Monday, November 18, 2013

Poverty Reduction in Post Reform Era: Myths and Reality

- Kishore Jha

In July 2013 Planning Commission came out with data that showed sharp reduction in poverty in the last seven-eight years. According to its data, population living below poverty line has declined from 37.2% in 2004-05 to 21.9% in 2011-12. Pro-liberalization economist and politicians are giving credit to policies of economic reforms for this sharp decline.

Some economists and journalists, who defend the process of economic liberalization, often argue that economic reforms have helped poverty reduction in the country and India would have achieved much more in this field, had it started economic reforms in the 1970s. They argue that poverty in India has reduced at a higher rate in the era of economic reforms and India could never have achieved this in the pre-reform period with 2% or 3 % “Hindu growth rate”.

In other words they are saying that policies in Liberalization Privatization and Globalization (LPG) era have helped in reducing poverty at a much higher rate which did not happen earlier. Their claims call for looking at poverty reduction statistics in the pre and post reform periods.

It is difficult to find a single source that has comparative data of poverty reduction between 1947 to 2102 as there is no study that has collected data across decades using the same method. 

What is available is the following data from the Planning Commission and World Bank which suggests that there is no drastic reduction in poverty in post reform period, despite popular belief.
Planning Commission


39.1 %
37 %
27 %

World Bank

38 %
34 %

If one examines the above data, poverty reduced from 56.4 % to 39 .1% between 1974 and 1988 (pre reform period) as per Planning Commission data. This means that there was a 17.4 % drop in poverty rate in 14 years which translates into almost 1.25 % every year.

If we look into the data between 1988 and 2000 from the same source (12 years of post reform period), poverty rate came down from 39.1 % to 27 %. This translates into a 12.9% drop in 12 years or almost 1 % per year.

Latest data of the Planning Commission for 2011-12 is not comparable to earlier data as it uses different methodology (suggested by Tendulkar committee). But still, if one compares it with the previous data, poverty has reduced from 37 .1 % in 2004-2005 to 21.9% in 2011-12. It is a reduction of 15.2 % in 7 years or approximately just over 2 % every year. Once again it is important to underline that post 2000; data produced by the Planning Commission is not comparable to earlier data because the methodology used for collecting it is different. 

If one compares the pre and post reform figures of World Bank data, the results are even more striking. As per world bank data from the pre reform period , poverty came down from 55 % in 1974 to 33% in 1990 i.e. 22 % in 16 year with an average of 1.38 % per year. If one takes world bank data for the post reform period, poverty came down from 33% in 1990 to 28 % in 2000 (0.7 % per year). It increased meanwhile between 1994 and 1997. Figures between 2000 and 2010 are more astonishing. Poverty rose from 28 % to 34 % in this period.

Another important point to consider is growth rates in pre reform and post reform periods. Most of us know that we had about 2-3 % growth rate in pre reform period and between 5.7% and 10.5 % growth rate in post reform period. If one compares poverty reduction rate with growth rate, one would know what share of growth has gone into poverty reduction in the pre and post reform periods.

If one looks at the above data, only the Planning Commission data between 2004 and 2011 (based on Tendulkar Committee method) says that poverty has reduced at 2 % in the period which cannot actually be called a drastic reduction in context of growth rate of 6—8 % in this period.

If one takes figures from another committee (Arjun Sen Gupta committee. constituted by Government of India in 2007) almost at same time as Tendulkar committee, it gives a completely different picture. As per this committee, 77 % population lives below income of Rs 20 per day. It also underlines that these numbers have increased by two and a half times since Independence.

So considering the above data one can’t claim that post reform era has seen a greater poverty reduction than pre reform era. The basic argument from pro economic reforms economist that economic reforms have helped in reducing poverty does not stand firm. The pro economic reforms groups strongly argue about “trickle down” theory that is supposed to help marginalized section of the society. However if one compares growth rate and poverty reduction in this era with pre reform era, one will know to what extent this trickledown theory has worked.

It is also worthwhile to look into research done by economists other than planning commission. Eminent economist and political scientists like Ms Utsa Patnayak and Prabhat Patnayak have done their research using same criteria as planning commission --“Criteria of calories Intake”. As per the planning commission definition, anyone who has resources to afford 2200 calories in rural area and 2100 calories in urban area is above poverty line (however this criteria is debatable as it does not take care of other important aspect as education health and shelter).

