August 04, 2012

Gujarat: Significant decline in rural poverty

Bibek Debroy
Saturday July 07, 2012, 04:12 PM

This is a follow-up of the earlier blog and I will only focus on poverty. Inequality is a separate issue and one can turn to that later. Inequality is relative, poverty is absolute. In other words, to determine poverty, there is a poverty line and one computes what percentage of population is below the poverty line.

There are data issues, because one needs data on income distributions. National accounts only give us aggregate measures, not distributions. Distributions come through NSS (National Sample Survey) and NSS large samples occur at infrequent intervals, an average of once every five years. The last large NSS samples were in 2004-05 and 2009-10.

There are three issues that we can mention and forget about, because they are irrelevant for present purposes. First, NSS does not collect data on income. It collects data on consumption expenditure, so what we are talking about is expenditure poverty, not income poverty. Second, there is an increasing gap between consumption data collected through NSS and aggregate consumption data obtained through national accounts. Third, there are other dimensions to poverty also and people have worked out multi-dimensional approaches towards measuring poverty. However, the discourses, including Planning Commission-generated controversies, are about expenditure poverty. Let’s stick to that.

Why does poverty decline? There is growth and it trickles down. The composition of growth is important. Since most poverty is rural, what’s happening to agriculture is critical. Growth may be such that it alters the underlying expenditure (or income) distribution, leading to transfers from upper deciles to lower deciles. The government has anti-poverty programmes and plenty of money is poured into these. Perhaps the efficiency of these improves. What’s been the Indian experience since 1991? That poverty declines are fundamentally because of growth, not the other possibilities. This is a point made by several people, World Bank, UNDP, Planning Commission. In other words, to expect poverty declines, we need growth.

Hopefully, the earlier blog has disposed off unnecessary controversies about the Gujarat growth story. What’s the growth story? 12.9% during 8th Plan (1992-97), 2.8% during 9th Plan (1997-2002), 10.9% during 10th Plan (2002-07) and 11.2% during 11th Plan (2007-12). Debates about poverty occur on the basis of 2004-05 and 2009-10 NSS data. The relevant period thus is 9th, 10th and 11th Plans. And there wasn’t much growth during 9th Plan.

That 2004-05 survey was 61st round of NSS and was conducted between July 2004 and June 2005, with some questions pertaining to 2003-04. If there was limited growth during 9th Plan, it seems to me obvious that one ought not to expect significant poverty declines in Gujarat in 2004-05. The test should be in 2009-10, not 2004-05.

But perhaps it is not that obvious a point. Here is a quote from the India Human Development Report 2011, brought out by Institute of Applied Manpower Research and Planning Commission. “To sum up, it appears that the high growth rate achieved by the state over the years has not percolated to the marginalized sections of society, particularly STs and SCs, to help improve their human development outcomes.” Since this is based on NSS 2004-05, it is a strange and odd statement and somewhat irresponsible too, because impressions are formed on the basis of such statements. I will turn to the SC/ST issue in a subsequent blog.

For the moment, let’s focus on overall poverty. However, on human development of SCs/STs, growth is a function of time. To determine whether growth has had an impact on human development outcomes of STs and SCs, what would any academic do? He/she would look at the human development outcomes of STs/SCs over time. But that’s not what this report does. It compares Gujarat’s performance on human development outcomes of STs/SCs with all-India averages at a single point in time and deduces growth has had no effect on improvements in these. The incremental improvement or deterioration in human development outcomes of STs/SCs is irrelevant. That’s an odd kind of logic. However, let’s ignore that report.

Based on NSS 2009-10, we have poverty numbers courtesy Planning Commission. Based on the comparable Tendulkar methodology, these show that in 2004-05, Gujarat’s poverty ratio was 31.6% overall, 39.1% in rural Gujarat and 20.1% in urban Gujarat. In 2009-10, Gujarat’s poverty ratio was 23.0% overall, 26.7% in rural Gujarat and 17.9% in urban Gujarat. This shows a significant reduction in poverty, especially in rural Gujarat. Just so that we have the perspective right, the all-India reductions were by 7.3 percentage points, 8.0 percentage points in rural India and 4.8 percentage points in urban India. One can understand an argument that poverty ratios are still high and should decline faster.

One can also understand inter-State comparisons, which I have stayed away from. But I do not understand this impression that growth has had little impact on poverty reduction in Gujarat. Perhaps people do not bother to check for themselves and blindly believe what they read.


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