices and keeping inflation under control have also made important contribution to reduction in poverty.

Besides, as we shall see below, to what extent poverty has declined is also a matter of great controversy because changes in methodology used for collecting household consumption expenditure data in NSS survey for 1999-2000.

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