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Mainstream, Vol XLV No 26

Slower Poverty Reduction but Increasing Inequality

Tuesday 19 June 2007, by Ruddar Datt

THE STORY OF GROWTH IN THE POST-REFORM PERIOD

Planning Commission’s Estimate of Poverty on the basis of 61st Round of NSS—2004-05

The NSSO results on the basis of large sample survey data on household consumer expenditure (NSS 61st Round) for 2004-05 are the basis of poverty estimates. The data were collected on uniform recall period (URP) using 30-days for all items. The data was also available using 365 days for five frequently purchased non-food items, namely, clothing, footwear, durable goods, education and institutional medical expenses, and 30-days recall period for the remaining items, known as mixed recall period (MRP). The Planning Commission, using the Expert Group methodology has estimated poverty in 2004-05 using both the distributions. The following results were obtained:

1. Poverty estimates based on URP indicate 28.3 per cent of rural population and 25.7 per cent of the urban population was below the poverty line. For the country as a whole, 27.5 per cent of total population was below the poverty line in 2004-05.

2. The corresponding figures obtained from MRP indicate 21.8 per cent in rural areas, 21.7 per cent in urban areas and 21.8 per cent for the country as a whole was in poverty in 2004-05.

The Planning Commission in its Approach to the 11th Five Year Plan (December 2006) states: “Using the methodology of the Expert Group on Estimation of Proportion and Number of Poor 1993, the percentage of population below the poverty line is provisionally estimated at 27.8 per cent in 2004-05. Thus the average decline in percentage of population below the poverty line over the period 1993 to 2004 is 0.74 percentage points per year, much less than implied by the official 1999-2000 data. Because of the slower pace of reduction in the percentage of the poor, the estimated number of poor is now estimated to be approximately 300 million in 2004-05, larger than the official estimate of 1999-2000.”

It may be recalled that the official estimate for poverty in 1999-2000 was 26.1 per cent for the country as a whole and 260 million were estimated as poor.

Table 1 provides State level data on poverty ratios during 2004-05. The lowest poverty ratio was 5.4 per cent for Jammu and Kashmir and highest poverty ratio was for Orissa (46.4 per cent). States with poverty ratio of less than 15 per cent were Jammu & Kashmir, Punjab, Haryana, Himachal Pradesh, Delhi and Andhra Pradesh. As against them, States with poverty ratio above 30 per cent were Maharashtra, Uttar Pradesh, Bihar, Jharkhand, Madhya Pradesh, Chattisgarh, Uttarakhand and Orissa.

Table 1: Number and Percentage of Population Below Poverty Line (2004-05) based on URP Consumption
Rural
State % of Persons No. of persons (in lakhs) % of Persons No. of Persons (in lakhs)  % of persons No. of persons(in lakhs)
S.No. (1) (2) (3) (4) (5) (6)
1 Jammu & Kashmir 4.6 3.7 7.9 2.2 5.4 5.9
2 Punjab 9.1 15.1 7.1 6.5 8.4 21.6
3 Himachal Pradesh 10.7 6.1 3.4 0.2 10.0 6.4
4 Goa 5.4 0.4 21.3 1.6 13.8 2.0
5 Haryana 13.6 21.5 15.1 10.6 14.0 32.1
6 Delhi 6.9 0.6 15.2 22.3 14.7 22.9
7 Kerala 13.2 32.4 20.2 17.2 15.0 49.6
8 Andhra Pradesh 11.2 64.7 28.0 61.4 15.8 126.1
9 Gujarat 19.1 63.5 13.0 27.2 16.8 90.7
10 Assam 22.3 54.5 3.3 1.3 19.7 55.8
11 Rajasthan 18.7 87.4 32.9 47.5 22.1 134.9
12 Tamil Nadu 22.8 76.5 22.2 69.1 22.5 145.6
13 West Bengal 28.6 173.2 14.8 35.1 24.7 208.3
14 Karnataka 20.8 75.0 32.6 63.8 25.0 138.9
15 All-India 28.3 2209.2 25.7 808.0 27.5 3017.2
16 Maharashtra 29.6 171.1 32.2 146.3 30.7 317.4
17 Uttar Pradesh 33.4 473.0 30.6 117.0 32.8 590.0
18 Madhya Pradesh 36.9 175.7 42.1 74.0 38.3 249.7
19 Uttarakhand 40.8 27.1 36.5 8.9 39.6 36.0
20 Jharkhand 46.3 103.2 20.2 13.2 40.3 116.4
21 Chattisgarh 40.8 71.5 41.2 19.5 40.9 91.0
22 Bihar 42.1 336.7 34.6 32.4 41.4 369.2
23 Orissa 46.8 151.8 44.3 26.7 46.4 178.5
Note: States have been arranged in the ascending order on the basis of combined poverty ratio in 2004-05.
Poverty line: Rs 356.0 in rural areas and Rs 538.6 in urban areas (Per capita monthly expenditure).
Source: Planning Commission, Press Release, March 2007.

Five States, namely, Uttar Pradesh, Maharashtra, Bihar, West Bengal and Orissa accounted for 166 million poor (about 55 per cent of the total poor estimated at 302 million). This shows the high concentration of poor in these five States.

Table 2: Poverty Estimates based on URP 1993-94
Rural 37.3 28.3
Urban 32.4 25.7 Total 36.0 27.5
Source: Planning Commission, Press Release, March 2007.

