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A Comparative Analysis during the 2000s

Pro-poorness of Growth in Gujarat and Tamil Nadu

This article presents a comparative analysis of poverty reduction and pro-poorness of growth in Gujarat and Tamil Nadu during the post-reform period. We use the unit-level data of the Consumer Expenditure Surveys of the National Sample Survey Office to estimate the poverty ratio for both rural and urban areas of these states. The first period (1993–94 to 2004–05) recorded a slow poverty reduction, but the second period (2004–05 to 2011–12) witnessed a faster reduction in poverty in rural and urban areas in both the states concerned.

Poverty reduction is a primary concern of development policy. Despite the steady long-term high economic growth in India during the post-reform period, one of the primary concerns of the policymakers continues to be the assessment of how far this growth has been pro-poor (Planning Commission 2011b). The theory of trickle-down economics represents an obsession with the gross domestic product (GDP) and income growth as the most reliable measure of economic success. The theory argues that only economic growth matters for poverty reduction and a growing economy will take care of the poor. However, the critics of trickle-down economics point out that the benefits of growth within an economy are rarely spread evenly.

An unequal rise in income may even slow down economic growth and the rate of reduction of poverty (Datt and Ravallion 1992; Jain and Tendulkar 1990; Mishra 2015). The focus on poverty reduction has generated interest in pro-poor growth. However, there are no agreements on defining or measuring pro-poor growth, and it remains a policy and academic debate over time. The pro-poor growth debate started with the seminal work of Ahluwalia and Chenery (1974) on “redistribution with growth” and was later carried forward by several others (Kakwani and Pernia 2000; Kakwani 2001; Dollar and Kraay 2002; Kakwani and Son 2003; Ravallion and Chen 2003; Son 2004; Ravallion 2004; Kraay 2006; Ali and Son 2007; Ali and Zhuang 2007).

The notion of pro-poor growth in the Indian context is explained by Datt and Ravallion (1998), Ravallion and Datt (2002), Bandyopadhyay (2007), and Thorat and Dubey (2012). Realising the importance of this debate, the Government of India claimed “inclusive growth” as a strategy to make the growth process pro-poor and inclusive. India’s Eleventh and Twelfth Five Year Plans have used the word “inclusive growth” and delineated concrete strategies to promote the well-being and participation of disadvantaged groups (Planning Commission 2011b). The states of India are different geographically and in terms of resource endowment, and hence, the economic development scenario is diverse across the country. While some states have high per capita income with a faster growth rate, others are witnessing a stagnancy in income growth for an extended period (Ahluwalia 2000; DeLong 2012; Kumar and Subramanian 2012; Raju 2012). Many studies have compared Tamil Nadu and Gujarat in growth and human development dimensions (Bhagwati and Panagariya 2013; Kalaiyarasan 2014; Sen and Drèze 2013). No study has attempted to look into the poverty, growth, and redistribution between these two states. We attempt to look into the model of development of Tamil Nadu and Gujarat by inquiring into the pro-poorness of economic growth in both states for the post-reform period.

After briefly introducing the study’s objective and motivation, the article discusses and analyses the data. It also presents the analytical framework and the methods employed in the study. Then, it discusses the poverty trends in both states. It also presents the poverty and inequality elasticity among these states, while looking into the pro-poor indices among the two states during the post-reform period. Finally, we conclude our study with some policy suggestions.

Data and Methodology

The Tendulkar poverty line is used to estimate the poverty head count ratio (HCR) among the states (Planning Commission 2011a). The unit-level data on the Consumer Expenditure Survey for the 1993–94 (50th), 2004–05 (61st) and 2011–12 (68th) rounds of the National Sample Survey Office (NSSO) has been used. The 1993–94 and 2011–12 monthly per capita consumption expen­diture (MPCE) values are adjusted to the 2004–05 base.

Let θ(zyσ) be a poverty measure that is a function of a particular poverty line z, mean per capita income y, and some measure of inequality σ. We can define the poverty-growth elasticity (with respect to the growth of mean income) as:

 

β = – d log θ … (1)

( d log y )

This β measures the percentage fall in poverty due to each percentage increase in mean per capita income, indicating the poverty-reduction efficiency of growth within a particular region or group over time. The value of β is always negative, but its greater absolute value indicates greater efficiency of growth spells in reducing poverty.

