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Poverty of reforms in
India
By Swati Lodh Kundu
MUMBAI - Liberalization's proponents have
been crying themselves hoarse saying reforms have
brought down poverty. Recent statistical reports
seem to bear out that claim. But reforms also
appear to have increased economic disparity within
the country as cities have grown richer and the
villages poorer, while the economic distance
between the rich and poor states has widened even
further. Thus, in spite of the statistically lower
poverty, when Finance Minister P Chidambaram
presented his budget on Monday, his central theme
was poverty.
During the period 1973-1990,
poverty declined in both rural and urban areas.
The headcount ratio (indicating the proportion of
population below the poverty line) fell from 56%
to 34% in rural areas and from 48% to 33% it urban
areas. This declining trend continued through the
period after reforms were introduced in 1991-92.
In fact, it fell considerably. According to
National Sample Survey Organization (NSSO) data,
between 1977-78 and 1999-2000, the proportion of
people living below the poverty line fell from
51.3% to 26.1% in percentage terms and from 328.9
million to 260.3 million in absolute numbers.
But these impressive figures hide the fact
that reforms have promoted inequity like never
before. The India Development Report (IDR) 2004-05
by the Indira Gandhi Institute of Development
Research (IGIDR) reveals that the rural per capita
expenditure (PCE) per month, which was 158 rupees
(US$4) in 1970-1, increased steadily to 213 rupees
by 1989-90 and declined sharply by 5% to 202
rupees in 1990-91. During the 1990s, it fluctuated
between 202 and 214 rupees. Its annual trend
growth rate fell to 1.17% from a high of 1.54%
during the period 1970-89. In contrast, the urban
growth rate accelerated from 1.45% to about 2.77%
during the same period. This indicates that the
rural-urban disparity widened considerably during
the 1990s. There was no significant change in the
urban-rural PCE ratio during 1970-89, but it began
to climb steadily at an annual rate of 1.6% since.
This disparity coincided with the widening
inequality in urban expenditure distribution. The
Ginni coefficient (which measures inequality) of
urban consumer expenditure had no trend increase
in the 1970-89 period, but increased at an annual
rate of 1.4% per annum during 1990s, stated the
IDR. The widening inequality is also reflected in
the differential growth across urban expenditure
groups. The PCE of the top 30% increased at 3.31%
per annum while that of the bottom 30% increased
by a mere 1.7% annually. On the other hand, rural
inequality tended to decline in the 90s. The
annual growth rate of per capita expenses of the
rural bottom 30% dropped from 1.71% in 1970-89 to
1.19% during 1990-98.
Annualized growth
rates |
|
Rural |
|
|
|
Bottom
30% |
Middle
40% |
Top
30% |
All
classes |
|
|
|
1970-89 |
1.71 |
1.4 |
1.45 |
1.54 |
|
|
1990-98 |
1.19 |
1.11 |
1.23 |
1.18 |
|
|
1990-00 |
1.49 |
1.32 |
1.41 |
1.4 |
|
Urban |
|
|
|
Bottom
30% |
Middle
40% |
Top
30% |
All
classes |
|
|
|
1970-89 |
1.44 |
1.5 |
1.4 |
1.45 |
|
|
1990-98 |
1.7 |
2.27 |
3.51 |
2.77 |
|
|
1990-00 |
1.49 |
2.11 |
2.55 |
2.27 |
|
Source:
IGIDR
With
a considerable proportion of the population
depending on agriculture for livelihood, the poor
performance of the sector has failed to create
lasting employment. The lack of growth in this
sector affects poverty in a major way. The
pre-reforms period experienced a decline in
poverty from 51% in 1977-78 to 39% in 1987-88 and
the trend continued in the post-reforms period.
Yet the number of people below poverty line is
alarming - 193 million in rural and 67 million in
urban India.
Not only does the number of
poor in India continue to be unacceptably high,
the IDR shows that the pattern of poverty has also
changed significantly over the decades. The
concentration of poor people has been increasing
in few geographical locations. The share of rural
poverty in the states of Bihar, Orissa, Uttar
Pradesh and Madhya Pradesh (the ones that are
primarily dependant on agriculture), rose from 53%
in 1993-1994 to 61% in 1999-2000. The same reduced
from 3% to 1% in the more affluent states of
Punjab, Haryana and Himachal Pradesh over this
period. This can be attributed to the slower
growth rate in gross state domestic product (GSDP)
in the agriculture-dominated states in the
post-reforms period.
The annual per capita
GSDP growth rate in the state of Punjab increased
from 3.05% during the pre-reforms period to 3.18%
during the post-reforms period. Similar trend was
visible in case of Haryana (3.57% to 3.83%) and
Himachal Pradesh (2.88% to 4.93%). On the other
hand, the poorer states either stagnated or
deteriorated. Bihar's growth rate fell from 1.80%
to 1.77%. In the case of Uttar Pradesh, it went
down from 2.38% to 2.04%. Orissa and Madhya
Pradesh showed only marginal improvement.
The increase in inter-state disparity
during the post-reforms period is also reflected
in the wider dispersion of the per capita GSDP in
the 16 states as compared with the pre-reforms
period. While the standard deviation of the per
capita GSDP in 1982-83 was around 570 rupees only,
it increased substantially to 4,078 rupees by
2000-01. While the per capita GSDP increased by
around three times in Bihar in two decades, in
case of Punjab, the increase has been more than
five times.
This is because the
agricultural sector has performed miserably in the
post-reforms period. The growth rates of both
manufacturing and agricultural sectors in the
1990s were actually lower than that of the
pre-reforms period. The average growth rate of the
agricultural sector fell from 3.43% during the 80s
to 2.7% in the post-reforms period and that of
manufacturing sector fell from 7.57% to 5.92%.
 The falling growth
rate of the agricultural sector resulted in
persistently lower contribution of this sector to
India's GDP. Ironically, the contribution of the
service sector to the total GDP rose by a whopping
10% during the post-reforms, showing the signs of
a developed economy. With 70% of the Indian
population depending on agriculture, this change
in the sectoral contribution to the GDP has
obvious long-term adverse ramifications.
Clearly, reforms brought growth, but
sacrificed equity. Poor agricultural performance,
slowdown in the expansion of rural employment or
high GDP growth has neither directly nor
indirectly created skilled or semi-skilled jobs,
which benefits the poor the most. India's
transition from an agrarian economy into a
services-dominated one, bypassing industrial
growth, has only resulted in the rich growing
richer and the poor poorer.
Swati
Lodh Kundu has a Masters in Economics from the
University of Calcutta.
(Copyright
2005 Asia Times Online Ltd. All rights reserved.
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