Amid signs of growing inequality, India’s economic reforms since the early 1990s have brought significant gains to the rural poor as well as the urban poor, according to a new world Bank research paper.
In their paper, Martin Ravallion and Gaurav Datt show that growth has tended to reduce poverty in India, including in the post—reform period.
They do not find robust evidence that the responsiveness of poverty to growth has changed since the reforms began, although there are signs of rising inequality.
To find out the extent to which India’s poor have benefited from the country ‘s economic, the researchers used a new series of consumption—based poverty measures spanning 50 years, and including a 15—year period after economic reforms began in earnest in the early 1990s.
The gains from aggregate growth are reaching well below the poverty line, Ravallion and Datt say. In marked contrast to the pre—reform period, post—reform urban economic growth has brought significant gains to the rural poor as well as the urban poor, they said.
But the researchers also warned the rural poor in India may well be more vulnerable to future economic shocks centred in urban areas.
Noting that progress against poverty has been maintained in the post—reform period, Ravallion and Datt said: “Indeed, we find a higher proportionate rate of progress against poverty after 1991.”
“Overall, while the higher rate of growth in the post—reform period has come with a higher proportionate rate of progress against poverty, we do not see in these data a robust case for saying that the growth elasticity of poverty reduction has risen since the reforms began.”
Comparing the results with their 1996 study, the researchers said both studies found that the pattern of growth matters for poverty reduction. “But we find that the post—reform period has seen a striking change in the relative importance of urban versus rural economic growth.”
“Our 1996 study found that urban economic growth helped reduce urban poverty but brought little or no overall benefit to the rural poor; in fact, the main driving force for overall poverty reduction was rural economic growth.”
The researchers said they confirmed the finding for the data up to 1991, but the picture looks different after 1991.
The relatively weak performance of India’s agricultural sector and the widening disparities between urban and rural living standards remain important concerns, including for India’s poor, they said.
“However, it is encouraging that rising overall living standards in India’s urban areas in the post—reform period appear to have had significant distributional effects favouring the country’s rural poor,” Ravallion and Datt said.