Measures of Pro-poor Growth

Kakwani and Pernia (2000) have proposed a pro-poor growth index (PPGI) to measure the degree of being pro-poor. This index shows the relationship between total poverty-reduction and poverty reduction resulting from a distribution-neutral growth. This relation is expressed as the ratio of two poverty elasticities with respect to growth:

PPGI = β⁄η … (2)

Where β is overall poverty-growth elasticity as defined earlier, and η is poverty-growth elasticity keeping inequality constant (when income distribution remains the same). PGI > 1 indicates that growth is pro-poor, and PGI < 1 shows the reverse. The value of 0 < PGI < 1 shows the case of a trickle-down process where growth benefits the poor indirectly and remotely, whereas the case of PGI < 0 pertains to immiserising growth scenarios.

While the PGI captures the distribution of growth benefits among the poor and non-poor, the index does not consider the actual growth-rate level. In response to this, Kakwani and Son (2008) have proposed another pro-poor growth measure called the “poverty equivalent growth rate” (PEGR), which is denoted by g*. It is derived by multiplying PGI by the growth rate of mean income, which is expressed as:

g* = (β⁄η) g … (3)

Growth is pro-poor if g* > g and anti­poor if g* < g. So, 0 < g* < g indicates that growth is accompanied by an increasing inequality wherein poverty still declines. This situation may be characterised as a trickle-down process when the poor receive fewer benefits from growth than the non-poor.

Another tool to measure pro-poor growth is the poverty growth curve (PGC). The PGC indicates that the growth rate of the mean income up to the pth percentile (plotted in the vertical axis) is greater than zero for all percentiles. Also note that for the pth percentile equal to 100, the PGC is equivalent to the growth rate of the mean income of the society, since the growth rate of the mean income up to the pth percentile is lower than the annual growth rate of the mean income. In the majority of cases, the PGC provides firm conclusions about the pattern of growth without specifying the poverty line and the poverty measures. Nevertheless, there are some cases where the curve is not conclusive about the pattern of growth. Ravallion and Chen’s (2003) growth incidence curve (GIC) shows that growth in the period is pro-poor if the growth rates decline monotonically moving from the bottom centile to the top centile, which means the income of the lower decile rises at a faster rate than the higher decile. If the GIC increases monotonically, it means that the growth is anti-poor, that is, the mean income of the higher decile rises at a faster rate than the lower decile.

Poverty Trends

India is constituted by many states with different demographic, economic, social and geographic features. The regions vary in growth pattern, poverty, and inequality levels. The post-reform period recorded a faster growth at the national and state levels (Kumar and Subramanian 2012). However, being a diverse country, the growth pattern in the Indian states is uneven, hence the poverty
reduction and income distributions (Deaton and Drèze 2002; Dev and Ravi 2007; Himanshu and Sen 2010; Thorat and Dubey 2012).

Tables 1 and 2 present the poverty HCR of Gujarat, Tamil Nadu, and all of India for both rural and urban areas for 1993–94 (55th), 2004–05 (61st), and 2011–12 (68th) NSSO rounds. Poverty incidence has declined across sectors between 1993–94 and 2011–12. What is striking is the relative position of Tamil Nadu and Gujarat and how that changed over the period. In the early 1990s, the poverty rate in Tamil Nadu was comparable to the all-India level in both rural and urban sectors, and Gujarat’s HCR was relatively lower than Tamil Nadu and all India. Over one decade (1993–94 to 2004–05), Tamil Nadu has made considerable progress in po­verty reduction. We see that between 1993–94 and 2004–05, Tamil Nadu has registered an impressive decline in the poverty incidence, and the corresponding estimates for both the sectors were comparable with those of Gujarat. In the coming years, the reduction in the poverty rate in Tamil Nadu surpassed the same in Gujarat. The decline in HCR is higher during the second period than in the first one in both the states’ rural and urban areas. While the HCR in rural Gujarat has declined by approximate 1.48% annually during the first period, the decline for the second period is about 8.52% annually. During the first period, the decline in rural poverty is lower than that for Tamil Nadu and the national average. In the second period, the decline, though higher than the national average, is lower than in Tamil Nadu. In the first period, the decline in urban poverty in Gujarat is 3.98% annually, whereas in the second period, the decline is 9.59% annually. The urban poverty decline for Gujarat during both periods, though slightly higher than the national average, is way below Tamil Nadu. In both the rural and urban sectors during the post-reform period, the poverty decline was faster in Tamil Nadu than in Gujarat, even though the poverty level during 1993–94 was higher in Tamil Nadu.

