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Q. Economic reforms and impacts: Discuss impact of economic reforms on poverty and inequality.
Jun 17, 2017 Related to : GS Paper- 3

Ans :

Introduction-

India has marked 25 years of liberalisation and brought various changes in economic era in this period. The economic reforms kick-started in 1991 brought about expansion of the services sector helped largely by a liberalised investment and trade regime. They also increased consumer choices and reduced poverty considerably.

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. 

Impact of economic reforms on poverty-

  • According to World Bank study the poverty declined by 1.36% points per annum after 1991, compared to that of 0.44% points per annum prior to 1991.
  • The World Bank 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 official estimates based on Tendulkar committee’s poverty lines shows that poverty declined only 0.74% points per annum during 1993-94 to 2004-05 and it declined by 2.2% points per annum during 2004-05 to 2011-12.
  • Overall about 138 million people were lifted above the poverty line during post reforms period. This indicates that economic reforms have significantly reducing poverty.

Impact of economic reforms on poverty-

  • The Gini coefficient, index for inequality measured in terms of consumption for rural India increased marginally from 0.29 in 1993-94 to 0.31 in 2011-12. There was a significant rise in the Gini coefficient for urban areas from 0.34 to 0.39 during the same period.
  • As per income data from the National Council of Applied Economic Research’s India Human Development Survey, the Gini coefficient in income (rural+urban) was 0.52 in 2004-05 and increased to 0.55 in 2011-12.
  • Similarly if we consider non-income indicators like health and education, inequalities between the poor and rich are much higher. The above data reveals that inequality is much higher in India and it is increased considerably in post reforms period. 

Suggestions-

  • The government must continue must continue to follow the two-fold strategy of achieving high economic growth and direct measures through social protection programmes. 
  • Creating productive employment and providing quality education plays measure role in reduction of poverty and inequality. Hence policymaker needs to focus on these areas more effectively.
  • The poor governance is the biggest constraint in achieving the desired goals, hence future economic reforms should focus on efficient delivery systems of public services.

Conclusion-

Post reforms period poverty declined considerably but inequality increased to some extent. India still has 300 million people below the poverty line. Hence India needs effective policy mechanism to reduce the poverty and inequality. In this context, the Make in India initiative, focus on start-ups, Mudra, financial inclusion, etc. are steps in the right direction.


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