Has Growth Been Socially Inclusive during ?

Has Growth Been Socially Inclusive during 1993-94 2009-10? Sukhadeo Thorat, Amaresh Dubey This paper examines the changes in poverty incidence and monthly per capita expenditure in India using the National Sample Survey s unit record data of three rounds, 1993-94, 2004-05 and 2009-10. The changes in poverty and growth in MPCE have been measured for major socio-religious and economic groups in both rural and urban sectors. This is complemented by the decomposition of the change in the incidence of poverty into the growth and distribution components. The results indicate that the poverty rate has declined at an accelerated rate during 2004-05 2009-10 for all socio-religious household groups. Growth has been more poverty reducing at an aggregate level during the period 2004-05 2009-10 as compared to 1993-94 2004-05. However, some groups benefited more than the others from poverty reduction. Inequality has also begun to adversely affect poverty reduction, particularly in the urban sector. This paper is an abridged version of a research undertaken by Indian Institute of Dalit Studies for the UNDP. We gratefully acknowledge the financial support from UNDP India office for this work. An earlier version of this paper was presented at the Workshop organised by the UNDP and Planning Commission during 24-25 October 2011 in New Delhi. We thank Palanivel, Seeta Prabhu, Rathin Roy, Ashwini Saith, Pronob Sen, Catlin Wiesen and several other participants in the UNDP-Planning Commission Workshop for helpful suggestions. We also acknowledge comments from three anonymous referees who have helped to improve this paper immensely. We thank Veronica Pala and Shivakar Tiwari for their efficient support with the data work. 1 Inclusive Growth and the Eleventh and Twelfth Plans India s Eleventh Five-Year Plan (2007-08 to 2011-12) has been different insofar as it brought the goal of inclusiveness to the centre of its growth strategy. The inclusive approach has been extended with greater commitment in the Twelfth Five-Year Plan (2012-17). This approach recognises that while faster growth remains the main goal, it is not an end in itself but the means to an end. And the end would demand outcomes which yield benefits for all, but particularly require that the benefits of growth reach the poor, scheduled castes (SCs), scheduled tribes (STs), Other Backward Classes (obcs), minorities and women (GoI 2007). The Twelfth Plan, thus, defines the inclusive growth approach as: Inclusive growth should result in lower incidence of poverty, improvement in health outcomes, universal access to school education, increased access to higher education, including skill and education, better opportunities for both wage employment and livelihoods and improvement in provision of basic amenities like water, electricity, roads, sanitation and housing. Particular attention needs to be paid to the needs of the SC, ST and OBC population, women and children as also minorities and other excluded group (GoI 2011: 4). While the goal of inclusive growth has become the strategic pillar in the Eleventh and Twelfth Plans, it has also raised a number of issues which require clarity, particularly the definition of inclusive growth, its measurements and indicators. The inclusive growth strategy for the Twelfth Plan also needs to be based on the experience of inclusive outcomes during the Eleventh Plan. The National Sample Survey (NSS) quinquennial consumption expenditure data for the most recent round, 2009-10, now enables us to assess the outcome during the Eleventh Plan period, at least on poverty incidence and its implications for the Twelfth Plan strategy. It is in this context that this paper aims at addressing three interrelated issues concerning the inclusive growth approach. First, it discusses the concept of inclusive growth, including the indicators and its measurements for monitoring the outcome. Second, it empirically studies the character of growth in India during 1993-94 2009-10, which includes three years of the Eleventh Five-Year Plan. And finally, it indicates the implications of the findings for the strategy of inclusive growth under the Twelfth Plan. 2 Objectives, Data and Methods Sukhadeo Thorat (thoratsukhadeo@yahoo.co.in) and Amaresh Dubey (amaresh.dubey@gmail.com) are with the Centre for the Study of Regional Development, Jawaharlal Nehru University, New Delhi. 2.1 Definition of Inclusive Growth and Pro-Poor Growth As pointed out above, drawing from the recent literature on inclusiveness of growth, the Twelfth Plan Approach Paper Economic & Political Weekly EPW march 10, 2012 vol xlvii no 10 43

includes several outcomes that would constitute inclusive growth. Inclusive growth presupposes growth in income. But not all growth scenarios are considered inclusive. Therefore, there is a need to differentiate the growth processes that are inclusive from those that are not. Some researchers argue that inclusive growth is broad-based and benefits everyone in society the poor, middle income groups and even the rich (Klasen 2010). In this sense pro-poor growth, in which the focus of outcome is on the poor, constitute a subset of the broad concept of inclusive growth. For pro-poor growth, the pro-poorness is to be embedded in growth with a policy bias in favour of the poor (resulting in a relatively higher increase in the income of the poor). This signals a clear departure from the trickle-down development doctrine of 1950s and 1960s that meant a gradual top-down flow from the rich to the poor (Pernia 2003). Grinspun (2009) summarises the current debate on definition and measurement of inclusive growth. One view suggests that pro-poor growth is any growth in mean income that benefits the poor (Ravallian 2004). Since this criterion would encompass a vast majority of growth episodes, alternatively it is proposed that for growth to be pro-poor, it should benefit the poor proportionately more than the non-poor. With this, the focus shifted to the extent of income gains of the poor from growth (Kakwani 2004). While agreeing that the true test of pro-poorness is the existence of a policy bias favouring the poor proportionately more, this needs to be measured with reference to the country s past record of poverty reduction. By this definition for growth to be pro-poor, the increase in income in current period should be necessarily greater than the preceding period (Osmani 2005). The concept