As India gears up for its general election next month, it has some cause to celebrate: Extreme poverty is finally in retreat.
In 2012 — two decades after the Indian government launched a series of economic reforms aimed at opening up the economy — the official poverty rate had reached 22 percent, less than half the rate in 1994.
However, it is time for India to raise its aspirations. Escaping abject destitution, although an important milestone, is not the same as achieving a decent standard of living and sense of economic security. To that end, there is still much to be done.
The extent of the task is reflected in a new McKinsey Global Institute report titled: From Poverty to Empowerment, which uses an innovative analytical framework, the “empowerment line,” to estimate the cost to the average citizen of fulfilling eight basic needs: food, energy, housing, potable water, sanitation, healthcare, education and social security.
According to this metric, 56 percent of Indians in 2012 “lacked the means to meet essential needs.”
Remarkably, this number is more than 2.5 times the number of people still living below the poverty line in India. Even more striking is that the “empowerment gap” — that is, the additional consumption required to bring these 680 million people to the empowerment line — is seven times larger than the cost of eliminating extreme poverty.
Furthermore, while the empowerment line is a measure of individual consumption, a household’s ability or willingness to spend is not sufficient to guarantee a decent life.
People also need access to community-level infrastructure like health clinics, schools, power grids and sanitation systems. However, the average Indian household lacks access to 46 percent of basic services, with the severity of the gaps varying widely across districts.
What can the Indian government do to provide its citizens with the dignity, comfort and security that they deserve? Given that approximately half of current public spending on social programs fails to deliver better outcomes for poor people, simply directing more funds through existing channels is unlikely to have much of an impact.
Instead, policymakers should focus on supporting employment and productivity gains — historically the most potent weapons against poverty. Of course, this will not be easy. India’s economy has slowed in recent years. If economic growth remains on its current trajectory with no major reforms, more than one-third of the population will remain below the empowerment line in 2022, with 12 percent still trapped in extreme poverty.
To avoid such an outcome, the Indian government should pursue a set of bold reforms that boost growth by encouraging businesses to invest, scale up and hire. The reform agenda should be based on four key priorities:
■ The addition of 115 million non-agricultural jobs over the next decade to absorb the growing pool of workers and accelerate the shift toward more modern industries.
■ A doubling of agricultural productivity growth to raise India’s farm yields to the levels achieved in other emerging Asian countries.
■ A doubling of real (inflation-adjusted) public spending on social services over 10 years, with much of the increase allocated to fill gaps in healthcare, the provision of clean drinking water and sanitation.
■ An overhaul of social service delivery.