Can gains in the poverty bat­tle be sus­tained?

The Pak Banker - - OPINION - Manas Chakravarty

Acou­ple of days ago, at an elec­tion rally in As­sam, Prime Min­is­ter Naren­dra Modi said his fight was not so much against the op­po­si­tion as against poverty. He knows, of course, that gov­ern­ment es­ti­mates show a steep de­cline in poverty from 37.2% in 2004-05 to 21.9% in 201112, an achieve­ment that has earned In­dia praise from many quar­ters, in­clud­ing the World Bank. What is more im­por­tant is: what has led to this dra­matic fall in the poverty head­count and what can be done to con­tinue the process?

Ev­ery­body knows rapid eco­nomic growth is essen­tial. But is it the whole story? A World Bank re­search pa­per pub­lished this month of­fers new in­sights. The pa­per,Why did poverty de­cline in In­dia? by Car­los Felipe Bal­cázar, Sonal De­sai, Rinku Mur­gai and Am­bar Narayan, says a lot of things, but the an­swer ul­ti­mately boils down to "a poverty re­duc­tion process shaped mainly by struc­tural trans­for­ma­tion, whose key el­e­ments ap­pear to be: fall­ing de­pen­dency rates; a shift from agri­cul­ture to­ward non-agri­cul­tural wage em­ploy­ment and a re­duced re­liance on agri­cul­tural in­come in ru­ral ar­eas; ris­ing labour pro­duc­tiv­ity; and ris­ing in­comes from re­mit­tances that may in­di­cate greater mi­gra­tion and spa­tial mo­bil­ity of work­ers". Trou­ble is, some of these trends may have slowed down sub­stan­tially af­ter 2012. Chart 1 shows the pro­por­tion of in­come of house­holds from var­i­ous sources and how the im­por­tance of these sources changed be­tween 2005 and 2012. Note that for both ur­ban and ru­ral house­holds, the pro­por- tion of in­come com­ing from self-em­ploy­ment has come down and also that com­ing from agri­cul­tural wages. The big­gest jump has been in non-agri­cul­tural wages and in re­mit­tances. In par­tic­u­lar, for ru­ral house­holds, there has been a big in­crease in non-agri­cul­tural wages.

What has driven the in­crease in ru­ral nona­gri­cul­tural wages? On the de­mand side, it is pri­mar­ily the boom in con­struc­tion dur­ing those years-most stud­ies say the Ma­hatma Gandhi Na­tional Ru­ral Em­ploy­ment Guar­an­tee Scheme is too mi­nus­cule to have made much of a dif­fer­ence. Many re­searchers say the con­struc­tion sec­tor has been one of the main sources of job growth for the masses. Job op­por­tu­ni­ties in ur­ban ar­eas too made some dif­fer­ence, as shown by the rise in re­mit­tances to ru­ral ar­eas. As the re­search pa­per un­der­lines, "The dom­i­nant role in poverty re­duc­tion played by the ex­pan­sion of em­ploy­ment and earn­ings in the non-agri­cul­tural sec­tor, and par­tic­u­larly that of wage/salaried em­ploy­ment in this sec­tor, pro­vides im­por­tant clues about pol­icy im­per­a­tives for poverty re­duc­tion." Chart 2 shows the growth in con­struc­tion over the past decade. No­tice the dou­ble-digit growth in the sec­tor dur­ing the boom years be­fore the fi­nan­cial cri­sis and again in 2011-12. The prob­lem is that re­cent years have seen a sharp fall in the growth of the con­struc­tion sec­tor. This fall has been in spite of the ef­forts of the present gov­ern­ment to boost road con­struc­tion. The slow­down in con­struc­tion ac­tiv­ity in the pri­vate sec­tor, par­tic­u­larly be­cause of the over­hang in real estate, is ob­vi­ously hav­ing a ma­jor im­pact. That will have a dam­ag­ing ef­fect on jobs avail­able to un­skilled ru­ral labour. Add two years of drought, the low in­creases in min­i­mum sup­port prices and the dry­ing up of wa­ter reser­voirs and it's a toxic mix for ru­ral folk.

While the con­struc­tion boom helped boost the real in­comes of un­skilled labour, the af­ter­ef­fects are be­ing felt today in a glut of in­ven­tory, in ex­cess ca­pac­ity in a host of in­dus­tries and in the de­te­ri­o­ra­tion of bal­ance sheets. CMIE data show a steady de­te­ri­o­ra­tion in the in­ter­est cover for firms in the con­struc­tion and real estate sec­tors and also in the con­struc­tion ma­te­ri­als seg­ment.

What are the likely ef­fects of the slump in con­struc­tion on poverty? Says the World Bank pa­per, "Since av­er­age and me­dian con­sump­tion per capita are close to the na­tional poverty line, even small shifts in wel­fare can lead to big changes in poverty rates, but leave many of those who move out of poverty highly vul­ner­a­ble to fall­ing into poverty." Given the cir­cum­stances, it is likely that, af­ter 2012, the poverty head­count may even have gone up. Who are the most vul­ner­a­ble? The re­searchers say Adi­va­sis and Dal­its are those most at risk of fall­ing back into poverty.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.