Growth Without Progress: Can India Catch China As Numbers of Poor Increase?

As the BRIC nations grow and struggle with different sets of challenges (inflation, pollution, corruption, nagging poverty, income inequality, infrastructure needs etc - all if in differing orders of magnitude ), their priorities and policy solutions say much about their chances for sustainable success. Ejaz Ghani assesses in Vox the challenges and opportunities in South Asia.

"The Indian economy, along with others in South Asia, is among the fastest growing in the world. But what about social progress? This column reviews World Bank data suggesting that while income growth is helping to reduce poverty, the number of poor people is actually rising and there remains huge room for improvement in education, health, and women’s economic participation.

South Asia is a development paradox. It has attracted global attention for rapid economic growth. India, which accounts for nearly 80% of the regional GDP, and is the largest country in the region, is seen as an emerging economic powerhouse. Other countries in the region are also well advanced in the transition from low income to middle income status. But this progress doesn’t mask the fact that South Asia is home to the largest concentration of people living in debilitating poverty and social deprivation on planet earth.

The geography of poverty has changed over the last two decades (Sumner 2010). More than 70% of the world's poor now live not in low income but in middle-income countries. Indeed, there are more poor people living in South Asia than in Sub-Saharan Africa. This pattern of concentration of the poor living in the middle income countries is likely to continue over the next decade (Chandy and Getz 2011). This raises two big questions for South Asia.

•First, has the pace of poverty reduction kept up with the pace of income growth?
•Second, has the pace of human development and gender parities kept up with the pace of income growth?

The conventional wisdom is that growth can be sufficient for poverty reduction and social progress. The alternative view is that growth may not be adequate in itself. Growth story tends to be incomplete without improving social indicators like education, health, and women's participation in economic activities. Which of these two stories is consistent with the reality of South Asia?

Growth and poverty
The number of poor people (defined as those living under $1.25 per capita per day at 2005 PPP) in South Asia increased from 549 million in 1981 to 595 million in 2005 (Figure 1). In India, where almost three-quarters of these poor reside, the numbers increased from 420 million in 1981 to 455 million in 2005. South Asia’s poverty rate fell from 60% in 1981 to 40% in 2005 (for India, see Chen and Ravallion 2009). But it did not fall fast enough to reduce the total number of poor people.

Number of people living on less than US$1.25 a day at 2005 international prices. South Asia includes Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. East Asia Pacific includes China.

So have poverty trends in South Asia underperformed the global trends? No, South Asia matches the global trend. Figure 2 compares change in poverty rate and change in real GDP per capita in South Asian countries with the rest of the world. Each dot represents a country. The vertical axis shows annual change in log poverty rate, and the horizontal axis shows annual change in real GDP per capita, controlling for initial poverty. Most South Asian countries are close to the global trend line. India, Sri Lanka, and Bangladesh are all extremely close to the regression line, i.e. their poverty reduction is precisely in line with what economic growth would predict. But merely matching the global trends may not be enough for a region which has the largest concentration of poor people. South Asian countries have not done as well as China and Thailand, for example.

Why does India lag behind China?
Why has India – with roughly the same population as China – not done as well as China at alleviating poverty? The poverty rate depends on income growth and how it is distributed across people – in other words, inequality. India has experienced slower economic growth relative to China, which partly explains the higher poverty rate (Figure 2).

What about inequality? Figure 3 shows the annual change in household survey mean consumption (horizontal axis) against the change in inequality (vertical axis). Brazil and Thailand are in the southeast quadrant indicating that they have experienced a reduction in inequality and an increase in growth. A reduction in inequality makes growth more pro-poor (Bardhan 2007). China, India, and other South Asian countries are in the northeast quadrant. Both China and India experienced an increase in inequality. Inequality in China has increased more rapidly than in India. Despite this, China managed to reduce poverty faster than India, because it has grown faster.

Growth and social progress
What about social progress? Has it kept up with the pace of income growth? I compare changes in education, health, and gender outcomes in South Asia, conditional on income growth, with the rest of the world. The story is mixed.

