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'Inclusive reforms' key to reduce poverty, says McKinsey

Press Trust of India  |  New Delhi 

Pursuing an "inclusive reforms" agenda that boosts investments and generates more jobs will help to significantly reduce poverty in India, where over half of the population struggle to meet their essential needs, McKinsey Global Institute (MGI) said today.

MGI, business and economics research arm of global consultancy major McKinsey & Company, has also projected that India could achieve an economic growth of 7.8 per cent over the next decade provided the country implements inclusive reforms.

"...An economically sound path of 'inclusive reforms'-one in which India taks steps to stimulate investment, job creation, and farm productivity and to dramatically improve the effectiveness of basic services.

"These reforms could significantly reduce poverty and potentially allow India to achieve an average GDP growth rate of 7.8 per cent between 2012 and 2022," MGI said in a report tiled 'From poverty to empowerment: India's imperative for jobs, growth, and effective basic services'.

The report estimated that on an average, just half of the public money spent on basic services actually reaches the people as real benefits.

"...In the absence of reforms in basic services delivery, this level of ineffectiveness would persist, constraining the impact of higher spending.

If the current slow pace of growth continues and no major reforms are undertaken, more than one-third of the population would remain below the Empowerment Line in 2022 and 12 per cent would remain trapped in extreme poverty," said Shirish Sankhe, director McKinsey & Member of MGI Council.

Coining the term 'Empowerment Line' for people able to meet basic needs of food, energy, housing, drinking water, sanitation, health care, education, and social security, it said more than half of India's population lacks means to meet these needs.

"...We find that 56 per cent of the population lacks the means to meet their essential needs. By this measure, some 680 million Indians experience deprivation--more than 2.5 time the population of 270 million below the official poverty line."

India needs to add 115 million new non-farm jobs over next decade to accommodate a growing population, reduce share of agriculture in employment and improve farm yield.

Public spending on basic services needs to grow at 6.7 per cent annually, nearly doubling from Rs 570,000 crore in 2012 to Rs 1,088,000 crore in 2022, the report said.

Delivery of basic services can be enhanced from 50 per cent per cent to 75 per cent by private and social sector partnership, community participation, use of technology to streamline operations and monitoring of outcomes, it added.

First Published: Wed, February 19 2014. 19:27 IST