You are on page 1of 2

Poverty Alleviation

Trends in Inequality
The debate on growth and inequality is not about choosing one over the other. Growth is important as it not only provides employment opportunities, but also revenues to finance expenditure on social-welfare schemes. Instead the focus should be on removing the obstacles to social mobility, suggests Rajesh Shukla Across the world, concerns are being voiced about rising inequality and how severely it can damage the social fabric of a nation. Concerns, in the Indian context, that have been eloquently articulated by some of the very well noted economists fear that the governments fixation on growth, prevents it from effectively addressing the problem of rising inequality and its structure. While no one refutes the claim that some benefits accruing from the economic reform growth have trickled down, a consequence of which is the millions who have been lifted above the poverty line, the bone of contention is, that a certain privileged section of society has received a disproportionate share of the benefits accruing from the growth process which has translated to rising vertical as well as horizontal inequalities. Economic growth can translate to either an increase or decrease in inequality; if inequality does rise, it implies that a certain section of society is receiving a disproportionate share of total benefits accruing from growth. On the other hand, if inequality does falls, it implies that the benefits are percolating to the economically deprived sections of society. As with poverty, a number of studies on inequality, based on NSS consumption expenditure data, have been carried out in the post-reform period with mixed results. It is interesting to note that the so called poorest State in the country, Odisha has shown the steepest decline in poverty ratio, 24.6 percentage points between 2004-05 and 2011-12 (Table 1). Other States where the decline in poverty ratio is significant include Andhra Pradesh, Bihar, Maharashtra and Uttarakhand. Interestingly, in all these States, rural poverty declined at a much faster pace than urban poverty. Relatively high economic growth in some of BIMARU States like Bihar, Odisha and Madhya Pradesh was able to be translated into a significant dent on overall poverty. This is much pronounced in rural areas of all major States other than Kerala, where urban areas witnessed a higher reduction in poverty estimates. It is quite plausible that benefits of long term high growth, especially in the low income States where the benefits of growth percolate to the economically backward rural sections, can be easily envisioned. This reveals the dichotomy between Monthly Per Capita Expenditure (MPCE) growth and the corresponding poverty reduction which leads us to the issue of the distribution of households near the poverty line. In other words, if households are heavily distributed near the poverty line, even a small increase in MPCE can lead to a disproportionately large reduction in poverty. For example in the States of Odisha, Bihar and Maharashtra, MPCE in the rural areas grew at 11.5 per cent, 11.8 per cent and 13.5 per cent per annum respectively, the corresponding reduction in poverty in the States stood at 25.1 per cent, 21.6 per centand 23.7 per cent respectively. The difference in the poverty reduction figures is because, in Odisha households are concentrated around the poverty line, unlike in Maharashtra. The other limitations being that a fall in MPCE, which lowers households into abject poverty, has no effect on the index. In an attempt to examine the impact of growth on poverty alone, the reduction in poverty is decomposed into two components: (i) a growth component, and (ii) a distribution component. While the growth component reflects the increase in per capita expenditure, the distribution component captures any change that may have taken place in the distribution of per capita expenditure. While the Gini-coefficient is the most commonly used inequality measure, this article focuses on

the General Entropy (GE) class of inequality measures. The parameter in GE (a) represents the weight given to distances between incomes at different parts of the income distribution...more P.S.: If there is any change in your contact information, kindly update it here. Thanks.