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A dynamic, growing global economy is the ultimate poverty reduction strategy” (Colin Powell, July 2001). Discuss this assertion in the light of economic development in “India” and by reflecting on development theory and thinkers to inform analysis.
The assertion of “A dynamic, growing global economy is the ultimate poverty reduction strategy” (Colin Powell, July 2001) has long been a controversial topic across the world. Truly, the economic growth is an essential implement to reducing poverty as Rodrik (2007) said “Growth is the most powerful instrument for reducing poverty”. The evidences, on the other hand, have been expressed the serious doubt that million of people are still living in poverty condition which has intensively questioned whether the economic growth is really guaranteed poverty reduction for everyone. This essay carefully aims to focus on India economic growth and examines the development theory which has been applied as a tool behind its spectacular growth nowadays, called “Liberalization”. This is particularly concerned the period when India economic transformed from strict economic as “Protectionism” to “Trade liberalization”. Furthermore, it also attempts to focus on the impact of economic growth on poverty reduction in India in order to criticize the assertion above. At the last stage, I will focus on the meaning of “poverty” and argue in this essay on whether the economic growth data such as GDP, which is normally used to describe the economic growth situation, is actually be the right tool for the poverty reduction or not.
India Economic Development
First of all, the speed of economic growth in India at the present period has emerged as one of the fastest growing major economies along with China. For a better understanding on India economic development, it is necessary to understand its background because based on historical of India in particular economy section, it has long evolution in itself. Focusing on long term period, India has undergone four steps of growth. During the colonial period, under the British rule, the overall record of economic performance was pretty dreadful. Per capita economic growth during the period 1870 to independence in 1947 was only 0.2% per year. Later, Nehru became the first prime minister; a strategy of “democratic socialism” was applied resulted in “Protectionism” which was highlighted on import substitution, business regulation, state intervention and central planning in 1947- 1970. In addition, there was a strong state control and licenses were strongly needed for everything as well as bank account, money transfer and foreign investment all were required licenses. Obviously, there was a sluggish growth from both time under British Raj and Nehru’s License Raj. However, there was a faster growth in 1970-1991 due to “Green revolution” which introduced new high-yield crop technology caused of income rising but economic growth was relatively slow in general (Sachs, 2005). It had become clear that that “the states ambition of pushing the country into the front rank of the developing world had fallen far of its target, with seemingly few prospects of changing in the near future” (Chibber, 2006, p.3). There are many critiques against India government due to powerless economic which was seemed to be the major obstacle of country development. Consequently, in the late 1980’s, Rajiv Gandhi introduced “market reform” that encouraged the growth. Reform policy mainly emphasized on opening for international trade and investment, deregulation, tax reforms and privatization. The high growth remained with market liberalization since 1990s (Sachs, 2005). The 1990’s have witnessed a turning significant change which was particular after the deregulation and liberalization programmes that launched during the mid 1980s and early 1990s (Arup, 2008, p.1057). Accordingly, India has become one of the world’s fastest growing economies with average growth rates of 9% over the past four years.
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The impact of economic growth: Is it really reduce poverty?
Having been mentioned above, it seems that this is a pleasant period for India in term of dramatic growth rate in comparison to others which is believed to be a powerful mean to reduce poverty. Theoretically, the economic growth appears to be ultimate poverty reduction strategy as the assertion above. Arup (2008, p.1067) also noted that “the inter-relation between economic growth and poverty reduction is the growth process contributes to generate employment opportunities. The unemployment rate in India has reduced consistently from 9.5% in 2004 to 6.80% in 2009. Beside, growth in high skill activities could increase the demand for goods and services which are involved to labour from poor household”.
