OSAKA – According to its own, somewhat impoverished, statistical standards, India has done relatively well in reducing the number of people living below the poverty line, thanks to recent fast economic growth. The official ratio of Indians living in poverty declined from 45 percent in 1994 to 37 percent in 2005 before falling sharply to 22 percent by 2012.
That still leaves 270 million wretchedly poor people, or more than the total population of Indonesia or Brazil, the fourth- and fifth-biggest countries in the world, and almost twice the population of Russia. Economists and social workers have questioned whether India’s poverty figures have been cooked or whether they measure what it is to be really poor. The then vice president of India, Bhairon Singh Shekhawat, told me in 2009 that he estimated that 40 percent of Indians lived in poverty.
Now the McKinsey Global Institute, an arm of the consulting group, tries to put India’s poverty into proper context. It has suggested a challenging way in which the country can meet the essential needs of its population through radical but practical economic, political and social reforms.
It has created what it calls “the empowerment line,” which determines the level of consumption required to fulfill eight basic needs — food, energy, housing, drinking water, sanitation, health care, education and social security — enough “to achieve a decent standard of living rather than bare subsistence.”
Not surprisingly, India still has a long way to go. In 2012, according to McKinsey, 56 percent of Indians, or 680 million people, experienced deprivation. Some of the other headline numbers are scary: About 50 percent of public spending on basic services does not reach the people; 46 percent of basic services are not within reach for the average household.
The challenges are huge. McKinsey claims that 580 million Indians can be empowered economically in the next decade with the measures it suggests, which involve creating 115 million additional nonfarm jobs plus a 70 percent increase in agricultural yields, as well as changing the mix of public social spending to devote half of it to health care, water and sanitation, up from 20 percent today. Achieving it would cost 4 percent of India’s GDP — seven times higher than eliminating poverty based on the official poverty line.
One should be suspicious of management consultants who promise a “holistic” approach, but McKinsey has tried to look at the practical problems of dealing with everyday poverty from the perspective of the poor people themselves. After all, just having a certain small income hardly offers a way out of poverty unless you can also get access to basic services.
McKinsey lays out its standards for a minimum acceptable standard of living, carefully differentiating between rural and urban needs:
Food: 2,100 calories for an urban adult including 60 grams of protein and 40 grams of fat, per day.
Energy: access to clean cooking fuel and electricity for lighting based on minimum energy consumption needs.
Housing: 20 (rural) or 25.5 (urban) sq. meters of acceptable housing.
Drinking water: 70 liters in rural areas or 135 liters in urban areas per capita per day of piped water.
Sanitation: a sanitary latrine in rural households, and underground sewage with wastewater treatment in urban households.
Health care: access to an essential basket of primary, secondary and tertiary health care services.
Education: access to “accepted norms” of primary/secondary education (or vocational training) for all children.
Social security: insurance to cover income loss based on 2 percent premium- to-coverage ratio.
There is a certain amount of question-begging here, for example, in “acceptable housing,” “an essential basket” of health care and education based on “accepted norms.” McKinsey estimates that overall, its empowerment line’s minimum standards are about 1.5 times higher than those implicit in the official poverty line, but are 5.5 times higher for health and 3.8 times higher for education. The challenge is not just spending more money, but spending it effectively actually to reach the people in need.
McKinsey’s study prods deeper than the superficial. It points out that even after the recent rapid growth, most of India’s labor force is engaged in low-productivity activities. If India had experienced the shift from farm to nonfarm jobs that China did, 100 million people would have been lifted above the empowerment line.
The other problem is that India offers too few jobs outside the farm sector, which especially limits the role of women. The participation rate of India’s working age population is 57 percent, well below the 65 to 70 percent rates in other developing countries.
India also lags behind other Asian countries in labor productivity because of the prevalence of unorganized and subscale businesses. In 2009, 84 percent of India’s manufacturing workers were in enterprises with 49 people or fewer. In the Philippines, 70 percent of establishments employed 49 people or fewer; in Thailand, only 46 percent; and in China, just 25 percent of manufacturers employed 49 or fewer workers.
India’s small-scale enterprises, in manufacturing and services, are just one-eighth as productive as larger enterprises of 200 or more workers.
McKinsey is critical of the quality of government spending, noting that although spending on basic services rose by 11 percent a year, it did not translate into benefits for the poor. It estimates that about “half of India’s total public spending on basic services did not produce the desired results, with much of it lost to inefficiency or corruption.”
About 35 percent of the food subsidy did not reach consumers, and the poorest Indians received less than 40 percent of the subsidy intended for them. Apart from leakage and waste, the quality of government-run services is poor.
McKinsey draws a fascinating map showing the extent of deprivation by district. The most deprived 126 districts, with 27 percent of the population, are almost all in the north and west, predominantly Uttar Pradesh and Bihar. Some of the poorer districts show better-than-average results especially in health and education. The common factor in their performance is greater community involvement, mainly through the role of women.
McKinsey helps to suggest ways in which India can get to second base in its efforts to remove deprivation and empower its people. This is the more important at a time of spluttering growth. It helpfully sets out a list of measures that should be taken to release new energies both in agriculture and in industry, including tax, land and market policies.
The report’s concentration on how to lift the large numbers of deprived Indians and give them better prospects is laudable. As anyone who knows and marvels at the riches of India, if the wonderful potential of the country is to be unleashed, it needs to wipe away the tears of poor Indians — as Prime Minister Manmohan Singh memorably promised — to give them a vision of what they and their country might become.
For all this, there is something bloodless about the report. It skips over how exactly hope will be given to the hopeless, something that has eluded Singh and indeed generations of politicians who promised great things. I let loose a twisted smile when McKinsey wrote: “The only requirements are political will and a relentless focus on results — and with these building blocks in place, India could realize its long-held goal of providing all its citizens with basic dignity and economic opportunity.” So that’s no problem then, just political will and relentless focus.
Kevin Rafferty is a professor at the Institute for Academic Initiatives at Osaka University.