Trickle-down does work PDF Print E-mail
Thursday, 02 August 2012 00:41
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The President doesn't agree, but the facts are clear



President Pranab Mukherjee was probably echoing the sentiments of many in the ruling coalition, and the National Advisory Council (NAC) when he said, in his inaugural address, “trickle-down theories do not address the legitimate aspirations of the poor”. Indeed, much of the government’s policies are premised on this belief, which is why expenditure on subsidies, which was 1.6% of GDP when the NDA demitted office, rose to a whopping 2.6% of GDP in FY12—and that’s not calculating the under-recoveries borne by PSU oil firms; add this and the current subsidy expenditure may well rise to 3.6% of GDP. Data put out by the government, in a tearing hurry given that the field work for the NSS’s 68th Round was completed just a month ago, suggest the exact opposite is true, however. Though the NSS data put out pertain only to consumption averages—the data on the distribution is probably a year away—economist Surjit Bhalla, who has done a lot of work on poverty, estimates poverty levels for FY12 based on this data at around 26.3%. This means, poverty fell at an annual rate of 2.4% between 2004-05 and 2011-12, a number never seen before in India’s history. During 1993-94 to 2004-05, for instance, poverty fell at just 0.88% per annum—the difference is that while 2004-05 to 2011-12 GDP growth averaged 8.2%, it was a much lower 6.2% in the 1993-94 to 2004-05 period.

Given the speed at which the data was put out, and the statistical system’s propensity to make major goof ups in recent times, the data may well change, but what’s interesting is that other data corroborate the direction and magnitude of change. The Census shows that the proportion of houses with concrete roofs has risen from 19.8% of the total in 2001 to 29% in 2011; for houses with access to electricity, the numbers rose from 55.9% to 67.3%, and in the case of telephones, it rose from 9.1% to 63.2%.

What’s even more interesting is the story at the disaggregated level. Though the 2011-12 data on this is a year away, it’s unlikely the distribution is very different from that in 2009-10. Assuming that’s true, for some states, the fall in poverty levels was nearly double the national average over the five years—9.9% for Andhra Pradesh and 10.6% for Tamil Nadu. And, in the case of caste groups, the Census showed the proportion of SCs with houses that had concrete roofs rose from 13.14% to 21.93% while for STs it rose from just 6.12% to an equally low 10.11%. In the case of access to electricity, it rose from 44.32% to 59.02% for SCs, and from 36.51% to 51.7% in the case of STs. And, analysis of NSS data showed poverty levels for STs fell by 1.1% per annum between 1993-94 and 2004-05 but by 5.1% between 2004-05 and 2009-10; poverty levels for SCs fell by 2% and 4% in the two periods; and for Muslims the relevant numbers are 2.1% and 5.8%, respectively. Higher GDP growth is the most inclusive and trickle-down friendly policy anyone can think of.


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