The 1990s: a lost decade?

By C. Rammanohar Reddy

The most important lesson that needs to be drawn from the poor record of the 1990s must be that more rapid growth by itself will not win the battle against poverty.

THE ARRIVAL of 2000 has been celebrated as if a new era of prosperity is now on us. To signal the event, a spate of mega mergers has taken place between firms, the stock markets have been booming and much ink is being spilt on toting up the personal (paper) wealth of the richest Indians. But there is an air of unreality to all this celebration. Sooner or later the real world of dust and grime will have to intrude on us.

If we really are on a new road to prosperity, then we should soon be seeing an acceleration in the pace of growth of the Indian economy. However, as if to remind us in the new year that faster growth by itself is not enough, news is also trickling in that the fruits of growth during the 1990s have not trickled down to the Indians at the bottom of the economic ladder.

It is self-evident that without more rapid economic growth, a dent cannot be made in unemployment and poverty. Indeed, this is now so obvious it is a wonder that so much time and energy was spent during the 1960s and the 1970s in arguing that the pace of economic growth did not really matter. Yet, the old orthodoxy has now been replaced by a new one which assumes that all that does matter is faster growth. It now looks like the new orthodoxy has its own defects. An increasing amount of evidence is now available that the positive impact that faster growth is expected to have on poverty did not take place during the 1990s.

Two questions about reforms have frequently been asked in both the public arena and the world of research. The first has been if the growth rate has accelerated after the reforms? The second has been about what reforms have done to the incidence of poverty in the towns and villages. These are not purely academic questions. After all, the ultimate test of the reforms must be in the success they have had in reducing poverty via an acceleration in the rate of growth. Until recently neither question could satisfactorily be answered. The official statistics were often delayed, they were frequently revised and a sufficiently long period of time had not passed to arrive at a complete answer to either question. But now we do have enough up to date information for a number of years to arrive at reasonably accurate answers.

First, it is now indisputable that the reform programme has led to an acceleration in GDP growth. A number of studies have shown that compared to the 1980s the economy has grown faster after 1991. For instance, the Reserve Bank of India in its ``Report on Currency and Finance 1998-99'', released last week, shows that while the Indian economy grew on the average by 5.8 per cent a year between 1980-81 and 1990-91 (the decade before reforms), it grew by 6.5 per cent a year between 1992-93 and 1997-98. Even if 1991-92, the crisis year when the reforms were launched and when growth was marginally negative, is counted as the first year of the post-reform era the picture should not change dramatically. And if the analysis were to include 1998-99, the latest year for which information is available, the gap between pre and post- reform growth rates will be wider.

All that is very well, but has this acceleration in growth benefited the majority of Indians? Specifically, has this more rapid growth pulled more people above the poverty line? For years, the answer has been an inconclusive one. The earlier data showed that the number of poor as a proportion of the population had hardly changed between 1987-88 and 1993-94. However, that did not say anything definite because information beyond the third year of reforms was not available. But the story that the latest data tells us should worry all of us. Drawing on the official National Sample Surveys, Dr. S. P. Gupta, Member of the Planning Commission, has made a number of estimates on the incidence of poverty up to 1997. The story of the failure of GDP growth can be summarised in just a few numbers. Dr. Gupta's estimates show that during the 1980s, the percentage of the people living below the poverty line fell substantially from 44 per cent (1983) to 35 per cent (1990-91). The absolute number of the poor too declined from 323 million to 291 million. But on a point-to-point comparison, the 1990s saw the opposite trend. The incidence of poverty rose from 35 per cent in 1990-91 to 37 per cent in 1997 and the number of poor Indians increased from 291 million to 349 million. In other words, even as growth picked up in the 1990s poverty in India worsened. Using the same NSS information, another researcher, Dr. Gaurav Dutt, comes to slightly less striking conclusions. But his estimates too show that the more rapid growth of the 1990s did not result in a reduction of poverty. If the poverty statistics are correct then it is a frightening realisation that the 1990s far from witnessing a dramatic transformation in the economy has been the Indian citizenry's `lost decade'. This is the message from a worsening of poverty alongside rising per capita incomes.

The first reaction will be to cast doubts on the reliability of these estimates. True, there always have been problems with the estimates of poverty - arising from shortcomings in both the definition and measurement of poverty in India. But none of the defects are likely to have caused the dramatic reversal in the pace of poverty reduction between the 1980s and the 1990s.

A number of trends and lessons can be drawn from the poverty statistics. First, one nagging doubt about post-reform growth is now confirmed. The more rapid rate of growth has been largely inegalitarian - the poor have not benefited. The results of reforms that are to be seen in the cities and towns appear to have largely benefited a minority of Indians. Second, the estimates show that rural poverty has worsened while urban poverty has either improved or at worst remained unchanged. This shows the cost of neglecting the rural sector - as has been the case throughout the 1990s. Third, while State-wise information is not available to come to a definite conclusion it does seem as if the increase in poverty has not taken place uniformly throughout the country. Circumstantial evidence indicates that the States which are traditionally home to a large number of poor (the central and eastern States, including U.P. and Bihar) have seen a further deterioration while the southern, western and northern States have recorded a substantial improvement in both economic growth and poverty alleviation. This would also explain why the media has not been able to notice the trends contained in the poverty statistics - with the hinterland of the 'backward' States being generally ignored by the media the worsening of rural poverty has gone unnoticed. It also means that there is a social and economic explosion waiting to happen in the poorer States.

However, the most important lesson that needs to be drawn from the poor record of the 1990s must be that more rapid growth by itself will not win the battle against poverty. It is obvious that without rapid economic growth neither the resources for anti-poverty programmes nor long- lasting employment can be generated. But the content of a faster pace of economic growth is just as important for reduction of poverty. The poverty trends of the 1990s do not make out a case for a return to the pre-reform economic policies. What they do seem to tell us is that we need to be more concerned about how to make economic policies more inclusive than they have been.

Throughout the 1990s, public policy was almost entirely concerned with how to accelerate economic growth, how to reduce the fiscal deficit, how to integrate India with the world economy, how to reduce subsidies and now with how to make India a superpower in information technology. It is now more than time to devote more attention to how to deliver the benefits of economic growth to those who need it the most.

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