Reducing Poverty and Inequality in India: Has Liberalization Helped?

This study examines the empirical relationship among inequality, poverty and
economic growth in India. Using data on consumption from the 13th to the 55th Rounds of
the National Sample Survey, the author computes, for both rural and urban sectors, the Gini
coefficient and three popular measures of poverty. The observed changes in inequality and
poverty are explained in terms of the behaviour of key macroeconomic aggregates. A sharp
rise in rural and, particularly, urban inequality and only a marginal decline in poverty have
characterized the post-reform period. The rise in inequality is explained in terms of an
increase in the relative share of output going to capital as compared to labour, a drop in the
rate of labour absorption and the rapid growth of the services sector. The rise in inequality
has diminished the poverty-reducing effects of higher growth. The reforms have also been
characterized by widening regional inequality. This is especially true in the case of the
incidence of rural poverty, but also, to a lesser extent, urban poverty. Statistical convergence
among states in terms of inequality, poverty and real mean consumption is weak. Several
policy conclusions are advanced.