Dev and Ravi’s Study on Poverty

S. MAHENDRA DEV and C. Ravi have also analysed indepth the data of the 61st round of NSS (2004-05) and compared it with the period 1983-1993. The major findings of the study are:

1. The study reveals that overall poverty in India in 2004-05 was 28.3 per cent, slightly higher than the estimate of the Planning Commission, although the study uses the official poverty lines as updated for 2004-05, that is, Rs 356 for rural areas and Rs 538.6 of per capita monthly expenditure for urban areas. Accordingly rural poverty ratio was 29.2 per cent and for urban areas it was 26.0 per cent for 2004-05.

2. The absolute number of poor declined to around 315.5 million from around 324 million in 1993-94—indicating a decline of nine million during the 11-year period.

3. The study has estimated the ‘very poor’ defined as those who are below 75 per cent of the poverty line. There was a decline in the proportion of the very poor from 15.5 per cent in 1993-94 to 10.3 per cent in 2004-05. This implies the very poor accounted for 115 million among the total poor reckoned at about 316 million. Obviously, the share of hard core or chronic poor is quite high, around 37 per cent of the total poor.

4. Data provided in Tables 2 and 3 reveal that poverty continued to decline from 44.9 per cent in 1983 to 36.0 per cent in 1993 and further to 28.3 per cent in 2004-05. This phenomenon was also observed in both rural and urban areas. However, it was noted that total poverty declined at the rate of 0.85 percentage points in the pre-reform period (1983-93), while the corresponding figure for the post-reform period was 0.70 percentage points per annum. From this, it can be inferred that the rate of decline in total poverty was slower in the post-reform period than in the pre-reform period. The same pattern was observed in the rural as well as urban areas.

Table 3: Percentage and Poor and Very Poor in India (URP basis)
Poverty Ratios (in per cent) Change in Poverty(%age points per annum)
1983 1993-94 2004-05 1983-94 1994-05
Rural Poor 45.8 37.3 29.2 -0.81 -0.73
Very Poor 25.5 15.4 9.6 -0.97 -0.52
Urban Poor 42.3 32.3 26.0 -0.92 -0.59
Very Poor 22.5 16.0 12.0 -0.61 -0.36
All-India Poor 44.9 36.0 28.3 -0.85 -0.70
Very Poor 24.8 15.5 10.3 -0.88 -0.48
Source:S. Mahendra Dev and C. Ravi, Poverty and Inequality—All-India and States, 1983-2005, Economic and Political Weekly, February 10, 2007

This implies that though the GDP growth was higher in the post-reform period, it failed to impact on the poverty reduction rate significantly and, as a result, a higher rate of poverty reduction than observed in the pre-reform, as normally expected, did not take place.

To understand the slower rate of poverty reduction in the post-reform period, Dev and Ravi calculated Gini co-efficient for the urban and rural areas.

Table 4: Absolute Number of Poor and Very Poor in India on the URP basis
1983 1993-94 2004-05
Rural Poor 252.0 247.2 232.2
Very Poor 140.6 102.0 76.7
(55.8) (41.3) (33.1)
Urban Poor 72.3 77.4 83.3
Very Poor 38.4 38.0 38.4
(53.1) (49.1) (46.1)
All-India Poor 320.4 324.6 315.5
Very Poor 179.0 140.0 115.1
(55.2) (43.2) (36.5)
Note: Figures in brackets refer to percentage share of very poor to the total poor.
Source: Dev and Ravi (2007), op. cit.

From the data provided in Table 5, it is evident that inequality of consumption represented by the Gini coefficient seems to have increased significantly for both rural and urban areas in the post-reform period—the rate of increase being much higher for the urban as compared to the rural areas.

Mahendra Dev and Ravi from their study draw the following conclusion:
The relationship of income and Gini elasticities with the levels of headcount poverty ratios “shows that the States which have low poverty ratios had high income and Gini elasticities. The policy implication is that growth alone would not be sufficient for reduction in poverty and policies that reduce inequality are also important in these states. On the other hand, States such as Bihar, Orissa, UP and MP which have high poverty ratios show low income and Gini elasticities. It shows that growth is more important in these states than distribution policies.”

Table 5: Gini Co-efficient for rural and urban areas
Poverty and Inequality %age change per annum
1983 1993-94 2004-05 1963-94 1994-05
Gini Co-efficient
Rural 30.79 28.55 30.45 -0.21 0.17
Urban 34.06 34.31 37.51 0.02 0.29
Source: Dev and Ravi (2007), op. cit.

“To conclude, the extent of decline in the post-reform period in poverty is not higher compared to the pre-reform period in spite of overall growth. Apart from other factors, an increase in inequality seems to have slowed down the rate of reduction in the post-reform period. … However, there are two unambiguous conclusions. One is that there is no evidence of a higher rate of decline in poverty in the post-reform period as a whole compared to the pre-reform period. Secondly, inequality increased significantly in the post-reform period as compared to the earlier decade. Higher inclusive growth that increases agriculture and non-farm growth, and a reduction in regional, rural-urban and social disparities are important for a faster reduction in poverty. Human development is equally important for poverty alleviation. Therefore, policies that increase growth and equity have to be followed simultaneously. … There is also a need for focused intervention on the 115 million hard core poor.”

REFERENCE

- 1. Planning Commission, Towards Faster and More Inclusive Growth: An Approach to the 11th Five Year Plan, December 2006) p. 71.
- 2. Mahendra Dev S. and Ravi (2007), Poverty and Inequality: All-India and States, 1983-2005, Economic and Political Weekly, February 10, 2007. pp. 519-20.

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