India's reforms and setback

Dipak Basu, Professor, International Economics Nagasaki University, Japan, The Statesman, Asia News Network, Calcutta

The major argument in favor of economic reform was that the earlier planned development in India from 1951 to 1990 has restricted the growth of the economy. International financial institutions have long argued that a market economy will release the tiger caged by the restrictions of the planned regime. The "economic reform" program was started in 1991 with a lot of expectations but after ten years, the Indian economy is in a worse condition.

Economic reforms have contributed to increased poverty and economic inequality. According to the National Sample Survey (NSS) in 1983, while 45.6 percent of the rural population was below the poverty line, the incidence of poverty in urban areas was around 40.8 percent. Hence, the overall incidence of poverty for the country as a whole was 44.5 percent in the rural areas and to 35.3 percent in the urban areas.

Taking the two sectors together the incidence of poverty was 35.1 percent. This implies that during the 1980s, the increase in growth rate coupled with the poverty alleviation programs led to a significant decline in the spread of poverty. This trend was, however, reversed during the 1990s and the liberalization decade witnessed a steep rise in the incidence of poverty particularly in the rural sector.

The rise in the overall poverty ratio during the post-reform period in spite of the higher gross domestic product growth is to be attributed to the growing rural-urban divide. The NSS data for 1997 (January to December) reveals that India's rural poverty ratio has gone up by 3.42 percent between 1991 and 1997 even as urban poverty ration declined marginally by 1.32 percent.

Measured in terms of monthly per capita expenditure, the poverty ratio was estimated at 33.97 percent in the urban areas in 1997 against 35.29 percent at the beginning of 1991. On the other hand, the proportion of rural population in the poverty bracket had risen over the same period to 38.6 percent from 35.04 percent.

The NSS data for 1998 shows a widening of disparity between rural and urban expenditure at both current and constant prices. In absolute terms, the average per capita expenditure at current prices rose from Rupees (Rs) 244 in 1991 to Rs 382 in 1998 in rural areas and from Rs 370 to Rs 648 in urban areas. At constant prices, the expenditure actually declined from Rs 164 in 1991 to Rs 153 in 1998 in rural areas and rose from Rs 257 to Rs 269 in urban areas.

Supported by the World Bank, the government has introduced a new method to calculate the poverty rate so as to hide the facts and propagate a massive reduction of the poverty rate which, given the increasing rate of unemployment, cannot be supported by facts.

The methodology for collecting data on consumption expenditure was changed by the NSS and the government got the estimates of the poverty, which were not comparable with earlier estimates. One of the major flaws is to assume that the rate of poverty in the villages around an urban center is the same as the city itself.

The NSS data for 1999-2000 reveals that the rate of growth of total employment fell sharply from 2.04 percent per year during 1983-1994 to 1993-1994 to only 0.80 percent per year in the 1993- 94 to 1999-2000 period.

On the other hand, labor force has grown at a rate of 2.0 percent per annum during the same period. How poverty can go down when unemployment is increasing only the World Bank and the Indian government can answer.

However, since these biased estimates of poverty based on NSS data showed lower incidence of poverty, the government propagated the lie that the incidence of poverty declined during the decade of economic reforms. This approach of manipulating the methodology to prove the point that the liberalization measures have brought down the incidence of poverty is highly unethical.

As a result of the 1990s reform measures, income inequalities have increased. In 1992, the lowest 40 percent households had accounted for 20.6 percent of the national household expenditure.

Their share declined to 19.7 percent in 1997, In contrast, the share of the top 10 percent households in the national household expenditure rose from 28.4 percent to 33.5 percent over the same period. This accentuation of income inequalities may be attributed to the reform measures which denied employment opportunities to the common people but enriched business community.

The government in a way has rendered the Public Distribution System (PDS) irrelevant. People have been divided into two categories -- those below the poverty line (BPL) and those above the poverty line (APL). A large number of people above the poverty line are really poor but the issue prices of food grain, which have been fixed for them under the PDS, are either equal to the prices prevailing in the market or even higher than these.

For the BPL people, the issue price of wheat has been raised from Rs 250 per quintal in 1997-1998 to Rs 450 per quintal in 2000-2001. Likewise, the issue price of rice has been raised from Rs 350 per quintal to Rs 565 per quintal.

At these increased issue prices of food grain, most of the rural poor now find it difficult to purchase their monthly quota of ration. The poor subsidy has been drastically reduced and the results are there for everyone to see. Presently 63 million tons of food grain are lying in the warehouses of the Food Corporation of India and yet the people are dying of starvation in the rural areas.

Two major factors are responsible for the decline of agriculture in this country. First, in its eagerness to reduce fiscal deficit, the government has substantially reduced the development expenditure on agriculture. Secondly, import liberalization has contributed in a big way to reduction in the prices of agricultural products.

Having failed to get remunerative prices for their products, many farmers have curtailed their farm operation, which in turn have increased unemployment.

Import liberalization is thus a major cause of the existing plight of the peasantry. Suicides by many farmers in the recent past reflect the consequences of the liberalization measures.