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MORE MARKETS, LESS GOVERNMENT
Table 1: Poverty In India
Population below Poverty Line (As per Expert Group Methodology) in India
Sector 1973-74 1977-78 1983 1978-88 1993-94 1999-2000
Population (Millions)
Rural 261.3 264.3 252 231.9 244 193.2
Urban 60 64.6 70.9 75.2 76.3 67
Total 321.3 328.9 322.9 307.1 320.3 260.2
Poverty Ratio (%)
Rural 56.4 53.1 45.7 39.1 37.3 27.1
Urban 49 45.2 40.8 38.2 32.4 23.6
Total 54.9 51.3 44.5 38.9 36 26.1
Source: Rural Development Statistics 2002-03, National Institute of Rural Development
A reflection of this higher growth rate other hand, share of services sector in GDP
also got reflected in terms of higher percapita
income and lower poverty numbers. 1950-51 to 55 percent during 2006-2007.
has increased from 29.80 percent during
Measured in constant US 2005 dollars India’s
per-capita GDP has increased from mained more or less constant at around 27
The share of manufacturing sector has re-
215 during 1975 to 293 during 1988 and further
to 546 during 2005. Like wise, the pov-
Now let us concentrate on the number of
percent during post reforms era.
erty number (measured in terms of head people who are earning their livelihood
count ratio) has fallen from 42 percent during
1987 to the present level of 26.1 percent. cent of the Indian population earns their
from these three sectors. Around, 58.6 per-
Measured by these numbers reforms have livelihood from agricultural and agricultural
related allied activities compared to
increased overall economic well-being.
So where lie the problem? How can we less than 10 percent of the population earning
their livelihood from organized services
explain this anomaly of a rise in social unrest?
The answer to this apparent puzzle lies sector (Table 4). What does it means? In
in examining impact of reforms on income simple words, if the national income is Rs
distribution. Reforms entail unequal payoff 100 then agricultural and allied activities
to economic agents. People with more skill are contributing 18.5 percent of the national
income, that is, Rs 18.5 compared to Rs
stand to gain more compared to people with
less skill sets (read, less productive people). 55 generated by the services sector. Income
And this has resulted in more skewed income
distribution (read, right skewed dentributing
Rs 18.5 to 58.6 people (employed
inequality becomes evident as it is like dissity
function) leading to social unrest. The in agricultural sector) compared to distributing
Rs 55 to less than 10 people (employed
following two boxes will help us to analyze
this scenario better.
in organized service sector) or 23 people
Looking at sectoral GDP share, we find (employed in both organized and unorganized
service sector). What is more worrying
that the share of agriculture has fallen from
56.90 percent during 1950-51 to 18.5 percent
during 2006-2007 (Table 2). On the more as going by the latest data
is that this inequality is going to increase
agricultural
sector is growing at an annual rate of 2.6
percent compared to services growing at
a rate of 11 percent. If the present trend
continues, then share of agriculture in national
income is to become a single digit
number within the next 15 years
– contributing more to inequality in
income distribution.
Table-2 complements Table-1 by throwing
some more additional information. The
share of income generated by the agricultural
sector is more volatile (measured by
the variance of the growth rates) compared
to manufacturing, services and overall GDP.
Uncertainties associated with income have
two specific outcomes: postponement of
investment decision and migration. As is
evident from Table-4 because of fluctuating
agricultural income level of investment
is also least in the agricultural sector. Postponement
of investment decisions have
bearing on future income and reduce future
expected earning from the sector. This is
one way to contribute to the burgeoning
disparity in earnings across sectors. There
is another way and that has to do with migration.
Uncertainty associated with volatile
income leads to migration. As ‘expected’
return in the urban sector (dominated by
the services sector) is higher than ‘actual’
return in the agricultural sector, migration
happens. However, many migrating labors
lack adequate skills for finding
meaningful employment in the services
sector. Consequently, these unemployed
people find add to a higher skewed
income distribution.
Now let us examine why are the workers
in the services sector, especially in the organized
services sector, like, banking, telecommunication,
teaching, medical, legal,
etc., are making so much money relative to
the agriculture workers. For that one has to
THE INDIA ECONOMY REVIEW
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