Impact of Reforms on

Poverty and Employment

Presented by

Dr Tarun Das
Economic Adviser
Ministry of Finance
 1. Introduction
 “Growth with social justice” is
basic objective of Indian planning
Several anti-poverty programs are in
operations for decades
Two basic approaches for poverty
reduction- Trickle down effect, and
direct attack on poverty
On going reforms have a human face
and a bias for poverty alleviation
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Table 1.1 Expenditure on social sectors

Year Total Expenditure Expenditure

Expend. on social on social
As % of sectors sectors
GDP as % of as % of
total GDP
expend.

1992-93 17.4 7.8 1.4

1998-99 16.0 10.5 1.7
1999-00 15.4 10.0 1.7
2000-01 15.5 11.1 1.7
2001-02 16.0 11.1 1.8
2002-03 16.7 11.3 1.9
3
2003-04 17.0 11.5 2.0
Table 1.2 Expenditure on social services
by the Centre and States
I T E MS 1985 1990 1995 1998 1999 2000 2001 2002
Actual Actual Acual Actual Actual Actual RE BE
Finance of Centre & States
As percentage of GDP:
Total Expend. 29.4 26.8 24.2 25.4 26.6 28.1 29.5 29.6
Social services 5.8 5.4 4.9 5.5 5.7 6.3 6.5 6.2
Education 2.9 3.1 2.7 3 3.3 3.1 3.1 3.1
Health 1.3 1.2 1 1.2 1.2 1.3 1.4 1.4
Others 1.6 1.2 1.2 1.3 1.2 1.8 2 1.8
As % of total expenditure:
Social services 19.6 20.3 20.4 21.6 21.3 22.4 22 20.9
Education 9.8 11.4 11.3 11.9 12.3 11.2 10.5 10.3
Health 4.4 4.3 4.3 4.6 4.4 4.8 4.8 4.6
Others 5.4 4.6 4.8 5 4.6 6.4 6.7 6
As % of expenditure on social services
Education 50 56 55 55 58 50 48 49
Health 23 21 21 22 21 21 22 22
Others 27 23 24 23 21 29 31 29

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 2.1 Basic Indicators of Human
Development-1
Year Life expectancy Literacy rate
at birth (years) (percent)

1951 32.1 18.3

1961 41.3 28.3
1971 45.6 34.5
1981 50.4 43.6
1991 59.4 52.2
2001 63.5 65.4

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 2.2 Basic Indicators of Human
Development-2
Year Birth rate Death rate Infant
Per 1000 Per 1000 mortality rate
Per 1000
1951 39.9 27.4 146
1961 41.7 22.8 146
1971 41.2 19.0 129
1981 33.9 12.5 110
1991 29.5 9.8 80
2001 25.8 8.5 68

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2.3 Change in real wages
Year Percentage
change
1991-92 -6.19
1992-93 +5.21
1993-94 +5.61
1994-95 -0.39
1995-96 +0.72
1996-97 +1.64
1997-98 +2.50
1998-99 +3.45
1999-2000 +3.50
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 2.4 Reduction of Poverty
Year Poverty Ratios (%) Number of Poor (Million)
______________________ _________________________
Rural Urban Combined Rural Urban Combined
__________________________________________________________
1973-74 56.4 49.0 54.9 261 60 321
1977-78 53.1 45.2 51.3 264 65 329
1983-84 45.7 40.8 44.5 252 71 323
1987-88 39.1 38.2 38.9 232 75 307
1993-94 37.3 32.4 36.0 244 76 320
1999 27.1 23.6 26.1 193 67 260
_________________________________________________________________

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 2.5 Poverty in Selected
Asian Economies

Country Poverty Poverty Annual Average Average

ratios Ratios Reduction GDP growth GDP growth
1975 1995 In 1975-95 1970-1980 1980-1995
% Point

India 54.9 26.1 1.1 3.2 5.6

China 59.5 22.2 1.9 5.0 11.1
Indonesia 64.3 11.4 2.6 7.8 6.6
Korea 23.0 5.0 0.9 9.0 8.7
Malaysia 17.4 4.3 0.7 7.8 6.4
Philippines 35.7 25.5 0.5 6.2 1.4
Thailand 8.1 0.9 0.4 7.2 7.9

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 2.6 Employment growth rates

Period Rate of growth of Rate of growth of Rate of growth of

population labour force employment
(% per annum) (% per annum) (% per annum)
1972-1978 2.27 2.94 2.73
1977-1983 2.19 2.04 2.17
1983-1988 2.14 1.74 1.54
1987-1994 2.10 2.29 2.43
1993-2000 1.93 1.03 0.98

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 2.7 Sectoral employment growth rates
Employment (per cent to total) Annual growth rate (%)

