India Poverty Project: Poverty and Growth in India, 1951-94

The Project

Looking back 45 years or so, progress against poverty in India has been highly uneven over time and space. It took 20 years for the national poverty rate to fall below—and stay below—its value in the early 1950s. And trend rates of poverty reduction have differed appreciably between states. This research project aimed to understand what influence economy-wide and sectoral factors have played in the evolution of poverty measures for India since the 1950s, and to draw lessons for the future.

Amongst developing countries, India has relatively good data for addressing these issues. The project could compile a time series of consumption data from 35 National Sample Surveys spanning 1951-94. This is one of the longest series of national household surveys suitable for tracking living conditions of the poor. Most of the surveys are large enough to be considered representative at the urban and rural levels for most states, and they appear to be reasonably comparable over time since the basic survey method has changed relatively little. Other data (on price indices and explanatory variables) are also available on a reasonably consistent basis. Although there were many data problems (some, but not all, of which could be fixed), they are modest by the standards of cross-country comparative studies. The project has thus represented a unique opportunity to study the link between living conditions of the poor and the key macroeconomic and sectoral variables which are thought to have important influences on progress in reducing poverty.

The complete data set and a user manual, are available (see Database on Poverty and Growth in India).  The user manual gives the sources of all data. When relevant, the estimation methods are described in the relevant publications, listed below.

Drawing on these data, the project addressed a number of specific questions:

• How have comparable measures of poverty in India evolved since the 1950s?
• Has the experience been different between urban and rural areas and between different states?
• How have measures of poverty responded to changes in economy-wide and sectoral variables?
• What has been the relative importance of economic growth versus changes in distribution?
• What role has been played by the sectoral composition of economic growth?
• How important have changing wages and prices been?
• Why have some states of India done so much better than others in the fight against poverty?
• What role have differences in the initial levels of human development played, versus other factors such as physical infrastructure endowments?

Key Findings

Economy-wide variables do matter to India's poor; they have generally gained from economic growth, and lost from contraction; they have also been hurt by inflation. The net gains to the poor since the early 1970s can be attributed in large part to economic growth—distribution changed little from the point of view of the poor, although it appears to have been more important in the 1950s and '60s, when there was rather less growth. The results offer support for the view that a stable macro-policy environment, combined with micro-policy reforms conducive to economic growth, can help greatly in reducing absolute poverty in India.

However, the project’s results also reveal important nuances concerning the pattern of growth, and the importance of other contingent factors, including human and physical infrastructure. The results point clearly to the quantitative importance of the sectoral composition of economic growth to poverty reduction in India. Fostering the conditions for growth in the rural economy—both primary and tertiary sectors—must be considered central to an effective strategy for poverty reduction in India. At the same time, the relative failure of India's past industrialization strategy from the perspective of the poor points to the importance of successful transition to a strategy capable of absorbing more labor, particularly from rural areas.

In explaining the cross-state differences in the trend rates of rural poverty reduction, the project found that differences in the trend growth rate of average farm yields (agricultural output per acre) were important. By contrast, differences in the state's historical trend growth rate of non-agricultural output (urban plus rural) were not. This reflects the weak connections between urban economic growth and rural poverty reduction in India.

But that is only part of the story. Without taking account of differences in initial conditions it is hard to explain why some states have performed so much better in fighting poverty than others in the longer term. Starting endowments of physical infrastructure and human resources appear to have played a major role in explaining the trends in poverty reduction; higher initial irrigation intensity, higher literacy and lower initial infant mortality all contributed to higher long-term rates of poverty reduction in rural areas. A sizable share of the variance in the trend rates of progress are attributable to differences in initial conditions of physical and human resource development—differences which also reflect past public spending priorities.

By and large, the same variables determining rates of progress in reducing poverty mattered to the growth in average consumption. There is no sign of trade-offs between growth and pro-poor distributional outcomes.

A further lesson from the project concerns the importance of being able to credibly assess an economy's performance in reducing poverty. Although less than ideal in some respects, the data base available for poverty analysis in India is good by international standards. Many other countries have had far fewer objective socio-economic surveys on which poverty monitoring can be based, or their surveys have been severely wanting in terms of coverage (lacking, for example, a sound consumption module) or comparability over time. The very fact that for India we can obtain the data needed to address the questions posed by this project carries an important message for other countries today, and India in the future.

Publications

(contact mravallion@worldbank.org for copies)

• Martin Ravallion, "Food Prices and Rural Poverty", Economic and Political Weekly, Vol. 33, No.28, July 11-17, 1998, pp. 1870-71.
• Gaurav Datt and Martin Ravallion, "Farm Productivity and Rural Poverty in India", Journal of Development Studies, Vol. 34, No. 4, April 1998, pp. 62-85.
• Gaurav Datt and Martin Ravallion, "Why Have Some Indian States Done Better Than Others at Reducing Rural Poverty?", Economica, Vol. 65, No. 257, Feb., 1998, pp.17-38.
• Martin Ravallion, "On Reform, Food Prices and Poverty in India", Economic and Political Weekly, Vol.33, January 10-16, 1998, pp.29-36.
• Michael Bruno, Martin Ravallion and Lyn Squire, "Equity and Growth in Developing Countries: Old and New Perspectives on the Policy Issues", in Income Distribution and High-Quality Growth (edited by VitoTanzi and Ke-young Chu), Cambridge, Mass: MIT Press, 1998.
• Gaurav Datt and Martin Ravallion, "Macroeconomic Crises and Poverty Monitoring: A Case Study for India", Review of Development Economics, Vol.1, No. 2, June 1997, pp. 135-152.
• Martin Ravallion, "Poverty and Growth: Lessons from 40 Years of Data on India’s Poor", DEC Note 20, September 1996, World Bank, Washington DC.Martin Ravallion and Gaurav Datt, "India's Checkered History in the Fight Against Poverty: Are There Lessons for the Future?", Economic and Political Weekly, Vol. 31, Special Number 1996, pp. 2479-2486.
• Martin Ravallion and Gaurav Datt, "How Important to India's Poor is the Sectoral Composition of Economic Growth?", World Bank Economic Review, Vol.10, January 1996, pp. 1-26.

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