Monday, February 13, 2012

State of the nation

Sangita Jha/ New Delhi

Economic disparity among different states is widening

India has seen over two decades of high economic growth. The time span is enough to do some reality check to see if the high economic growth is translating into overall wellbeing of people or not and more particularly if the poor are able to break out of the poverty cycle or not.
However, various studies point out to one common thing, that the poor are getting poorer and rich are getting richer. This clearly is a sad commentary on a socialist country with strong commitment for welfare of the poor.
The most overriding concern of economists is that the economic disparity among various states is getting further skewed. It's being clearly pointed out that a large number of poor in the backward states are not able to reap the benefits of the economic growth. While there had been inequality among various states, it's now clearly emerging that the better off states are doing well in improving lots of the poor than the poor states. This is despite the fact that the Centre factors in poverty in states while designing its various schemes and also fund allocation in the form of Central support.
The Associated Chambers of Commerce and Industry of India (Assocham) by collating various data and analysis has come to the conclusion that inequalities continue to rise among various states even after two decades of economic liberalization, broadly implying that poor people are getting poorer and rich are getting richer.
The Assocham based its analysis on average household monthly per capita consumption expenditure (MPCE) at current prices, which was deflated by consumer price index, to arrive at a measure of change in real economic well being of people across regions and classes. The study does confirm that growth rate of both average per capita expenditure and resultant demand increased during 2004-05 and 2009-10.
But the flip side of the India's growth story was the fact that while the average per capita consumption expenditure remained unchanged for the poorest 20 per cent people, the average household income of the richest 20 per cent increased by 7.7 per cent. So, the study suggests that the inequality is clearly deepening further.
The Assocham found that on an average, a rural household in the richest 20 per cent category spent more than 258 per cent of what a household of similar size falling in the poorest 20 per cent category spent in 2004-05. This difference further increased to 286 per cent in 2009-10, the study revealed.
Worrying aspect as pointed out in the study was that while the size of consumer markets expanded at a healthy rate of 7.9 per cent, economic inequality further widened over these five years. Also, market size of richer average household monthly per capita consumption expenditure (MPCE) classes too increased at a relatively faster pace.
More particularly the study on the basis of statistically analyzing the data came to the conclusion that income inequalities increased in Jammu and Kashmir by 7.37 per cent, Madhya Pradesh, including Chhattisgarh, by 4.96 per cent and Bihar, including Jharkhand, by 4.9 per cent. Here it is worth mentioning that Jharkhand and Chhattisgarh are facing worst crisis in the form of the leftwing extremism, popularly Naxal menace, for quite a long time, with the proponent of violent means having established their footholds among the poor tribals.
The study further revealed that some of the state did better by reducing inequalities, which was by 5.75 per cent in Orissa, 3.85 per cent in Maharashtra, 2.36 per cent in Haryana and West Bengal. The industry body also noted in its study that Rajasthan, Karnataka, northeastern states and union territories too have seen some fall in the degree of income inequalities.
The study recommended "along with higher economic growth, more efforts need to be made to make it more inclusive", while stressing that reducing income inequalities is necessary for accelerating economic and human development. It also sought from the state governments to play a major role in developing social sectors and critical infrastructure.
National Advisory Council (NAC) member NC Saxena is also of the view that the absolute number of poor has gone up in the last two decades. It's also a well known fact that China, Indonesia and other South-east Asian nations have done much better than India in reducing the absolute number of poor, while riding on decades of high economic growth.
Saxena points out one critical aspect of public distribution, which invariably favors rich states. He says that the Department of Food and Public Distribution has been following the poverty head count ratios of 1993-94 and foodgrain is allocated to states based on this number plus 10 per cent to account for the transient poor. "In addition, some states such as Tamil Nadu, Andhra, Delhi, the North-east states also received quota for the APL, which was not given to the poorer states on the ground that they did not lift it in the past when the market price was low. This policy favours the well-off states and punishes the poorer states," added Saxena.
There is also a well accepted fact that the incidence of poverty is acute in poor states than the richer ones. The poor states also face another crisis in the form that more poor people are left out of the process to include them in the BPL list so that they can benefit from the welfare schemes. In fact, the officials of the ministry of rural development agree to the fact that the incidence of exclusion of deserving poor from the BPL list is very high in the poor states.
In fact, the findings of the study of ASSOCHAM is supported by fact that Bihar has as high as 25 per cent poor who have no BPL cards, which is 22 per cent in the case of Jharkhand, 24 per cent in Chhattisgarh and 30 per cent in Madhya Pradesh. Almost half of the poor people in the poor states find themselves deprived of the benefits of the welfare schemes of the Central and state governments.
"These must be presumably the most poor tribal groups, women headed households, and people living in remote hamlets where administration does not reach. Thus, the people most deserving of government help are deprived of such assistance. On the other hand, almost 60 per cent of the BPL or Antyodaya cards have been given to households belonging to the non-poor category," Saxena noted in a representation to the Planning Commission, while seeking launching of a drive to weed out errors of exclusion and inclusion.
The interesting aspect of the way the Central government and Planning Commission deal with the allocation of resources to deal with poverty and the resultant cap which they impose on number of poor for each state. In fact, Planning Commission has not fixed a uniform cap of 37.2 per cent for every State. The estimate of poverty differs from state to state from a high of 57 per cent for Orissa to 9 per cent for Nagaland and 13 per cent for Delhi. However, the percentage fixed for each State does amount to a de-facto cap for that state as far as central allocation in some schemes and subsidies are concerned, such as Old Age Pension, Total Sanitation Campaign, Public Distribution System, etc.
Some states have issued more BPL cards than warranted by Planning Commission poverty estimates, and that the Central government has not placed any restrictions to this so long as the concerned state makes its own provision for the additional subsidy and food grain requirement. This enables rich states likes Tamil Nadu, Haryana, Maharashtra to do much better than the states of Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh in improving the lots of the poor due to better resources at their disposal.
However, the poor states do not have the wherewithal to pump in additional financial resources to improve the overall conditions of the poor.

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