Will India’s new government turbocharge the fight against poverty?
When it won its independence in 1947, India suffered from appalling poverty. Campaigning in rural districts, Jawaharlal Nehru, the country’s first prime minister, had seen the “mark of this beast” on every brow. “Life had been crushed and distorted,” he wrote, by “continuous lack and ever-present insecurity”.
Campaigning in this year’s election, Nehru’s great-grandson, Rahul Gandhi, a leader of the opposition Congress party, also addressed himself to the poor. He promised to give needy women 100,000 rupees ($1,200) a year. His party said it would double families’ monthly allotment of free grains. These “gigantic schemes of fiscal splurge”, as India’s finance minister called them, may help explain why the opposition did better in the election than expected, depriving Narendra Modi, the prime minister, and his Bharatiya Janata Party (BJP) of a majority without coalition support.
India’s politicians clearly believe that the country’s poor are still numerous enough to sway elections. But what do its statisticians think? In 1990 the World Bank tried to put a number on the kind of deprivation Nehru described. Inspired by national poverty lines in India and six other poor countries, the bank defined poverty as living on less than a dollar a day. That line has since been revised to $2.15 a day at the prices prevailing in 2017.
The bank calculates that roughly 2bn people lived below this line in 1990, once you allow for differences in prices across countries and time. Most of these unfortunates (roughly 1.2bn) lived in two countries: India and China.
Today the landscape of deprivation is quite different. China declared victory in the war against extreme poverty in 2021, when only 0.11% of its population was below the World Bank’s line. And earlier this year Surjit Bhalla and Karan Bhasin, two economists, concluded that India, 75 years after independence, had also nearly eliminated extreme poverty (see chart 1), which, they calculated, still marked only 2% of the population—or even less, if the full value of subsidised food is counted. The basis of their confidence was a government factsheet released in February that summarised the results of a nationwide survey of household consumption, the first in over a decade.
If the new figures are right, about 95% of the world’s remaining poor live outside China and India. The largest number are in Congo, Nigeria and other countries south of the Sahara. This progress resonates far beyond the people who directly benefit from it. Advances against poverty make for economic pride and political legitimacy. The changing map of deprivation could shift some ideological co-ordinates, too.
Poverty is political, even in China. Its eradication, say the country’s leaders, is proof of the wisdom of party rule. China’s success has roots in the ruthless land reform of the 1950s as well as widespread investment in literacy and primary education. It gained pace in the 1980s as collective farms were dismantled, agricultural prices improved and village enterprises flourished. “Poverty is not socialism,” declared Deng Xiaoping, then China’s leader. In 1986 a “leading group” of officials introduced China’s first poverty line and identified almost 700 counties being left behind. By 2001 the government could claim to have met basic needs, such as food and clothing, for more than 200m poor people in little over 20 years. This “fully reflects the superiority of the socialist system with Chinese characteristics”, it said.
In the 2000s China rebuilt rural health care, cut agricultural taxes and introduced rural pensions. Then in 2013 it adopted what it called “precise” poverty alleviation, aimed at poor people rather than places. It deployed 800,000 officials to build a database of almost 90m impecunious souls. Eradicating their poverty was one of the “decisive battles” Xi Jinping, China’s new ruler, resolved to win by 2021, the centenary of the party’s founding.
Boom boom
Politics aside, the country’s success against poverty has added lustre to its growth model. It combined smallholder agriculture, rapid urbanisation and export-led manufacturing. As farms became more efficient, millions of peasants could migrate from the overmanned countryside to the cities. Many found work in coastal factories, which attracted foreign capital and served global customers.
On the face of it, India’s progress against poverty challenges both these narratives. In glaring contrast to China, the country is an impatient, fractious democracy. Its political system imposes many competing claims on the state and a similar number of constraints on its action. In 2014 Mr Modi’s BJP was the first party in three decades to win a majority by itself. After its less convincing performance this year it will have to govern in a potentially messy coalition that will include several former opponents.
India’s attempts at land reform were a disappointment, not least to Nehru, who complained ruefully about obstructive courts. Its elite colleges and institutes are world-renowned, its primary schools a pedagogical embarrassment. India’s rural poor have migrated to its less dynamic cities more slowly than China’s. And many of them work in construction or low-productivity service jobs, peddling goods or guarding malls, rather than export-oriented manufacturing.
India, like China, has profited from globalisation. But its most eye-catching successes have been in exporting services, not goods. Thanks to patchy education, onerous labour laws and adversarial unions, India’s unskilled labour is abundant but not cheap. As a result, Indian manufacturing has a lot of technology and surprisingly few workers. In a survey of over 10,000 Indians by the Centre for the Study of Developing Societies, a research institute, 62% said finding jobs had become harder in the past five years. That concern may have been one reason the BJP lost its majority in the election.
