August 2000


It’s time the Indian government accepted the stark reality that economic growth does not necessarily reduce poverty. The gross domestic product (GDP) is not an accurate measure of human development, especially in less developed countries, where a lot of production takes place in the household economy.

By Devinder Sharma

[Indian] Prime Minister, Mr Atal Behari Vajpayee, has an unflinching faith in economic growth. Treating higher growth rate as an essential vehicle for eradicating poverty, he had recently remarked, ‘The important challenge is how to accelerate economic growth to achieve a rate of 8-9%.’

This comes in the wake of the World Bank’s report on Global Economic Prospects and the Developing Countries 2000, stating: ‘In India, home to almost half of the world’s poor, the rate of poverty reduction appears to have slowed down in the 1990s, particularly in the rural areas...these areas will not see much impact on poverty even with higher growth rates.’

This also reminds me of what the former Finance Minister of Pakistan and the author of the UNDP [United Nations Development Programme]’s Human Development Report, the late Mahbub-ul-Haq, had once remarked, ‘We were wrongly taught that we should take care of GDP and it will automatically take care of poverty. Let us reverse it. We need to take care of poverty and it will automatically take care of GDP.’

And the World Bank acknowledges it, though belatedly: ‘The gap between some of India’s largest and poorest states exhibit slow progress in human development indicators;  low  growth  rates particularly in the agricultural sector.  If  the present trends continue, the bulk of the poor in these states will be unable to participate in future growth.’

Like Vajpayee, Mahbub-ul-Haq too refused to accept the stark reality - economic growth will not reduce poverty and deprivation. He too believed firmly in the conviction that the real purpose of development was to increase savings and attract foreign investments. As Pakistan’s Finance Minister in the 1960s, he was able to generate a GDP growth rate of 7%. ‘And still people voted us out,’ he told me once, adding, ‘It was a rude awakening for me. I realised that economic growth is no indicator of human development.’

He had admitted that, expressing certain exuberance that is the privilege of youth, he had all along argued that GNP growth must supersede all other goals. Not realising that in the bargain, poverty actually grows whereas the benefits of economic development are reaped by a handful of the rich industrialists and the elite.

In India, the high priests of economic reforms, [former Finance Ministers] Dr Manmohan Singh and Mr P Chidambaram, had only accentuated the great economic divide through economic policies that were aimed at alleviating poverty. Even with the World Bank acknowledging that poverty has grown in the period beginning with the ushering in of the economic liberalisation, their economic prescriptions need to be discarded.

After all, 52 years after Independence, more than 135 million people have no access to basic health facilities; 226 million lack access to safe drinking water; about half of India’s adult population is illiterate; and about 70% of its population lacks basic sanitation facilities.

We have the world’s largest population of diseased and disabled. Their number continues to multiply. With nearly 52% of the population earning less than a dollar day, the economic models of growth have only succeeded in extending the poverty line to bring in every year a sizeable percentage of the population within its deadly grip.

The economic growth model follows the same prescription. Policy-makers assume that even if poverty increases in the short term, this is a price that has to be paid for long-term stability and growth. After all, as Noam Chomsky says, a nation has to be subjected to the iron principles of economic rationalism, sometimes called ‘tough love’. Just the right phrase: love for the rich and privileged, tough for everyone else.

Once again, people are being asked to make sacrifices. The sacrifice has to be made by the poor and resource-poor while the State spends millions to create infrastructure for the industrialists.  Didn’t the economists tell us that we live in ‘lean and mean times’, and therefore everyone has to tighten their belts?

Wasn’t the ‘dream budget’ a step towards abolishing poverty? Were the economic reforms not aimed at overall development? Didn’t Chidambaram ask us to tighten the belts?

While re-presenting the 1997 Budget in parliament, Chidambaram had said, ‘Poverty heaps the greatest indignity on mankind and only growth could put an end to it.’ Laudable words indeed, but like his distinguished predecessor, he also followed an erroneous approach. His successor, Yashwant Sinha, unable to find any quick-fix remedy, continues to follow a path which does not lead to any meaningful development, except of course, helping the rich and powerful to amass more wealth.

It is true that India has been sinking into a quagmire of deprivation and despair. Ignoring the premise that economic growth does not automatically translate into human development, successive Finance Ministers have been repeatedly asserting that the opening up of the markets is the key to attracting foreign investments and accelerating growth.

Sadly, in the absence of any plausible understanding of the politico-economic system that a country like India must follow, Mr Vajpayee too - with his vision fixed on treating GDP as the benchmark of economic policy - is harping on a path which is laden with acute poverty and chronic malnutrition.

The effects of GDP fixation were and are still seen most vividly in developing countries, and India is no exception. Decades ago, Simon Kuznet writing in The New Republic tried to point out the absurdity of using such a measure in less-developed economies - where much production takes place in the household economy beyond the ken of GDP. And yet, the mainline economist had refused to accept that GDP was not the right measure of human development.

GDP is simply a measure of the money that changes hands. It remains a fact that the more India depletes its natural resources, the more GDP increases. Industrial pollution adds twice to the GDP: one, when the chemical factories produce its byproduct and two, when the government spends [large sums of money] to clean up the toxic effluents. Furthermore, medical expenses incurred in fighting health hazards as a consequence of environmental pollution, also show up as growth in GDP.

Any number of crack teams to prop up the sagging economy is unlikely to help mitigate the suffering of the poor. If at all the government is serious in fighting abysmal poverty,  it  has to dismantle  the renewed emphasis on accelerating  the growth rate.  The Prime Minister has to embark upon a strategy that helps in capacity-building of the poor masses.

Creating more infrastructure for the industries and creating an economic environment that actually is benevolent to the richy-rich is only going to exacerbate the socio-economic dichotomy. The fact remains that a handful of rich are getting stinkingly rich while the poor are being driven to the wall. Such policies need to be immediately reversed.

The nation has to begin from scratch, building on strategies that launch a direct attack on poverty alleviation. A beginning has to be made, the sooner the better. - Third World Network Features


About the writer: Devinder Sharma is a development and economic policy analyst, and also president of the Forum for Biotechnology & Food Security, New Delhi.