ESCAPING POVERTY

Latest data released by the UNDP reveals that India achieved a phenomenal first by lifting 415 million out of poverty over 16 years. EPISODE #96

Dear Reader,

A very Happy Monday to you.

Last week the United Nations Development Programme (UNDP) released its poverty numbers for 2022.

It showed that worldwide the battle against poverty had progressed. But the bad news was that 1.2 billion people continued to live in poverty. This number could well be revised upwards in the aftermath of the unprecedented triple whammy: covid-19 pandemic, Russia-Ukraine conflict and macroeconomic upheavals unleashed by aggressive monetary tightening by the United States.

The biggest takeaway though is that India successfully lifted 415 million out of poverty in the 16 years ending 2021. As a result the incidence of poverty has dropped sharply from 55.1% in 2005 to 16.4% in 2021. Only one word to describe this: Wow!!

Disappointing that legacy media buried this news on what is nothing but a phenomenal achievement by public policy. The only comparison is China which lifted 770 million out of poverty in 40 years. This week I put the spotlight on India’s spectacular achievement. Do read and share your feedback.

This week’s cover picture is a geometrically striking piece of street furniture that I stumbled upon.

A big shoutout to Lakshmisha, Niranjan, Karan, Gautam, Premasundaran, Vandana and Madhukar for your informed responses, kind appreciation and amplification of last week’s column. Gratitude also to all those who responded on Twitter and Linkedin. 

The most interesting part about the responses last week was that each of them moved the ball on the narrative. As I always say reader participation and amplification is key to growing this newsletter community. Last week was a great example. And, many thanks to readers who hit the like button😊.

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FIGHTING POVERTY

Last week the United Nations Development Programme (UNDP), the body of the United Nations tasked to fight poverty worldwide, released its 2022 report on global poverty. It showed that the battle against poverty had progressed significantly. But the bad news was that 1.2 billion people continued to live in poverty, with bulk of them living in the global South.

More worryingly, even this achievement may have been undone in the devastating aftermath of the unprecedented triple back-to-back shocks: covid-19 pandemic, Russia-Ukraine conflict and macroeconomic upheavals unleashed by aggressive monetary tightening led by the United States to combat inflation unleashed by a combination of the pandemic and the conflict.

The biggest takeaway though is that India successfully lifted 415 million out of poverty in the 16 years ending 2021. Take a bow, India. This is by far a singular achievement for India and a great global example.

While we savour this spectacular achievement, we must be aware that yes India has crossed the tipping point in its fight against poverty, but fresh challenges await—especially with the country having set itself the daunting goal of becoming a developed nation by 2047.

India Story

India’s ability to lift so many people out of poverty had an impact on its incidence no doubt. It declined dramatically from 55.1% in 2005 to 16.4% in 2021. Indeed this is remarkable. Not just the magnitude of change, but the short time period over which this was achieved.

To be sure, the battle against poverty began much earlier and it is just that the fruits of it started kicking in from 2005 due to the convergence of several factors, including the rapid economic growth of India, and a simultaneous recalibration of public policy to eliminate the kinks.

Further, the UNDP is only confirming what has been a source of contentious debate in India. The first inkling that the battle against poverty was turning in India’s favour was when the Suresh Tendulkar panel reported that poverty declined from 29.8% in 2009-10 to 21.9% in 2011-12. This revelation was buried in the noise generated by critics who questioned the new metrics—multidimensional measures of poverty—the panel had adopted.

Thereafter another panel, under the chairmanship of C Rangarajan, former RBI governor, was set up to review the decline in poverty levels.

It differed on the exact levels of poverty, but concurred on the extent of fall and the direction of change. It found that India’s poverty ratio declined from 38.2% in 2009-10 to 29.5% in 2011-12.

New Metrics

The graphic above, sourced from the UNDP report, unpacks the organisations’s measure of multidimensional poverty. It does so by measuring it under three dimensions—deprivations in Health, Education and Standard of Living. In short, if you have these deprivations you will inevitably be poor.

While the vertical of health is further broken up into nutrition and child mortality, education is measured in terms of years of schooling and attendance. In the case of standard of living the metrics are access to cooking fuel, sanitation, drinking water, electricity, housing—all of which have been on turbo mode in the last eight years— and assets.

This way of measuring poverty provides a rounded view of the challenge and also like the UNDP argues in its report provides a new approach wherein the problem is unpacked as a sum of deprivations—hence targeting these deprivations, either individually or in pairs, blunts their compounding effect and thereby helps in faster reduction of poverty.

Interestingly, there is a convergence in the way UNDP and the Tendulkar panel measured poverty. Both employed multidimensional measures, instead of viewing it purely in terms of intake of calories.

As the UNDP report argues:

“Deprivations often compound each other, so poverty reduction programmes aiming for high-impact results should analyse interlinked deprivations to design better policies.

