Poverty in the 1990s

The core of the debate in the 1990s finds expression in the writings of Indian economists,  Gaurav Datt at the World Bank in Washington, Abhijit Sen, Jayati Ghosh and C P Chandrasekhar at the Jawaharlal Nehru University, New Delhi, and Suresh Tendulkar, formerly at the Delhi School of Economics. A great debate over measurement issues goes on unabated, but this is not the place to delve into that. Why develop great sophistication in the analysis of data that may not be of sound quality? (May the power elite, if they were to read what we academicians write, decide to provide immediate relief to the poor!).

According to Tendulkar, urban poverty would have been expected to increase more than rural poverty in the short period following the stabilization programme launched in July 1991 -fiscal contraction, tight credit, and devaluation - and simultaneously the structural adjustment programme (SAP). But in India the adverse impact of import liberalization in the form of reduction of import duties was softened by the devaluation of the rupee. A reduction in the import tariff was compensated by a depreciation of the exchange rate to keep the local producers of the industrial raw material (price) competitive. If we were to make an assumption of “pricing to market” for final products, a reduction in import duties, or indeed, a change in the exchange rate would not significantly threaten the domestic producers, for, we may add, they are super-exploiters of labour. Here, in the case of depreciation and a simultaneous reduction of import duties, the two may have worked in opposite directions to compensate one another in terms of their impact on the domestic currency prices of the final products. Tendulkar goes on to rightly stress that components of the SAP - for instance, the adjustment of the organized labour markets towards flexibility, or the liquidation of bankrupt public enterprises - did not take place to the extent he too desired. Also, the tariffication of quantitative restrictions on consumer goods imports did not occur in a drastic “big bang” manner. The urban organized sector had consequently not thoroughly been exposed to external competition.  The institutional rigidities of the organized labour markets had also not been dealt with to the extent Tendulkar desired. Indexation of the wages of organized labour continued. Therefore, according to Tendulkar, the second-order adverse short-period effects on the urban informal sector were correspondingly less. All these factors counteracted the otherwise very adverse effects that the stabilization programme and SAP would have had on urban poverty. Indeed, in Tendulkar’s view, the fiscal contraction was relaxed, and this also moderated and later, in 1993-94, helped reduce urban poverty. Tendulkar argues that the sharp increase in rural poverty in 1992 was :

a combined consequence of the weather-related natural forces, constricted maneuverability of government action, and certain political economy factors that were influenced by reform-related policies of devaluation of the currency and the intended reversal of dis-protection of agriculture. It is important to note that had the agricultural harvest of 1991-92 been favourable, the adverse impact of the reform-related policies could have been counteracted.

Now, no one will disagree that, ceteris paribus, an increase in agricultural output would lead to a decline in poverty. But the proponents of

liberalization therefore recommend use of market (relative) price incentives to agriculturists as an incentive and expect that thereby agricultural output growth will be stepped up. In other words, they are sure that the price incentive will gear relatively greater private investment into that sector, and thereby agricultural output will increase and poverty will decline. Further, the “liberalizers” argue that expansion of labour-intensive exports in the unorganized sector, including agricultural exports, ceteris paribus, by increasing output and employment, would reduce poverty; therefore, promote exports. Reduce the rate of inflation, ceteris paribus ; this will reduce poverty. The only task for an independent Reserve Bank of India (independence from the “democratic representatives of the people”) to moderate inflation. All this World Bank originated economics is not only absurd but can be very damaging of the livelihoods of millions of people. Perhaps, for neo-classical economists, a multiple linear regression equation with some measures of agricultural output or agricultural output per (rural) capita, and a price variable are sufficient to explain poverty! They do not even ask the question whether the process of agricultural decline was accompanied by sharpening inequalities. They are not bothered about whether the opportunities offered by other means of livelihood in the rural areas during the period under review have increased or decreased. Further, they generally seem to focus on the absolute level of the food-grain price or a sharp increase in it, but  completely neglect what may have happened to the structure of relative prices. We think the latter may also affect poverty.

The ‘green revolution’ made big gains in little areas. The growth process generated inequality across regions and classes, but the ‘trickle down’ effect perhaps did reduce poverty. However, even in the states where the ‘green revolution’ did not have any perceptible impact, where the growth rate of real value added per head of the rural population was low, a significant decline in poverty was recorded. Hence, one has to go beyond the agricultural sector and its linkages in the study of rural poverty. Of course, if one replaces agricultural output per capita with agricultural output per hectare, then the correlation with poverty may turn out to be better, and growth as the engine of reduction of poverty can be established across the various states! The stagnation in agricultural output per capita in many parts of the country is because the increase in cropped area has reached some limits and now increase in yields is being attempted. This is a process that is simultaneously accompanied by a reduction in the output elasticity of demand for labour in agriculture. With a growth rate of the rural labour force greater than the growth rate of agricultural employment, one would expect a downward tendency in agricultural wages, affecting the poor. But this did not happen; indeed, real agricultural wages rose through the 1970s and 1980s, and this was one of the main reasons for the reduction of rural poverty. The rise in wage rates could not have been the result mainly of an increase in real output per worker, because the former rose much faster than the latter. According to Abhijit Sen, and C P Chandrasekhar and Jayati Ghosh, a more convincing explanation of the rise in agricultural wages is the expansion of non-agricultural employment and the process by which this took place.

Continue