It was inevitable that the Jayalalithaa walkout at the National Development Council meeting on Thursday would hog media attention, as did Narendra Modi’s predictable broadside against the Centre. All too little attention, therefore, has been given to the most important claim made at the meeting. The prime minister said that poverty numbers have fallen by about two percentage points annually since 2004-05. Irrespective of whether you take the official poverty figure for that base year (27.5 per cent) or the figure put out by the Tendulkar committee (37.2 per cent), a 10 percentage point reduction in the space of five years would be dramatic. As Manmohan Singh noted, it was two-and-a-half times the rate of decline achieved in the 11 years till 2004-05. Some of these numbers have been put out before, or mentioned during interviews. Still, they deserved more than the minimal notice that they got in the media.
What made the difference? Dr Singh’s explanation for the achievement was clearly stated: “Agriculture growth accelerated from 2.4 per cent in the 10th Plan to 3.3 per cent in the 11th Plan. Real wages in agriculture have grown at 6.8 per cent per year in recent years, compared with only 1.1 per cent per year in the period before 2004-05. Better agricultural performance is an important reason why poverty declined faster.” So it was not just the record rate of economic growth in this period (about 8.4 per cent in the five years after 2004-05), but the fact that more money has been put in the hands of farmers and agricultural workers, who between them constitute the bulk of the rural population, which in turn is 70 per cent of the national total.
Some might argue that the overall faster rate of growth provided the underpinning; others would say that the government’s welfare measures, including the rural unemployment guarantee scheme, would explain the better performance on poverty reduction. Whatever the case – and these arguments would have varying degrees of validity – the important fact is that something that few would have considered possible has been achieved (and might well explain the 2009 election results).
The prime minister’s claim might be greeted with scepticism by the usual naysayers, some of whom have maintained that agricultural growth has been faltering, and that there is more malnutrition today than during the Bengal famine of 1943. In terms of political economy, the new numbers are a powerful argument for moving away from overweening subsidy programmes, especially since a further rapid drop in the poverty numbers is feasible. There are challenges in the way of achieving that, of course. First, the economy has slowed down and no one is looking for another five years of 8.4 per cent growth. Second, the manner in which more money was put in the hands of farmers (through sharp increases in procurement prices) is unlikely to be repeated, given that this may have been one of the reasons for the high inflation of recent years. Third, the knock-on effect on agricultural wages is unlikely to be repeated. Finally, the level of spending on income transfers/welfare measures is unlikely to go up, given the renewed emphasis on fiscal discipline. These constraints can be neutralised through more efficient income transfer programmes that deliver more bang for the buck; continued agricultural transformation through crop diversification; and additional momentum for the manufacturing sector which would then draw surplus labour from the countryside, and create a larger pool of higher-income activity.
All this will be possible only if the economy itself regains growth momentum, and if macroeconomic balances are in order. Which is why the new sense of purpose in the government is entirely to be welcomed.