Liberalisation of rural poverty : the Indian experience

Abstract

A price rise signifies a fall in purchasing power, if there is no
\ncommensurate increase in income. Thus the pertinent question in the
\nface of the phenomenal rise during the 1990s in the prices of the food
\narticles, which account for a major chunk of the total expenditure of the
\npoor, is whether there has been a corresponding increase in the incomes
\nof the poor. The present paper is a modest attempt at analysing the answer
\nto this question. Our focus is on the agricultural workers, for whom
\nwages constitute the principal source of income and the important channel
\naffecting poverty. There is evidence that rural poverty at the all-India
\nlevel and across several States increased significantly especially during
\nthe first 18 months of the reform period. It is argued that the phenomenal
\nadministered price inflation of food articles, thanks to liberalisation
\nmeasures, has had much to do with this situation. We show that the subsidy
\ncuts and the consequent price rises, unless followed by compensating
\nmeasures, will perforce reduce the consumption level of the vulnerable
\ngroup of the population; in fact, subsidy cut is found to entail higher
\ncosts in compensation to keep their consumption at least at the same
\nlevel. Moreover, expressing the consumption changes of the poor in terms
\nof the relative compensation for the rich, we find from empirical facts
\nthat the poor are left as a losing lot. We also estimate State-specific rural
\npoverty line wage rates for the 1990s and find that by 1998-99, only
\nthree States in India, Kerala, Haryana and Himachal Pradesh, had a
\nsufficient real income, that is, a nominal wage rate higher than the rural
\npoverty line wage rate; the agricultural wage rates in all other 13 States
\ncould not catch up with even the minimum possible poverty line wage
\nrate
\nJEL Classification: C60, D10, D63, H20, I32, J31.
\nKey words: Liberalisation, agricultural labourers, rural poverty, wages,
\ninflation, subsidy, India.