Economic growth is a moral obligation to the poor

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Economic growth is a moral obligation to the poor

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• What India lost: Indians lost a lot in the colonial era, and in the ‘socialist’ India till 1991. Why? Because economic growth was not upto the mark. And that alone is needed first, to pull millions up the ladder.
• Reform post-1991: Economic reforms started sharply reducing poverty, lifting many up (upto 170 m). That was a high watermark in independent India’s economic story.
• Extreme poverty: But India still had 7.5 cr Indians living below the $1.9 / day level, in 2018. (The pandemic has ensured that the number remains the same, or even goes up). As per World Bank’s $3.2 a day level for lower middle incomes nations like India, about a third of all Indians are vulnerable to economic stress (and hence poverty).
• One focus: So, India has to focus on just one thing – economic growth – but it isn’t doing so. Every single percentage point in GDP growth lifts 0.78% Indians above poverty line (3 million).
• GDP Growth Rates: In 2011, India had a GDP per capita growth rate of 9%, but in 2017-18, it was6% only. (It has steadily deteriorated, and in 2020 it went in negative territory). What does this 3% mean? It means lifting 9 million out of extreme poverty (or not) – so more reforms to push more GDP growth needed. Hence, for the government, it is a moral obligation, to boost GDP growth and it’s not just about economics.
• Pulled out, but not pushed in: The millions who are pulled out of extreme poverty, were sadly not pushed into middle class comfort yet. That is due to harsh regulatory environment which leads to the creation of a large informal sector. Those lifted from extreme poverty get trapped there, and are vulnerable to stress. Demonetisation was the proof that above equation is true, as livelihoods were lost on a large scale in informal sector.
• How to push vulnerable into middle class: A long period of sustained economic growth is the only answer. And to formalise the informal sector, reforming our labour laws and manufacturing regulations a must. (GoI did that in 2020)
• Summary: If we want any UBI or direct transfers, we need faster growth. Since 1991, GoI revenues are up by 25X, and States’ by 28X nominal terms (4X real terms). Indian economy in 2019 is what the Chinese economy was in 2002. It is time to stop freebies, and focus on reforms.

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