Has Poverty Declined since Economic Reforms?

Statistical Data Analysis

Author(s): Gaurav Datt
Source: Economic and Political Weekly , Dec. 11-17, 1999, Vol. 34, No. 50 (Dec. 11-17,
1999), pp. 3516-3518
Published by: Economic and Political Weekly

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SPECIAL ARTICLES

Has Poverty Declined since Economic Ref

Statistical Data Analysis
Gaurav Datt

Recent estimates of absolute poverty in rural and urban India, covering the period up to 1997, are pr
The estimates present a mixed picture of a moderate decline in urban poverty rates, but relatively unc
levels of rural poverty during the 1990s, which seems largely attributable to differential growth in
living standards in the two sectors. However, the unresolved and increasing discrepancy between the
accounts and survey-based estimates of consumption growth raises doubts about how egalitarian the g
process has been over this decade.
THERE has been much interest in how The estimates in average living standards is also reflected
living standards and poverty in India in a decline in the urban poverty measures.
have evolved since the beginning of Table 1 presents the estimates of real For instance, the urban headcount index
economic reforms in mid-1991. However,
mean consumption, poverty measures, and declined by about 12 per cent. The urban
till recently, the available estimatesthe of Gini indices for rural and urban India poverty gap and squared poverty gap
poverty only covered the period up since to 1973-74. Three features of the re- indices declined somewhat more rapidly,
1993-94 [see, for instance, Datt 1998a]. sults are notable. by about 15 and 20 per cent, respectively,
Thus, it was not possible to make any Probably, the most notable feature of theindicating that improvements in the living
definitive statement on how living stan- results in Table 1 is that the mid-1980s standards were not confined only to the
dards of the poor have been changing seemsin to be a significant watershed in the
neighborhood of the poverty line, but also
the post-reform period. The purposeevolution
of permeated below that threshold.
of living standards in India. Thus,
for instance, while there was a markedHowever, the failure of the rural poverty
this brief paper is to present more recent
estimates of poverty for rural and urban decline in both rural and urban poverty measures to decline can hardly be inter-
India for the 1990s. The estimates are rates between 1973-74 and 1986-87, there preted as implying that the benefits of
based on tabulated distributions of con- is no sign of anything comparable since.4 post-reform economic growth have been
sumption expenditure published re-
This is also reflected in the national poverty
limited to the relatively rich, and the poor
cently by the National Sample Survey estimates (see the headcount indices in
have been bypassed by that process. The
(NSS) Organisation [NSS 1997]. At theFigure 1). evidence does not support such an inter-
time of writing this paper, the latest periodThe second notable feature of the results pretation. There does not appear to be any
covered by these tabulations was that has to do with the contrast between rural sharp increase in intra-sectoral inequality.
for the NSS 53rd round, viz, January- and urban trends, especially since the mid- To be sure, the rural and urban Gini in-
December 1997. 1980s. Focusing in particular on the pe- dices have increased by 4-5 per cent, but
The construction of poverty estimates riod- relevant to economic reforms, we that is a relatively small change and not
in this paper follows essentially the samecould take the average of the 45th and 46th one into which too much can be read.
methodology as has been used in our esti- rounds as describing the situationjust prior Instead, the overall picture presented by
to economic reforms, which could be
mates for the earlier period, as for instance the NSS data is one of differential growth
presented in Datt (1998a). Thus, we con- compared with the average for the last two in average living standards in the two
rounds of the 1990s, viz, rounds 52 and sectors. The stagnation in rural poverty
tinue to use the same absolute poverty lines,
given by a per capita monthly expenditure 53, as the most recent 'post-reform' situa- seems largely attributable to the lack of
of Rs 49 in rural areas and Rs 57 in urbantion. With this stylised representation,5 we growth in that sector, while the moderate
areas at October 1973-June 1974 all-Indiafind quite different trends across rural and growth in urban living standards appears
rural and urban prices, respectively.1 Weurban sectors. to account for the decline in urban poverty
also continue to use the methodology based For rural India, we find that there ismeasures.
on parametric Lorenz curves to derivevirtually no change in the pre- and post-
Statistical tests
estimates of poverty measures.2 Three setsreform poverty measures. This is true for
of poverty measures are estimated: the
all poverty measures, the percentage We investigated the sectoral contrast
headcount index, the poverty gap index
change ranging between 3.1 per cent forstory further by testing for differential
and the squared poverty gap index. the headcount index, -0.2 per cent for the trends using the following model:
Also consistent with our previouspoverty gap index and -4 per cent for the
In Yt = (1DtPre9l + (2DPost91
methodology, our estimates make a cor- squared poverty gap index. This relative
rection to the rural deflator, the consumer lack of change in the poverty rates is also + PltDtPre91 + I2tDOst91 + Ut
price index for agricultural labourersreflected in the rural real mean consump-where Y1 is the poverty measure (or mean
(CPIAL), for the price of firewood, whichtion, which also remained virtually un-consumption or the Gini index) at date t,
till recently had been treated as a constantchanged over this period. In contrast, thereand DPre91 is a binary variable that takes
by the Indian Labour Bureau in the con-was about a 10 per cent increase in thethe value of 1 for all dates up to June 1991
struction of the CPIAL indices.3 urban real mean consumption. This growth(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 of growth in rural me
6 0 . ....... ... . .. . . .. . . . . ...... .... ......-., Rural mean consumptio
nificant 1.45 per cent
5655 7 1991 as against a zero gro
after. However, there w
C 50 trend in rural Ginis in e
By contrast, for the ur
45 - - , R ural Poverty hypothesis of equal rates
pre- and post-1991 perio
1 40. "N .^ +^^ -i^ - h -^ -'* Urban Poverty
statistically acceptable fo
r t ^.,, ? 3a National Poverty tion, Gini indices as we

