Indian economic growth has been accelerating steadily over the last few decades and may well exceed ten percent per annum in the near future. Yet India as a whole is still quite poor, and the poorest Indians are among the world’s poorest. The average Indian’s income (measured at purchasing power parity) is $3,100. The average Chinese makes a little more than double that, and the average American makes 15 times the average Indian. Most of the people poorer than the average Indian are in Africa as well as in Pakistan and Bangladesh.Contrary to widespread perception, the distribution of consumption—how much the poor buy in comparison to the rich—has remained stable over the last several decades despite some brief fluctuations, and is more equal in India than in China or America.
Although Indian inequality measured in money is not great by world standards, because this inequality spans very low levels of income, the health consequences for the poor are devastating.
By most measures of health, the average Indian is modestly better off that the average person in sub-Saharan Africa, and by a few measures worse off. A good and simple measure of the quality of life in a country is infant mortality. Despite substantial economic growth Indian infant mortality stagnated from 1995 to 2004 with just over 60 per 1,000 children under 5 years of age dying annually. This placed India in between most of Africa and most of Asia. After 2004, matters improved modestly and in 2009 India’s infant mortality rate was 53 deaths per 1000 children, with little change in international rank. Vietnam is marginally poorer than India but far ahead in key health and education indicators despite being bombed for 30 years.
The improvement in infant mortality reflects both the acceleration of overall growth in that period and the anti-poverty policies of the Manmohan Singh government. The largest anti-poverty measure is the Employment Guarantee Program (EGS) in which the government pays modest wages to anyone willing to work on building roads, water storage ponds, and other infrastructure in villages. This program is subject to less corruption than previous efforts to aid the poor and has led to a visible decline in the desperation of the poor. Since the uprising of the poor in the 2004 election government expenditure on education, health, and other social services has risen from 5.3% of GDP to 7.2%. To seriously reduce poverty and to come in line with other Asian countries, this number should rise to at least 10% well before the next election in 2014. One can say that so far democracy has worked in the right direction, but slowly.
An important debate currently under way is about expanding the supply of subsidized rice and wheat.Currently, the law says that only families below the poverty line get subsidized food. The reality is that many families below the poverty line do not get any subsidized food and many families above the poverty line do. There are overwhelming incentives and opportunities for corruption within the current system. The alternative proposed is to give subsidized food to everyone. This would certainly cost quite a bit more but it may have a better chance of actually reducing poverty and malnutrition. The state of Tamil Nadu currently offers 44 pounds of rice to each family at the price of about one cent (45 paisa) per pound. The system is reasonably successful. Many predicted the bankruptcy of the state when the DMK came to power with the promise of subsidized food, but the finances of the state remain viable. The state of Chhattisgarh, one of the poorest in India and racked by Naxalite violence, has one of the more successful public distribution systems for foodgrains. Eighty per cent of citizens in the state are eligible for the program. The advantage of universal or near-universal subsidies is that they have strong political support and are easier to monitor. The most likely next step is universal distribution of subsidized foodgrains in the poorest fifth or quarter of the districts.
This was also the geographic scheme by which EGS got started before being extended to the whole country.
At this point India easily has the economic capability to make drastic reductions in poverty and improve the physical conditions of life of all Indians. Other countries with less economic capability have done a far better job. The challenge is to mobilize the resources India does possess. Most critically, the challenge is to collect the taxes that are due. India does a far worse job collecting taxes than other fast-growing economies.
There is a move to establish a new system of sales taxes that would make it more difficult to evade other taxes. The effort to set up the Goods and Services Tax has run into resistance from state governments, but the Finance Minister Pranab Mukherjee appears to be committed to working out an agreement that preserves the most important features of the tax. Making this work should qualitatively strengthen the capacity of the government to reduce poverty and improve welfare.
As the Indian economy grows, the continuing poverty becomes more morally reprehensible and politically explosive. The fractious political system, corrupt administrative system, and anti-social civil society have been and remain major obstacles in reducing poverty. But solutions exist even within this environment.