got further extended with the new criterion of pro-poorness, namely, that the share of the poor in the income growth in the current year should exceed their share in the previous year, the share of the poor in incremental growth surpasses their share in population and that the share of poor in incremental growth exceeds some international norms. Since the pro-poorness involves income gains for the poor, the trade-off between income growth and its distribution becomes important for pro-poor outcome (Ahluwalia 1976, 1978). In this context pro-poor growth would necessarily involve growth with declining inequality in income distribution (Rauniyar and Kanbur 2010). Initial inequalities also matter the rate of decline in poverty tends to be less pro-poor in a situation where initial inequality is high. Inequalities caused by social exclusion, discrimination, and constraints on human development particularly limit the prospect of poverty reduction among certain excluded groups (Ravallion 2009). Therefore, Klasen (2010) emphasised non-discriminatory participation and disadvantage reducing features as a necessary condition for inclusive growth. 2.1.1 Indicators of Pro-Poor Growth As pointed out earlier, the concept of inclusive growth is much broader as it includes a number of indicators. The most important of those indicators are growth of income and reduction in poverty and level of inequality. Given the limitations of NSS data 44 on consumption, in this paper the inclusive nature of growth is studied by using the rate of change in incidence of poverty and growth of consumption expenditure. In addition, we also examine how far the changes in inequality have affected the effectiveness of the growth process in reducing poverty. Specifically, growth is considered to be pro-poor if poverty incidence in the current period declined at a higher yearly rate compared to the preceding period, and if the per annum change in income in the current period exceeds that in the previous period. And finally if the Gini coefficient either remains stagnant or rises only marginally and the growth effect is greater and the distribution effect also contributes to poverty reduction. 2.2 Economic, Caste, Ethnic and Religious Groups In the hierarchical structure of the Indian population, it is well documented that there are certain groups that lag behind on a range of development outcomes income, poverty incidence, education, health, and so on and the inclusive approach in the Eleventh and Twelfth Plans focuses on gains from growth for these groups (SRGs). 1 We have identified economic as well as socio-religious groups in the NSS data and calculated the incidence of poverty and real mean monthly per capita consumption expenditure (MPCE) for the rural and urban areas. The economic groups in the rural sector are the self-employed in agriculture (farmers, SEAG), self-employed in non-agriculture (non-farm production and business, SENA), wage labour engaged in agriculture (AGLA) and wage labour in non-agriculture (OLAH) and households which have more than one income source (OTHER). For urban areas, the economic groups are the self-employed (SEMP), wage/salary earners (RWSE), casual labour (CALA) and other households (with multiple sources of income, OTHER). Among the social groups, the identifiable groups from the data include STs, SCs, OBCs and higher castes (non-sc/st). Among the religious groups, data reports household s religious denomination as Hindus, Muslims and several Other Religious Minorities (ORMs). For purpose of analysis, we club Christians, Sikhs, Jains and other religious minorities into one group, ORM (Thorat 2010). 2 2.3 Data and Poverty Lines For measuring growth, incidence of poverty and inequality, unit record data from three quinquennial rounds of consumption expenditure surveys (CES), conducted by the National Sample Survey Office (NSSO) have been used. These surveys were conducted during the agricultural years 1993-94 (July 1993 to June 1994), 2004-05 (July 2004 to June 2005) and 2009-10 (July 2009 to June 2010), respectively. The NSS in these surveys follows a stratified sampling design and the weights or multiplier for the surveyed households are used in the calculations. For calculating the incidence of poverty, we use poverty lines (PLs) published by the Planning Commission. These are the PLs originally derived by the 1979 Task Force (GOI 1979) and modified by the 1993 Expert Group (GOI 1993) 3 for calculating state-level PLs by adjusting for price variation across states. For the years 1993-94 and 2004-05, the state-wise PLs have been march 10, 2012 vol xlvii no 10 EPW Economic & Political Weekly

taken from GOI (1997, 2007). However, since the submission of the Report of the Expert Group to Review the Methodology for Estimation of Poverty (GOI 2009), 4 the Planning Commission has not specified a set of poverty lines for India and the states for 2009-10 so far. 5 Consequently, we have updated the poverty line of 2004-05 as reported in GOI (2007) using methodology similar to the 1993 Expert Group. Thus, the incidence of poverty reported in this paper has been calculated using the old official poverty line. 6 The incidence of poverty is measured as the percentage of population below the poverty line, also known as the Head Count Ratio (HCR). 7 In addition, the NSS CES data report consumption expenditure of the households in nominal rupees. We have converted the nominal expenditure at constant (1999-2000) prices. The price deflator that we used to convert the household expenditure at constant prices is the implicit price deflator derived from the state-wise PLs for rural and urban areas separately. The growth of MPCE and the summary measure of inequality, Gini coefficient, has been calculated using deflated MPCE data. 3 Rural Poverty Incidence and Changes: 1993-2010 We first report changes in the incidence of poverty, HCR, disaggregated into SRGs and economic groups for 1993-94 and 2009-10, and then for the two sub-periods, 1993-94 to 2004-05 and 2004-05 to 2009-10. The HCRs for the identified socioreligious and economic groups for 1993-94, 2004-05 and 2009-10 by place of residence are reported in Appendix Tables A1 and A2 (p 53). 