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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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