India's poverty and lesson from China

The most recent World Bank report on poverty was recently published.

Report's key points:

• Economic upheavals and reversal: According to the report, the war in Ukraine and subsequent economic upheavals caused worldwide poverty reduction to "completely reverse itself."
• Because of slower growth rates since 2015, the rate of poverty reduction had already been slowing, but the pandemic and the war have completely reversed that trend.
• The reversal is having such a significant impact that it is "unlikely that the world will achieve the objective of ending extreme poverty by 2030."

Indian situation

India's alleged poverty rate:

• India is the nation having the greatest percentage of the world's impoverished, according to the WB.
• Data from the Centre for Monitoring Indian Economy (CMIE) was utilised by the World Bank.
• According to the study, there would be 56 million (5.6 crores) more people living in extreme poverty in 2020.
• That amounts to over 80% of the estimated 70 million people who would be living in poverty globally by 2020, according to the World Bank.
• This estimate states that India accounted for 8 out of every 10 persons who were forced into poverty during Covid.
• But India's challenge goes beyond just having the greatest proportion of its population living in abject poverty.
• The Bank estimates that close to 600 million Indians manage less than $3.65 (Rs 84) per day in spending.

What can India learn from China's initiative to fight poverty?

China's population size is comparable to that of India, and it is widely acknowledged that China has reduced poverty at a pace and scale that have never before been achieved.

Development in China:

• According to data from the World Bank, China's population living in poverty decreased from 770 million in 1978 to 5.5 million in 2019.
• In other words, over the past forty years, China has moved 765 million (76.5 crore) people out of terrible poverty.
• It means that during the past 40 years, China has, on average, lifted 19 million (1.9 crores) impoverished people out of extreme poverty per year.
• Other indicators of well-being including life expectancy at birth, educational accomplishments, etc. have significantly improved in China over the past few decades, attesting to the country's success.
• The key finding is that China's success in reducing poverty was primarily supported by the following pillars:

Economic expansion

• Rapid economic growth was the first pillar, which was reinforced by the widespread economic transformation that increased average earnings and gave the poor new options for employment.

Government initiatives:

• The second pillar consisted of government initiatives to reduce persistent poverty. Initially focusing on geographically disadvantaged areas and areas with few economic opportunities, these initiatives later turned their attention to poor households, regardless of where they were located.

Effective governance:

• According to the World Bank, "effective governance was important to the successful execution of the growth strategy as well as the evolving collection of targeted poverty reduction programmes." China's success "benefitted from effective governance," the organisation adds.

Human capital:

• At the time of opening up, China also benefited from several favourable beginning conditions, including a relatively high level of human capital, which is widely acknowledged as a crucial component for the populace to quickly profit from new economic prospects.

How severe is it to be poor? What does it mean?

• The World Bank (WB) defines extreme poverty as falling below a specific consumption level. The term "poverty line" refers to this.
• The official poverty line is set at $2.15 USD.
• In other words, it is considered to be extreme poverty for someone to make less than $2.15 each day.
• In 2019, there were 648 million people living in extreme poverty worldwide.

How to calculate the poverty line:

• The $2.15 price point is determined by purchasing power parity (PPP).
• Simply expressed, the number of Indian rupees needed to purchase the same basket of goods that an American can with $2.15 in the US is the PPP equivalent of $2.15 in dollars.
• The same amount in Indian rupees is Rs 46 [rather than Rs 176, which is the result of multiplying 2.15 by the rupee's current market exchange rate with the US dollar, which is about 82].

The cause of this variation is:

• This discrepancy results from the fact that the cost of identical commodities varies across national borders.

• A dollar most certainly buys much more of the same good (such an egg or banana) or service (like a haircut) in India than it does in the US.
• Therefore, according to the international poverty level of $2.15, any Indian who makes a total of less than Rs. 46 a day is said to be living in extreme poverty.

Way Forward

• India is dealing with three increasingly serious issues: widespread unemployment, widening disparities, and deepening poverty.
• Election victories won't fix any of these problems. They call for concrete policy responses. India's demographic dividend is beginning to resemble a demographic bomb without the proper policies.
• For Indian policymakers, knowing what China did may offer some hints.

Read Also; Poverty Trends and Analysis