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Has Poverty Declined since Economic Reforms? Statistical Data AnalysisAuthor(s): Gaurav DattSource: Economic and Political Weekly, Vol. 34, No. 50 (Dec. 11-17, 1999), pp. 3516-3518Published by: Economic and Political WeeklyStable URL: http://www.jstor.org/stable/4408714 .Accessed: 06/02/2015 00:31

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SPECIAL ARTICLES

Has Poverty Declined since Economic Reforms?

Statistical Data Analysis Gaurav Datt

Recent estimates of absolute poverty in rural and urban India, covering the period up to 1997, are presented. The estimates present a mixed picture of a moderate decline in urban poverty rates, but relatively unchanging levels of rural poverty during the 1990s, which seems largely attributable to differential growth in average living standards in the two sectors. However, the unresolved and increasing discrepancy between the national accounts and survey-based estimates of consumption growth raises doubts about how egalitarian the growth process has been over this decade.

THERE has been much interest in how living standards and poverty in India have evolved since the beginning of economic reforms in mid-1991. However, till recently, the available estimates of poverty only covered the period up to 1993-94 [see, for instance, Datt 1998a]. Thus, it was not possible to make any definitive statement on how living standards of the poor have been changing in the post-reform period. The purpose of this brief paper is to present more recent estimates of poverty for rural and urban India for the 1990s. The estimates are based on tabulated distributions of consumption expenditure published recently by the National Sample Survey (NSS) Organisation [NSS 1997]. At the time of writing this paper, the latest period covered by these tabulations was that for the NSS 53rd round, viz, January- December 1997.

The construction of poverty estimates in this paper follows essentially the same methodology as has been used in our estimates for the earlier period, as for instance presented in Datt (1998a). Thus, we continue to use the same absolute poverty lines, given by a per capita monthly expenditure of Rs 49 in rural areas and Rs 57 in urban areas at October 1973-June 1974 all-India rural and urban prices, respectively.1 We also continue to use the methodology based on parametric Lorenz curves to derive estimates of poverty measures.2 Three sets of poverty measures are estimated: the headcount index, the poverty gap index and the squared poverty gap index.

Also consistent with our previous methodology, our estimates make a cor- rection to the rural deflator, the consumer price index for agricultural labourers (CPIAL), for the price of firewood, which till recently had been treated as a constant by the Indian Labour Bureau in the construction of the CPIAL indices.3

The estimates

Table 1 presents the estimates of real mean consumption, poverty measures, and the Gini indices for rural and urban India since 1973-74. Three features of the results are notable.

Probably, the most notable feature of the results in Table 1 is that the mid-1980s seems to be a significant watershed in the evolution of living standards in India. Thus, for instance, while there was a marked decline in both rural and urban poverty rates between 1973-74 and 1986-87, there is no sign of anything comparable since.4 This is also reflected in the national poverty estimates (see the headcount indices in Figure 1).

The second notable feature of the results has to do with the contrast between rural and urban trends, especially since the mid- 1980s. Focusing in particular on the period- relevant to economic reforms, we could take the average of the 45th and 46th rounds as describing the situationjust prior to economic reforms, which could be compared with the average for the last two rounds of the 1990s, viz, rounds 52 and 53, as the most recent 'post-reform' situation. With this stylised representation,5 we find quite different trends across rural and urban sectors.

For rural India, we find that there is virtually no change in the pre- and post- reform poverty measures. This is true for all poverty measures, the percentage change ranging between 3.1 per cent for the headcount index, -0.2 per cent for the poverty gap index and -4 per cent for the squared poverty gap index. This relative lack of change in the poverty rates is also reflected in the rural real mean consumption, which also remained virtually un- changed over this period. In contrast, there was about a 10 per cent increase in the urban real mean consumption. This growth

in average living standards is also reflected in a decline in the urban poverty measures. For instance, the urban headcount index declined by about 12 per cent. The urban poverty gap and squared poverty gap indices declined somewhat more rapidly, by about 15 and 20 per cent, respectively, indicating that improvements in the living standards were not confined only to the neighborhood of the poverty line, but also permeated below that threshold.