Just under half of (the global) poor (470.1 million) are deprived in both nutrition and sanitation, potentially making them more vulnerable to infectious diseases. In addition, more than half of the poor people (593.3 million) are deprived in both cooking fuel and electricity; clean energy interventions could tackle both deprivations.

And 259.1 million poor people are deprived in both nutrition and school attendance. School feeding programmes are one integrated response to nutritional deprivations among children that also incentivises school attendance.”

Specifically in the Indian context the UNDP report noted:

“Among poor people (in India), deprivations in cooking fuel and housing are the most common, followed by nutrition and sanitation.

Because deprivations in nutrition have a larger weight (1/6 instead of 1/18), they contribute by far the most to MPI value—nearly as much as cooking fuel, housing and sanitation combined.”

And then added a note of caution:

Despite progress, India’s population remains vulnerable to the mounting effects of the COVID-19 pandemic and to rising food and energy prices.

Integrated policies tackling the ongoing nutritional and energy crises should be a priority.”

India’s Fightback

From the turn of the Millennium, India has been targeting various deprivations—like building rural roads, education for all, creation of a rural social safety net by guaranteeing jobs for those who demanded it and developing a broadband fibre network for regions outside the metros.

As the UNDP report disclosed bulk of the poor suffered because of one or more deprivations in the three verticals health, education and standard of living. Eight years ago public policy was tweaked to prioritise the alleviation of these deprivations. Initially this was done in clusters—financial inclusion, cooking gas, housing and toilets—and individual deprivations—like electricity, drinking water—were added progressively.

The outcomes were impressive. The National Family Health Survey-5 reveals a surge in the use of cooking gas, toilets, access to electricity and ownership of bank accounts and homes by women.

The All India Debt and Investment Survey conducted in 2019 corroborates the financial inclusion trends captured by the NFHS-5. It found that nearly three in four Indians, living in rural or urban areas, now own a bank account.

The big surge in the last few years was no doubt enabled by the trinity of Jandhan (no frills bank account) Aadhaar (12 digit unique identity) and Mobile (with the moniker JAM).

An important upside of this financial inclusion has been a massive increase in Direct Benefits Transfer (DBT). Not only has this economic GPS, JAM, ensured better targeting of social welfare measures resolving deprivations impacting poverty, it has also reduced leakages—it is estimated that the exchequer has saved upwards of Rs2 lakh crore so far.

Similarly, rural road connectivity—which enabled bridging of the connectivity deficit—was accelerated such that in the last two decades India has either built or redeveloped over 600,000 km of rural roads.

Similarly, delivering sanitation (toilets for all under Swachh Bharat) and drinking water—a lethal paired deprivation—was made a priority.

The mission to provide drinking water to rural homes was started in 2019, when nationally only 16.9% rural households had access. Since then 7.16 crore connections have been provided—ensuring that one in two rural households today have drinking water access.

Alongside, the union government embarked on a programme to target the most deprived regions in the country in 2019. Under the Gram Swaraj Abhiyan, 63,974 large villages with very high population of the deprived communities were provided seven services: cooking gas, electricity, LED Bulbs, immunisation, bank account, life and accident Insurance).

This tweak in public policy—prioritising deprivation pairs—is the reason why poverty alleviation accelerated in the six years ended 2021. The incidence of poverty declined from 27.17% 2015-16 to 16.4% in 2019-21.

Conclusion

The progress report on India’s fight against poverty has been truly remarkable and worthy of celebration. Like I say celebrate even small successes; and this is a huge achievement. The best mantra for generating much wanted self-belief.

Yet we should not forget that India still has the largest cohort of poor in the world: 228.9 million.

Indeed if this is a sobering thought, even more important is the fact that Prime Minister Narendra Modi moved the goalpost on public policy by stating that in the next 25 years India would morph into a developed country.

The task on hand is huge, not insurmountable as long as we remember that the India story is a cup which is half-full (and not half-empty).

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Recommended Viewing

Sharing the latest post of Capital Calculus on StratNews Global.

This time I put the spotlight on the e-Rupee, the Central Bank Digital Currency (CBDC) that the Reserve Bank of India (RBI) proposes to roll out on a pilot basis. The RBI is just one among some nearly 80 central banks across the world rushing to roll out a CBDC.

I spoke to Mihir Gandhi, partner at PwC. Mihir had co-authored a white paper when the idea was first proposed a year ago. Hence, an ideal person to walk us through the idea of an e-rupee.

The comments section on the YouTube channel of StratNews Global reaffirm my belief that Mihir did a fantastic job unpacking the concept and the underlying potential, while flagging the downside risks of an e-Rupee.

Do watch and add your feedback on YouTube.

Till we meet again next week. Stay safe.