Poverty in India:Bridging the rural-urban divide
Anneleen VandeplasLICOS - Centre for Institutions & Economic PerformanceKU Leuven
European Institute for Asian Studies, 21/02/2013
In particular between urban and rural areas
Rural areas(70% population)
(Some) urban areas(30% population)
Growth and development
Kuznet’s curve (1953) With development, labor moves out of agriculture→ more output per person employed in agriculture → higher wages
→ India needs a move out of agriculture, into manufacturing
Agriculture
Manufacturing
Services
Growth and Poverty in India: a Historical perspective
• 1950s-1960s more than 50% of population poor• 1990s still more than 30% of population poor
• Weak performance in poverty reduction: low growth– 1960s-1970s: 1%– 1980s: 3%
The promise of liberalization
• 1950s-1960s more than 50% of population poor• 1990s still more than 30% of population poor
• 1990: The “promise” of liberalization: – Stronger growth
• By liberalization and increased participation in trade• More investments in labor-intensive sector (manufacturing)
– Faster poverty reduction• Higher demand for unskilled labor• Pro-poor growth
Results of liberalization
• Outcome: Growth accelerated to 4-5%
• Who benefits from this growth?– Growth was more in services than in manufacturing
• No expansion of formal manufacturing after liberalization (Sen, 2009)
– Higher demand for skilled labor– Little move out of agriculture
• Farm wages have remained low (Binswanger, 2011)
– Exacerbating existing inequalities• Wages for skilled labor increased, while wages for unskilled labor remained low
Results of liberalization
• Who benefits from this growth?– Datt and Ravallion 2002:
• Mostly the urban poor• Not so much the rural poor
– too isolated from urban areas– low education and health status
• For rural poverty reduction:– Either agricultural productivity growth – Or human resource development (health/education – both for women and
for men)
• “India’s poor are left behind!”• Or not?
New data - new ideas…
• Datt and Ravallion 2009: We were wrong!– Conclusions in 2002 were based on pre-reform parameters
• Data until 1991, rest was a forecast
– Now we have better data which show that urban growth DOES lead to rural poverty reduction
• Growth in trade, construction and informal manufacturing where demand for unskilled labour is high…– Informal manufacturing comprises 80% of total manufacturing
(Kotwal et al, 2009)
• Strong growth of non-farm rural jobs (and wages) (Binswanger, 2011)
• Rural poverty reduction driven by rural-urban linkages with smaller towns (tier-II) (Reardon & Minten, 2011)