Additionally, it can be noticed from the graph above that poverty in India has been declining continuously and significantly in term of percentage in urban, rural and overall aspect, from 1977 – 2007. This economic data reports that the amount of people living below poverty has been reduced from 51.8% in 1997 to only 19.8% in 2007. India success at GDP growth rate and percentage of poverty declined are to be admired. This growth number, however, has to be watched in proper perspective (Kohli, 2006). Undoubtedly, the question has remained whether the poverty reduction counts only on the price or not.
Thirlwall (cited in Vandana and Robert, 2002) noted that although people living standard is usually measured by Gross Domestic Product (GDP), the economic growth is not the same as economic development. Obviously, growth is an essential condition for nation economic and social development but it is not sufficient condition to identify poverty condition as the growth rate of nations cannot be taken alone as a well-being of societies because the quality standard of living is much more comprehensive concept than focusing only on income level.
Disparity in India
Basically, the Gini coefficient figures are used to measure of income or wealth distribution. A high Gini coefficient indicates more unequal income or wealth distribution, meanwhile a low Gini coefficient indicates more equal distribution. Surprisingly, although the India economic growth rate such as GDP, income per capita or unemployment rate seemed to increase annually which is mentioned earlier, it can be noticed from the Gini coefficient graph above that after 1990s ,when was the period of “Liberalization” began, the continuing disparities both in rural and urban has been higher. This can be implies that the gap between people has been wider which means higher disparities as well as even the poverty line in urban shows the impressive decrease but the inequality in urban has also increased. Therefore, class system and economic disparities among India have to be strongly concerned. Which group received the benefit from the economic growth is still questionable. The important point that really needs to be noted is the ratio of inequality is most likely leads to the problem such as, shelter, water, sanitation, health, education, social security and livelihoods along with the special needs of vulnerable group like women, children and elderly people (UNDP, 2009, P.1). Growing in GDP probably tell nothing in reducing poverty if life still has not met the basic needs.
Does economic growth fight poverty?
In order to be able to know how to reduce poverty or what the exact strategy of eliminating poverty is, it is significantly important to understand the meaning of poverty itself. The World Bank gives an overview of poverty as follow;
“Poverty is hunger. Poverty is lack of shelter. Poverty is being sick and not being able to see a doctor. Poverty is not having access to school and not knowing how to read. Poverty is not having a job, is fear for the future, living one day at a time. Poverty is losing a child to illness brought about by unclean water. Poverty is powerlessness, lack of representation and freedom”. (The World Bank, 2009)
Clearly, poverty is not count only income or economic resource because poverty involved not only in economic aspect but also social and politic as well. Literacy and education level, fertility rate, life expectancy and health are the essential factor to be told the poverty condition. As Gaurav(2002, p.105) says, the need to combine human development with economic has been well recognized in discussions of policies for fighting poverty. India will require more than economic reform but human development should be included. By doing both of economic and human development can taken India along way from poverty finally. Therefore, Human Development Index, which consists of literacy, education level, life expectancy and per capita income, also should be used to measure the quantity of life. According to the UNDP report (2005) “India has an average HDI of 0.63 (medium) and ranks 127 in the world, India high GDP growth contrasts with the poor human development which indicates a failure at the social front. The success in literacy, health and gender equality is far from impressive”.
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Additionally, some thinkers believe that addressing on only economic growth probably is not enough factors to claim as it is a sufficient reason to reduce poverty according to “poverty” can be valued in various ways. According to UNDP since 1997, the per capita income does not make sense because the world should speak of “human poverty” instead of income poverty. Not only income, the UNDP also takes the following aspects including, “Chance of self determination”, “Health and expectancy of life”, Possibilities of obtaining an education”, “Political freedom”, “Human rights” and “Human dignity and self-respect” into consideration (Friedel Hutz-Adams, 2006, p.20). Moreover, UN-Human Development Report (1990) argues “the expansion of the economy as measured by GDP per capita does not necessary mean that people are in better living particularly, in regards to health, education and freedom”.
