IMPACT OF GLOBALIZATION

AND RECESSION ON SOCIAL

AND ECONOMIC INEQUALITIES
IN INDIA

C. Ravi
Centre for Economic and Social Studies

The views expressed in this paper/presentation are the views of the author and do not necessarily reflect the views or
policies of the Asian Development Bank (ADB), or its Board of Governors, or the governments they represent. ADB does not
guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequence of their use.
Terminology used may not necessarily be consistent with ADB official terms.
CONTEXT
| Severe BOP crisis of late eighties
| Economic reforms initiated in 1990s
have unleashed the growth potential of
India
| Deregulation of Industry

| Promoted Foreign Investment

| Trade Liberalization

| Attained a high growth trajectory

| Sustainable
CONTEXT
| Remarkable spread of IT and
communication technology
| Also raises some concerns

- Inter-state disparities
- Rural-Urban Differentials
- Inequalities
- Income and non- income poverty
| Imperative to monitor these
OBJECTIVES
| Review recent trends in
- Inter-state disparities
- Rural-urban differentials
- Inter personal Inequalities
- Social Inequalities (to be incl.)
- Poverty
| Impact of growing disparities on
Poverty
REGIONAL INEQUALITIES
| Large variations in GSDP growth
| Low growth rates in States with high
concentration poverty
| Interstate variation on rise

| Gini Coefficient of regional

inequality increasing
| Increases are sharper after 1993-94
REGIONAL INEQUALITIES
RURAL-URBAN DIFFERENTIAL
| CSO has been compiling estimates of Rural and
Urban income at subsector level
| Possible to construct long time-series

| Agricultural income is almost entirely rural

| Rural share in Industry stagnant at 37% in the

eighties – increased later to reach 47%
| Service sector share of rural areas declined
marginally from 36% to 44% during 1980-1994,
but declined sharply to 24%
| Share of rural India in total income comes down
from 58% to 45% during 1980-2005
SHARE OF RURAL AREAS IN
NATIONAL INCOME-
SECTORS/TOTAL
RURAL-URBAN DIFFERENTIALS
| The per capita income in urban areas as % of
rural per capita income was 220% in the early
1980s
| it became 250% in the mid nineties
| By 2005-06 it became more 300%
| Major factors responsible

| Low growth in Agriculture

| Shrinking rural share in services- the fastest

growing sector
RURAL-URBAN DIFFERENTIAL IN
PER CAPITA INCOME
RURAL-URBAN DIFFERENTIALS
(CONSUMPTION)
| NSSO consumption data for 1983 to 2004-05
| Differentials computed for bottom30%, Middle
40% and Top 30% separately
| Consumption differentials are lower than income
differentials but increasing
| Differentials among the rural-urban poor lower
than for richer groups
| Even for the poor the differentials are increasing
| The differentials for the top 30% increasing
faster
RURAL-URBAN CONSUMPTION
DIFFERENTIALS
CONSUMPTION INEQUALITIES
| Gini coefficient using NSS data 1974-2005
| Inequalities have always been higher in urban
areas
| Stable till 1990 in both rural and urban
| Show upward movements in later period
| Sharper increases in urban areas
| Mixed trends across states
| Except a few, inequalities increased between
1993-2005 in al states
| Urban inequalities have increased faster for all
the states
TRENDS IN CONSUMPTION
INEQUALITIES
SOCIAL INEQUALITIES
| To be added
POVERTY
| All the three measures of Poverty (HC, PG and
FGT) show reduction in the incidence of poverty
over the last three decades in both rural and
urban areas
| Decline in severity of poverty is faster than the
extent or depth of poverty
| Abysmal if numbers are considered- total poor
declined from 323 million 301 million in 30 years!
| The rates of decline in poverty not in tune with
the high growth achieved in recent periods
POVERTY
| Incidence of poverty varies largely across states
in both rural and urban areas
| There have been no major changes in the relative
rankings of states (1983, 1993-94 and 2004-05)
| Coefficient of variation of HCR increased
between 1983 and 2004-05- No convergence
| The poorer states have not exhibited any
significant improvement in poverty reduction
| Increasing concentration poverty in few states
% DISTRIBUTION OF POOR ACROSS
STATES
POVERTY
| Four states - Bihar, Madhya Pradesh, Orissa and
Uttar Pradesh accounted for half of Indian poor
in 1983
| Their share increased to 61% in 2004-05

| Punjab, Haryana, Himachal Pradesh and Jammu

and Kashmir account for only 2% of India’s poor
in 2004-05
| Maharashtra- one of the highest per capita
income states is increasing its share of poor over
time- 9% in 1983 to 10% in 2004-05
GLOBALIZATION AND
INEQUALITY AND POVERTY
| If the policy of Globalization improves both
growth and distribution poverty would
unambiguously reduce
| If growth is accompanied by adverse distribution
effect, it would dampen the impact of growth on
poverty
| What has been the experience of India in this
regard?
| Simulation exercise to isolate the effect of inter
personal, rural-urban inequalities and growth on
poverty
DECOMPOSITION OF CHANGES IN
POVERTY
| Uses Lorenz functions of form L(p)=p-apb(1-p)c
estimated for rural urban distribution separately
| Decomposition considers

- Per capita expenditure (MPCE)

- Inequality (G)
- Rural-urban differentials (R)
- Urbanization(U)
DECOMPOSITION OF CHANGES IN
POVERTY
| Reduction in all India Poverty (Rural + Urban)
between 1983-93-94 = 8.6 percentage points(ppt)
reduction due to growth in MPCE = 8.47ppt
reduction due to Rural/urban diff = neg.
reduction due to Inequality = neg.
| Reduction in all India poverty between 1993-94
and 2004-05 = 8.1 ppt
reduction due to growth in MPCE = 12.1 ppt
reduction due to Rural/urban diff = - 1.0 ppt
reduction due to Inequality = - 3.3 ppt.
DECOMPOSITION OF CHANGE IN
HCR
DECOMPOSITION OF CHANGES IN
POVERTY
| Marked differences in the sources of reduction of
poverty during the periods 1983/94 and
1993/2005
| In 1983/94 entire reduction is due to growth with
no adverse impact of inequalities
| In 1994/2005 almost one third of the growth
impact is offset by rising rural-urban
differentials and inequalities
| There are variations across states in sources of
reduction of poverty
DECOMPOSITION OF CHANGES IN
POVERTY
| Himachal Pradesh, Jammu and Kashmir,
Maharashtra and West Bengal changes in
inequalities had adverse impact of poverty
reduction even in 1983/94
| In 1993/2005 almost all the states, the growth
impact on poverty was blunted by the rising
inequalities and rural/urban dichotomies
| Even is some of the poorer states like Orissa,
Madhya Pradesh and Assam, reduction would
have been considerable but for the adverse
inequalities
CONCLUSIONS
| The Post reform period has seen some
achievements and some adverse consequences
| Indian growth rate accelerated to 7.3% during
2000-08
| Balance of payments and foreign exchange
reserves showed considerable improvements
| The achievements were accompanied by
increasing regional and personal inequalities
| These developments had adverse impact on
poverty reduction