Impact of Growth on Poverty Alleviation

8/19/2019 Impact of Growth on Poverty Alleviation

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Impact of Growth on Poverty Alleviation:

Empirical Evidence on Indian EconomyP Naveen Sai

2nd year undergraduate student

Department of Humanities & Šocial Sciences, Indian Institute of TechnologyKharagpur, West Bengal-2!"#2, India$

Abstract

This report analyses the impact of the economic reforms for economic growth started in India in 1991 on

the poor and poverty alleviation. Using time series analysis of poverty indicators for all Indian states, it

declares that while rural, uran, and overall national poverty levels recorded in India recorded asignificant decline during the pre!reform period "19#9!$% to 199%!91& ut during the post reform period

"1991!9' to 199(!9)&, these negative values have deilitated or even got reversed in terms of one or more

poverty indicators. *uring the post reform period, although ma+ority of the Indian states made their wayto register negative trends in oth rural as well as uran levels, these were not mathematically significantin most cases.

The report then studies the role of different factors affecting the poverty levels, using time series analysis.

It implies that policies to accelerate agricultural growth, improved access to susidied food, and

infrastructural development along with measures to control inflation promises to e most effective in

removing poverty in India.

Keywords- economic growth, time series, pre!reform, post!reform, poverty indicators, policies.

INTRODUCTION

The economic reforms initiated y India in

1991 followed a macroeconomic crisis which

evoed a considerale deate and controversy.Will these reforms consisting ofsta%iliation and Structural'd(ustment )rogramme *S')+ %enetthe poor and other depriciatedgroups %y reducing poerty,improing food entitlements, andaccess to other %asic needs, or .ill itemphasie poerty and ine/uality0 These /uestions assume importance especiallyin the conte0t of a widespread elief that while

the enefits of such reforms have largelyaccrued the rich while the costs eing orne

y the poor. The e0perience of countries

revealed diverse e0periences. The e0perience

of several African countries that undertoo

resulted in the stagnation of frican

agriculture, and a deterioration in terms oftrade for frican agriculture. 2eal wage rates

fell whereas food prices rose steeply resultingin food riots and political upheavals.

sia3s e0perience with such reforms has een

a mi0ed ag. 4hile outward oriented policies,rich natural resources, strategic economic and

political alliances .etc. enaled East andSouth-Asian countries to register high rates

of economic growth with alleviation in poverty levels, Srilanka reported a rise in

malnutrition, especially among women and

children, and in school drop outs.

There are several features of India3s economicreforms which raise concern from the

perspective of the poor and poverty reduction.

https://en.wikipedia.org/wiki/Shin_(letter)https://en.wikipedia.org/wiki/Shin_(letter)


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Unlie in frica and 5atin merica whereagriculture was accorded priority under SP,

in India it has een accorded low prioritycompared to industry. This is lamentale

considering that the fortunes of rural poor of

India are intrinsically lined to those of the

agricultural sector.

griculture impacts on the poor in several

ways. high agricultural output helps reduce prices as well as improve food availaility and

not only generate employment opportunities inthis sector ut also spur growth in non!

agricultural sector.

pologists of the reforms, however argue that

unless India attain rapid economic growth, noserious dent can made on rural poverty. 6ut

India3s e0perience shows that high rates ofeconomic growth were registered whenever

the agricultural sector performed well.

7eeping the aove in view, the present study

sees to analye the impact of the economicreforms in India from the perspective of the

poor and poverty reduction. recent 4orld6an study, suggests that although poverty

levels seem to have risen in the two years"may e due sampling and non!sampling&

errors ut eventually it fell around the

reasonale level. The aove refers to thecountry as whole. There is also a need to seewhether the aove trends in poverty hold true

across all states. numer of reports notedthat normal factors alleviating the poverty are

agricultural growth, infrastructure

development, and access to susidied food

through P*S "Pulic *istriution Systems&whereas poverty promoting factors eing

inflation and rising ine/ualities. The 4orld6an also cited that variales such as wages

for unsilled agricultural laorers, inflation.etcattriuted to only one third of rise in poverty.

8ther issues which added this analysis is

whether ine/ualities and the conditions of the

poor have deteriorated after the reforms.

Unlie other studies we have the advantage ofhaving data for more years for assessing the

reform3s impact. The criticism is that thereforms have een implemented only partially

and hence it would e too early to start this

analysis. *ue to lag in the initiation this

analysis may only give a partial view of thefull impact of the reforms.

Notwithstanding these criticisms, if re/uiredcorrective steps can e taen to mae the

reforms a less painful process importantly forthe poor.

