Poverty and Inequality in India

Poverty trends in India in the nineties have been a matter of intense controversy.1 The debate has often generated more heat than light, and confusion still remains about the extent to which poverty has declined during the period. In the absence of conclusive evidence, widely divergent claims have flourished. Some have argued that the nineties have been a period of unprecedented improvement in living standards. Others have claimed that it has been a time of widespread impoverishment.2 Against this background, this paper presents a reassessment of the evidence on poverty and inequality in the nineties. So far, the debate on poverty in the nineties has focused overwhelmingly on changes in the ‘headcount ratio’ – the proportion of the population below the poverty line. Accordingly, we begin (in Section I) with a reassessment of the evidence on headcount ratios and related poverty indexes, based on National Sample Survey (NSS) data. In particular, we present a new series of internally consistent poverty indexes for the last three ‘quinquennial rounds’ (1987-88, 1993-94 and 1999-2000). The broad picture emerging from these revised estimates is one of sustained poverty decline in most states (and also in India as a whole) during the reference period. It is important to note, however, that the increase in per capita expenditure associated with this decline in poverty is quite modest, e g, 10 per cent or so between 1993-94 and 1999-2000 at the all-India level. In Section II, we consider related evidence from three additional sources: the Central Statistical Organisation’s ‘national accounts statistics’, the ‘employment-unemployment surveys’ of the National Sample Survey, and data on agricultural wages. We find that these independent sources are broadly consistent with the revised poverty estimates presented in Section I.

In particular, real agricultural wages in different states (which are highly correlated with headcount ratios of rural poverty) have grown at much the same rate as the corresponding NSS-based estimates of per capita expenditure in rural areas. While each of these sources of information, including the National Sample Survey, has important limitations, they tend to corroborate each other as far as poverty decline is concerned, and the combined evidence on this from different sources is quite strong. The evidence on inequality is discussed in Section III, where we focus mainly on the period between 1993-94 and 1999- 2000. Based on further analysis of National Sample Survey data and related sources, we argue that there has been a marked increase in inequality in the nineties, in several forms. First, there has been strong ‘divergence’ of per capita expenditure across states, with the already betteroff states (particularly in the southern and western regions) growing more rapidly than the poorer states. Second, rural-urban disparities of per capita expenditure have risen. Third, inequality has increased within urban areas in most states. The combined effects of these different forms of rising inequality are quite large. In the rural areas of some of the poorest states, there has been virtually no increase in per capita expenditure between 1993-94 and 1999- 2000. Meanwhile, the urban populations of most of the better-off states have enjoyed increases of per capita expenditure of 20 to 30 per cent, with even larger increases for high-income groups within these populations. Section IV takes up some qualifications and concerns. We pay special attention to the apparent decline of cereal consumption in the nineties, which is not obviously consistent with the notion that poverty has steadily declined during that period. We also consider the possibility of impoverishment among specific regions or social groups, in spite of the general improvement in living conditions. Finally, we comment on the unresolved puzzle of the ‘thin rounds’. In Section V, we argue for supplementing expenditure-based data with other indicators of living standards, focusing for instance on literacy rates, health achievements, nutritional levels, crime rates, and the quality of the environment. This broader approach sheds a different light on poverty trends in the nineties. In particular, it prompts us to acknowledge that social progress has been uneven across the different fields. For instance, the nineties have been a period of fairly rapid increase in literacy and school participation.