Fast growth slashes poverty, wins elections

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 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%. 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.

5 thoughts on “Fast growth slashes poverty, wins elections

  • 2011.Jan.28 at 00:30
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    sir aiyar,
    economic growth is not one time impact…it required multi years efforts to create momentum and environment positively….
    during nda rule..there was huge growth in road infrastructure and huge amount of FII started..the investment in infra sector create base for future growth….
    national highway of gurgaon , modernisation of airport…in fact a glittering example delhi metro was implemented during nda tenure..but unfortunately..upa govt. didn’t keep the momentum and create huge fiscal deficits…inflation is result of upa vote bank policies….MNREGA is gud scheme..but nt effective ..it’s like draining thousand of crores without creating any solid infrastructure….wat do u think Mr. aiyar..regarding past 7 years upa govt. policy on infra sector…..

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  • 2011.Jan.17 at 16:20
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    hello,

    Thank you for writing an article to highlight the electorate pattern on the lines of GDP growth. This was the first article on these lines that I have come across and I enjoyed it thoroughly.

    Indeed, when I reflected back on your claims they were true in most of the states like haryana, bihar, gujarat etc. In MP, it is more on parochial lines and social development and perceived growth which is slightly incorrect due to low literacy levels and absence on strong inferential skills across.

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  • 2011.Jan.12 at 12:39
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    I strongly feel that the though to an extent the economic conditions affect the political behaviour of the masses but the coeffecient of correlation is not one. The other factor which effect the voting pattern in Bihar to a great extent was the law and order which certainly improved in the last govt rule. Secondly growth is not purely a statistical jugglary, basically we have to take base rate into cognizance,in states like Bihar and Orissa the growth rate would be higher as compared to Gujarat and Kerela because the growth momentum has already started there much before but in BIMARU states this is just about to start so the rate of change of growth would certainly be high. But having said that its a silver lining that incumbent govt is again coming to power as they would then be in a best position to implement their growth manifesto.

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  • 2010.Dec.31 at 05:28
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    I have been an avid reader of your articles in Times of India for more than a decade. Your articles are well researched and come up with strong data. I would like to share few things with you. Can you please share your email id.

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  • 2010.Dec.30 at 20:24
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    I feel, the growth in India is due to the fact that exchange rate when compared to USD is better, just like Chinese currency. Till such time USD is the treated as world reserve currency and if the exchange rate between INR Vs USD is advantageous for India, the GDP is going to get strong, as the world market is going to look at India for its product and service requirements.

    Having said this point, the main point of worry is the inflation, as USD is bound to find its way into developing economies. Further, I feel there is no real point in boasting ourself about GDP growth, if inflation is in double digit figure. If it gets uncontrollable, it could likely cause “hyper inflation” which can be dangerous to Indian Economy.

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