The poverty depth and squared poverty gap (SPG) follow the same trends as the poverty HCR. The poverty reduction bet­ween the two periods is because of faster growth in MPCE and rise or fall in inequality. Table 2 presents the real MPCE and the degree of inequality measured in the Gini coefficient for the rural and urban sectors of Gujarat, Tamil Nadu and all India. The MPCE is converted into the real MPCE1 considering 2004–05 as the base year for a comparison over time. The MPCE of 1993–94 and 2011–12 have been converted into 2004–05 (base year) real MPCE for a comparison over time.

Tables 1 and 2 show that Gujarat has higher real MPCE than Tamil Nadu and all India except for 2011–12. The annual growth in the real MPCE of Gujarat is lower than all India way below Tamil Nadu (Table 3), both in rural and urban sectors. Tables 1 and 2 show that the absolute poverty HCR, poverty depth, and SPG in 1993–94 in Tamil Nadu and all India are higher than in Gujarat. However, the successive years witnessed a poverty ratio lower than Gujarat in Tamil Nadu, though India witnessed a slower decline than Gujarat. Table 2 shows that the HCR, poverty depth, and SPG witnessed a faster decline in Tamil Nadu than Gujarat, though Gujarat recorded a faster decline than the national average. Hence, both in rural and urban areas, though Gujarat witnessed a decline in poverty ratio in the post-reform period, which is faster than the all-India average, it is lower than Tamil Nadu. Gujarat has lower inequality than all India and Tamil Nadu. The first period (1993–94 to 2004–05) witnessed a rise in inequality in Gujarat, while the second period (2004–05 to 2011–12) witnessed a decline. Though at the national level, the inequality witnessed an increasing trend in both the periods; in Tamil Nadu, for the first period, inequality decreased in the rural areas and increased in the urban areas, but in the second period in Tamil Nadu, inequality increases for the rural areas and decreases for the urban areas. The following section explores the possible reasons for the faster reduction in poverty HCR in Tamil Nadu by decomposing the annual poverty changes among these states compared to all India.

Inequality Elasticity of Growth

The relationship between growth and poverty can be established from poverty elasticity, and growth and inequality can be established from inequality elasticity. The poverty elasticity is the ratio of relative change in poverty percentage between two periods to the relative change in MPCE between those periods. The inequality elasticity is the ratio of the percentage change in the Gini coefficient to the percentage change in MPCE between two periods. The value of the poverty elasticity will always be negative, implying that with a rise in MPCE, there will be a decline in poverty bet­ween the two periods. If the poverty elasticity is greater than one (omitting the sign), it implies that the poverty declined faster than the rise in MPCE. Hence, the greater the poverty elasticity, the better off the poor are from the growth process. If the poverty elasticity is lower than one, it implies that the poverty reduction is lower than the rise in MPCE or income. With a rise in MPCE, inequality might rise or fall, implying that the inequality elasticity between the two periods can be positive or negative. The positive sign of inequality elasticity implies that the growth in MPCE causes a rise in inequality, which only benefits people from a certain income strata. In contrast, the negative sign of inequality elasticity implies a rise in MPCE, which leads to a reduction in inequality, implying that the lower strata have benefited more than the upper-income groups.

Figure 1 (p 18) shows the poverty elasticity in Gujarat, Tamil Nadu, and all India. The poverty elasticity is higher in the second period than in the first one in all the regions. The higher poverty elasticity might be due to the anti-poverty programmes like the Mahatma Gandhi National Rural Employment Guarantee Act and the rise in public spending and spen­ding on several welfare schemes, which saw a faster rise in the second period, implying the growth in MPCE during the second period is more inclusive. By comparing the poverty elasticity among the regions during the first period, Gujarat has lower poverty elasticity. In the second period, Gujarat has higher poverty elasticity than Tamil Nadu and the all-India average in the rural sector. In the urban regions during both periods, Gujarat has a poverty elasticity lower than Tamil Nadu but way higher than the all-India average. The number shows that Tamil Nadu has a slightly higher poverty elasticity than Gujarat.

