Title: Has economic
reform bypassed the poor?
Author: Swaminathan
S. Anklesaria Aiyar
Publication: The Sunday
Times of India
Date: April 23, 2000
Has economic liberalisation
failed to reduce poverty? Data from the National Sample Survey (NSS) of
households suggest that the proportion of people below the poverty line
has remained more or less unchanged around 36 per cent in the 1990s. So
several critics have jumped to the conclusion that liberalisation and fast
growth have bypassed the poor.
In fact, the data are
even more dramatic; they show that liberalisation has bypassed the middle
class, the rich and everybody else! They suggest that consumption levels
in all groups have improved very little, so inequalities remain more or
less unchanged.
Now, had the NSS shown
that the rich were appropriating the lion's share of rapid economic growth
in the 1990s, that might have sounded plausible. In fact, the data suggest
stagnation without rising inequality. They suggest that the rich have stagnated
along with the poor in the 1990s. Not believable, I'm afraid.
The national income figures
of the Central Statistical Organisation (CSO) tell a totally different
story. They show record economic growth of over 6 per cent annually since
1992. This leaves readers with two choices. You can believe the NSS story
of economic stagnation for all groups. Or you can believe the CSO's story
of rapid growth, and throw all NSS conclusions (including those on poverty)
in the dust bin.
I simply do not believe
that consumption has stagnated in the 1990s. If so, how come the purchase
of cars has shot up from 100,000 to 600,000 per year? How come the purchase
of TV sets has more than doubled from 4 million to 9 million sets per year?
How come Hindustan Lever, Nestle, Proctor and Gamble and all companies
making fast-moving consumer goods have enjoyed record sales and profits
in the 1990s? They all say the rural market is booming, while the NSS claims
stagnation.
Some leftists believe
what the NSS says about the poor while disbelieving what is says about
the rich. They argue that the rich want to hide their black money and so
understate their consumption to surveyors. Very true. But for similar reasons
the rich would have understated their consumption in the 1980s too. So
the reported consumption of the rich should have increased in the 1990s
unless the extent of their understatement increased this decade. That seems
implausible: Income tax rates fell steeply in the 1990s and the havala
exchange rate crashed, so the incentive to hide consumption diminished
greatly
The NSS and CSO use different
methods of data collection, so differences in figures are to be expected.
But if methodology alone
was the issue, the difference should have remained unchanged over time.
In fact it is raising fast. Back in 1971, NSS data on consumption amounted
to 76 per cent of CSO estimates. The proportion is now down to 65 per cent.
This explains why one source claims an economic boom while the other claims
stagnation.
Consider cereal consumption.
CSO data show that per capita availability (production plus net imports)
has increased from around 150 kilos per year to 170 kilos. But NSS data
show this falling from around 164 kilos to 145 kilos per capita in the
same period. Here again, I find the CSO data more credible. I think it
ridiculous to imply, as the NSS data do, that that the green revolution
has meant less grain per person.
What do other sources
say about poverty trends? We have data on wage rates for unskilled agricultural
workers, adjusted for inflation. These rose sharply by an average of 4.6
per cent annually in the 1980s, one reason for the big drop in poverty
that decade. They continued rising in the 1990s, though at a more modest
average pace of 2.4 per cent annually. That is not consistent with stagnation
in poverty. It could, however, mean a slower rate of poverty reduction.
Poverty depends on the
casual wage rate and number of days worked.
Typically, the wage rate
rises when the total amount of work increases. If both wages and the number
of days worked have risen, then surely poverty should have fallen.
Finally, the NCAER also
conducts household surveys, using a low-income yardstick that differs somewhat
from the govermnent's. The NCAER finds that the proportion of low-income
households in rural areas declined substantially from 58.8 per cent in
1988-89 to 48.9 per cent in 1995. It also shows increased ownership of
consumer durables in every income group. This supports the CSO story and
contradicts the NSS version.
Statisticians have long
debated how to tackle differences between CSO and NSS figures. NSS data
are based on relatively small samples, sometimes very thin samples. They
show huge year-to-year variations, far more so than CSO data. So for many
decades the government adjusted NSS data to be consistent with CSO estimates.
Critics complained that
this was wrong. Some pointed out that there was little difference between
NSS and CSO estimates of goods typically consumed by the poor, so the NSS
data should not be adjusted for the purpose of estimating poverty. This
was strongly recommended by the Lakdawala Committee, and accepted by the
government in the 1990s.
This decision now looks
like a mistake. The difference between NSS and CSO estimates of cereals
is now so huge that it is absurd to assert that NSS data are plausible
in regard to goods consumed by the poor.
We must overhaul our
statistical systems to generate more credible data. Till then, there is
a strong case for returning to the methodology of past decades. With all
its flaws, it looks a bit more credible.
That old methodology
suggests that poverty has decreased in the 1990s, though more slowly than
in the 1980s. This is consistent with trends in agricultural wages, and
so seems plausible.
Why has poverty alleviation,
slowed down despite faster economic growth in the 1990s? Look out for the
answers in next week's column.