South Asia has experienced an improvement in adult literacy which matches the global norm. However, the region lags behind when it comes to secondary education, which is becoming more relevant than primary education as growth becomes increasingly skill intensive in the region (Ghani 2009).

The experience of India matches the global trend, but it has not done as well as China. India’s growth enrolment ratio in secondary school is 40%, compared with 70% in East Asia. Health indicators have not kept up with income growth. Despite unprecedented economic growth, South Asia has the highest rates of malnutrition and the largest numbers of undernourished children in the world. Undernourished children have higher rates of mortality, have lower cognitive and school performance, and are more likely to drop out of school.

Gross enrolment ratio is the ratio of total enrolment, regardless of age, to the population of the age-group that officially corresponds to the level of education shown. Secondary education completes the provision of basic education that began at the primary level and aims at laying the foundations for lifelong learning and human development, by offering more subject- or skill-oriented instruction using more specialized teachers.

Most South Asian countries have much higher child malnutrition rates for their stage of development. Even leading states like Gujarat and Haryana in India are as much above the regression line as the lagging states like Bihar.

Malnutrition prevalence is for underweight children below the age of five for the cross-country sample and the percent of children under age three for Indian states. Underweight is expressed in 2 standard deviation units from the median of the 2006 WHO International Reference Population.


Growth and gender disparities

Over the last 50 years, the role women play in the economy and society has been revolutionised. Around the world, the most striking forms of inequality, which include discrimination against women in access to education, health, employment, political voice, and resources within the household, have been largely reversed. Nevertheless, dramatic gender inequities persist in South Asia.

Boys outnumber girls in school enrolment. Dropout rates for girls across the region are higher than those for boys. Dowry puts pressure on families of girls to marry them early, leading to preference for sons. Legal and judicial systems, as well as law enforcement mechanisms, have failed to address the high incidence of violence against women. Death rates for young girls are much higher than boys. Higher death rates for young girls are symptomatic of a general pattern of discrimination against girls. The expectation that girls will grow to do little other than serve their husbands reduces a parent’s incentive to invest in their daughter's human capital. Uneducated women then have few alternatives and so the expectation becomes self fulfilling, leaving women in a continuous circle of neglect (Summers 1992). Gender disparities, which begin at childhood in the region, have significant adverse long-term effects. Women and girls bear the largest and most direct costs of these disparities.

Despite robust economic growth, women’s labour force participation rate in the region is among the lowest in the world. Figure 6 plots the share of female labour force in the total labour force and real GDP per capita for 160 countries over the period 2000–2005. It shows that gender disparities in employment are reduced with income growth. But growth in the regions seems to be less gender inclusive. Pakistan and India have a low ratio on female employment for their stage of development.

The female labour force as a percentage of the total shows the extent to which women are active in the labour force. Labour force includes people age 15 and older who meet the International Labour Organization's definition of the economically active population. The plot takes averages for the period 2000­–05

Conclusion
The paradox of South Asia is that growth has been instrumental in reducing poverty rates, but poverty rates have not fallen fast enough to reduce the total number of poor people. Poverty reduction in India, China, Sri Lanka, and Bangladesh are precisely in line with what economic growth would predict. Although inequality increased more rapidly in China than in India, China still managed to reduce poverty faster than India, due to a faster pace of income growth.

So the conventional wisdom that growth is important for poverty reduction is consistent with the empirical facts in South Asia. Growth creates the fiscal and political space for poverty reduction. However, the alternative view that growth tends to be incomplete is also consistent with empirical facts. The South Asian story on social progress – human development and gender disparities -- is mixed. Human and social outcomes –education, health, and women's participation in economic activities – have not kept up with income growth. In this sense growth may not be adequate.

Policymakers should consider direct policy interventions to accelerate social progress, with a particular focus to enhance gender inclusiveness. Major initiatives to increase the role of women can transform society. If more girls had gone to school a generation ago, millions of infant deaths could have been averted each year, and tens of millions of families could have been more educated, healthier, and happier.