Sector 1983 1987- 1993- 1999- 1983 to 1987- 1983 to 1993-

1988 1994 2000 1987- 1988 to 1993- 1994 to
1988 1993- 1994 1999-
1994 2000
Agriculture 63.2 60.1 60.4 56.7 1.8 2.6 2.2 0.0
Mining & quarrying 0.7 0.9 0.8 0.7 7.4 1.0 3.7 -1.9
Manufacturing 11.6 11.9 11.1 12.1 3.6 1.2 2.3 2.6
Electricity, gas and 0.3 0.3 0.5 0.3 2.9 7.2 5.3 -3.6
water supply
Construction 3.0 4.4 3.5 4.4 12.1 -1.4 4.2 5.2
Trade, hotels and 7.6 8.3 8.5 11.1 4.9 3.0 3.8 5.7
restaurant
Transport, storage 2.9 3.0 3.1 4.1 3.2 3.5 3.4 5.5
and communication
Financial, real estate 0.9 1.0 1.1 1.4 4.7 4.5 4.6 5.4
& business services
Community, social 9.8 10.1 11.1 9.2 3.6 4.1 3.6 -2.1
& personal services
All Sector 100 100 100 100 2.9 2.5 2.7 1.1

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 Table-3.1: Determinants of Poverty at the Macro Level:
Log-Linear Regression Equations
. (All India time series data for the period 1977-78 to 1999-2000)

Independent variables (Log of) Log of Poverty ratio as the

Dependent variable
Coefficient t-statistic
Constant 41.43
Per capita national income -0.651 5.59
Growth rate of real GDP at factor cost 0.003 0.73
Growth rate of population 0.021 1.96
Inflation rate based on WPI 0.014 3.08
Gross fiscal deficit as percentage of GDP 0.025 1.87
Share of social sectors in central govt. expend. -0.043 1.98
Literacy rate -3.979 9.00
Expectation of life -3.622 3.17
Growth rate of agricultural GDP -0.003 0.83
Share of service sectors in overall GDP -1.078 5.79
Share of private sector in overall GDP 0.190 0.61
Share of private sector in gross domestic invest. -0.052 2.04
Gini ratio for consumer expenditure 0.161 1.95
Time (1977-78=1) -0.139 6.50
R squared 0.999
No. of observations 23

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 Table-4.1: Determinants of Poverty across States
Log-Linear Multiple Regression Equations

Log of Poverty ratio as the Dependent variable

Independent variables (log of) Rural sector Urban sector Combined
Coeffi- t- Coeffi- t- Coeffi- t-
cient statisti cient statisti cient statisti
c c c
Constant 42.610 34.831 33.397
Time (catch-all variable, 0.297 3.11 0.220 2.65 0.199 3.56
1983=1)
Per capita Net state domestic -0.749 4.23 -0.684 4.26 -0.595 5.60
prod.
Rate of unemployment 0.125 2.28 0.006 2.00 0.138 2.12
Literacy rate 1.135 2.92 0.509 0.57 0.692 2.29
Expectation of life -9.623 5.42 -7.117 3.89 -6.217 5.83
Old-age dependency ratio 1.797 3.50 0.839 2.71 -0.182 0.53
Gini ratio for consumer 1.018 1.96 0.701 2.00 1.144 2.84
expenditure
Degree of urbanisation -0.351 2.01 0.296 2.32 0.101 1.96
R squared 0.803 0.760 0.789
No. of observations 68 68 68

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 Table 4.2 Panel and Pooled Data:
Log linear relations with log of poverty as dependent variable

Independent variables (log of) Equation-1 Equation-2

Coefficie t-statistic Coefficie t-statistic
nt nt
Constant 38.18 33.307
Dummy (0 for Urban, 1 for National, 2 -0.241 3.50 -0.337 6.06
for Rural)
Time (catch-all variable, 1983=1) 0.226 4.37 0.094 2.40
Per capita net state domestic product -0.658 7.18
(NSDP)
Inequality adjusted per capita NSDP -0.0006 8.76
Rate of unemployment 0.117 2.09 0.160 2.46
Literacy rate 0.823 3.39 0.575 2.47
Expectation of life -8.161 8.51 -8.393 8.92
Old-age dependency ratio 1.019 4.76 .243 6.53
Gini ratio for consumer expenditure 0.861 3.07
Degree of urbanisation 0.005 2.00 0.076 2.01
R squared 0.685 0.690
No. of observations 204 204

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 5 Concluding observations
Higher growth is essential for poverty reduction.

But it is by no means sufficient.

It is important to focus on pro-poor public

policies- creation of employment opportunities
and enhancing the level of health, education and
skill of the poor.
A
 stable macroeconomic environment,
characterized by low inflation and sustainable
level of fiscal deficit helps the poor to safeguard
their purchasing power.
Reduction of government deficit allows banks to
provide more funds for private investment, which
is more productive. 15
THANK YOU

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