The Poverty Debate

If there is no decline in poverty, what does it suggest?

Much debate has recently happened over the poverty line with a lot of anger directed against the Planning Commission for allegedly fixing the poverty level at a deliberately low level. The technical issues have been discussed quite well elsewhere, so let’s think about the larger debate here.

Those most vehemently criticizing the Planning Commission poverty line are essentially arguing that India has seen little decrease in actual poverty since 2004-2005 contrary to what the government has been arguing.  (The timeline is important as it corresponds with the two terms of the United Progressive Alliance (UPA) government.)  Therefore, the Planning Commission has ‘fixed’ the poverty line in order to to strengthen its argument that poverty in India is decreasing.

Now, one may wonder, why would some people who have no apparent stake in the political game be so opposed to any reduction in poverty? After all, it should be a celebratory event. The answer is fairly simple: The larger argument here is about the efficiency of economic reforms and growth in reducing poverty. These critics simply don’t believe that growth matters enamoured as they are with redistribution and statism.

But here’s the problem with this argument: The last 7-8 years have been the era of ‘inclusive grwoth’ where massive amounts of money has been expended in social sector schemes like the NREGA. And  the amounts are really massive: In the 2011-2012 for instance, the government spend close to 160000 crores on social sector spending.  In fact, many of these critics are the biggest cheerleaders of increased social sector spending constantly arguing for confiscatory policies to fund these large government schemes. Forget economic reforms, they have consistently opposed even minor innovations in subsidy management including pilot cash transfer agreements. And yet, by their own argument, apparently poverty has not decreased in India over the last few years. Of what use is the massive government spending then? It should also be categorically stated that statists have consistently dominated and won almost all economic policy arguments over the tenure of the UPA government and yet, it has apparently failed to helped the poor. The whole idea of a reformist lobby is little else than a convenient marker and has limited credence outside op-ed columns and some think tanks.

But does this negate what economic liberalizers have been arguing? No. As Montek Singh Ahluwalia has stated, whatever metric one may choose, poverty has actually declined in the last few years and India has grown consistently in the same time frame. The argument against UPA government is that because it has not properly pursued the reforms agenda and has not managed public finances responsibly, the growth agenda is not sustainable in the medium term. Simply put, it has failed to utilize the favorable economic and fiscal environment and that failure endangers India’s growth story. In addition, because of the lack of reforms in important sectors of the economy—notably agriculture—a lot of the poor are unable to participate in India’s growth story. And that is the real tragedy of India’s poor.

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