1 "-35
-30-
measures. Thus, while m
grew at a statistically si
1.35 per cent per annum
25 period 1973-97, the pove
V Co O 0 N VrD C O O C4
rl_ Il- r 03 co co M co co 0 1
, CO OD
a) a) a) c)
declined at significant r
cn N N C C CJO C CD cn cn Cr m
3.2 per cent per annum f
NSS Survey Year poverty gap and the squ
indices. There was howev
Note: The markers in the figure correspond to the trend in the urban Gini
mid-point ofindex.
the NSS surve
on the horizontal axis are calendar years, for example, (1974,0)
The statistical tests is January
thus confirm the
descriptive results. While the urban sector

DPost91 equals (1 - DPre91).

TABLE 2: TREND The P para-
RATES OF CHANGE IN MEAN CONSUMPTION, POVERTY AND INEQUALITY IN INDIA,
1973-91 AND 1991-97
meters measure the trend rates of growth.
We test for the equality ofTest
Variable pre- and Trend
for Same post- Trend Rate of Growth
reform growth rates by testing for for
equality
Both Periods Oct 73- Jun 91 Jul 91-Dec 97 Oct 73-Dec 97
of 31 and P2. The results
Rural
of this exercise
are presented in Table 2.
Mean consumption 3.50 [0.06] 1.45 (9.88) 0.39 (0.72)
For the rural sector, the
Gini results indicate
coefficient 0.21 [0.64] -0.18 (0.85)
that while there was Headcount
a significant trend
index 4.02 [0.04] -2.70(9.54) -0.51(0.49)
decline in all three poverty
Poverty gapmeasures
index 8.77 [0.00]up-4.50(11.6) -0.06(0.04)
Squared poverty
to mid-1991 (at an annual rate gap ofindex
2.7 7.90 [0.00] -5.92(10.9) -0.06(0.03)
per
Urban
cent for the headcount index, 4.5 per cent
Mean consumption 0.14[0.71] 1.35(6.24)
for the poverty gap and 5.9 per cent for
Gini coefficient 0.60[0.44] 0.001(0.05)
the squared poverty gap index), the
Headcount rate
index 0.18[0.67] -1.93(6.08)
of decline since then is not significantly
Poverty gap index 0.02[0.881 -2.60(6.80)
different from zero.Squared
The hypothesis of
poverty gap index 0.002[0.96] -3.19(6.50)
equal trend rates of poverty decline in the
Notes:The test statistic is distributed as a Chi-square with on
pre- and post-1991 periods is thus
square brackets are re-
probabilities of Chi-square > test statis
jected, as is the hypothesis
are t-ratios. of equal rates

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 pr
consumption are expressed in Rs per capita per month at all-India rural and urban prices respectively. The p
expressed as percentages.