However, the failure of the rural poverty measures to decline can hardly be inter- preted as implying that the benefits of post-reform economic growth have been limited to the relatively rich, and the poor have been bypassed by that process. The evidence does not support such an inter- pretation. There does not appear to be any sharp increase in intra-sectoral inequality. To be sure, the rural and urban Gini indices have increased by 4-5 per cent, but that is a relatively small change and not one into which too much can be read. Instead, the overall picture presented by the NSS data is one of differential growth in average living standards in the two sectors. The stagnation in rural poverty seems largely attributable to the lack of growth in that sector, while the moderate growth in urban living standards appears to account for the decline in urban poverty measures.

Statistical tests

We investigated the sectoral contrast story further by testing for differential trends using the following model:

In Yt = (1DtPre9l + (2DPost91

+ PltDtPre91 + I2tDOst91 + Ut where Y1 is the poverty measure (or mean consumption or the Gini index) at date t, and DPre91 is a binary variable that takes the value of 1 for all dates up to June 1991 (46th round), and 0 for all later dates, and

3516 Economic and Political Weekly December 11, 1999


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FIGURE 1: POVERTY IN INDIA, 1973-74 TO 1997: NATIONAL, RURAL AND URBAN

6 0 . ....... ... . .. . . .. . . . . ...... .... ......-.,

56 55 7

C 50

45 -

- , R ural Poverty

1 40. "N .^ +^^ -i^ - h -^ -'* Urban Poverty

r t ^.,, ? 3a National Poverty

1 "-35

-30-

25 V Co O 0 N VrD C O O C4 , CO OD

rl_ Il- r 03 co co M co co 0 1 a) a) a) c) cn

N N C C CJO

C CD cn cn Cr m

NSS Survey Year

Note: The markers in the figure correspond to the mid-point of the NSS survey period, and the years on the horizontal axis are calendar years, for example, (1974,0) is January 1974.

DPost91 equals (1 - DPre91). The P para- meters measure the trend rates of growth. We test for the equality of pre- and post- reform growth rates by testing for equality of 31 and P2. The results of this exercise are presented in Table 2.

For the rural sector, the results indicate that while there was a significant trend decline in all three poverty measures up to mid-1991 (at an annual rate of 2.7 per cent for the headcount index, 4.5 per cent for the poverty gap and 5.9 per cent for the squared poverty gap index), the rate of decline since then is not significantly different from zero. The hypothesis of equal trend rates of poverty decline in the pre- and post-1991 periods is thus re- jected, as is the hypothesis of equal rates

of growth in rural mean consumption. Rural mean consumption grew at a significant 1.45 per cent per annum up to 1991 as against a zero growth trend there- after. However, there was no significant trend in rural Ginis in either period.

By contrast, for the urban sector, the hypothesis of equal rates of change in the pre- and post-1991 periods is found to be statistically acceptable for mean consumption, Gini indices as well as all poverty measures. Thus, while mean consumption grew at a statistically significant rate of 1.35 per cent per annum over the whole period 1973-97, the poverty measures also declined at significant rates: 1.9, 2.6 and 3.2 per cent per annum for the headcount, poverty gap and the squares poverty gap indices. There was however no significant trend in the urban Gini index.

The statistical tests thus confirm the descriptive results. While the urban sector

TABLE 2: TREND RATES OF CHANGE IN MEAN CONSUMPTION, POVERTY AND INEQUALITY IN INDIA, 1973-91 AND 1991-97

Variable Test for Same Trend Trend Rate of Growth for Both Periods Oct 73- Jun 91 Jul 91-Dec 97 Oct 73-Dec 97

Rural Mean consumption 3.50 [0.06] 1.45 (9.88) 0.39 (0.72) Gini coefficient 0.21 [0.64] -0.18 (0.85) Headcount index 4.02 [0.04] -2.70(9.54) -0.51(0.49) Poverty gap index 8.77 [0.00] -4.50(11.6) -0.06(0.04) Squared poverty gap index 7.90 [0.00] -5.92(10.9) -0.06(0.03)

