Growth has been a more important factor than reduction in inequality in reducing poverty in India and the tertiary sector is the most important source of poverty reduction, said Tim Besley, Professor, London School of Economics.
However, impact of growth on poverty reduction, varied with the specific policies adopted at the state level and with institutional factors, said Besley, while presenting a study on 'Operationalising pro-poor growth in India', which he has conducted jointly with Robin Burgess, also from LSE.
Based on their analysis of 16 major states of India in the period 1958-2000, they found that states like Assam, Bihar, Jammu and Kashmir, Karnataka, Madhya Pradesh, Rajasthan and Uttar Pradesh had seen low growth and a low impact on poverty of that growth.
On the other hand, there were states like Andhra Pradesh, Gujarat, Kerala and Punjab, which had shown high growth and a high elasticity of poverty reduction with respect to growth.
Orissa and West Bengal had seen low growth over the 40-year period, but the impact of that growth on poverty reduction had been significant, they found, while in states like Haryana, Maharashtra and Tamil Nadu, high growth had not resulted in commensurate poverty reduction.
The study found that almost 57 per cent of the poverty reduction in India was driven by higher output per head in the tertiary sector. The manufacturing sector had a lower impact on poverty, a little over 18 per cent, while the agricultural sector had made the least impact (14.2 per cent) on poverty reduction.
The last was only an indicator that the focus needed to be shifted from agriculture, per se, to the rural economy, Besley said.
States with more pro-worker legislations had made less impact on poverty reduction as compared to those, which had made pro-employer amendments to the Industrial Disputes Act, 1948.
'States with more pro-worker legislations have seen an aggregate fall in registered manufacturing, which led to an increase in poverty in urban areas, and increase in unregistered manufacturing,' Burgess said.
States, which ensures better access to financial services, improved the situation with respect to poverty rights and focussed more on human capital had done better on poverty reduction, he said.
Speaking on the institutional aspects of poverty reduction, Burgess said that factors like newspaper circulation and political competition made a significant impact on how state governments responded to calamities like droughts and floods.
States with higher newspaper circulation and with smaller majorities in legislative assemblies were found to be more responsive to natural calamities, the study found.
Commenting on the paper, Suresh Tendulkar, professor Delhi School of Economics, said that while India had been one of the ten fastest growing economics since 1980, the growth had been cyclical and had slowed down in the late 1990s.
The slow opening up of the economy was responsible for this slow growth, he said, adding that tariffs needed to be decreased and labour laws amended in order to ensure that more jobs were created in the manufacturing sector.
India had a limited domestic market and needed to aggresively expand into international markets in order to shift jobs from agriculture to manufacturing. A direct shift to the tertiary sector was not possible, as jobs there required education and training, he said.
