The Poverty Puzzle

Feb 22nd 2000

There is now substantial agreement that India's success at reducing the incidence of poverty during the 1970s and 1980s was halted, if not reversed, during the 1990s. Estimates made at the World Bank (the most recent update being by Gaurav Datt in the Economic and Political Weekly Dec 11-17, 1999) show that the incidence of poverty, which between 1972-73 and 1989-90 fell from 55.4 per cent to 34.3 per cent in rural India and from 54.3 to 34.1 per cent nationally, has in subsequent NSS rounds up to 1997 (when the incidence was 34.2 per cent national and 35.8 per cent rural) never gone below the 1989-90 level and has in fact risen to much higher levels in individual years (Chart 1).

Chart 1 >> Click to Enlarge

Other estimates (for example, by S. P. Gupta, Member, Planning Commission, with data up to 1998 and following the Expert Group method) suggest an even greater increase in rural poverty during the 1990s. All these estimates indicate, moreover, that the gap between rural and urban areas, which had decreased during the 1980s and 1970s, increased considerably during the 1990's.
This lack of any further progress on the poverty reduction front is of course a matter of concern, but in the context of official national income figures pointing to rather robust growth during the 1990s, it is also a puzzle. Datt, for example, states that "the 1990s appear to have been a decade of missed opportunities as far as poverty reduction is concerned" but notes also the need for a reconciliation between the pictures thrown up by the National Sample Survey (NSS) and the National Account Statistics (NAS).
Other commentators have gone further and questioned the veracity of the data. Those favouring the liberalisation process tending to dismiss the NSS consumption data. In contrast, those opposed to the economic policies of the 1990s have been sceptical of the large GDP growth figures being brought out in the NAS by the Central Statistical Organisation (CSO).
Matters are complicated because the CSO has shifted midway through the 1990s to a new series of national income with base year 1993-94 (from the old series with base year 1980-81). This makes calculations of growth rates for the 1990s as a whole somewhat difficult. Nonetheless, national income figures from the old series are available for the period 1990-91 to 1996-97 and can be extended to 1997-98 by applying the growth rates reflected in the data relating to the new series.
On that basis we find that the average annual rate of growth of GDP between the triennium ending 1990-91 and the triennium ending 1997-98 stood at 2.41 per cent in the primary sector, 6.81 per cent in the secondary sector, 7.07 per cent in the tertiary sector and 5.65 per cent in the case of overall GDP. The corresponding growth rates for the period extending between trienniums ending 1980-81 and 1990-91 were 3.51, 6.92, 6.05 and 5.36 respectively. Thus, according to this series, the rate of overall GDP growth was in fact slightly higher during the 1990s as compared to the 1980s and, although there is evidence of some slowdown in agriculture consistent with an increased gap between urban and rural incomes, agricultural income growth during the nineties continued to comfortably outpace rural population growth.
The puzzle is compounded because the new series of national income, with 1993-94 as base, has not only upped the GDP estimates but also points to a higher rate of growth than in the old series for both overall and agricultural incomes. Thus, the GDP estimate for 1993-94 is about 9 per cent higher according to the new series than the old, both overall and in agriculture. Also, between 1993-94 and 1997-98, agricultural GDP as per the new series rose by a total of 14.2 per cent as compared with 8.37 per cent according to the old series. Total GDP between these years increased by 31.3 per cent as per the new series as compared with 30.4 per cent in the old series, with GDP in the secondary sector rising by 41.6 per cent in both series and that in the tertiary sector by 37.4 in the new series against 38.6 per cent in the old.
In sum, going by the new series, the agricultural sector has performed much better than suggested by the old series, widening the lack of correspondence between the growth of rural incomes and trends in rural poverty.
A priori, any lack of correspondence between trends in income growth and poverty incidence must be put down to either increased inequality and/or to a failure of per capita consumption to rise along with income, whether because of higher savings or measurement problems. The World Bank estimates of real per capita consumption in rural areas from the various NSS rounds are seen rising sharply between 1972-73 and 1986-87, with a further spurt in 1989-90, but declining subsequently, with the trend level having stagnated at best (Chart 2). This closely tracks the movements (in the opposite direction) of rural poverty.

Chart 2 >> Click to Enlarge

Also, urban real per capita consumption continued to have a rising trend during the 1990s, consistent with continued fall in urban poverty. From this, and the fact that rural inequality, as measured by the Gini coefficients obtained from the NSS distribution of consumer expenditure, has fluctuated within the range of 27 to 31 per cent throughout, Datt has concluded that poverty increased during the 1990s not so much because of increased inequality but because measured rural consumption from the NSS failed to reflect the income growth in the National Accounts Statistics (NAS).

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