It is a general belief that if there is growth there would be prosperity for all. By extension, it is argued that if a country focuses on achieving growth this would automatically lead to reduction in poverty. Some people tend to justify this logic from the premise of free market mechanism. They argue that in a market economy the market mechanism – popularly referred to as invisible hand – would ensure that the fruits of growth would automatically get distributed across various stratum of the economy and would in the ultimate analysis lead to the alleviation of poverty.

In support of the argument various empirical findings are cited. But a closer look at any one of them would lead to the conclusion that impact of growth, unless supported by appropriate policy of distribution, tends to severely limit the distribution of income and the resultant effect on poverty alleviation.

One of the quoted studies in this regard is the survey done by the DFID in 14 countries. The study points out that if there is a 10 per cent increase in a country’s average income it would lead to a reduction in the rate of poverty by 30 per cent. This result, read in isolation, might provoke a protagonist of mere growth results automatically leads to poverty alleviation to reach his ‘eureka’ moment.

The rider in the study, however, is actually a great revelation. It says that “In countries with very low level of inequality one per cent increase in income levels could result in a decline of 4.3 per cent poverty level while the reduction would be just 0.6 per cent in highly unequal countries.”

The conclusion is inescapable. It is not that growth doesn’t benefit the poor but the degree of impact differs depending on the degree of inequality. The logic here is simple. Opportunity by itself is not enough, one needs related empowerment to benefit from the opportunity. Growth creates opportunities for employment. But if a citizen lacks the training in the field that is looking for employable people.Untrained ones won’t be able to benefit from the opening. Therefore there has to be an easy access to education and training that would lead to skilling of those looking out for job. If it is not there, no amount of growth would be enough to address the issue of poverty.

This very simplified example gives us an idea about why the rate of reduction in the level of poverty is conditioned by the degree of equality in the market. The role of government policy and its effective implementation therefore turns very vital in reducing the incidence of poverty. This is because those who are relatively better off will have relatively better access to health and education and vice versa. The empowerment, as informed by an effective policy, in providing access to education and health care would create that important mechanism that would lubricate the invisible hand in percolating the fruits of growth to all sections of the society. In the absence of such an empowerment a mere growth would tend to exacerbate inequality and incidence of poverty.