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It is now widely accepted that higher economic growth has been one of the trusted means to reduce poverty in countries with mass deprivation. In the Indian case, however, this dictum has been subject to a few caveats - poverty reduction in the 1980s was higher than in the 1990s even though economic growth in the 1990s was higher, indicating that, since the 1980s saw greater agricultural growth than the 1990s, the structure of growth not just its absolute level is important. This is particularly true in a county such as India where more than 64 per cent of the population lives in rural areas and where poverty is much more pronounced in rural than in urban areas. Furthermore, the reduction of poverty in the aggregate in the 1990s was accompanied by widening of regional as well as personal inequalities.
Poverty estimates for India in 1999-00 based on the 55th Round Household survey of the National Sample Survey are not comparable with those of earlier years because of a change of methodology in 1999-00. Once adjustments for such changes are made, poverty estimates for 1999-00 are higher than those given by official estimates leading one to conclude that the high economic growth, in the aftermath of the economic reforms program begun in 1991, did not lead to substantial poverty reduction. If this trend were to persist, it was widely feared, the political consensus in favour of economic reforms that made the high economic growth possible in the first place would be jeopardised.
An obvious antidote to this surmise would be to obtain updated information on poverty trends in India to see whether more recent data indicated an improvement in the poverty situation. The latest data available is for the period January to June 2004 in the 60th Round of the National Sample Survey. This data, although not entirely comparable with that for 1999-00, is still indicative of the trends in poverty during the time period 1999 to 2004. Computations on poverty incidence using this data set indicate that whereas about 27 per cent of the population in India's rural sector was poor in 1999-00 this proportion had fallen to about 22.9 per cent in 2004, using the same recall periods for both surveys. Hence in the five years between 1999 and 2004 rural poverty fell by about 4 percentage points, which is a welcome development and a confirmation of the belief that high economic growth will lead to reduced poverty. The intensity of poverty also fell substantially over this period. Thus, the high economic growth during the period 1999-2004 has brought down poverty significantly - a result that becomes even more significant when one recounts the fact that 2002-03 was a drought year with low GDP growth rates.
It thus appears that the poverty reduction-economic growth-nexus that had grown weak in the 1990s has recovered. Poverty reduction has proceeded relatively smoothly along with higher economic growth. This also repudiates the oft-repeated contention, particularly in the popular media, that slow reduction of rural poverty was responsible for the results of the 2004 general elections in India.
That said, data for 2004 also reveal a sharp rise in both interpersonal as well as spatial inequality in India. Hence it appears that, although poverty is falling in the aggregate, it is getting more regionally concentrated and interpersonal inequalities are also widening.
WATCHPOINT: Further confirmation of the trends in rural poverty can be obtained from the results of the 61st Round of the National Sample Survey for 2005 to be released in the next few weeks.
About our company:
AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.
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