3.1 Aggregate and by Social and Religious Groups Between 1993-94 and 2009-10, rural poverty declined at 2.5% per annum, which amounts to the decline by 15 percentage points (Tables 1 and A1). Across social groups, the rate of decline in rural poverty has been higher for the upper castes, followed by SCs and STs the per annum decline being 2.7%, 2.4%, 2.1%, respectively. In the case of religious groups, rural poverty has declined at a higher rate for Muslims and ORMs as compared to Hindus the per annum rate of decline being 2.4% (Hindus), 3.4% (Muslims) and 3.6% (ORMs). Thus, Muslims and higher castes and ORMs have done better compared to rest of the groups. 3.2 Changes during Two Sub-Periods Rural poverty declined at the rate of 2.2% annually during the first period, 1993-94 2004-05. Among the SRGs, the per annum rate of decline has been the highest for upper castes and Muslims, followed by SCs and STs the decline being the lowest for STs. Thus, during the first period, the upper castes and Muslims did better in reducing poverty as compared to the rest, with STs and SCs lagging behind (Table 1). SPECIAL ARTICLE Table 1: Rural Rate of Change (Annual) in Poverty and MPCE and Gini-Coefficient across Socio-Religious Groups in India Social and Headcount Ratio Monthly Per Capita Consumption Expenditure Gini-coefficient Religious Groups 1993-94 to 2004-05 to 1993-94 to 1993-94 to 2004-05 to 1993-94 to 1993-94 2004-05 2009-10 2004-05 2009-10 2009-10 2004-05 2009-10 2009-10 All -2.2-4.4-2.5 1.3 1.7 1.5 0.2844 0.2997 0.3059 ST -1.0-5.2-2.1 0.5 3.0 1.3 0.265 0.2686 0.28 SC -2.1-4.0-2.4 1.3 1.6 1.5 0.2531 0.2598 0.2576 OTHERs* -2.5-4.5-2.7 1.4 1.7 1.5 0.2869 0.3044 0.3156 Hindus -2.1-3.8-2.4 1.2 1.5 1.3 0.2812 0.2944 0.2979 Muslims -2.4-7.6-3.4 1.7 1.8 1.8 0.273 0.2892 0.2774 Other RM -3.0-7.2-3.6 2.2 4.4 3.2 0.3193 0.3454 0.3957 (1) *Includes OBCs. (2) MPCE indicates Monthly Per Capita Expenditure. Source: Calculated by the authors' using NSS CES unit record data for the respective years. In the second period, 2004-05 to 2009-10, there has been a significant acceleration in the annual rate of decline of poverty across SRGs (Table 1). Rural poverty declined 4.4% annually. The rate of decline is the highest for the STs (5.2%), followed by the upper castes (4.5%) and the SCs (4%) among the social groups. Among the religious groups, Muslims experienced the largest decline at 7.6% per annum followed by ORMs at 7.2% (Table 1). NSS used codes for OBCs during the 2004-05 and 2009-10 surveys. The exclusion of OBCs from the upper castes shows improved performance of the forward castes (non-st/sc/obc) in reducing poverty, from 4.5% to 6.6% annually (Table A2). Thus, the overall ranking changes to some extent. In terms of per annum decline during 2005-10, Muslims, upper castes and STs have a higher ranking, the rate of decline being 7.6%, 6.6% and 5.5%, respectively, while the SCs lagged behind with a 4% decline. 3.3 By Livelihood Categories and Socio-Religious Groups It is important to look at the livelihood categories as these are similar to the Indian socio-religious structure that traditionally put the households in different livelihood pattern. 8 Table 2 (p 46) presents the changes in the poverty incidence for the economic groups by SRGs in the rural areas. This enables us to know the performance of self-employed households engaged in farm and non-farm activities vis-à-vis the wage labour households in reducing poverty in the rural areas. Among the livelihood categories, the farm and non-farm wage labourers (AGLA and OLAH) are the most poor. In 2009-10, about 35% of AGLA and 26% of OLAH population were poor. In comparison, the poverty level for SEAG and SENA households is about 17%. So the HCR of the AGLA households is twice the SEAG households. Table 2 shows that during 1993-94 2009-10, the annual rate of decline in poverty has been relatively higher for SEAG (2.8%) and SENA (2.9%), but relatively lower for OLAH (2.5%) and AGLA (2.3%). A similar pattern is observed in both the subperiods, except that while the poverty incidence among the SEAG and SENA households declined by the same rate (2.5% per annum) in the first period, in the second period the SENA households did better (5.5%) than the other households, namely, the SEAG, farm and non-farm wage labour (about 4.5%). Economic & Political Weekly EPW march 10, 2012 vol xlvii no 10 45

Table 2: Average Annual Change in HCR by Household Type and SRGs in the Rural Sector (in %) SRG ST SC OTHERs Hindu Muslims ORM Total 1993-94 to 2004-05 SENA -1.9-1.8-2.8-2.6-2.2-5.3-2.5 AGLA -0.6-1.9-1.9-1.7-1.8-2.3-1.7 OLAH -1.1-1.7-2.4-1.8-2.7-4.0-2.0 SEAG -1.2-2.5-2.9-2.5-2.9-1.6-2.5 OTHER -1.1-1.8-2.0-1.9-2.1-4.5-1.9 All -1.1-2.2-2.5-2.2-2.5-3.0-2.2 2004-05 to 2009-10 SENA -5.9-5.4-5.5-4.4-8.2-3.1-5.4 AGLA -4.1-4.3-4.2-3.4-10.2-7.4-4.3 OLAH -4.8-3.6-4.7-3.9-7.0-12.5-4.4 SEAG -5.9-2.0-5.1-4.6-4.1-1.1-4.5 OTHER -7.9-1.6-10.1-6.4-10.4-14.0-7.8 All -5.2-4.0-4.6-3.8-7.6-7.0-4.4 1993-94 to 2009-10 SENA -2.8-2.6-3.1-2.8-3.5-4.0-2.9 AGLA -1.6-2.3-2.4-2.0-3.8-3.3-2.3 OLAH -2.1-2.1-2.7-2.2-3.4-4.9-2.5 SEAG -2.4-2.2-3.1-2.8-2.9-1.4-2.8 OTHER -2.9-1.7-3.8-2.9-3.9-5.3-3.2 All -2.2-2.4-2.8-2.4-3.4-3.5-2.6 (i) As in Table 1. (ii) The annual rate of decline in poverty during 2005-10 among the economic groups for Muslims and ORM households appears high which could be partly because of smaller sample size. However, the pattern varies across the SRGs within the economic groups. Taking the self-employed agricultural households first, during 1993-94 2009-10, poverty declined among all social and religious groups, but at a lower rate for the SCs and STs as compared to upper castes and Muslims. There are important differences in the rate of decline in poverty in SEAG households between the two sub-periods. During the first period poverty among the ST farmers declined at a much lower rate as compared to SCs, upper castes and Muslims (although upper castes and Muslims did better than SC self-employed households). However, the story changes completely during 2005-10. The ST SEAG households experienced significant acceleration in poverty reduction, while the upper castes and Muslims continued to do better. The SC farmers lagged behind in reducing poverty in the second period. In case of SENA households, during the overall period of 1993-94 to 2009-10, all SRGs experienced decline in poverty. However, upper castes and Muslims benefited more from the growth in the rural non-farm sector, and the SCs and STs lagged behind. A similar pattern is observed during the first period. However, during the second period, 2005-10, while all the groups showed significant acceleration in the rate of poverty reduction, the rate of decline was highest for