Inequality is an important issue for the UPA government. The Approach Paper to the 11th Five Year Plan (2007-12) adopted in December 2006, mentions “inclusive growth” in the title itself. There is a specific chapter on bridging divides. Inequality and the allied notion of poverty can take different forms. In the last resort, development and deprivation are about individuals, since specific individuals may be poor or earn low levels of income relative to others. Ascribing poverty or inequality to collective identification, be it based on geography or caste (SCs, STs, OBCs, religious minorities) or even gender amounts to simplification. Collective identification
The answer depends on the variable. Poverty (or inequality) is not only about income and/or expenditure. They have other dimensions too, such as unequal access to education, health and physical infrastructure and participation in decision-making processes. One can argue that unequal access to social or physical infrastructure is undesirable. But it is difficult to argue, equally convincingly, that inequality in incomes is bad, especially if absolute living standards of the poor improve. For a long time, the poverty/inequality debate in India was mired in methodological issues concerning comparability of large sample NSS data of 1999-2000 with that of 1993-94. This changed with availability of NSS 2004-05 (61st round). In a study, Laveesh Bhandari (a fellow Express columnist) and I tracked what has happened to poverty and inequality between 1993-94 and 2004-05, a period that almost coincides with liberalisation. These are our own estimates, since we have some problems with Planning Commission figures. First, the poverty story, with poverty ratio defined as percentage of population below the poverty line. India’s poverty line should certainly change, since it doesn’t include health or education as items of consumption expenditure. At that time, it was thought these would be provided by the state — but that’s a separate issue.
Poverty unambiguously declined, from around 36 per cent in 1993-94 to around 27 per cent in 2004-05. This is poverty based on expenditure, not other variables, and 27 per cent of India’s population is still huge. Poverty declines could (and should) have been faster. With these caveats, sharpest declines in poverty have occurred in Assam, Himachal, Bihar/Jharkhand, Tamil Nadu, West Bengal and Haryana. Least declines took place in MP/Chhattisgarh, Punjab and Orissa. Poverty concentrations are in Bihar/Jharkhand, Uttar Pradesh/Uttarakhand, Maharashtra, MP/Chhattisgarh, Orissa and Tripura. What do poverty declines depend on? Apart from points about composition of growth and shape of the expenditure distribution, poverty declines require growth. Though indirect, growth is the only long-lasting solution to problems of poverty and unemployment. The proposition that direct anti-poverty programmes are necessary to supplement growth effects of poverty reduction does not negate the proposition about growth being necessary. Growth has contributed to poverty reduction. The only states/UTs that don’t entirely fit this growth story are Assam, Pondicherry, Delhi and Chandigarh.
Incidentally, it is by no means the case that poverty ratios haven’t declined for SCs/STs. While the absolute poverty ratio for SCs is significantly higher than the all-India figure, the decline between 1993-94 and 2004-05 is more for SCs than for the all-India population. However, this is not the case for STs. Similarly, the decline for Muslims has also been significant. Except for STs, this indicates the danger of generalising across collective categories like caste or religion.
Let’s now move on to the relative inequality story, again based on expenditure alone. There are problems in comparing inequality across countries. Subject to that, India had relatively low levels of inequality till 1993-94. While this continues to be the case, our study shows a sharp increase in inequality between 1993-94 and 2004-05, especially for urban India. Except for Delhi, Pondicherry, Goa and Chandigarh, which don’t quite fit the picture, growth seems to have led to increase in inequality. In that sense, growth hasn’t been inclusive, it has been exclusive. It is inequality that has been inclusive. Increased inequality depends not on growth per se, but on the growth process, and this link requires more investigation. But some trends seem clear. First, inequality has resulted from greater urbanisation, meaning both migration and integration of rural areas into urban centres of economic activity. In geographical areas where this integration process has been slow, inequality hasn’t increased much. Second, inequality is lower in states where self-employment is higher. At this level of aggregation, one doesn’t know whether this self-employment is voluntary or involuntary, whether it means being stuck in low-skill jobs or not.
Third, income inequality is certain to be higher than expenditure inequality, though since NSS doesn’t collect data on incomes there are several problems in computing income inequality. We have been able to do this only for those who aren’t self-employed — ie, those who earn wages/salaries. For both rural and urban India, this shows highest increase in average incomes for relatively poor (bottom 20 per cent), followed by relatively rich (top 20 per cent). It is the middle that has been relatively squeezed. India’s income inequality is now at its highest level since Independence. One may argue this isn’t a reason for concern because absolute incomes have also increased in the middle. However, there’s reason for concern because of another finding: lack of education/skills is the single most important source of income differentials.
The impact of reforms in creating greater opportunities is not the issue. The issue is ability of available human resources to benefit from such opportunities and unequal access to both education and health are constraints there and thus raises questions about what the present government is attempting to do. Motherhood statements apart, for all practical purposes, UPA government’s initiatives err on the side of entitlement, rather than empowerment. There is an attempt to cast everything into an employer-employee mould, be it through NREGA, reservations or social security legislation. In contrast, the empowerment agenda requires physical and social infrastructure. If that happens, we needn’t worry about
either poverty or inequality.
The writer is a noted economist