What solves poverty? Rapid economic growth

India is no longer a poor country. With a per capita income of $2,600, it is now a lower middle income country. Even so, many readers will be astonished by an IMF working paper suggesting that less than one percent of Indians are now below the World Bank’s poverty line of $1.90 consumption per person per day.

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India is a land of a thousand statistical debates, and other researchers put the poverty ratio at 10 percent. But all researchers agree on one thing: poverty has plummeted in the last two decades. The main cause is “miracle” economic growth of almost 7 percent annually. A rising tide has lifted all boats. Expanded welfare benefits have helped too, but GDP growth was the main driver, and also provided the fiscal wherewithal for increased welfare spending.

After Covid struck in 2020, the focus was naturally on welfare rather than growth. The International Labor Organization estimated that 400 million Indians (out of a population of 1,400 million) might fall into extreme poverty. GDP in many countries was projected to fall more than 10%. The World Bank estimated that an additional 78 million people in South Asia would fall into extreme poverty.

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