Urban Mean consumption 0.14[0.71] 1.35(6.24) Gini coefficient 0.60[0.44] 0.001(0.05) Headcount index 0.18[0.67] -1.93(6.08) Poverty gap index 0.02[0.881 -2.60(6.80) Squared poverty gap index 0.002[0.96] -3.19(6.50)

Notes:The test statistic is distributed as a Chi-square with one degree of freedom. The numbers in square brackets are probabilities of Chi-square > test statistic. The numbers in round brackets are t-ratios.

TABLE 1: MEAN CONSUMPTION, POVERTY AND INEQUALITY IN INDIA, 1973 -97

NSS Round Survey Period Mean Consumption Headcount Index Poverty Gap Index Squared Poverty Gini Index Gap Index

Rural Urban Rural Urban Rural Urban Rural Urban Rural Urban

28 Oct 73-Jun 74 53.01 70.77 55.72 47.96 17.175 13.602 7.128 5.219 28.54 30.79 32 Jul 77-Jun 78 58.25 82.42 50.60 40.50 15.025 11.687 6.057 4.526 30.92 34.71 38 Jan 83-Dec 83 61.46 87.51 45.31 35.65 12.649 9.517 4.841 3.557 30.1 34.08 42 Jul 86-Jun 87 66.99 93.86 38.81 34.29 10.013 9.100 3.700 3.395 30.22 36.75 43 Jul 87-Jun 88 66.60 89.11 39.23 36.20 9.275 9.121 2.982 3.056 29.39 34.64 44 Jul 88-Jun 89 66.57 89.11 39.06 36.60 9.504 9.537 3.291 3.293 29.51 34.8 45 Jul 89-Jun 90 69.03 93.33 34.30 33.40 7.799 8.505 2.575 3.038 28.23 35.59 46 Jul 90-Jun 91 66.73 91.16 36.43 32.76 8.644 8.509 2.926 3.121 27.72 33.98 Pre-reform Jul 89-Jun 91 67.88 92.25 35.37 33.08 8.222 8.507 2.751 3.080 27.98 34.79 47 Jul 91-Dec 91 68.50 97.52 37.42 33.23 8.288 8.244 2.680 2.902 29.91 37.98 48 Jan 92-Dec 92 63.80 93.18 43.47 33.73 10.881 8.824 3.810 3.191 29.88 35.11 50 Jul 93-Jun 94 67.45 95.95 36.66 30.51 8.387 7.405 2.792 2.417 28.58 34.34 51 Jul 94-Jun 95 66.39 96.55 41.02 33.50 9.285 8.382 2.995 2.799 30.17 37.18 52 Jul 95-Jun 96 67.37 103.52 37.15 28.04 8.098 6.781 2.527 2.222 28.43 35.53 53 Jan 97-Dec 97 70.71 99.64 35.78 29.99 8.312 7.765 2.757 2.725 30.56 36.54 Post-reform Jul 95-Dec 97 69.04 101.58 36.47 29.02 8.205 7.273 2.642 2.474 29.50 36.04 Per cent change between post- and pre-reform 1.7 10.1 3.1 -12.3 -0.2 -14.5 -4.0 -19.7 5.4 3.6

Notes: Rural and urban poverty lines are Rs 49 and Rs 57 per capita per month at all-India rural and urban prices respectively. Rural and urban mean consumption are expressed in Rs per capita per month at all-India rural and urban prices respectively. The poverty measures and Gini indices are expressed as percentages.

Economic and Political Weekly December 11, 1999 3517



appears to have continued its trajectory of growth and poverty reduction through the 1990s, rural poverty reduction in the 1990s was choked off by the lack of rural growth. And there was no significant trend in inequality in either sector, although inequality at the national level is likely to have increased as a result of greater urban- rural disparity.

