[Reader-list] FAST GROWTH SLASHES POVERTY, WINS ELECTION

[Bipin Trivedi]

http://blogs.timesofindia.indiatimes.com/Swaminomics/entry/fast-growth-slash
es-poverty-wins-elections

by Swaminathan Iyer


Many say that fast GDP growth has benefited only a few rich businessmen.
That's simply false. The latest data and research show that record GDP
growth has benefited the masses and the poorest states. Poverty has fallen
sharply and the poorest states have increased growth amazingly. That's one
reason so many incumbent governments in poor states have been re-elected.
 
For decades, anti-incumbency dominated elections, and three-quarters of
incumbent governments lost. But the trend has reversed in the last few
years: suddenly three-quarters of incumbents are winning.
 
The Congress was re-elected in the 2009 parliamentary elections. Several
chief ministers were re-elected too. Nitish Kumar in Bihar is the latest
example . Earlier examples were Orissa, Maharashtra, Andhra Pradesh,
Chhattisgarh, Madhya Pradesh and Tamil Nadu.
 
What has changed? The BJP, the losing incumbent in 2004, claimed that India
was shining. That was false. GDP growth in its five years (1999-04 )
averaged only 5.7% per year, no faster than in the preceding two decades. By
contrast , growth during UPA rule (2004-09 ) zoomed to 8.5% per year.
 
The new Tendulkar formula for measuring poverty shows that poverty reduction
during the BJP rule-and indeed since 1983 - was around 1% per year.
Economist Surjit Bhalla cites the latest NSSO survey to show that in the
next three years, from 2004-05 to 2007-08 , poverty reduction tripled to an
astonishing 3.3% per year. Poverty fell as much in those three years of 9%
GDP growth as in the preceding 11 years.
 
The BJP lost in 2004 because neither growth nor poverty reduction improved
significantly. The UPA was re-elected in 2009 because both growth and
poverty reduction improved hugely.
 
A new study by economists Arvind Panagariya and Poonam Gupta buttresses this
conclusion . This assumes that voters in fast-growing states will vote for
the ruling state party even in parliamentary elections . This sounds
reasonable: 90% of villagers have never seen a central government official ,
and know only state government officials.
 
Although the national incumbent (Congress) won the 2009 parliamentary
elections, it won just nine of 72 seats in the non-Congress states of Bihar,
Orissa and Chhattisgarh. A look at the recently revised CSO data (see table)
shows why. Economic growth skyrocketed between 2000-04 and 2004-09 from 4.5%
to 12.4% in Bihar, from 4.8% to 10.2% in Orissa, and from 6.1% to 9.7% in
Chhattisgarh . UP has doubled its rate from 3.3% to 6.7%, suggesting that
Mayawati will be re-elected in 2012.
 
You can question the quality of state GDP data, yet the trend is
unmistakable. Poor states have no incentive to artificially inflate growth
rates-they would rather artificially understate growth to wangle more grants
from New Delhi.
 
Examining state GDP growth between 2004-05 and 2008-09 , Panagariya and
Gupta divide the major states into three growth categories-high , medium and
low (relative to national growth). In high-growth states, a whopping 85% of
candidates of the incumbent state party won in 2009. The winning rate
dropped to 50% in medium-growth states and 30% in low-growth states. This
indicates strongly that fast growth benefits and draws votes from the
masses. Many other factors (alliances , caste, regional pride, inflation )
remain highly relevan.
 
But fast growth matters as never before. When slowgrowing states accelerate
to 6% or more, incumbents start winning. Panagariya and Gupta conduct
statistical tests to control for other factors that may determine outcomes.
The overall pattern remains unchanged-fast growth benefits incumbents . This
may be not just because of fast growth but reduced poverty and accelerated
jobs too. These are inter-related-fast growth reaches the masses and hence
reduces poverty and creates jobs. Government service delivery remains lousy,
especially in health, so social indicators remain deplorable. Yet the latest
research shows that the overall condition of the masses has improved . This
is corroborated by the spread of cellphones to the masses-teledensity has
skyrocketed to 70%.
 
Why have fast growth and mass improvement gone together? Not because some
crumbs from fast growth were thrown to the poor. Rather, only when the vast
majority of people improved their income did this add up to record growth
and poverty reduction.
 
Growth was slow in 2000-04 in poor states, and this kept the national GDP
growth down to 5.6% (see table). But GDP shot up to average 8.5% in the next
five years. This was not because of economic reform, which mainly stalled in
this period. Rather, chief ministers in poor states changed policies to take
advantage of the growth potential created since 1991. So growth accelerated
dramatically in large, poor states, and this gave India 9% growth. If they
keep up this hugely improved performance, India will be transformed in a
decade.