Muslims (8.2%) and STs (5.9%) as compared to other groups. The SCs lagged behind to some extent. During 1993-94 2009-10, the incidence of poverty among the farm and non-farm wage labour 46 households declined at the lower rate than the self-employed households. Among the farm and non-farm wage labour households, poverty declined at a higher rate among the upper castes and Muslims and at a lower rate among SCs and STs. During the first period (1993-2004), the per annum decline in case of AGLA households was particularly low among the STs (0.6%), with minimum differences in case of other groups (the rate varies between 1.7% and 1.9%). In the case of OLAH households, both the STs and SCs performed poorly in reducing poverty as compared to others. The upper castes and Muslims did relatively better. Thus, SC and ST households in farm and nonfarm wage labour lagged behind in reducing poverty as compared to other groups during 1993-2004. During the second period (2004-10), the situation in the farm wage labour had significantly improved for all the groups, including the STs who had performed badly in the first period. The rate of decline has been particularly high for Muslims (10.2%) (Table 2). A similar acceleration in poverty reduction was experienced by all groups for OLAH households as well. The acceleration was of higher magnitude for upper castes (4.4%) and Muslims (7%). The rate of decline was relatively low for the SCs (3.6%) (Table 2). 3.4 Urban Poverty 3.4.1 Aggregate and by Social and Religious Groups The level and rate of decline of urban poverty is reported in Table A1 and Table 1, respectively. The level of poverty incidence in the urban areas, which stood at 20.8% in 2009-10, is marginally lower than the rural areas. However, the gap in the two sectors has narrowed considerably since 1993-94 (Tables A1 and A2). Between 1993-94 and 2009-10, urban poverty declined to 2.3% per annum, marginally lower than the rural sector (2.5%). The per annum rate was lower for the Muslims (1.5%). For other social groups, the rate of decline varies from 2.1% to 3.1%, with upper castes marginally better off. During 1993-2004, poverty declined at a rate of 1.9% per annum; the rate of decline has been higher for upper castes (2.2%) while relatively low for Muslims (1.4%), SCs (1.6%) and STs (1.8%). During 2005-10, the decline in urban poverty had accelerated to 3.9% per annum from 1.9% during 1994-2005 (Table 3). The decline in the poverty rate accelerated across all the SRGs. The per annum rate varies in narrow range of 3.1% for Muslims to 3.9% for upper castes. Table 3: Urban Rate of Change (Annual) in Poverty and MPCE and Gini-coefficient across Socio-religious Groups in India Social and Headcount Ratio Monthly Per Capita Consumption Expenditure Gini-coefficient Religious Groups 1993-94 to 2004-05 to 1993-94 to 1993-94 to 2004-05 to 1993-94 to 1993-94 2004-05 2009-10 2004-05 2009-10 2009-10 2004-05 2009-10 2009-10 All -1.9-3.9-2.3 1.9 3.0 2.4 0.3448 0.3757 0.4015 ST -1.8-3.3-2.1 1.8 5.0 3.1 0.3112 0.3411 0.3869 SC -1.6-3.9-2.1 1.4 2.5 1.9 0.3032 0.3158 0.3345 OTHERs* -2.1-3.9-2.4 2.0 3.0 2.5 0.3453 0.378 0.4046 Hindus -2.1-4.1-2.4 1.9 3.0 2.5 0.3406 0.3728 0.396 Muslims -1.4-3.1-1.8 1.5 3.0 2.1 0.3011 0.3365 0.3766 Other RM -3.5-3.6-3.1 2.2 2.5 2.5 0.3857 0.3726 0.4126 (1) *Includes OBCs. (2) MPCE indicates Monthly Per Capita Expenditure. Source: Calculated by the authors' using NSS CES unit record data for the respective years. march 10, 2012 vol xlvii no 10 EPW Economic & Political Weekly

3.4.2 By Livelihood Categories and Socio-Religious Groups The sociocultural and religious dimension in earning livelihood is given in Table A3 (p 53). Among the economic categories, in 2009-10, poverty incidence was the highest for casual labour, followed by self-employed and has been the lowest among the households whose main source of livelihood is regular wages and salary 22 1993-94 (RWSE). This ordering has been consistent 17 over the years and across all the srgs. Several interesting features emerge from 12 Table 4. During 1994-2010, the highest decline has been for the RWSE households, followed by SEMP and the lowest for CALA. 7 During the first period (1994-2005) and the 2 second period (2005-10), the same ordering 0 is observed. Between the first and the second per iods, all household types -3 experienced acceleration in the rate of poverty reduction, which was particularly high for RWSE (6.4%). For the CALA and SEMP households too, the rate of decline improved significantly, at 4.1% and 3.7%, respectively. During 1994-2010, all social groups have done equally well in reducing poverty in case of the RWSE households. During the first period, STs did better than the upper castes but Muslims lagged behind the rest. However, the picture changed significantly during the second period. All SRGs showed acceleration in poverty reduction in case of RWSE with the Muslims, upper castes and SCs showing significant acceleration. In the case of STs, Table 4: Change in Incidence of Poverty by Household Type and Socio-Religious Groups in Urban Sector (in %) Household Type ST SC OTHERS Hindus Muslims ORM Total 1993-94 to 2004-05 SEMP -1.9-1.1-2.4-2.2-1.6-4.7-2.1 RWSE -5.3-2.7-2.1-2.6-0.6-4.1-2.3 CALA 0.9-0.6-1.3-0.8-1.2-0.9-0.9 OTHER -4.4-3.0-4.0-4.3-2.1-6.4-3.9 All -1.9-1.6-2.1-2.1-1.4-3.6-1.9 2004-05 to 2009-10 SEMP -5.2-4.4-3.6-4.5-1.8-2.8-3.7 RWSE 2.7-4.9-7.0-6.2-7.6-4.3-6.4 CALA -3.6-4.5-3.8-4.4-2.2-5.8-4.1 OTHER 11.1-0.6-4.2-0.6-5.7 0.5-2.7 All -3.3-3.9-3.9-4.1-3.1-3.3-3.9 1993-94 to 2009-10 SEMP -2.6-2.0-2.5-2.6-1.6-3.6-2.4 RWSE -3.3-3.0-3.1-3.2-2.6-3.6-3.0 CALA -0.6-1.7-1.9-1.8-1.4-2.2-1.8 OTHER -1.2-2.2-3.5-3.0-2.8-4.3-3.2 All -2.1-2.1-2.4-2.4-1.8-3.1-2.3 As in Table 1. SPECIAL ARTICLE the poverty rate for RWSE decelerated in the second period to 2.7% from 5.3% in the first period. In case of self-employed households (SEMP), during 1994-2010, the slowest reduction has been for Muslims at 1.6% and SCs at 2%. The STs did better than the upper castes. In the first Figure 1: Distribution of Population by Expenditure Classes: Rural Population Proportion (%) 2004-05 2009-10 0-50 100-150 200-250 300-350 400-450 500-550 600-650 700-750 800-850 900-950 1000- >1050 1050 Expenditure Class (PCTE at 1993-94 prices) Figure 2: Distribution of Population by Expenditure Classes: Urban 14 Population Proportion (%) 10 6 2 0-2 1993-94 0-50 100-200- 300-400- 500-600- 700-800- 900-1000- 1100-1200- >1250 150 250 350 450 550 650 750 850 950 1050 1150 1250 Expenditure Class (PCTE at 1993-94 prices) period, the SC, ST and Muslim SEMP households have been lagging behind the upper castes in reducing urban poverty. During 2005-10, however, the SCs, STs and higher castes have improved their performance significantly. However, Muslims did not show any improvement over the first period. Finally, in the case of CALA households, during 1994-2010, the rate of decline of poverty has been relatively low for the STs and Muslims as compared to upper castes. In the first period, 1994-2005, the SCs and STs experienced lowest rate of decline in the poverty of casual labour 0.6% and 0.9%, respe ctively, while the rate was relatively higher for upper castes and Muslims. During 2004-09, all SRGs experienced acceleration in poverty reduction among the CALA households. The increase has been relatively high for the SCs (4.5%), STs (3.6%) and upper castes (3.5%) but lower for Muslims (2.2%). 