O!ECTI"E#

1. To analye the trends in poverty in India in

the post!reform period as compared to the pre!reform period, oth at all India level andacross states.

2. To analye the role of agricultural and non!

agricultural sector growth, food prices, accessto susidie food, and other factors on poverty

in India at all India level and across states.

3. To analye the trends in "consumption&ine/uality in India in the pre and post!reform

period.

4. To estimate the elasticities of poverty inIndia with respect to selected variales, as

well as e0plore factors ehind improvement or

deterioration of poverty levels in India in the

post reform period.

CONCEPTUA$ %RA&E'OR( The study is mostly ased data of secondarydata and sources availale in official

documents, supplemented y non!official

documents. The data used for the analysis aredrawn from the 4orld 6an document cited

Poverty and growth in India:. lso

supplemented y the data from official

pulications of the ;overnment of India such

as National ccounts Statistics,


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s/uared poverty gap inde0 and data set cited y ;aurav *att and the 4orld 6an earlier in

previous reports will e used.

time series analysis of poverty indicators of

oth rural as well as uran for all states will e

attempted. To study the role of differentfactors lie agricultural and non!agricultural

sector growth, prices, access to susidiedfood through the pulic distriution system,

etc., on poverty levels, a time series analysisand a cross section analysis of inter!state data

for two points of time covering the pre!reformand the post reform period is also studied

The estimates of poverty y *att and the

4orld 6an are ased on the official poverty

line decided y the Planning >ommission asrecommended y the 2, a

sharp weaening of the declining trend is

oserved. 4hereas uran poverty trends interms of all three poverty indicators continued

to show declining trends. 6ut none were

statistically significant. Thus, there werevisile signs that the significant decline in

poverty levels recorded after 19#9!$% have


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4eaened or even got reversed during the post reform period.

Source% The asic data for the aove have een taen from a 4orld 6an document entitled- India-

chievements and >hallenges in 2educing Poverty, Cay '$, 199$. The estimates of poverty usingdifferent indicators of poverty, and gini ratios reported have een computed y ;aurav *att.


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The state wise trends in rural poverty for 1D ma+or state in India mapped to the ( poverty indicators is presented elow. 4hile during the pre!reform period, all 1D states recorded a significant decline in all

( indicators, ut during the post!reform period one comes across a diversity of trends and patterns inrural poverty for one or more poverty indicators.

&ote% - *, **, *** indicates coefficients to be statistically significant at 1, 5 and 10% levels of

significance, respectively.

Source: The basic data for the above have been taken from a orld !ank doc"ment entitled# $ndia# chievements and &hallenges in 'ed"cing (overty, )ay +, 1+. The estimates of poverty "sing

different indicators of poverty, and gini ratios reported have been comp"ted by -a"rav att.


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Two states, ;u+arat and 7arnataa continued to show record significant declines in rural povertylevels in all three indicators. The intensification of rural diversification in these two states e0plain the

sharper decline in rural poverty levels in these ' states in the post reform period. =our states reportreversal in negative to positive, although these trends were or statistically significant. 8f these )

states, 8rissa and 4est 6engal, fall in the eastern elt of India where poverty is nown to e /uite

epidemic. 6ut surprisingly Pun+a and @aryana, had een in the forefront on ushering in the green

revolution in India. The rate of increase in rural poverty for @aryana is /uite sharp with respect to allthree poverty indicators.

The state wise trends in uran poverty is presented in Tale!(. It is seen that while during the pre!reform period most states recorded a significant decline in uran poverty levels in terms of all three

poverty indicators, during the post reform period although most of the states have continued to reportnegative trends that were not statistically significant.


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&ote% ! *, **, *** indicates coefficients to be statistically significant at 1, 5 and 10% levels of significance, respectively.

Source% The basic data for the above have been taken from a orld !ank doc"ment entitled# $ndia# chievements and &hallenges in 'ed"cing (overty, )ay +, 1+. The estimates of poverty "sing

different indicators of poverty, and gini ratios reported have been comp"ted by -a"rav att.

Thus, even in respect of uran poverty trendsduring the pre and post reform period, one

finds interesting patterns emerging. 4hile inthe pre reform period uran poverty levels in

all 1D states moved in the same direction andrecorded significant negative trends, in the

suse/uent period although most of thesestates continued to report negative trends.

4hereas four states reported declines at anaccelerated pace, whereas some other ) states

e0perienced a reversal with trends ecoming positive during the post reform period.

E$A#TICITIE# O% PO"ERT)

The elasticities of rural and uran poverty levels

in India with respect to selected variales is

presented in the Tale. s evident, a 1A rise in

the real N*P from agriculture per capita "rural&

reduces rural poverty levels in India y over 1.)

