Fighting poverty in India and China — a tale of two countries

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With one-third of the world’s population living in India and China, the two countries are often compared because of their similar population size and economies having matching potential and global leverage.

Initially, both countries were almost at par in terms of economic growth and poverty levels even until the 70s and 80s. In fact, it was India that had a head start until the early 1990s with a higher GDP per capita, while China had a rapidly growing rural income. Initiating anti-poverty reforms in the ’90’s just one decade later than China, India failed to meet the same benchmarks, while in China’s case, results started showing about 25 years ago.

China’s success in poverty alleviation began in 1978 when it introduced market reforms in tandem with government projects. The methodology proved effective and since then it has never looked back.

The three main factors responsible for China’s growth were manufacturing, a high rate of investment and an infrastructure revolution. China achieved a moderate per-capita income which leaves the country plenty of room to grow. Reduction in China’s poverty level was possible as the objectives were simple and unambitious.

China’s anti-poverty objectives spelled out

Firstly the focus was on achieving sustainability as opposed to high economic growth. Secondly, special government programs for poverty alleviation were combined with equitable development policies. Thirdly, the aim was to achieve a higher per-capita income resulting in large-scale poverty reduction.

Meanwhile, India worked on government projects and reforms with a focus on agriculture and industry. But the main handicap remained both corruption and government mismanagement as well as a lack of continuity and commitment due to frequent changes of government.

To make matters worse, the economic situation in India is on a downwards slope now with rising unemployment, wealth inequality and extreme poverty. There has been widespread criticism in India regarding the ruling party’s inability to create jobs as promised during the 2014  election campaign. Having committed to generate 10 million jobs a year, just 1.51 million jobs have been created since the election, a 39% lower rate than during the previous government’s tenure. Job growth today is equal to less than one percent of the workforce, resulting in an unemployment crisis.

Immediate solutions are required to counter the damage wreaked by a demonetization policy and implementation of a new tax system in India

Not only that, immediate solutions are required to counter the damage wreaked by a demonetization policy and implementation of a new tax system in India.

As reported by the Economic and Political Weekly, neglecting agriculture resulted in rising labor absorption in the construction and manufacturing field. Small industries were ruined, affecting a sizable chunk of the population while money was in short supply due to demonetization. Money-lending dwindled while interest rates shot up. This, in turn, contributed to reduced production and increased unemployment, rendering India’s present five-year plan for economic development and commercial growth a failure. And the poverty level has only shot up.

Having had effective poverty alleviation, social indicators in China such as life expectancy, health, education and per capita income show constant improvement. Meanwhile, 30% of India’s population earns less than $1.90 per capita a day, and the World Bank reports it has the highest number of people living below the poverty line.

World Bank commends China’s anti-poverty success

During the last three years, China lifted 55.64 million people out of poverty, and the poverty rate has been reduced to 4.5% in 2016 from 10.2% in 2012. World Bank president Jim Yong Kim recently observed that China’s achievement in poverty alleviation has been “one of the greatest stories in human history.” Reducing the global poverty rate to 10.7% in 2013 from 40% in 1981 was mainly China’s contribution, and it is getting closer to its target of ending extreme poverty by 2020 according to reports by China’s State Council.

India could benefit from China’s experience and work out effective applications of Beijing’s policies. Significantly, both countries were mentioned in this UN report on poverty reduction: “The world’s most populous countries, China and India, played a central role in the global reduction of poverty. As a result of progress in China, the extreme poverty rate in Eastern Asia has dropped from 61% in 1990 to only four percent in 2015.”

China’s gradual and sustainable rise has made it the world’s largest economy by purchasing-power standards as well as market exchange rates. If this trajectory continues, it will be just a matter of time before the combined GDP of the United State and the EU will be equal to the combined GDP of China and India.

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