Economic and Political Weekly December 11, 1999 3517

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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 in-
equality 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 esti-
mates 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 method-
ology 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 5 This is no more than a stylisation used for
A full reconciliation of NSS and NAS
consumption growth is beyond the
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 increas-
ing 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
3518 Economic and Political Weekly December 11, 1999
49.207.140.11 on Sun, 30 May 2021 20:55:31 UTC
on the NSS data alone, there is also little1990s adequately described as 'post-reform'.
evidence to suggest that this has been due The reforms are not over yet, and equally, one
could include rounds 50 and 51 as well as to
to an inegalitarian growth process whose
form the 'post-reform' average.
benefits have been limited to the relatively
6 This estimate is based on the NAS consumption
higher income groups in rural and urban per capita estimates interpolated linearly to the
areas. However, this possibility cannot be mid-point of the survey periods of NSS 46th
ruled out if one were to reconcile a much and 53rd rounds.
stronger growth performance according to7 This is more likely to be true of non-food
consumption which has become increasingly
the national accounts with a stagnating
diverse with the accumulation of new products;
real mean consumption indicated by the this diversity is likely to be less well captured
NSS data
over time with an unchanging consumption
Notes module. For further discussion of how changes
in the NSS survey methodology could have
[This paper was written when the author was a affected trends in inequality, see Datt and
research fellow at the International Food Policy Mukherjee (1999).
Research Institute, Washington, DC. It presents
the views of the author, which should not be References
attributed to IFPRI or the World Bank. The author
Datt, Gaurav (1997): 'Poverty in India 1951-
would like to thank Stephen Howes, Monica Jain, 1994: Trends and Decompositions', mimeo,
Valerie Kozel, Sanjukta Mukherjee and Martin World Bank and International Food Policy
Ravallion for useful comments and other help.] Research Institute, Washington, DC.
1 See Datt (1997) for further discussion of the - (1998a): 'Poverty in India and Indian States:
NSS data and these poverty lines, also used An Update', The Indian Journal of Labour
by government of India (1993). Economics, 41: 191-211.
2 See Datt (1998b) for a detailed discussion of - (1998b): Computational Tools for Poverty
this methodology, that involves choosing Measurement andAnalysis. FCND Discussion
between two alternative parametric forms of Paper No 50, International Food Policy
the Lorenz curve subject to the satisfaction of Research Institute, Washington, DC.
a set of conditions for a valid Lorenz curves. Datt, Gaurav and Sanjukta Mukherjee (1999):
3 Firewood has a non-trivial weight of 6.4 per 'Looking Beyond the Kuznets Hill: A
cent in the CPIAL index. For further discussion Characterisation of the Evolution of Inequality
of this point, see Datt (1997). in IndiaDuring 1960-94', mimeo, International
4 The sharp increase in rural poverty during Food Policy Research Institute, Washington,
1992 was aratheratypical event. This immediate DC.
post-crisis experience is analysed in greaterDatt, Gaurav and Martin Ravallion (1997):
detail by Datt and Ravallion (1997), who found 'Macroeconomic Crises and Poverty
that only about a tenth of the measured increase Monitoring: A Case Study for India', Review
in poverty could be attributed to factors that of Development Economics, 1:135-52.
could be readily linked to the macro crisis andGovernment of India (1993): Report of the Expert
the following stabilisation programme. Group on Estimation of Proportion and
Number of Poor, Planning Commission,
convenience. It should be obvious that the pre- Government of India, New Delhi.
scopereform period need not be confined to the firstNational Sample Survey (NSS) (1997): Household
two rounds before the advent of economic Consumer Expenditure and Employment
reforms. Nor are the last two rounds of the Situation in India, NSS Report No 442.
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