Goulet (1971) suggests that life sustenance, self-esteem and freedom should be regarded as an important basic component for the true meaning of development. Moreover, Sen (1999) also noticed closely related to Goulet that economic growth like GDP should not be evaluated alone for the reason which meaning of achievement is much more wider which should include economic and social development. Beside, poverty in his view is lacking of possibilities of self-realization which refers to income, provision of basic needs and possibilities to access to available resources are very crucial.
To conclude, I have to argue Colin Powell statement. I personally believe that it is impossible to measure poverty reduction by focusing on economic development alone. Similarly to when talking about development, it is unfeasible to state on economic, politic or social development alone. Nevertheless, all these factors are essentially need to compromise together in order to achieve the actual development which lastly leads to poverty reduction in the meaning mentioned here which does not focused on being rich and poor only. Economic growth data such as GDP or income per capita do not really tell the truth of better standard of living. Since “Poverty reduction” meaning has more complex dimensions, other factors are strongly need to be counted. For example, in term of politic, people participation and decentralization are the key point of people freedom and ability to decide what they exactly want. The suitable programme or policies then will be issued properly for them to pursue their lives better. Beside, social development regards various issues such as gender, equality, education, health and social disparity etc., these issues again require to be provided equally because this is the condition for better living. It can be seen from India that even economic growth rapidly but the social disparities also increase. Other evidences have been shown continuously that some social, politic and human composite indexes go contrast to the economic rate which resulted in nation development difficulties mainly is poverty. Lastly, as the poverty here is defined in term of sociology, politically and economically dimension, the word “growth” from now on should be talk in term of quality rather than quantity.
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- GOULET, D. (1971) The Cruel Choice: A new Concept on the Theory of Development, New York, Atheneum.
- KOHLI, A. (2006) Politics of Economic Growth in India, 1980-2005, Part II: The 1990s and Beyond. Economic and Political Weekly, 1361-1370.
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- MINISTRY OF HOUSING AND URBAN POVERTY ALLEVIATION, UNDP. (2009) INDIA: Urban Poverty Report 2009. United Nations Development Programme (UNDP).
- RODRIK, D. (2007) One economics, many recipes: globalization, institutions, and economic growth Princeton, N.J. ; Oxford : Princeton University Press.
- SACHS, J. (2005) The End of Poverty; how we can make it happen in our lifetime, London, The Penguin Group.
- SCHIMTZ, H. (2007) The Rise of the East: What does it mean for Development Studies? 38, 92-106.
- SEN, A. (1999) Development as Freedom: Human Capability and Global Need, New York, Knopf.
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- United Nations Development Programme(UNDP), Human Development Report (2005, 2009), New York, USA.
- Almost half the world – over 3 billion people – lives on less than $2.50 a day. There are 1.4 billions people in the developing world who are living in extreme poverty, of which about 600 million are in South Asia. For more information: The developing world is poorer than we thought, but no less successful in the fight against poverty (The World Bank Development Research Group, August 2008: http://www-wds.worldbank.org)
- The economy of India is the twelfth largest economy in the world by market exchange rates. India’s economy in recent years is growing 9.2% in 2007 and 9.6% in 2006 and has seen a decade of 7% growth. (http://www.economywatch.com/indianeconomy/indian-economy-overview.html)
- India country overview 2009; http://www.worldbank.org.in/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/INDIAEXTN
- For more detail, please see http://www.indexmundi.com/india/unemployment_rate.html.
- The percentage was calculated from people living below poverty line $ 1.00 a day which was based on India’s PPP rate (World Bank.org)
- This is calculated by the total amount of goods and services produced per head of the population.
- For more details : http://www.poverty.org.uk/e14/index.shtml
- Life sustenance is concerned with the provision of basic needs such as housing, clothing, food and education (Goulet, 1971)
- Self-esteem focuses on the feeling of independence. One country cannot be fully developed where is exploited by others which in this case can be referred to colonization. (Goulet, 1971)
- Freedom regards to ability to determine own destiny.
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