Is Growth Pro-poor Among the States of India? A Poverty Decomposition Exercise During the 2000s

Economic growth is considered to be the most important factor for achieving a lower level of poverty, but burgeoning inequality could affect poverty reduction adversely. This article decomposes the change in both rural and urban poverty into what can be termed as ‘growth effect’ and ‘distribution effect’ for twenty major Indian states during India’s highest growth episode (2004–2011). It further examines the pro-poorness of the growth in these states. One of our key findings is that while income growth plays a key role in rural poverty reduction, rising inequality appears to be a major hindrance with respect to urban poverty. Our investigation also suggests that higher growth is not necessarily pro-poor. If the growth process itself is iniquitous, it might reduce the poverty elasticity of income and, in turn, result in slower poverty reduction despite high growth. This being specifically relevant for urban India and with urban poverty increasingly becoming a serious concern, economic policymakers should adopt a policy paradigm ensuring a more inclusive urban growth instead of considering growth as a panacea.