Figure 2 presents the inequality elasticity among Tamil Nadu, Gujarat, and all India during the post-reform period. During the first period in both the sectors, Gujarat witnessed a high inequality elasticity. However, the rural inequality elasticity is higher than the urban counterpart showing a rise in MPCE by 1%, causing a rise in inequality in rural Gujarat by 1.258% and urban inequality by 0.616%. At the same time, all India in the first period witnessed a rise in inequality elasticity by around 0.5% in both sectors. Tamil Nadu witnessed a negative inequality elasticity in the rural areas and positive inequality elasticity in the urban areas. In the first period, the impact of growth is more pro-poor in Tamil Nadu than Gujarat. In the second period, Gujarat witnessed a negative inequality elasticity, while all India witnessed a positive inequality elasticity in both the sectors. However, the growth impact of MPCE is causing a slow rise in inequality in rural Tamil Nadu. During the second period, urban Tamil Nadu witnesses a negative inequality elasticity. In the second period, Gujarat seems to be more pro-poor than Tamil Nadu due to the faster reduction in inequality.

Assessing Pro-poor Growth

The PPGI is helpful to examine the extent to which growth in a country or a state has been in favour of the poor or the non-poor. However, it may not be helpful when comparing two countries or states with different growth rates. In this situation, the PPGI cannot clarify which case is relatively more pro-poor. As income growth rates are different, we need a common benchmark to make such comparisons. The PEGR complements the shortcoming of the PPGI by incorporating a benchmark. In this section, we have used both the indicators to know whether the growth among the regions of these two states is pro-poor or not.

The PPGI is negative for Gujarat, Tamil Nadu, and all-India rural areas between 1993–94 and 2004–05, indicating immiserising growth. However, growth has been pro-poor between 2004–05 and 2011–12 for the same areas as indicated by a PPGI greater than one. The growth in the urban areas of Gujarat, Tamil Nadu, and all India has been the trickle-down type between 1993–94 and 2011–12, as indicated by a positive but less-than-one PPGI. The scenario changes between 2004–05 and 2011–12 in rural and urban areas. Rural Gujarat and all India witnessed a pro-poor growth in this period (PPGI is greater than one), whereas the growth in Tamil Nadu was a trickle-down type. Though it was an improvement from the im­miserising growth of the first period for Tamil Nadu, still it could not do well in helping the poor. Urban areas of Gujarat and Tamil Nadu witnessed pro-poor growth between 2004–05 and 2011–12, though the growth scenario at all India was not pro-poor.

We now proceed to compare the relative pro-poorness of growth for these states. The PEGR was lower than the benchmark growth rate (MPCE here) bet­ween 1993–94 and 2004–05 for rural and urban areas of Gujarat, Tamil Nadu, and all India, indicating an anti-poor growth. Furthermore, the negative sign of PEGR indicates an immiserising growth in these areas. The situation changed between 2004–05 and 2011–12 when rural Gujarat outsmarted rural Tamil Nadu (the PEGR for Gujarat is greater than its MPCE growth, while it is opposite for the Tamil Nadu). Growth could retain its pro-poor character in rural areas at the all-India levels between 2004–05 and 2011–12. Growth between 2004–05 and 2011–12 was pro-poor for urban Gujarat and Tamil Nadu, though it was anti-poor at the all-India level.

Figures 3–6 present the GIC of rural and urban Gujarat and Tamil Nadu in the post-reform period. The post-reform period can be classified into two phases. The GIC for rural and urban areas in the first period has witnessed an increas­ing trend showing that poverty reduction is not pro-poor. The second period, especially urban Gujarat and Tamil Nadu, witnesses declining trends, showing the pro-poorness of the poverty reduction in those states. The GIC reflects that the increase in consumption expenditure growth of the lower decile is slower than the upper decile in the first period, while in the second period, the growth of real consumption expenditure of the lower decile is higher than the upper decile, reflecting the pro-poorness of growth in both the states.

Concluding Remarks

Tamil Nadu has recorded faster poverty reduction during the post-reform period in comparison to Gujarat and the national average. Though the poverty-reducing impact of growth in income measured by poverty elasticity of growth remains the same for both the states, instead of having higher inequality, Tamil Nadu witnesses faster poverty reduction. It is due to its anti-poverty meas­ures and its welfare spending, which is reflected by its higher efficacy in reducing poverty in the decomposition of annual change in poverty. The effectiveness of these programmes too can be reflected in the pro-poor indices estimation, which shows that the second period is pro-poor in both the regions while the first period is not. Though the second period benefits the poor section more in both the regions, the anti-poverty measures in Tamil Nadu cause a faster reduction in poverty in the state compared to Gujarat and all India.

Note

1 The MPCE of 50th and 68th round has converted into the 2004–05 real base by deflating it with the ratio of the poverty line.

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Updated On : 11th Jun, 2022
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