CHAPTER-VI ECONOMIC GROWTH, POVERTY AND SOCIAL SERVICES EXPENDITURE. In this chapter, the impact of social services expenditure on economic

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1 CHAPTER-VI ECONOMIC GROWTH, POVERTY AND SOCIAL SERVICES EXPENDITURE 6.1 Introduction: In this chapter, the impact of social services expenditure on economic development and poverty reduction is analysed. Economic Development is a very important process in every welfare state. Every state wants to have optimum and sustainable economic development as it has considerable significance in developing country like India. India has been focussing on economic development and poverty eradication since Independence. Indian government has implemented various programmes and policies to eradicate poverty and to sustain the economic development process. Measurement of economic development differs from persons to persons, regionto-region and country-to-country. The present study considers per capita NSDP as a proxy for economic development. There are number of studies that examine the public expenditure on social services, education and health as the independent variables of economic development. (See, among others, Hariham, 2006; Malhotra and Singh, 2006; Chandrasekaran, 2006; Malhotra and Shweta 2006, Kaur and Mistra, 2003) Generally Economic growth means An increase in real output per capita. Further, economic growth means a sustained increase in total output or output per person for an economy over a long period of time. Efficient human capital is needed for maintains of sustained economic growth. and health are the basic inputs required to improve the quality of human resources. Further, education and health are the most important factors required to 175

2 make labour productive. Labour without education and skill cannot be graded as human resources, as it becomes a hindrance to development. Therefore one of the necessary conditions for development is the improvement in the quality of human resources through education. Government expenditure on education and health is justified mainly on this ground, and as a matter of fact, an increased proportion of expenditure on education and health is advocated to achieve a higher rate of economic growth and to eradicate poverty. This chapter has been divided into 6 sections. Apart from the introduction (Section I), Section II analyses the importance of economic development; Section III analyses the impact of social sector expenditure on economic development, while Section IV analyses the issues relating to poverty; Section V deals with the impact of social sector expenditure on poverty, and section VI has conclusion of the chapter. 6.2 State wise growth of NSDP in india Table 6.1 reveals Per capita net state domestic product in 1981, 1991 and Punjab was at the top position, while Bihar stood at the bottom position in all the three years. Haryana improved its position from 3 to 2, Kerala from 7 to 4, Tamilnadu from 8 to 5, Andhra Pradesh from 9 to 8 and Rajasthan from 14 to 10, whereas, the states of Maharashtra (2 to 3), Gujarat (4 to 6), West Bengal (5 to 9), Karnataka (6 to 7), Madhya Pradesh (9 to 11) and Orissa (11 to 14) have declined in ranking. There was no variation in the ranks of Punjab, Assam and Bihar between 1981 and Inter-state disparities in NSDP increased from 1981 to 2001 where CV (%) increased from % in 1981 to 39.42% in

3 States Table 6.1: State wise Per capita Net State Domestic Product at constant prices ( ) PCNSDP Rank PCNSDP Rank PCNSDP Rank Andhra Pradesh Assam Bihar Gujarat Haryana Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamilnadu Uttar Pradesh West Bengal CV (%) Note: Per capita siet State Domestic Product (NS DP) ini lupees Source: Various Issues of National Account Statistics, CSO 6.3 Relationship between per Capita public social services expenditure and Per Capita Net State Domestic product The results of simple regression between per capita NSDP as a dependent variable and per capita public expenditure on social services, education and health as independent variables for the yearn 1981,1991 and 2001 are given in Tables 6.2. The results show that the Per capita NSDP has significant and positive relationship with per capita public expenditure on social service, education, and health in all years. Value of R2 is relatively low because NSDP is multi factorial and is also affected by factors other than per capita public expenditure on social services like production, employment opportunities, and the availability of natural resources. Thus public expenditure on social services is essential for achieving higher economic development. 177

4 Table 6.2: Simple Regression Results: Dependent Variable - Per capita Net State Domestic Product Independent Year a P F PCE on Social 14.00** 0.455** PCEon PCE on Health PCE on Social PCEon PCE on Health PCE on Social PCEon (0.546) (0.890 ** (1.648) (-0.599) 184 (0.178) (1.20) (-0.520) (-0.505) (3.291) * (2.544) 20.45** (3.063) 16.42** (3.63) 24.45** (2.79) (1.85) 15.78** (4.14) 28.79** (4.01) 0.332* ** ** ** ** ** ** PCE on Health 0.402** 8.73 (0.651) (2.95) Note: PCE-Per Capita Expenditure Figures in brackets are t values of regression coefficients Significant at 1 per cent of level, * Significant at 5 per cent of level Source: Computed from the table 5.3 and A