As per Ms Utsa Patnayak and Mr. Prabhat Patnayak, 58.5 % of the urban population did not have resources to buy 2100 calories in 1983-84. This situation improved in 1993-94 and the number reduced to 57%. However there is constant increase in percentage of urban population which cannot afford 2100 calories after1994. The percentage increased to 64 % in 2004 and it further to 73 % in 2009-2010. This means only 27 % urban population could afford 2100 calories.

If one takes rural population, the situation is worse. As much as 56% of the rural population did not have resources to buy the requisite calories in 1993-94. The number increased to 76% in 2009-10. This means only 24 % of the rural population could afford 2200 calories--the energy intake separating the poor from the non-poor as per planning commission norms.

Per capita per year availability of grain was 177 kg in 1991 (when reforms started) which has reduced to 155 kg in 2004. According to Utsa, these figures are comparable to Second World War time. According to her, current per capita grain availability is same as was available at the time of the independence. 

Pro “economic reform” economist are also defending their policies by arguing that the minimum support price ( MSP) for farmers has increased many folds in this era. It is also necessary to examine these tall claims. It is true that MSP has increased almost by 240 % in last 15 years. However it needs to be underlined that the MSP hardly increased between 1999 and 2007 and most of the increase has happened between 2008 and 2013. However inflation has increased by 7.5 % (on average) in this period. If you take inflation into account, the MSP should have increased by 275 % to stay at the same level.

It is a well known fact that subsidies and soft loans to agriculture sector have been cut drastically in this period. I do not have data regarding extent of purchase by government at MSP right now but it will be interesting to examine the coverage of MSP in the last few decades . Studies done by scholars like P. Sainath and Patnaik suggest that support to agriculture sector has gone down in post reform period and the situation of farmers has worsened. According to another study by P Sainath, 2,70,740 farmers have committed suicide between 1995 and 2011 and forty six farmers are committing suicide every day after 2000. There must be some valid reasons behind almost 3000000 farmer’s committing suicide in this period.

In 1991, when economic reform started, India was at 123rd place in the human development Index (which takes cares of wider range of component than mere calories intake). It slipped to the 134th place in 2011.

In Global Development Index 2011, India ranked 65 among 75 nations. It was ranked lower than both Pakistan (57 )and Srilanka ( 35 ). Currently India has highest number of malnourished children in the world and 50 % of women are anaemic.

There is a lot of data that proves that the current development model is exclusive (jobless growth as describe by many)and not inclusive. It has not benefited marginalized sections and the trickledown theory, the argument given in favour of liberalization and privatization, has not worked.
Kishore Jha is a Delhi based activist and researcher.


abhishek said...

While all your analysis may be true I would still like to ask you one thing - how come all of Western Europe, North America, East Asia which rely on similar model of growth are in a much better position than India. The economy continued to follow the Nehruvian model for a considerable period of time and where did that get us?

The problem with your argument is you have failed to consider what if the limited growth, marginal employment reduction we are seeing is because of the erroneous policies of the Nehruvian era. Please go and read works of Bhagwati and Panagriya - Most economist agree that manufacturing did not take off in India because we ignored comparative advantage, invested in capital intensive industries, ignored agriculture, primary education and so on. This has nothing to do with liberalization. Also, only quoting left oriented economists does not help buttress your case.

There is not even a single example in this world wherein a country has followed a socialist model and has still achieved high growth rates and prosperity. And still somehow all the Leftist continue to imagine a utopia where communal ownership will solve all the ills. The problem is not with the growth model but with our institutions. As Narendra Modi once said - Khadya surkasha bill pass kar diya to thali par khana nahin aa jaata.

Anonymous said...

There is no use reading Bhagwati and Panagariya as those who know their work would also know that they do little else than keep towing the West's line in one way or the other. The only theory they propound is that of opening up without actually caring to tell their readers that the Western countries who are pressing smaller countries to give them access themselves followed a closed model of development when they were at the same stage of growth. Bhagwati and Panagariya will also not tell you that even today, while putting on the garb of openness, Western countries keep protecting the segments that they want to protect. For instance, while on paper EU allows foreign companies to participate in their government contracts, the formalities and conditions are so onerous that less than 1% of that business goes to foreign players. If you really think you can learn about developmental economics by reading such authors, I wish you luck!!

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