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Greater economic growth, not more subsidy, has resulted in poverty falling like never before
Given how poverty levels have fallen sharply, from 37.2 per cent of the population in 2004-05 to 21.9 per cent in 2011-12, the question is whether this is due to rising economic growth or a more sprawling subsidy regime. Since the government plans to bring in the Food Security Bill, it is easy to guess what it believes, or calculates, to be the way forward. The fact that the proportion of the GDP being spent on subsidies has also gone up during this period suggests that the growth-versus-dole impact is not entirely clear.
Dissect the numbers a little, however, and the picture looks different. For one, poverty reduction increased in the high-growth years — even intuitively, the fact that high-growth states have less poor people suggests that growth is the big differentiator. Between 1994 and 2004-05, when the economy grew at an average of 6.1 per cent a year, poverty levels fell 0.74 percentage points per year. Between 2004-05 and 2009-10, when GDP growth picked up to 8.7 per cent per year, poverty levels fell by an average of 1.48 percentage points each year, or at double the pace. Expenditure on subsidies, however, rose by a smaller amount, from around 1.3 per cent of the GDP in the 1994-05 period to 1.7 per cent in the 2005-2010 period. The food subsidy, which is the critical one, remained more or less constant as a proportion of the GDP during this period.
When you take into account the leakages in subsidies, the picture gets starker and it becomes clear that more dole is not enough to reduce poverty. In the case of the PDS, work done by the Commission for Agriculture Costs and Prices shows that the leakages are around 60 per cent. MGNREGA, a UPA flagship scheme on which around Rs 30,000 crore gets spent a year, even according to the government's own admission, adds just around 1 per cent of the total jobs in the country. Ironically, when the textile industry, which accounts for 8-9 per cent of the country's work force, offered much more than MGNREGA in return for flexible hiring practices, it was turned down — it wanted to do a double-MGNREGA by hiring workers for a minimum of 200 days a year at Rs 200 a day. With no labour flexibility, the industry remains largely small-scale and has lost out to even Bangladesh in the exports market. Essentially, this is India's poverty-removal choice: spend, and waste, more money on dole or give industry the flexibility and environment it needs to create more jobs.