4 Growth in Monthly Per Capita Expenditure 4.1 Temporal Change in MPCE Since, a comparable household income distribution data is not available; in this section we examine the changes in real MPCE for the SRGs and economic groups. Figures 1 and 2 show the distribution of MPCE at real (1993-94) prices at three time points for the rural and urban areas, respectively. First, there is Economic & Political Weekly EPW march 10, 2012 vol xlvii no 10 47 2004-05 2009-10

discernible shift in the distribution towards right in both the figures. Second, given the nature of the distribution in both the sectors, the use of a particular poverty line is unlikely to affect the changes in poverty incidence over time or comparison of poverty incidence across SRGs or economic groups. The scrutiny of the two distributions also suggests that in the rural areas the change in MPCE between 1993-94 and 2009-10 or for that matter between 2004-05 and 2009-10 is moderate. In case of urban sector, though, it is far more pronounced and there is significant shift to the right. Another noticeable feature is a spike in MPCE among the higher income group of households. 4.2 Changes in Real MPCE-Rural In Table 4, the growth of real MPCE at an aggregate level and across SRGs is reported. The MPCE increased at a per annum rate of 1.5% during 1993-2010. The per annum rate varies among the groups in a narrow range of 1.3% to 1.8%, with ORMs showing the highest per annum increase. During 1993-94 2004-05, MPCE increased at the rate of 1.3%. The STs experienced the lowest annual increase at 0.5%, followed by 1.3% for the SCs and 1.4% for the upper castes. Among the religious groups, Muslims experienced a higher increase (1.7%). In the second period, rate of growth of MPCE increased to 1.7%. Among the social groups, STs showed marked improvement in the rate of increase from 0.5% to 3%. In case of other groups, the per annum increase was more or less similar and varied in a narrow range between 1.6% for SCs and 1.8% for Muslims (Table 1). Exclusion of OBCs (Table A2) from the OTHERs has accelerated the per annum increase in the MPCE for upper castes from 1.7% to 2.1% during 2005-10, the second highest after the STs. The rate of increase for OBCs is close to average for all (1.5%). 4.3 Changes in MPCE by Livelihood Categories Across the economic groups, the growth of MPCE is reported in Table 5. At the aggregate level, among the five household types in rural areas, SENA households (engaged in non-farm production and business activities) experienced a relatively higher increase in MPCE (1.7%) and for the rest it is around 1.3% per annum. A similar pattern is observed during 1994-2005, MPCE grew at a higher rate for SENA (1.6%) and at a lower rate for farm and non-farm wage labour and self-employed in agriculture (between 0.9% and 1.1%). During 2005-10, all households experienced an acceleration in the growth rate. While SENA households have a similar rate of growth as in the first period, for the SEAG and wage labour households, the growth rate accelerated. During 2005-10, the rate of increase is higher for wage labour households. For the SRGs across the livelihood groups during 1993-94 2009-10, SENA households have done better compared to rest of the households. It emerges that STs and upper castes have recorded higher growth of MPCE compared to other SRGs. During the two sub-periods, we find some differences in the rate of change in MPCE for SENA households across SRGs. During 1994-2005, for SENA households, the per annum increase is higher for Muslims (2.0%) and upper castes (1.8%) 48 Table 5: Growth of MPCE at Constant (1999-2000) Prices by Household Type and SRGs in the Rural Sector SRG ST SC Others Hindu Muslims ORM Total 1993-94 to 2004-05 SENA 0.9 1.0 1.8 1.4 2.0 4.2 1.6 AGLA 0.2 1.1 0.9 0.8 1.2 1.2 0.9 OLAH 0.1 1.1 1.1 0.8 2.0 2.3 1.1 SEAG 0.6 1.1 1.1 1.0 1.2 1.6 1.1 OTHER 1.0 1.7 2.2 2.0 2.4 2.1 2.0 All 0.5 1.3 1.4 1.2 1.7 2.1 1.3 2004-05 to 2009-10 SENA 4.7 1.9 1.6 2.0 0.3 0.8 1.7 AGLA 2.8 1.7 2.0 1.8 4.4 2.4 2.0 OLAH 2.7 0.6 2.1 1.2 2.1 12.1 1.8 SEAG 2.4 1.8 1.6 1.4 1.6 3.0 1.6 OTHER 2.6 0.6 3.2 1.8 4.8 4.4 2.5 All 3.0 1.6 1.7 1.5 1.8 4.3 1.7 1993-94 to 2009-10 SENA 2.2 1.3 1.8 1.7 1.5 3.2 1.7 AGLA 1.0 1.3 1.3 1.2 2.4 1.7 1.3 OLAH 0.9 1.0 1.5 0.9 2.2 6.4 1.3 SEAG 1.2 1.4 1.3 1.2 1.4 2.2 1.3 OTHER 1.5 1.4 2.7 2.1 3.5 3.1 2.3 All 1.3 1.5 1.6 1.4 1.8 3.1 1.5 (i) As in Table 1. (ii) The growth of MPCE during 2005-10 for some economic groups for ORM households appears high which could be partly because of smaller sample size. but lower for SCs (1.0%) and STs (0.9%). In case of SEAG households, the per annum rate varies minimally across the social groups, with the only exception being STs (0.6%). The 2005-10 period has been a high growth one for MPCE across all the SRGs. In the case of SENA households, the STs showed significant acceleration in the rate, followed by the SCs; while among the religious groups, Muslims and ORMs show a deceleration. The SEAG households have experienced acceleration in the growth of MPCE during 2005-10 for all social groups; the improvement has been particularly high for the STs (Table 5). STs, therefore, seem to be doing better in case of both farm and non-farm self-employed households during the second period. During the period 1994-2010, the MPCE of farm wage labour households grew at 1.3% annually, except for Muslims (2.4%). During 1994-2005, the MPCE of the AGLA households increased at a relatively lower rate of 0.9%. However, the growth accelerated to 2% during 2004-10. Other SRGs report substantial acceleration in the MPCE, which has been particularly higher for STs and Muslims. In the case of OLAH households, MPCE increased by 1.3% annually. However, growth has been lower for the SCs (1%) and STs (0.9%) as compared to Muslims (2.2%). During 1994-2005, growth of MPCE is higher for Muslims and much lower for STs. During 2005-10, the growth rate accelerated from 1.1% to 1.8%. This acceleration in MPCE growth has been felt across all social groups, with the exception of SCs, for whom it decelerated from 1.1% to 0.6%. 4.4 Growth in MPCE in the Urban Sector During 1994-2010, the MPCE in the urban sector grew at the rate of 2.4% per annum, which is significantly higher than that observed in the rural sector. Among the social groups, the march 10, 2012 vol xlvii no 10 EPW Economic & Political Weekly