5 6.4 POVERTY IN INDIA Poverty is a widespread phenomenon and is one of the outstanding features of developing economies. It is not just an economic problem; it is a human condition and is an emotional, cultural and political problem as well. Poverty is the hopelessness of the people and their disappointment, their suffering. In India, in spite of the developments that have taken place during more than five and a-half decades, majority of the people are poor and for most of the time, they suffer from extreme destitution THE CONCEPT OF POVERTY AND POVERTY LINE It may be difficult to define poverty, but it is not difficult to identify it. Poverty may be defined as the inability to secure the minimum consumption requirements for life, health and efficiency. It is the helplessness resulting from an acute lack of life s necessities. A person who fails to get a square meal a day is said to be poor. Poverty is a relative concept and it is expressed in materialistic terms. Lord Boyd-off, the first Director General of FAO, was the first to introduce the concept of poverty on the basis of starvation line in According to him, an intake of less than 2300 calories per person per day was considered the line of starvation and this idea has been transformed into poverty line. The Indian Planning Commission has defined poverty line on the basis of nutritional requirement of 2,400 calories per person per day for rural areas and 2,100 calories per person per day for urban areas. The working group consisting of Prof. Gadgil, Dr. V.K.R.V. Rao, Dr. P.S. Lokanathan, Dr. Ganguli and Ashok Mitra (1968) worked out the poverty line in India and recommended a 179

6 standard of private consumption at Rs. 240 per capita per year at prices as the barest minimum EXTENT OF POVERTY: In India, appropriate and reliable data for the direct estimation of poverty are unfortunately not available. Government efforts in this direction were inadequate. The government does not seem to have made serious efforts in this direction. The poverty estimates currently are available are the contribution of some economists in their private capacity. Some of the worthwhile estimates are summarised below: According to Dandekar and Rath (1964), in , roughly 40 per cent of the rural population and 50 per cent of the urban population were living below the poverty line. Bardhan (1974), by fixing the poverty line at Rs. 15 per person per month in rural areas and Rs. 18 per person per month in urban areas at prices, found that around 55 per cent in rural areas and 41 per cent in urban areas were living below the poverty line in Minhas (1972) estimated that about 65 per cent of rural population in and 50.6 per cent of rural population in were living below the poverty line (Krishnamurty 2005). In the present study Planning Commission s estimated poverty data has been used for the analysis. Poverty is considered as one of the smouldering problems in India. Academics and policy makers have been coning out with innovative methods to tackle this problem. Indian government has also implemented various schemes / programmes to eradicate. These efforts have indeed caused a reduction in poverty ratio but the reduction is not uniform in all states. Table 6.3 reveals Poverty ratio of Indian states. During , 180

7 poverty was highest in Orissa (47.15 per cent) and Bihar (42.17 per cent). Number of poor was highest in Uttar Pradesh i.e., 5.29 crores (31.5 per cent). Haryana and Punjab have poverty ratio of only 8.74 and 6.17 respectively. In order to provide a historical perspective of changes in poverty ratio across states, the data for poverty ratio for the years 1981, 1991 and 2001 is presented in Table 6.3. Backward states failed to reduce their poverty ratio as rapid as the forward states. Inter-state variations in poverty ratio were identically same in both 1981 and 1991, but by 2001 variations had increased. Table 6.3: Poverty Ratio in India (Percentage) States 1981 Rank 1991 Rank 2001 Rank Andhra Pradesh Assam Bihar Gujarat Haryana Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamilnadu Uttar Pradesh West Bengal Average SD lt CV(%) Source: NHDR,

8 6.5 RELATIONSHIP BETWEEN PER CAPITA PUBLIC SOCIAL SERVICES EXPENDITURE AND POVERTY RATIO Die results of simple regression between poverty ratio as a dependent variable and per capita public expenditure on social services, education and health as independent variables for the year 1981, 1991 and 2001 are given in Tables 6.4. The results show that poverty has a negative relationship and significant at 5 per cent level with per capita public expenditure on social service, education, and health in all the years. This goes to prove that public expenditure on social services is essential for eradication of poverty. Table 6.4: Simple Regression Results: Dependent Variable - Poverty Ratio Independent Variables a Year 3 R2 F * Social 0.325* (5.580) (-2.505) Health Social Health Social Health (6.217) (5.715) (6.686) (-2.941) (5.529) (5.224) (3.870) (6.798) * (-2.408) * (-2.612) ** (-3.857) * (5.775) * (-2.509) ** (-3.048) * (-1.979) ** (-3.951) 0.309* ** ** ** * ** * ** Note: Figures in brackets are t values of regression coeificients **Significant at 1 per cent of level, * Significant at 5 per cent of level Source: Computed from the table 5.3 and A

9 6.7. CONCLUSION: Achievement of sustained Economic Development and Poverty alleviation are the main challenges before developing countries like India. India has indeed made substantial progress in the field through the implementation of various programmes and policies. Over the years, per capita income has increased and the poverty ratio has decreased in all states. At the same time, regional disparities have also increased. Forward states could achieve rapid economic development and reduce their poverty ratio quickly while, backward states lagged behind in achieving economic development and poverty eradication. Social sector expenditure in general and education and health expenditure in particular are found to have positive relationship with economic development and a negative relationship with poverty. This goes to prove that spending on social services is necessary to achieve economic development and eradication of poverty. 183

10 Table A6.1: Compound Annual Growth Rate (%) of NSDP per Capita Prices States States Total Pre Reform Post Reform Andhra Pradesh Assam Bihar Gujarat Haryana Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamilnadu Uttar Pradesh West Bengal Source: National Statistics Account, Various Issues Per capita Publie Expenditure ( prices) afigures in Rupees) Social Services Health Poverty Ratio PCNSDP ( prices) (Figures in Rupees) Andhra Pradesh Assam Bihar Gujarat Haryana Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamilnadu Uttar Pradesh West Bengal Average SD ev msource: Computed from the data available in RBI Bulletin, N1TOR 2002, and CSO 184