Reforms, Inequality And Poverty – Saga Of Myths Over Facts

“Rich are getting richer and the poor are getting poorer ” – this very sentence and the sentiment behind it has been served to us Indians by all forms of mass media so consistently that it has seeped into our very subconscious and occupied a hallowed position beyond debate and reason. In the cinemas of 70’s and 80’s this imagination would very often define the foundation and framework of the script and its portrayal on the screen. This line of argument and narrative still continues to emanate across the spectrum – from a casual conversation, television debate to all the way upto Supreme Court judgments. Such statements target and pander to the innermost human emotions of sensitivity, kindness and empathy. As a result they have been subjected to very little scrutiny and anyone disagreeing with or refusing to submit to such beliefs has risked being labelled an anti-poor, anti-worker and other such titles.

After 1991 – when India liberalised parts of its economy at the brink of an economic collapse, this slogan underwent modifications and a new class of demons like neo-liberalism and corporates were added to the pre-exisitng ones like rich and upper-caste. But the central dogma of- “Rich are getting richer and the poor are getting poorer” remained intact. Thankfully, in the 21^st century discourse in India is far more difficult to control and determine unlike the bygone days, this is the era of challenge. This post would demonstrate how the two central premises of left-liberal criticism of the reforms, ie – a) Inequality has increased by leaps and bounds since reforms and b) Poor are getting poorer, are pure myths and plain lies. Recently published paper titled – “ Has Growth Been Socially Inclusive During 1993-94 to 2009-10” by Sukhdeo Thorat and Amaresh Dubey provides conclusive evidence in this regard. The best part is that this paper has been published by the Economic And Political Weekly ( EPW ) – no advocates of free markets or economic freedom !!

MYTHS :

Before getting into the findings of the paper let us very briefly revisit the kind of language used to present this dubious claim in the recent past. P.Sainath (whom this author respects, especially for his stories on Paid News) is one of the star peddler-cum-salesman of this “ Reform led to inequality” theory. Having personally witnessed his self-righteous speeches ( where he compares middle India with Nero’s guests ) and the effect of fabricated theories driven with eloquence on the brightest of the college students, there is no doubt in my mind that P.Sainath is the market leader in this segment. Recently he is reported to have said :

20 years of neo-liberal reforms has only seen inequality growing with the country boasting the fourth largest number of dollar millionaires in the whole world. India has more millionaires than Scandinavian and Nordic countries put together.

He outlined eight processes at work simultaneously in India as part of neoliberal policies of the Indian government, including the withdrawal of the state from the public sector, imposition of various user fees and burden of taxes on the people, huge cuts in life supports like food subsidies, unprecedented rise of corporate world, privatisation of everything, stunning rise of inequality, market fundamentalism and debt burden on the poor. ( emphasis mine)

The damage however hasn’t been limited to just a few oped’s and seminars, it is much more widespread than that. Just last year, in the case Nandini Sundar & Ors Vs State Of Chattisgarh related to appointment of Special Police Officers (SPO’s), the Supreme Court justices Shri Surinder Singh Nijjar and Shri Sudarshan Reddy put a stamp of approval on the same narrative and therby adding more credibility to it. The judgementwhile castigating the idea of economic growth and reforms said –

“The culture of unrestrained selfishness and greed spawned by modern neo-liberal economic ideology, and the false promises of ever increasing spirals of consumption leading to economic growth that will lift everyone, under-gird this socially, politically and economically unsustainable set of circumstances in vast tracts of India in general, and Chattisgarh in particular”

FACTS :

The bogey was “neo-liberalism” was brilliantly exposed by Shri Swaminathan Aiyar  immediately after a series of such judgements by the ho’ble Supreme Court. Let us now examine the hard data on poverty obtained from the thick sample surveys of NSSO from the years 1993-94 to 2009-10 ( NSSO does thick sample surveys once in 5 years and thin sample surveys annually ). This table below tabulates important paramerters like the rate of change of poverty, Monthly Per Capita Consumption Expenditure (MPCE) and most importantly the GINI coefficient – a measue of inequality with 0 indicating perfect equality and 1 indicating total inequality.

Let us look at two broad truths brought out here in the very first column. Firstly, we see that the number of poor rural Indian citizens ( according to planning commission standards ) has gone down annualy at an average rate of 1.5% since the inaugural economic reforms. Secondly and more importantly we see that the GINI coefficient has shown a very nominal and an almost negligible increase from 0.28 in 1993-94 to 0.30 in 2009-10. Is this the stunning increase in inequality Sainath writes and talks about ? The inequality in the urban areas has gone up from 0.34 in 1993-94 to 0.40 in 2009-10. But the annual rate of reduction of poverty at 2.4% has been more impressive in the urban areas too. Two things stand out – 1) India had inequality even before the refom process was started and 2) Increase in inequality in the last two decades hasn’t been anywhere close to what the left-liberal commentary paints it to be.

Now that the point on inequality is clarified, let us look at the claim about – “ Poor getting poorer”. Shown below are the plots of percentage of population spending a given amount of money at 1993-94 prices. Please observe the distinct rightward shift from 1993-94 to 2004-05 and 2009-10.

Clearly across all income groups people have done better for themselves. There is absolutely no evidence to suggest that the poor are getitng poorer. It is pure fiction. The paper presents another fascinating insight into the nature and the dynamics of poverty reduction in the last two decades in the following table. It dissects the effect of poverty reduction into two independent causes – growth and distribution effect. .

As we can see the distribution effect in the 1993-94 to 2004-05 time was skewed against poverty reduction whereas in the 2004-05 to 2009-10 timeframe is was in favour of poverty reduction (for category ALL, Rural). Having said that the larger and the more crucial thing to note is that in either cases it was a small fraction of the contribution made by growth. So another bogey of “ Growth being anti-poor” stands contradicted as well

The NSSO data can potentially reveal many more interesting dynamics in Indian economic and social spheres. I hope we will get to read enlightened commentary ( supported by research ) on this issue in the days to come. One cannot feel helpless to realise that the data for the year 2009-10 was released so late that it took two years for any meaningful juice to be extracted from it. I hope the Govt of India will invest in these institutions and ensure that the process runs more effectively in the days to come. A warning to those reading the paper by Thorat in EPW is please don’t allow the commentary on what is desirable growth or pro-poor growth to distract you from these essential facts. The tragedy of reforms in India is that no political party or an intellectual class has defended the principles behind these reforms as forcefully as it’s detractors have tried to put it down.