growth has been the highest for STs (3.1%), followed by the upper castes, while for the SCs and Muslims growth has been lower (1.9% and 2.1%, respectively) (Table 3). Between the two sub-periods, MPCE growth increased substantially to 3% during 2005-10 from 1.9% during 1994-2005 in the urban areas and also across all SRGs, with the largest acceleration seen for the STs, from 1.8% to 5% per annum (Tables 3 and 4). The acceleration is also seen for the upper castes and Muslims (3%), and has been the lowest for the SCs (2.5%). 4.4.1 Household Types Among the household types in the urban areas, during 1994-2010, the highest growth in MPCE has been for the RWSE households (2.8%), followed by the SEMP (2.3%) (Table 6). The growth has been the lowest for the CALA at 1.8% per annum. During 1994-2005, both the RWSE and SEMP households report a similar growth, but the CALA households reported the lowest growth (0.8%). During 2005-10, all households experienced acceleration in the MPCE growth. The rate of increase, however, is relatively higher for the RSWE and CALA households. Table 6: Growth of MPCE at Constant (1999-2000) Prices by Household Type and SRGs in the Urban Sector Household Type ST SC OTHERs Hindu Muslims ORM Total 1993-94 to 2004-05 SEMP 1.7 0.9 2.0 1.8 1.5 3.4 1.9 RWSE 2.5 1.7 1.9 2.0 1.3 0.7 1.8 CALA 0.2 0.6 1.0 0.8 1.1 0.5 0.8 OTHER 3.4 2.9 4.1 3.8 3.4 6.9 4.1 All 1.8 1.4 2.0 1.9 1.5 2.2 1.9 2004-05 to 2009-10 SEMP 4.9 3.8 2.4 2.8 1.7 0.9 2.5 RWSE 5.3 2.4 4.2 3.9 5.6 5.8 4.1 CALA 3.1 2.7 3.8 3.4 4.4 3.9 3.6 OTHER 1.1 3.2 1.7 1.7 2.2-1.8 1.6 All 5.0 2.5 3.0 3.0 3.0 2.5 3.0 1993-94 to 2009-10 SEMP 3.0 1.9 2.3 2.3 1.6 2.7 2.2 RWSE 3.8 2.0 2.9 2.8 2.9 2.5 2.8 CALA 1.1 1.3 2.0 1.7 2.3 1.6 1.8 OTHER 2.8 3.3 3.6 3.4 3.3 3.8 3.5 All 3.1 1.9 2.5 2.5 2.1 2.5 2.4 As in Table 1. The pattern varies across SRGs. The RWSE households appeared to be better off during 1994-2005, the growth being relatively higher for the STs and upper castes, but lower for SCs and Muslims. In the second period, there is a significant increase in the rate from 1.8% to 4.1%. The increase is relatively higher for STs (5.3%), Muslim (5.6%), ORM (5.9%) and the upper castes (4.2%) and the lowest for the SCs (2.4%). In the case of the SEMP, during 1994-2005 MPCE grew at relatively higher rate for the STs but lower for SCs and Muslims. During 2005-10, there is an improvement across all the SRGs. The increase is, however, relatively high for the STs and SCs. Among the CALA households that traditionally have the highest level of poverty in urban areas, during 1994-2010, Muslims and upper castes showed a higher rate of growth (2% and 2.3%, respectively). The growth is low for the STs (1.1%) and SCs (1.3%). In the first period, growth of MPCE is the lowest for the CALA households (0.8%), slightly higher for upper castes (1%) and Muslims (1.1%), but quite low for STs and SCs. The second period witnessed a significant improvement in the rate of increase in the MPCE among the CALA households, from 0.8% to 3.6% and this increase has been for all SRGs though relatively high for STs, higher castes and Muslims, but lower for the SCs. 5 Relative Contribution of Growth and Distribution in Poverty Reduction After having analysed the changes in poverty and MPCE, in this section, we discuss the result of decomposition of decline in the incidence of poverty attributable to growth in MPCE and its distribution. The methodology for decomposing the effect of growth on poverty reduction has evolved starting with pioneering works by Jain and Tendulkar (1990) and Datt and Ravallion (1992). 9 There have been several refinements and a recent contribution by Kakwani (2000) allows carrying out what is known as the exact decomposition of change in HCR into growth and distribution components that we have followed in this paper. The results from the decomposition exercise are reported for two time periods, 1993-94 to 2004-05 and 2004-05 to 2009-10 for the entire population as well as for three social and three religious groups for the rural and urban sector separately in Table 7. Table 7: Decomposition of Change in Poverty Incidence (Growth and Distribution Effects) Socio-Religious Rural Urban Groups H Growth Distribution H Growth Distribution Effect Effect Effect Effect 1 2 3 4 5 6 7 1993-94 to 2004-05 All -8. 2-11. 1 2. 9-6. 5-10. 8 4. 3 ST 0. 8-4. 6 5. 4-7. 7-10. 5 2. 8 SC -11. 5-13. 9 2. 4-8. 9-11. 1 2. 2 OTHERs -8. 0-11. 0 3. 0-6. 5-11. 0 4. 5 Hindu -8. 2-10. 5 2. 3-6. 6-10. 7 4. 1 Muslim -11. 0-14. 9 3. 9-7. 2-11. 9 4. 8 OTHER RM -7. 9-11. 4 3. 6-7. 6-8. 8 1. 2 2004-05 to 2009-10 All -5.80-5.01-0.79-4.91-6.82 1.91 ST -13.67-13.17-0.50-5.89-12.04 6.15 SC -7.11-6.37-0.75-6.91-8.71 1.80 OTHERs -4.60-4.30-0.30-4.43-6.27 1.84 Hindu -5.93-5.23-0.70-4.62-6.53 1.91 Muslim -5.86-2.27-3.59-7.74-9.88 2.15 OTHER RM -4.61-5.13 0.53-0.73-3.06 2.32 As in Table 1. Between 1993-94 and 2004-05, the decline in poverty incidence, H, is 8.2% for the rural sector as a whole. As the economy has been growing faster, the rate of increase in MPCE should have brought about an around 11.1% decline in the HCR (the growth effect) but because of distributional changes, about 2.9% of the reduction in poverty has been offset (Table 7). Table 7 also shows that during 1993-94 2004-05, the role of growth in reducing poverty across SRGs has been similar. Because of the growth of MPCE, the incidence of poverty should have declined by about 14% for SCs in 2004-05 as compared to Economic & Political Weekly EPW march 10, 2012 vol xlvii no 10 49

