Why Generating Productive Jobs is Essential for Reducing Poverty in India: Evidence from Indian Regions

We investigate the pattern of India’s growth during the last decade, and its implications for poverty reduction. In particular, we focus on the role played by generation of productive employment opportunities in reducing poverty. The paper is first of its kind in analysing these issues at a granular level by focusing on 9 major sectors of the economy and focusing at a sub-state level, as the large size of Indian states masks significant heterogeneity. We decompose overall productivity growth into sectoral productivity growth and productivity increases arising from workers moving into high-productivity sectors as well as from workers moving to sectors experiencing productivity growth. We find that while improving sectoral productivity is important for poverty reduction, there is a significantly stronger link between shift of workers into sectors witnessing productivity growth and poverty reduction. Thus, generating jobs in sectors witnessing productivity growth is vital to accelerate poverty reduction.