A in terms of the @>2 and still higher y '.D to

(.) A in terms of the P;I and SP;I. Similarly, a

1A rise in the offtae of P*S food grains

reduced rural poverty in India y %.DA, and still

further, from %.$ to %.9A in terms of P;I and

SP;I. 1A rise in the relative prices of food,

however, leads to a sharp rise in uran poverty, a

1A rise in the real N*P from non!agricultural

sector per capita "uran& reduces uran poverty

levels in terms of the @>2s y %.$(A. This

poverty! alleviating role of non!agricultural

sector growth on uran poverty is sharper, i.e.

etween 1.'' to 1.#A in terms of P;I and SP;I.

rise in the offtae of food grains y 1A

reduces poverty y %.1 to %.(A across the three

poverty indicators.

>omparing the two sets of results it is seen thatthe increase in poverty levels following arise in

relative food prices is sharper in the case of rural

poverty as compared to uran poverty. Similarly,

an increase in the offtae of P*S food grains

rings aout a sharper reduction in rural poverty

levels as compared to uran poverty levels.

The second tale presents the information on the

elasticities of inter!state incidence of rural and

uran poverty levels in India with respect to

selected variales for two points of time, vi.

19E$!EE "pre!reform year& and 199(!9) "post

reform year&. 1A rise in the relative food

prices leads to a more than proportionate rise in

the inter!state incidence of rural poverty. 6ut

this increase ranged from 1.%) to 1.)A acrossthe three poverty indicators, during the post

reform period. In the case of uran poverty, a

1A rise in the per capita S*P from non!

agricultural sector reduced the incidence of

uran poverty y 1 to 1.#A during 19E$!EE, and

%.9 to '.EA during 199(!9). The poverty

alleviating effect of nonagricultural sector

growth on the inter!state incidence is more

conspicuous in relation to P;I and SP;I.

Noteworthy, during 19E$!EE, this reduction of

SP;I was to e0tent of 1.#A, in 199(!9) this wasstill higher at '.EA. The poverty!aggravating of

a increase in relative food prices on rural

poverty is more dominant during 199(!9) as

compared to in 19E$!EE, in the pre!reform

period.


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&'TE% - /or r"ral poverty e"ations the independent variables are (-'$2 'eal ( from

agric"lt"re at 130431 prices per r"ral inhabitant '67/('2 'elative food to general cons"mer price

inde8 for agric"lt"ral labo"rers (9 2 (roportion of (9 offtake of food grains to total net availability

of food grains.

/or "rban poverty e"ations the independent variables are (-'$ at 1:04:1 prices per "rban

inhabitant '67/(' 2 'elative food to general cons"mer price inde8 for ind"strial workers (9 2

(roportion of (9 offtake of food grains to total net availability of food grains.


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&'TE% - /or r"ral poverty e"ations the independent variables are 9(-'$2 9tate domestic prod"ct

from agric"lt"re per state r"ral inhabitant '67/('2 'elative food to general cons"mer price inde8

for agric"lt"ral labo"rers (9/( 2 "mber of fair price shops per 100000 people for r"ral areas

/or "rban poverty e"ations the independent variable are# 9(-'$ 2 9tate domestic prod"ct from

non4agric"lt"ral sector per state "rban inhabitant '67/(' 2 'elative food to general cons"mer price

inde8 for ind"strial workers for "rban workers (9/( 2 "mber of fair price shop per 100000 people

for "rban areas.


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RE#U$T# O% #TEP*'I#E REGRE##ION#

In order to find out the relative contriution of selected variales to variations in rural and uran poverty

levels in India during 19#9!19$% to 199(!199), step!wise regressions were computed. The 2 s/uare

values of these estimated e/uations, which sheds light on the contriution of these variales to poverty is

furnished in tale elow. s evident, over 9% per cent of the variations in rural and uran poverty levels

in India is e0plained y the selected variales, vi. N*P;2I, N*PN;2I, 2


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91 which was the year on the eve of the reforms

would have een most appropriate to compare

the pre with the post!reform situation. @owever,

the poverty estimates for 199%!91 are ased on

NSS survey with a smaller sample. The poverty

estimates for 19E$!EE and 199(!9) are ased on

full NSS samples. 7eeping this in view, 19E$!EEwhich is the latest year in the pre reform period

for which poverty estimates ased on the full NSS sample are availale, and similarly 199(!

9), the latest year of the post reform period for

which poverty estimates are availale was

selected for this analysis.

It is interesting to now that while S*PN;2I,

2


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Impact of Growth on Poverty Alleviation