Liberalisation of rural poverty : the Indian experience

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