India’s experience of lifting millions of people out of poverty through accelerated economic growth is an inspirational story for South Africa. Professor Arvind Panagariya presented data and insights from his latest book Why Growth Matters: How Economic Growth in India Reduced Poverty and the Lessons for Other Developing Countries, at a dinner hosted by the CDE in June 2013.
Panagariya explained that when growth hits 8 or 9% a year it becomes a forceful mechanism that creates lots of jobs for the poor and the unskilled, and which pulls these people in to gainful employment. On top of that, high growth means that real wages rise.
The second effect is that once you begin to have some growth, increasing public revenues, which are crucial for redistribution of any sort, become available.
Despite the successes, India has not seen the kind of massive, rapid decline in poverty that occurred in countries like Korea and Taiwan in the ‘60s and ‘70s, or in China in the last three decades. The explanation for the difference lies in the fact that manufacturing in India has not grown as rapidly as it did in the other countries. In fact, most of India’s growth is concentrated in the services sector.
The key lesson to learn from India is the importance of growth and how to balance it with redistributive policies.