Why poverty reduction lags economic expansion in India

from the Economic Times

NEW DELHI: Even as a recent World Bank report claims that poverty levels in India has declined sharply since 1981, the truth is poverty reduction here lags economic growth. The rapid economic expansion over that past two decades has not resulted in matching reduction in poverty, a working paper published by the International Labour Organisation has said, reaffirming the widely held view.

That is because employment grew at a sluggish pace even as the economy moved into a higher trajectory. Although some of the dynamic sectors grew rapidly, generating employment opportunities, these activities were less likely to absorb the poor, who are mostly unskilled, author Arup Mitra states in the working paper titled ‘The Indian Labour Market—An Overview’, explaining why the effect of growth on poverty reduction was not spectacular.

“Economic growth and employment generation have both been more beneficial to the upper income strata of the society than the poor,” the author, a professor at the Institute of Economic Growth, Delhi, notes. In other words, employment was generated more for the educated labour force than for the poor with lower levels of human capital, during the current phase of economic expansion. What would be worrying is that such skewed growth of employment tends to widen inequality.

It is, thus, no surprise that agriculture continues to be primary source of employment for more than half the population and the share of manufacturing has experienced a marginal rise over the past two decades. (See chart) The report also underscores the fact that the shift away from agriculture did not lead to significant increase in the manufacturing’s share of employment. Rather, even at low levels of per capita income, the share of services in employment and value addition rose. Thus the corollary, the shift in India is away from agriculture and more towards services than manufacturing.

Analysing data published by the National Sample Survey Organisation (NSSO) over the years, the report notes that employment growth decelerated during 1993 through 1999/2000 compared to what was experienced in 1983-1993/94.

Further, although there was a considerable pick up in employment from 1999/2000 to 2004/05, the extent of decline in poverty has been much slower after 1993 compared to what was experienced in 1983 to 1993/94, as illustrated by the 61st round of NSS.

Thus, even as the economy expanded at more than 5% per annum for two decades (with growth reaching average 7-8% in recent years), employment growth rate decelerated from 2.04% between 1983 and 1993/94 to 0.98% per annum between 1993/94 and 1999/2000.

Employment in the organised sector grew at 1.2% and 0.53% per annum over the 1980s and 1990s, respectively. Some of the decline in the organised sector employment could be attributed to the downsizing of the public sector.

Link to full article. May expire in future.