How is economic growth linked with poverty reduction in india

India embarked on big-bang economic reforms 25 years back in 1991. It is well-known that GDP growth has been much higher in the post-reform period. However, GDP is only one metric. Ultimately, the success of reforms depends on whether the well-being of people, particularly that of poor, increased over time. In this context, let’s examine the impact of economic reforms on poverty and inequality.

There are two conclusions on trends in poverty. The first one, shown in a World Bank study by Gaurav Datt and others, is that poverty declined by 1.36 percentage points per annum after 1991, compared to that of 0.44 percentage points per annum prior to 1991. Their study shows that among other things, urban growth is the most important contributor to the rapid reduction in poverty even though rural areas showed growth in the post-reform period.

The second conclusion is that in the post-reform period, poverty declined faster in the 2000s than in the 1990s. The official estimates based on Tendulkar committee’s poverty lines shows that poverty declined only 0.74 percentage points per annum during 1993-94 to 2004-05. But poverty declined by 2.2 percentage points per annum during 2004-05 to 2011-12. Around 138 million people were lifted above the poverty line during this period. This indicates the success of reforms in reducing poverty. The poverty of Scheduled Castes and Scheduled Tribes also declined faster in the 2000s. The Rangarajan committee report also showed faster reduction in poverty during 2009-10 to 2011-12. Higher economic growth, agriculture growth, rural non-farm employment, increase in real wages for rural labourers, employment in construction and programmes like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) contributed to higher poverty reduction in the 2000s compared to the 1990s.