Impact of economic reform on poverty:

There are two conclusions on trends in poverty:

♤ Poverty declined by 1.3 percentage points per annum after 1991, compared to that of 0.44 percentage points per annum prior to 1991. Among other things, urban growth is the most important contributor to the rapid reduction in poverty in the post-reform period.

♤ In the post-reform period, poverty declined faster in the 2000s than in the 1990s.

According to Tendulkar committee, around 138 million people were lifted above the poverty line during 2004 to 2009 alone. Rangarajan committee report also showed faster reduction in poverty during 2009-10 to 2011-12. This indicates the success of reforms in reducing poverty.

Statistically, change in poverty can be separated into two components (assuming constant inflation indexed poverty line) - Growth and redistribution of income. If distribution (i.e. inequality) remains constant, only through growth can poverty be addressed.

However, as inequality increases, as has been the case in India, the growth would have to outstrip the pace of increase in inequality in order to reduce poverty. Another way of seeing this is that if the incomes of the super-rich increase at a higher pace (causing increasing inequality), the pace of increase of income of the people below poverty line would have to be higher. This is highly unlikely.

In this kind of scenario, there has be forced redistribution on part of the government. With government adding to incomes of poor through welfare schemes, the net growth of real income of poor becomes higher, contributing to reduced poverty.

Higher economic growth, agriculture growth, rural non-farm employment, increase in real wages for rural labourers, employment in construction and programmes like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) contributed to higher poverty reduction in the 2000s compared to the 1990s.

World Bank in its latest report also estimated that based on $1.90 income to measure extreme poverty, India’s actual extent of poverty may be much less (approx. 11%). Still, 300 million people live below the poverty line in India.