India’s February factsheet suggested another distinctive feature of the country’s progress. It showed a decline in inequality over the previous 11 years. Rural consumption grew faster than urban. And the gap in consumption between rich and poor narrowed both in the cities and in the countryside. The result prompted Noah Smith, an economics commentator, to draw a sharp cross-Himalayan contrast. “India has accomplished something China never managed to do: reducing poverty by huge amounts, while also decreasing inequality,” he wrote on X, formerly known as Twitter. “Maybe democracy isn’t so bad for development after all.”
What to make of these challenges to conventional development wisdom? On the face of it, the claim that India has eliminated poverty seems absurd. If it had, the country’s politicians would not be trying so hard to win the poor’s votes. But definitions of deprivation differ. And even in India, most people’s idea of poverty differs from the horribly abstemious $2.15 line.
When the line was first drawn, the World Bank provided several examples of the kind of person it was meant to capture. They included landless labourers eating just two meals a day, sleeping on a mud floor, under burlap sacks, with dried palm leaves serving as walls. When India’s politicians talk of “the poor”, by contrast, they have in mind a much wider range of income brackets. Over 800m people are eligible for free food. That could include people living on more than $5 a day. In America, by comparison, an individual earning as much as $30 a day (in 2017 dollars) falls below the official poverty line.
A 2% poverty rate is also less startling in light of a methodological tweak to India’s survey. In decades past, survey teams would ask people to report their consumption of hundreds of items (eggs, shoes, bicycles) over a uniform “recall period” of 30 days. In 2011-12, they instead experimented with a more subtle approach, using shorter recall periods for perishables, like onions, and longer ones for consumer durables, like quilts. This “mixed” approach captures more of a household’s consumption and results in dramatically lower poverty estimates. By the old method, India’s poverty rate in 2011-12 was almost 23%. The new mixed method put it at 12%. Let this “huge discrepancy…sink in”, writes Mr Bhalla.
From this lower starting-point of 12%, a reduction to 2% seems more plausible. Indeed it is what a number-cruncher might expect, given India’s economic growth in the intervening period. The February factsheet implied that the consumption of the bottom bracket had grown by 3.1% a year in rural areas and by 4.1% in urban areas since the previous nationwide survey. That is less than the 4.6% growth in GDP per person in the same 11 years.
Scrutinise the stats
Among some experts, however, the new survey has drawn a cautious—and sometimes suspicious—response. One reason is that the government has not yet released the full results and disaggregated data, which would let scholars estimate poverty more precisely and evaluate the survey more fully. Another reason is that the credibility of India’s statistics has suffered in recent years. The previous consumption survey, for 2017-18, was not released, because of doubts about its quality. (Leaks suggest the figures were unflattering to the government.) The census, interrupted by covid-19, is also long overdue. And India’s impressive growth statistics have been called into question by Arvind Subramanian, the government’s former chief economic adviser. Scholars of poverty have been operating in a “statistical black hole”, says one expert.
The notion that inequality has narrowed has attracted particular scorn. Taken at face value, the February figures suggest that in India’s cities the consumption of the richest tenth has grown by only 1% a year (even as the consumption of the poorest tenth grew several times faster). This pattern does not pass the smell test. “It is hard to associate [it] with the development experience of this country over the last decade”, according to S. Subramanian, an economist in Chennai.
Mr Smith’s contrast with China is anyway overdrawn. China’s income inequality fell in the six years or so before 2014—the period when it reduced poverty to the 2% rate now ascribed to India. Chinese inequality rose earlier in its miracle, when coastal provinces were allowed to get rich first. Moreover, the source Mr Smith cites to show soaring inequality in China—Thomas Piketty at the Paris School of Economics and his co-authors—shows gruesome disparities in India, too. By their estimates, the top 10% get 43% of the income in China and 58% in India.
There are more illuminating differences between the two countries’ wars on want. India, for example, has achieved a low poverty rate at a surprisingly early stage of development. For countries in its income bracket, the poverty rate has historically averaged 10%. When China’s GDP per person was comparable with India’s today, its poverty rate was as high as 18%.
On other indicators of progress, India is also at an earlier stage of development than China was when it had cut poverty to a similar rate (see chart 2). Life expectancy in India is about 70 years (setting aside the pandemic), a threshold China achieved in the 1990s. The lag in literacy is similar. Agriculture still accounts for over 42% of employment in India, according to the International Labour Organisation. China passed that threshold in 2006.
Ahead of the game
India has been called a “precocious” economy by Arvind Subramanian for fostering democracy, a high-tech service industry and acquisitive multinationals at an unusually low level of GDP per person. It also looks like a precocious poverty-fighter.
What explains this unusual record? How has India succeeded in cutting poverty so deeply while lagging behind on other measures of economic and social progress? It might be a statistical quirk. India’s latest survey may be better than similar exercises elsewhere in winkling out the consumption of the poor. But something more fundamental is probably also at work. India’s precocity may reflect its political parties’ competing experiments with “welfarism”, which China views as a dirty word.