Whither growth? The near-stagnation of rural mean con-

sumption, which also tempered the overall growth in national mean consumption, is at variance with the significant positive rates of growth in per capita income over the 1990s reported in the National Ac- counts Statistics (NAS). For instance, per capita net national product (at factor cost) at constant 1980-81 prices reportedly grew at an annual average rate of 3.6 per cent between 1990-91 and 1997-98 (based on the Central Statistical Organisation estimates reported in the Economic and Political Weekly, vol 33:2950); this may be contrasted with a near-zero growth in rural mean consumption and a 1.4 per cent annual rate of growth in urban mean consumption. There is no apparent change in the NSS survey instrument or methodology that could account for this. Nor does this seem to be a problem of different deflators. For instance, even in nominal terms, NSS consumption grew by 198 per cent between 1990-91 and 1997, while NAS consumption grew by 233 per cent over the same period.6

A full reconciliation of NSS and NAS consumption growth is beyond the scope of this paper. Part of the explanation may be found in an increase in the household saving rate. But beyond this factor, let me end with the following conjecture: the NSS surveys have tended to underesti- mate consumption at the upper end of the distribution, especially in the more recent period.7 The relatively rapid growth in consumption at the upper end during the 1990s would then account for the increasing discrepancy between NSS and NAS consumption estimates. If this conjecture is right, while the NSS poverty estimates remain credible as these are unaffected by the underestimation of the consumption of the rich, the increase in inequality would be underestimated.

In conclusion, the estimates presented in this paper indicate that national poverty alleviation since the country embarked on economic reforms in 1991 has been limited by the stagnation in rural poverty rates. The 1990s appear to have been a decade of missed opportunity as far as poverty reduction is concerned. But, based

on the NSS data alone, there is also little evidence to suggest that this has been due to an inegalitarian growth process whose benefits have been limited to the relatively higher income groups in rural and urban areas. However, this possibility cannot be ruled out if one were to reconcile a much stronger growth performance according to the national accounts with a stagnating real mean consumption indicated by the NSS data

Notes [This paper was written when the author was a research fellow at the International Food Policy Research Institute, Washington, DC. It presents the views of the author, which should not be attributed to IFPRI or the World Bank. The author would like to thank Stephen Howes, Monica Jain, Valerie Kozel, Sanjukta Mukherjee and Martin Ravallion for useful comments and other help.] 1 See Datt (1997) for further discussion of the

NSS data and these poverty lines, also used by government of India (1993).

2 See Datt (1998b) for a detailed discussion of this methodology, that involves choosing between two alternative parametric forms of the Lorenz curve subject to the satisfaction of a set of conditions for a valid Lorenz curves.

3 Firewood has a non-trivial weight of 6.4 per cent in the CPIAL index. For further discussion of this point, see Datt (1997).

4 The sharp increase in rural poverty during 1992 was aratheratypical event. This immediate post-crisis experience is analysed in greater detail by Datt and Ravallion (1997), who found that only about a tenth of the measured increase in poverty could be attributed to factors that could be readily linked to the macro crisis and the following stabilisation programme.

5 This is no more than a stylisation used for convenience. It should be obvious that the pre- reform period need not be confined to the first two rounds before the advent of economic reforms. Nor are the last two rounds of the

1990s adequately described as 'post-reform'. The reforms are not over yet, and equally, one could include rounds 50 and 51 as well as to form the 'post-reform' average.

6 This estimate is based on the NAS consumption per capita estimates interpolated linearly to the mid-point of the survey periods of NSS 46th and 53rd rounds.

7 This is more likely to be true of non-food consumption which has become increasingly diverse with the accumulation of new products; this diversity is likely to be less well captured over time with an unchanging consumption module. For further discussion of how changes in the NSS survey methodology could have affected trends in inequality, see Datt and Mukherjee (1999).

References Datt, Gaurav (1997): 'Poverty in India 1951-

1994: Trends and Decompositions', mimeo, World Bank and International Food Policy Research Institute, Washington, DC.

