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Don't look for any easy answers in India's new poverty numbers

Recently released survey statistics show poverty has declined in many fast-growing states. But don't read them as addressing the "debate" between Jagdish Bhagwati and Amartya Sen

Vivek Dehejia 

Vivek Dehejia

The latest poverty statistics are a ready-made Rorschach test for the economic philosophies of commentators, and, what's more, they conveniently dovetail into what is being called at the moment the "Bhagwati-Sen debate", between the two distinguished economists Jagdish Bhagwati and Amartya Sen on the nature and sequencing of economic policy to promote growth and better social indicators.

The facts are clear: during the tenure of the United Progressive Alliance, poverty fell more rapidly, and growth was higher, than during the preceding decade (largely a time of non-Congress rule). Does this tell us decisively that it was growth, not social spending, which deserves the credit? That would appear to hand victory to Professor Bhagwati and defeat to Professor Sen - at least in term of the current, caricatured debate.

First, though, dispose of some canards, starting with the sterile debate on whether the poverty line is set too low, which attempts to turn good news into bad. Any sensible cut-off will show a decrease in poverty over this period.

Second, the new data don't necessarily mean that the UPA deserves all of the credit. After all, important reforms were set in place by the National Democratic Alliance that, unfortunately for them, delivered a boost to economic growth after they were out of power. In fairness, both the UPA and the NDA deserve to share the credit for India's good performance on growth and poverty reduction - although the UPA isn't working terribly hard at the moment to burnish that record.

Back to the real question: can proponents of a growth-first, social spending-later philosophy legitimately claim vindication from the latest data? Yes and no. Yes, in that, a few outliers such as Chattisgarh apart, there's a clear correlation between more rapid growth and more rapid poverty reduction, over time and across states.

But here's the rub. A statistical correlation doesn't necessarily imply a causal relationship. This isn't an arcane theoretical observation. It's incontrovertible that growth is good for poverty reduction in the long run - but it must also be conceded by growth boosters that this relationship isn't linear and mechanical.

Further, the beneficial effects of growth on poverty (and other social indicators) are likely to work with a lag, and work much better with an enabling environment - one characterised by political stability, for instance, and with a well-functioning public education and health care system. In short, growth is necessary for good things to happen, but it isn't sufficient, nor is it necessarily immediate.

That's why supporters of the view that growth is central to poverty reduction - including this author - must be cautious that we don't oversell the lessons from the good news on poverty reduction. While it's very plausible, perhaps even likely, that - when properly analysed - the latest data will support this view, it's premature to make that assertion.

I hate to throw cold water on the assertions of commentators and partisans eager to opine while the news is fresh and while debating points may be scored. The boring reality is that we won't know with any degree of certainty how to interpret the most recent data until the next large lot of data come in, five or ten years from now.

If, for instance, the current drop-off in growth rates persists for several years longer, and this shows up in an attenuated reduction in poverty rates in the next round of data, that would be suggestive that the recent sharp reductions in poverty are, indeed, well explained by a decade and a half of high growth.

But if, instead, the growth rate remains tepid but poverty reduction continues apace - unlikely in my judgement, but not impossible - it would suggest rather the most recent experience has been the result of both more rapid growth and increased programmatic expenditure.

The bottom line is that, whichever side of whichever debate (real or imagined) one happens to be on, it behooves those of us who comment on such matters to be particularly careful and studiously nuanced in how we interpret developments and explain them to the reading (or viewing) public. And we must resist the urge to yell "gotcha" at those who hold to a different theory about how the world operates.

Unfortunately, subtlety and nuance are at a premium in the fervid and charged ambiance of debate in India today, especially so when policy debates can be conveniently attached to public intellectuals such as Professors Sen and Bhagwati.

So don't be surprised if you hear in the coming days yet more assertions that the recent poverty statistics prove that Jagdish Bhagwati is right. Or that Amartya Sen is right. Save those and re-read them in five or ten years. A few of them may give you a chuckle.

The writer, an economics professor at Carleton University in Ottawa, is on Twitter as @vdehejia

First Published: Sat, July 27 2013. 21:50 IST