China’s development strategy has always prized jobs and infrastructure investment over handouts and social spending, especially when its poverty rate was over 10%. Its rural poverty plan in 2011 included “self-reliance and hard work” as one of its basic principles. Aid-dependency has been a constant fear. Until 2013 its explicit anti-poverty policies were aimed predominantly at poor places, not people. Its plan in 1994 focused on 592 counties, many of them in the mountains. It then drilled down to about 148,000 villages after 2001.
It did introduce dibao cash payments for the urban poor in 1997 and their counterparts in the countryside in 2007. But coverage was limited. One study found that it missed over 80% of the rural poor in 2013. Adding together cash transfers, in-kind transfers and fee waivers, China spent just 0.76% of its GDP on social-safety nets in 2014, according to a World Bank study.
How does that compare with India’s welfare programmes? The same study reckons India spent over 1.5% of its GDP on them at that time, including public-works projects and school feeding schemes, as well as transfers and waivers. A more recent estimate puts India’s welfare spending at 1.8% of GDP, including direct cash payments to farmers and others, facilitated by the spread of no-frills bank accounts under one of Mr Modi’s signature schemes.
A number of goods distributed free, including rice, wheat and school uniforms, cannot explain India’s 2% poverty rate, because they were purposely excluded from the headline consumption figures released in February. Purchases of subsidised goods are included only at their low, discounted price, which understates their impact.
Unheralded success
But India’s efforts at redistribution have still made a difference to its poverty figures. The government’s cash payments to small farmers would have appeared in the statistics, assuming they were spent. The same is true of subsidies to help poor women buy gas cylinders. One of the most prominent interventions is a workfare programme, known as the National Rural Employment Guarantee Act, which offers 100 days of minimum-wage work per year to rural households, building dams and digging ditches. Spending on this programme, which spiked during the pandemic, was budgeted at about 0.3% of GDP last year.
Critics worry that it has crowded out private employment. But Karthik Muralidharan of the University of California, San Diego, and his co-authors have shown that the scheme could raise both wages and jobs in the surrounding labour market, where employers had earlier had an incentive to underpay their workers, even if that meant attracting fewer of them.
Introduced in 2006 by the previous government, India’s employment guarantee scheme might have fallen victim to the vicissitudes of party politics. But it was too popular to kill. The same is true of several other programmes introduced by the current government’s political opponents. Rather than ditching them, Mr Modi has rebranded them and tightened up delivery, making use of the combined technologies of bank accounts, biometric identity cards and mobile phones. (“Computers are the new babus [bureaucrats],” one woman, who lacked an identity number, complained to Ranjit Pal Singh of Data & Society, a research firm.)
The previous government tried to enshrine the poor’s claims on the state as “rights”—including rights to employment, food, information and education. Mr Modi has replaced that approach with something more transactional. He has made use of India’s newly direct welfare machinery to distribute goodies to the needy in his own name. That has made him popular. But it does not make his party unique or indispensable. The BJP has no comparative advantage in doling out welfare. Any leader can offer to throw money around: hence Mr Gandhi’s gigantic fiscal “splurges”. Insofar as the BJP’s appeal rests on its generosity with taxpayers’ money, it can be easily outbid by other parties.
What about the future of India’s poverty fight? It took China seven years to remove the final 2% of its population from poverty. It increased handouts to the worst-off households. But it did not entirely dispense with its “productivist” approach. Local officials found jobs for the poor in warehouses, agribusiness, security or sanitation. In one “model” community in Shaanxi province, poor households worked in a dried-tofu factory, according to research by Sarah Rogers of the University of Melbourne and her colleagues.
China’s government also tried to remove the chronically destitute from the social and geographical circumstances that kept them poor. This entailed a huge bureaucratic effort—monitoring, relocating, training—and a degree of bossiness that sometimes bordered on coercion. In 2016-20, China resettled 9.6m people, severing ties to the land in return for modern housing in closer reach of public services. “My kids tell me to move,” an elderly woman in a mountain village told Ms Rogers and her colleagues. “I still don’t want to move out. Here it’s cool, the air is good.”
India, for its part, has adopted a new measure of its progress which better reflects the dizzying variety of schemes it offers the poor. Its “multidimensional” poverty index, which it embraced in 2021, combines a dozen indicators, spanning health and education as well as material assets, such as animal carts and refrigerators.
The index counts people as poor if they suffer a combination of hardships, for example if their child is not in school, they lack antenatal care during pregnancy, or they must walk for more than 30 minutes to find safe drinking water. By this broader measure, India has made rapid progress, according to NITI Aayog, a government think-tank. But over 11% of India’s population still qualified as poor last year. That is a lot of voters for any new coalition government to please. ■
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