Corruption has declined since the 1991 reforms

Nov 30 2012, 06:23 IST
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SummaryDespite the perception of increased corruption, it was the 1991 reforms that significantly freed ordinary citizens and entrepreneurs from the humiliation of petty bribery. Similarly debunked are the myths that the reforms had no effect on poverty and increased inequality.

Myth 1: There has been no reduction in poverty as a result of post-1991 reforms

This myth challenges not only the link between reforms and growth but the link between growth and poverty, by asserting that poverty did not decline after the acceleration of growth subsequent to the post-1991 reforms. According to the Planning Commission data, at the traditional poverty line, the India-wide absolute number of poor was 323 million in 1983, 320 million in 1993-94 and 302 million in 2004-05. Presumably, therefore, the number of poor has at best declined marginally.

Once popularised by the World Bank, going by the absolute number of poor is nevertheless a flawed method of measuring the evolution of poverty in the face of a rising population. This approach to measuring poverty will in fact downplay the decline in poverty because it does not distinguish between the changes in the absolute and in the relative or proportionate number of poor. This biases the poverty measure towards exaggerating poverty. One might therefore conclude cynically that the biased measure was popular at the World Bank and diffused to the client nations, so as to increase the alarm over poverty, and bolster the critiques of a reforms-oriented developmental strategy.

Shifting, however, to the ‘proportionate’ measure of poverty, we get a more meaningful insight into what happened to it. According to Planning Commission estimates, the proportion of the population below the poverty line in India was 44.5% in 1983. Between 1983 and 2004-05, the population rose by 374 million to 1.1 billion. A reasonable assumption would be that, in the absence of an effective poverty alleviation strategy, the poor would have been 44.5% of the additional 374 million individuals. This assumption translates into the addition of 166.5 million to the existing population of the poor. Therefore, if the absolute number of poor were to remain unchanged at 323 million between 1983 and 2004-05, it would imply the exit of 166.5 million individuals from poverty. In reality, the number of poor in 2004-05 turned out to be 302 million, implying that India had successfully pulled as many as 187.5 million people out of poverty.

This substantial decline is properly captured by what economists call the ‘poverty ratio’, which fell to 27.5% in 2004-05 from 44.5% in 1983. This makes a mockery of the contention that the unchanged absolute number of poor people is equivalent to no

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