On Markets and Poverty in India

Amidst the din and bustle of 'The Great Indian Poverty Debate', a seemingly small, but hugely significant, development appears to have been completely overlooked.  For the first time in more than 30 years of scientific poverty estimation in India, the distribution-sensitive measures of depth and severity of poverty improved more slowly than the improvement in the head-count poverty ratio in 2004-05.  "So what?" One may ask: after all they did improve, didn't they?  Indeed they did, and that alone should lay to rest the often-repeated and politically seductive charge that the poor are getting poorer in India.  But what it does indicate is that the benefits of the growth process have not filtered down to the poorest of the poor during the period 1993-94 to 2004-05 to the same extent as they did in earlier decades.

This incontrovertible fact demands a reappraisal of at least one facet of the poverty debate - namely, whether the market reforms carried out since the early 1990s have been pro-poor or not.  Until now, the discourse has been couched only in terms of the relative pace of poverty reduction during the pre- and post-reform periods.  However, it needs to be realized that even the pace of poverty reduction depends not just on how quickly average incomes are growing or the manner in which this growth is distributed among different income classes, but also on how far the average poor is from the poverty line.  The post-reform period benefited from the fact that in the previous two decades, the expenditure of the poor grew substantially faster than the average, which led to a closer bunching around the poverty line.  That is no longer apparently the case in the post-reform period.  What this implies is that the pace of poverty reduction is likely to be slower in the coming years than what has been experienced in the 1993-2005 period for similar rates of average income growth.  In this sense at least, if in no other, the post-reform period has not been particularly kind to the poor.

Does this necessarily mean that a market economy cannot deliver rapid poverty reduction?  The international experience suggests otherwise.  But it also suggests that the poverty reduction performance of market economies depends significantly on the existence of certain basic prerequisites, which are lacking in India.  First and foremost, we need to recognize that much of rural India continues to have characteristics which are more feudal than capitalist.  Other than the land reforms which took place in the early years after Independence, precious little has been done to correct this.  It is little wonder then that India never experienced the kind of agricultural productivity growth that occurred in China, and to a lesser extent in Vietnam, after their dismantling of collectivised agriculture.  Chinese productivities are today two to three times higher than India's for similar land-holding sizes.  The poverty reducing impact of such productivity growth is enormous.

The author, Pronab Sen is a Chief Statistician and Secretary of the Union Ministry of Statistics and Programme Implementation.