1993-94, while for OTHERs it should have declined by 11%. But because of the changes in the distribution, 2.4% for SCs and 3% for OTHERs were offset. In the case of STs, the loss due to distribution is about 4.6%. Among the religious groups, the highest decline in poverty, H, has been for Muslims (11%), followed by 8.2% and 7.9% for Hindus and ORM, respectively. However, because of growth alone, these figures should have been 14.9%, 10.5% and 11.4%, respectively. But because of the unfavourable changes in the distribution, close to 4% for Muslims, 2.3% for Hindus and 3.6% for ORMs have been offset. Thus during the first period, the loss due to distribution has been high for STs, Muslims and others among the social groups. During 2004-10, the rural sector presents an interesting picture. In almost all the cases for the entire rural, all the social groups (STs, SCs and OTHERs) and Hindus and Muslims in religious groups the decline in poverty has been more than what could have been realised because of the growth effect. The decline in HCR by 13.7% for STs, 7.1 for SCs, 4.60 for others, 5.93 for Hindus and 5.86 for Muslims is higher than the decline expected because of growth. The distribution effect also contributed in reducing poverty albeit moderately (less than a per cent), except in the case of Muslims, where the contribution of distribution has been about 3.6%. In the urban sector, during 1993-2004, because of the growth effect, the HCR should have declined by about 11% for all the SRGs, but lost out by 4.3%. Because of distributional changes, Muslims lost out by 4.8%, Hindus by 4.1%, upper castes by 4.5%, STs by 2.8% and SCs by 2.2%. Though there are modest changes in the inequality measure, the Gini coefficient, during this period (Table 3), the changes in distribution seem to have played a role in decelerating reduction in poverty incidence in the period, 1993-2005. During 2004-10, the role of distribution is reversed. Because of growth, the overall decline in urban poverty should have been about 6.8%, but close to 1.9% were offset because of changes in distribution. Among the social groups, the highest reduction in poverty should have been for STs by over 12%, but more than half of it was offset because of worsening of the distribution among the ST households. The observed H is lower by about 1.8% for both SCs and upper castes among the social groups. Among the religious groups, Muslims had the highest H at 7.7% but because of growth alone, their poverty should have declined by about 9.9%. Among the large population groups, after STs, they have been the biggest loser in poverty reduction because of distributional changes. The Gini coefficient too grew during the second period by similar magnitude for all the SRGs, the effect of the rise in inequality on reduction of poverty seems to be different. In Tables 1 and 3 we report the summary measure of inequality, Gini coefficient, calculated for each SRG separately. It shows only marginal increases during the two sub-periods, the adverse effect of inequality do seem to have affected the potential of growth in reducing poverty during the first period where the increase in the Gini coefficient in both the rural and urban sectors has been relatively higher. It seems 50 the reason for inequality increase is because of increase in the MPCE in the higher income groups (Figures 1 and 2). During the second period, the increase in Gini coefficient is comparatively lower in both rural and urban areas. The higher MPCE classes have experienced higher growth (Figures 1 and 2), but other interventions (such as wage employment, wage level and food security measures) would have helped those around the poverty line to cross it with marginal gains in their expenditure in the rural areas (as distribution effect is con tributing in reducing poverty). In the urban areas the adverse effect of inequality appears to have moderated the distribution effect. 6 Discussion This paper assessed the changes in rural and urban poverty during the period 1994-2010 and the two sub-periods, 1994-2005 and 2005-10 the latter covering three years of the Eleventh Five-Year. We examined the changes in poverty at the aggregate level, among SCs, STs, OBCs, higher castes, Muslims and also economic groups to see whether there has been a positive income growth, particularly for the poor. We also examined whether the poor benefited more than others from income gains and in poverty reduction during 2005-10 (Eleventh Plan period) compared with 1994-2005. We observe that rural poverty declined during 1993-2010 by 2.5% annually with a major acceleration during the second period, from 2.2% during 1993-2005 to 4.4% during 2005-10. In general all SRGs and economic groups experienced faster decline in rural poverty during 2005-10. Thus, insofar as the rate of poverty decline is concerned, the growth in consumption expenditure has been more poverty reducing in the second period. However, there are variations across SRGs in poverty reduction. Some have gained more than others. If we were to take the recent trend during the second period 2005-10, the higher castes, the Muslims, other religious minorities and the STs have done better, but for the SCs poverty declined at relatively lower rates. The poverty of all economic groups also declined at a faster rate, but self-employed non-farm households saw a reduction in poverty at a much higher rate, compared with self-employed farmers, non-farm and farm wage labour. The self-employed owner engaged in non-farm production/ business activities thus benefited more than wage labour engaged in the same activities. Among farm wage labour, which is the poorest group, poverty reduced at the slowest rate. The performance of these households varies across SRG groups though. Among the self-employed non-farm households, which experienced a highest decline in incidence of poverty during the second period, the Muslims and STs did better than the higher castes and SCs. In the case of selfemployed farmers, again the STs, higher castes and Muslims did better while the SCs lagged far too behind. Similarly, in case of non-farm wage labour households, the Muslims, higher castes and STs have done better in reducing their poverty, the SCs have lagged behind. The farm wage labour showed less variation in the rate of poverty reduction. march 10, 2012 vol xlvii no 10 EPW Economic & Political Weekly

