Economy and Business

Stairway to prosperity

The World Bank’s Atlas of Sustainable Development Goals paints a striking image of India’s poverty reduction record in the past 25 or so years. India extricated 120 million people from extreme poverty between 1990 and 2013.

Sep 22, 2017
By Subir Gokarn , Rohan Sandhu 
The World Bank’s Atlas of Sustainable Development Goals paints a striking image of India’s poverty reduction record in the past 25 or so years. India extricated 120 million people from extreme poverty between 1990 and 2013. However, this process was relatively slow. Over the same period, China reduced the number of people living in extreme poverty from 756 million to 25 million.
If we factor in economic growth, between 1995 and 2012, the growth elasticity of poverty reduction for India is just over 0.12. By contrast, countries such as Brazil, Mexico, Ecuador, and Thailand — that witnessed relatively low economic growth rates — emerge as positive outliers, exhibiting higher growth elasticities of poverty reduction than many high-growth countries, including India. While the growth elasticity of poverty reduction for China is a little over 0.28, the numbers for Mexico and Brazil are 3.28 and 1.14 respectively.
In the popular children’s game Snakes and Ladders (now called Chutes and Ladders), rapid upward mobility is matched by equally rapid descent. This is an apt metaphor for the resistance of poverty to rapid growth. Growth — the ladders — is an uncertain process for many individuals; benefits are elusive and, if attained, always at risk. Therefore, an essential element in any enduring poverty alleviation strategy is the prevention of large declines in household incomes that are caused by a variety of shocks — in effect, blocking off the chutes.
In each of the positive outliers mentioned above, state-sponsored anti-poverty and social protection schemes have played a significant role in reducing poverty. The World Bank’s Francisco Ferreira estimates that in the absence of redistributive transfers, the headcount index in Brazil would have been higher by approximately five percentage points in 2004. Research — most notably by Martin Ravallion — also contrasts Brazil’s experience with that of India, where rising inequalities have been found to dilute any impact growth had on poverty reduction. Studying poverty reduction in Kazakhstan, Kudebayeva and Barrientos (2017) find that growth was responsible for about four-fifths of the poverty reduction between 2000 and 2009. But, when the “poverty gap”, which takes into account the distance of households from the poverty line, is considered, the contribution of redistributive social assistance measures increases to nearly one-third of the reduction in poverty.
Conditional Cash Transfers (CCTs) have been proposed as an effective instrument in this situation. An added attraction of such schemes is that, beyond the immediate safety net objective, they could also serve longer term objectives through behavioural changes in households. Explaining the channels through which CCTs can reduce poverty, Ferreira and Robalini (2010) explain: “The objective is to alleviate current poverty while simultaneously seeking to break the inter-generational transmission of poverty by encouraging investment in the human capital of poor children.”
But do the desired behavioural changes actually take place? In Declining Inequality in Latin America, editors Lopez-Calva and Lustig conclude that while education attainment among the poor has increased, the redistributive momentum is at risk of being lost due to persistent divergences in the access to quality education: “The poor and middle ranges of the distribution receive an education of significantly lower quality than the top 10 per cent, members of which usually attend better-quality private schools.” Research from Brazil similarly estimates the failure to advance is higher by four percentage points for CCT-covered children than others.
Even for health outcomes, research finds that the Brazilian CCT Bolsa Familia has failed to increase child immunisation rates, and has had no impact on health indicators of children between 12 and 36 months. Similarly, the impact of Mexico’s Oportunidades on health outcomes has been inconsistent, owing to variations in the quality of health infrastructure, scarcity of medicine, low level of care, and discourteous treatment by health professionals.
The lesson that emerges is the ability of cash transfers to serve as both “ladders” and for blocking off “chutes” depends on how education and health outcomes for the poor change, which in turn is predicated not just on the behavioural changes the transfers induce, but also on the quality of social infrastructure. Cash transfers are able to act as effective ladders and reduce long-term poverty only as long as they are supported by a social infrastructure that facilitates an improvement in outcomes. As Fiszbein and Schady (2008) write: “Policy makers and program managers for CCTs in Latin America, the region where such programs have the longest tradition and the most established status, increasingly are casting CCTs as part of a broader system of social protection.”
India’s strategy to address both persistent and recurring poverty among households would be well served by addressing both the ladders and the chutes dimensions of the problem. India’s latest Economic Survey has mooted a Universal Basic Income as a “safety net against health, income and other shocks.” The UBI has been hotly debated on both feasibility and desirability considerations. However, drawing on the discussion above, at a conceptual level, it focusses squarely on the “chutes” aspect of the poverty problem.
The Survey makes clear that the primary function of the UBI is to block the chutes that threaten to subsume the poor. While blocking the chutes smoothens the consumption curve temporarily, even the most ambitious cash transfers will fail to reduce poverty permanently, unless they are complemented by a well-functioning social infrastructure that is able to provide quality education, health, and nutrition, across the board.
To maximise the bang for the buck, an effective poverty strategy should pay attention to the short-term safety-net aspects of any transfer-based programme, the medium-term behavioural effects, and perhaps most critically, the longer-term changes in outcomes.
The aim therefore should be to minimise the chutes and maximise the ladders — for this, access to the right mix of social services is critical.
Indian Express, September 22, 2017

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