- (1998a): 'Poverty in India and Indian States: An Update', The Indian Journal of Labour Economics, 41: 191-211.

- (1998b): Computational Tools for Poverty Measurement andAnalysis. FCND Discussion Paper No 50, International Food Policy Research Institute, Washington, DC.

Datt, Gaurav and Sanjukta Mukherjee (1999): 'Looking Beyond the Kuznets Hill: A Characterisation of the Evolution of Inequality in IndiaDuring 1960-94', mimeo, International Food Policy Research Institute, Washington, DC.

Datt, Gaurav and Martin Ravallion (1997): 'Macroeconomic Crises and Poverty Monitoring: A Case Study for India', Review of Development Economics, 1:135-52.

Government of India (1993): Report of the Expert Group on Estimation of Proportion and Number of Poor, Planning Commission, Government of India, New Delhi.

National Sample Survey (NSS) (1997): Household Consumer Expenditure and Employment Situation in India, NSS Report No 442.

REVIEW OF POLITICAL ECONOMY

January 30, 1999

Corporate Strategy and Planning in the Science City: Bangalore as 'Silicon Valley' -James Heitnzan

Suicide Deaths and Quality of Indian Cotton: Perspectives from History of Technology and Khadi Movements -C Shambu Prasad

Philosophical Foundations of a General Theory of Numbers -Chhatrapati Singh

French Jesuit Scientists in India: Historical Astronomy in the Discourse on India, 1670-1770 -Dhruv Raina

The Great Indian Novel: Reflections on the Lentin Report -Shiv Visvanathan

The Review of Political Economy appears as a supplement to the last issues of January and July.

For copies write to Circulation Manager

Economic and Political Weekly Hitkari House, 284, Shahid Bhagatsingh Road, Mumbai 400 001

3518 Economic and Political Weekly December 11, 1999



Article Contentsp. 3516p. 3517p. 3518

Issue Table of ContentsEconomic and Political Weekly, Vol. 34, No. 50 (Dec. 11-17, 1999), pp. 3473-3552Front Matter [pp. 3473-3504]Letters to EditorRestructuring Indian Power Sector [p. 3474]Gandhi and Hindu-Muslim Marriages [p. 3474]

Seattle and Beyond [pp. 3475-3476]Crooked Prosecution, Helpless Judiciary [p. 3476]Reopened Battles [pp. 3476-3477]Battle of Seattle [p. 3477]Current Statistics [pp. 3478-3479]CompaniesSuccess in Copper [p. 3480]Quality Advantage [p. 3480]Diversification Proposals [pp. 3480-3481]

Money Market ReviewLiquidity Gobbled up by Government and Market Capitalisation [pp. 3482-3488]

CommentaryLooking beyond Statehood: Uttarakhand: Search for a New Agenda [pp. 3489-3490]Essential Medicines and International Trade [pp. 3490-3491]External Aid in Elementary Education: A Double-Edged Sword [pp. 3492-3493]Women's Reservation and Democratisation: An Alternative Perspective [pp. 3494-3495]Himachal Pradesh: Voters' Apathy Costs Congress Dear [pp. 3495-3497]Issues in Governance [pp. 3498-3501]Renato Constantino: 1919-1999 [pp. 3501-3502]

PerspectivesPhakirmohun's 'Rebati': Empowerment, Identity and Feminism [pp. 3505-3507]

ReviewsReview: Two Emperors and a Democracy [pp. 3508-3512]Review: Supporting Ideas with Data [pp. 3513-3515]

Special ArticlesHas Poverty Declined since Economic Reforms? Statistical Data Analysis [pp. 3516-3518]Akali-BJP Debacle in Punjab: Wages of Non-Performance and Fragmentation [pp. 3519-3531]'Yankee Go Home, but Take Me with You': Yet Another Perspective on Indo-American Relations [pp. 3532-3544]Decision Support System for Energy Planning in a District: Residential Module [pp. 3545-3552]

Back Matter

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