Thus, in the case of self-employed non-farm households, selfemployed farmers and non-farm wage labour households, the SCs have lagged behind in reducing poverty during 2005-10. Like in rural areas, poverty also declined at a higher rate during 2005-10, in the urban sector: the rate of decline accelerated from 1.9% in 1993-2005 to 3.9% per annum during 2005-10. All socio-religious and economic groups experienced the acceleration in poverty reduction during 2004-10. Across SRGs the rate of poverty reduction during this period varies in a narrow range of 3.1% to 3.9%. During 2005-10, among the three economic groups in the urban areas, poverty among the regular salaried households declined at a higher rate, followed by the self-employed and casual labourer. The regular salaried households belonging to the higher castes and Muslims performed much better. SCs did better but less than other two groups. In the case of STs, although poverty declined, the rate of reduction had decelerated in the second period. Among the self-employed households (SEH), the SCs, STs, and higher castes have improved the performance in poverty reduction in second period. The Muslims, however, gained less insofar as the SEH poverty reduction is concerned. The casual labour households (the most poor among the urban household) experienced a significant acceleration in poverty reduction in the second period, from 0.9% in 1993-2005 to 4.1% in 2005-10. All SRGs experienced an acceleration in poverty reduction during 2005-10, with the rate of reduction being relatively higher for the SCs, higher castes and STs, but low for the Muslims. Thus, in the urban areas, the Muslims did reasonably well in reducing poverty among the RWSE, but lag behind in the case of the self-employed households and CALA. The STs did better in reducing poverty in the case of CALA and SEMP categories but performed poorly in the case of RWSE. Among the SCs the performance in the second period has improved for the three household types. As we know, the rate of increase in consumption expenditure and its distribution jointly determine the outcome in poverty reduction. The decomposition exercise indicates that the growth in consumption expenditure was the main source of reduction in poverty but increasing inequalities have begun to affect poverty reduction in the 2000s. The consumption expenditure in rural area has increased at an annual rate of 1.7% during 2005-10, and at 3% in the urban areas. However, inequality in the distribution of MPCE also increased, the Gini ratio increased from 0.29 to 0.30 in the rural and 0.37 to 0.40 in the urban sector. Across SRGs in the rural area, MPCE increased at a faster rate for the STs, followed by the Muslims and the higher castes and at a lower rate for the SCs. The inequalities increased only marginally for the STs, but by a somewhat higher margin for the higher castes. The inequalities, however, remained stable for the SCs but declined for the Muslims. So the Muslims seem to have benefited both from higher increase in MPCE and reduced inequalities which resulted in greater reduction in poverty. In case of the STs, high decline in poverty appears to be mainly due to high growth, which also more than compensated the negative impact of increasing inequalities. In the case of the SCs, growth in consumption expenditure has been SPECIAL ARTICLE pro-poor, as Gini remained stable, but since the growth in MPCE itself is low, the poverty declined at relatively lower rate. The decomposition of changes in rural poverty into growth and distribution components indicate that in the second period 2005-10, the growth helped to reduce poverty, distribution effect also contributed in reducing poverty albeit moderately. This has been the case for most of the SRGs. In the urban areas on the other hand, rise in the inequalities offset poverty reducing impact of the high growth. While growth played a significant role in reducing poverty during 2005-10 in case of most of the social and religious groups, inequalities did offset the rate of poverty reduction, although differentially. Worsening of the distribution has affected the poverty reduction more in case of STs and Muslims compared with SCs and higher castes. Implications for Pro-Poor Growth Policy The approach paper for the Twelfth Plan lays emphasis on a high growth path regime but pledges that the growth needs to be inclusive and poverty reducing, particularly of the traditionally deprived groups, the SCs, STs, OBCs, minorities and wage labour and petty producers that are considered most vulnerable and poor. The changes in poverty and MPCE by SRGs and economic groups during 1994-2010 have implications for the pro-poor policy. There are implications for the rural farm sector. In 2009-10 close to 58% of the households in rural areas depended on agriculture, about 32% as self-employed farmers and 27% as farm wage labour. The growth in consumption expenditure of agricultural households during 2005-10 has helped to reduce poverty of poor farmers and farm wage labour. However, it has been less pro-poor in the case of SC farmers compared with their counterparts from other groups. This implies that the strategy with a focus on the poor small and marginal farmers will need strengthening. The SC farmers who have performed less than others during 2005-10 will need special attention in supply of inputs and sale of farm output as they face constraints in both the factor and product markets (Thorat, Mahamallick and Nidhi 2010; Thorat, Regina and Sirohi 2010). Poverty of farm wage labour also reduced at an accelerated rate. However, the incidence of poverty continued to be of a higher order, particularly among the ST and SC households. The pro-poor policy would demand that the poverty of the most poor, namely, farm wage labour, should decline at a much faster rate than other groups. Insofar as agricultural growth seems to be helping to reduce the poverty incidence of poor farmers and farm wage labour (wage employment programmes, and wage level may have also contributed to poverty reduction), greater investment in agricultural sector is much needed. Strengthening of wage employment programme is necessary to serve as supplementary to farm wage employment. However, the use of wage employment programme for improving the land and water resources on small farms, particularly the poor and among them the SCs and STs has great potential for small farm-based inclusive growth, the importance of which has not been sufficiently realised. We need a comprehensive Economic & Political Weekly EPW march 10, 2012 vol xlvii no 10 51