Poverty in India & Lessons from China


    In News

    • Recently the World Bank released its latest report on global poverty

    Report highlights

    • Economic upheavals & reversal:
      • Report 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. 
      • The reversal is affecting so much that the “world is unlikely to meet the goal of ending extreme poverty by 2030”.
    • India’s case:
      • Estimated poor in India:
        • According to the WB, India is the country with the highest number of poor people.
        • 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.
      • Poverty & expenditure:
        • 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.

    What is extreme poverty? How is it defined?

    • International poverty line:
      • The World Bank (WB) defines extreme poverty by particular consumption level. This is called the poverty line
        • The poverty line 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 living in extreme poverty in 2019.
    • Determining the poverty line:
      • The $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 – the value we get if we multiply 2.15 by the rupee’s current market exchange rate with the US dollar (around 82)]
    • Reason of this difference:
      • This difference is because the price of the same goods is different in different countries 
      • 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. 
    • Revision and evolution of this international poverty line:
      • 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 can India learn from China’s poverty alleviation programme?

    • Significance of China:
      • China is not only comparable to India in terms of population size but is also globally recognised to have alleviated poverty at a historically unprecedented speed and scale.
    • Progress of China:
      • 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.
      • 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 percent of the global reduction in the number of people living in extreme poverty during this period.
    • All round progress:
      • Decades of progress in China are also reflected in substantial improvements in other measures of well-being like life expectancy at birth, education achievements, etc. 
    • The main conclusion is that China’s poverty reduction success relied mainly on following pillars:
      • Economic growth:
        • 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
      • Government policies:
        • 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.
      • Effective governance:
        • “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. 
      • Human capital:
        • 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.

    Way Ahead

    • India faces three rather acute and growing problems: 
      • Widespread unemployment, 
      • Widening inequalities and 
      • Deepening poverty
    • 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.
    • Understanding what China did may provide some clues to Indian policymakers.

    Source: TH