Rural poverty and agricultural performance in India

World Bank Reprint Series: Number Sixty Montek Ahluwalia Rural Poverty and Agricultural Performance in India Reprinted from The Journal of Development Stuidies (1977)  The most recent editions of Catalog of Publications, describing the full range of World Bank publications, and World Bank Research Program, describing each of the continuing research programs of the Bank, are available without charge from: The World Bank, Publications Unit, 1818 H Street, N.W., Washington, D.C. 20433 U.S.A. WORLD BANK BOOKS ABOUT DEVELOPMENT (FOR SALE BY THE PUBLISHER INDICATED) Research Publications International Comparisons of Real Product and Puirchiasinig Powerby Irving B. Kravis, Alan Heston, and Robert Summers, published by The Johns Hopkins University Press, 1978 Experiments in Family Planniinlg: Lessons from the Developing World by Roberto Cuca and Catherine S. 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Kravis, Zoltan Kenessey, Alan Heston, and Robert Summers, published by The Johns Hopkins University Press, 1975 (contiriued on inside back cover)  Rural Poverty and Agricultural Performance in India hbi Montek S. Ahluw-aliO* Thlis paper exunhilnes time series evidence on ruratlpovertl over the past twvo dl'dL'.s. The time sries showrs that the incidence of poverty, fluctuates in re.pon.s' to variations. in real agriicultural olutput per headi, but there is nzo significant time trend. Thlere is a statisticallyt signifi cant in verse ,ela i ioai.'iip between rural poverty* and agricultural per fan nan ce Jbr India as a whole, suggesting that a-griculltral growvth by itself tends to reduce the incidence of poverty. The analivsis for individual states presents a somewhat different picture. The in verse relationisliip between output per head and ruralpovertv is observed in several states but thlere is also evidence that there are processes at wvork which te;id to inierease the incdidene of poverty, independenithi o 'variations in agricultural output per head. 1. INTRODUCTION Recent years have seen the developnment of an extensive and disqluieting literature on trends in rural poverty in India and their relationship to agricultural growth. A recurring theme in much of this literature is that agricultural growth has been accompanied by a steady deterioration in distributional terms, involving not onlv an increase in relative inequality but also an increase in absolute impoxelrishmenit. Indeed, it is argued that these trends are the natural consequence of the type of agricultural growth which can be expected ;within the existing institutional structure in Indian agriculture.' This latter proposition has important implications for policy. It raises doubts about the scope for achieving even the fairly minimal welfare objective of alle-iating absolute poverty in the future, at least through the kind of agricultural development that is currently deemed feasible, i.e., growth without radical institutional change. The object of this paper is to evaluate the empirical basis for this assessment of past trends and future prospects. The principal sources of data for our study are the various consumption surveys conducted by the National Sample Survey (NSS) which report the distribution of the population across per capita expenditure classes. These surveys have been used in several existing studies on rural poverty but these studies typically have not made full use of the available information. Some of them, for example, Rajaraman [1975] and Lal[1976], relyuponcoinparisons between two arbitrarily chosen points in time. Bardhan [1971] reports four *The author is Chief of the Income Distribution Division of the World Bank's Develonment Research Center. The opinions expressed in this paper are those of the author andnotof theWorld Bank. Iam indebted to Shail Jamnrorcompuier programming assistance and to P. Bardhan, B. S. Mlinhas, M. Lipton. T. N. Srinivasan, 0. Yenal, S. Kuznets and A. Vaidyanathan for many helpful comments.  RURAL POVERTY AND AGRICULTURAL PERFORMlANCE IN INDIA 299 observations for India as a wihle between 1960-1 and 1968-9 but only two for the individual states. An . ;ry study by Minhas [1970] was based on data for seven years, but his time series extends only up to 1967-8.2 In this paper we will expand the data base cover NSS data for 14 different years spanning the period 1956-7 to 1973-4. This expanded data set provides the basis for a systematic time series analysis of trends in ruiral poverty for India as a whole as well as for individual states. Throughout this paper, our concern is principally with the extent of absolute poverty in rural India, defined with respect to a fixed poverty line in terms of real per capita consumption. We have attempted, first, to document changes in incidence of poverty over time, and second, to relate these changes to some measures of agricultural performance, The analysis is based on two alternative measures of the extent or incidence of absolute poverty. The first measure is the percentage of the rural population below the fixed poverty line. The second measure is Sen's Poverty Index, which takes account not only of the percentage of the population in poverty but also of the gap between the poverty line and the mean consumption of the poor, as well as the extent of inequality amongst the poor. While the bulk of the debate has been conducted in terms of the percentage measure, the Sen Index has obvious advantages in measuring the true intensity of the poverty problem.3 The paper is organised as follows. Section II deals briefly with the construction of poverty lines in terms of per capita current expenditure. Section III presents our results on trends in the incidence of rural poverty over the period 1956-7 to 1973-4 for India as a whole as well as for the individual states. Section IV attempts to relate observed changes in poverty to agricultural performance. A summary view of the evidence on changes in rural poverty and factors affecting these changes is presented in Section V. II. THE POVERTY LINE IN CURRENT PRICES The first step in our analysis is the definition of an appropriate poverty line for measuring absolute poverty, A fundamental limitation of this approach is that any such line is necessarily arbitrary. In this paper we finesse the problem by choosing our poverty line primarily to conform to past practice, without attempting to justify it as measuring some objectively defeiisible minimum standard. Accordingly, the poverty line used throughout this paper is a consumer expenditure level of Rs. 15 per person for 30 days at 1960-1 rural prices. This line has a well-established pedigree in the Indian literature, As shown by Bardhan [1971], an expenditure level of Rs. 15 in 1960-1 at rural prices roughly corresponds to Rs. 20 per person at all-India 1960-1 prices, which is the minim um level originally adopted by the Pianning Commission in 1962.4 Dandekar and Rath [1971] also adopted this line on the grounds that it corresponded to the expenditure level at which food consumption (on average) provided the 'norm' of 2250 calories per day. However, it is important to emphasise that attempts to interpret this line as guaranteeinig a nutritional minimuLm could be seriously misleading.5 Suffice to say that this level of expenditure represents an extremely low level of living and one that has been widely accepted as a 'minimum level' in the policy debate.  TABLE I Rt'RAl. POVERTY LINFS; CONSUMPTION PER PERSON FOR 30 DAYS (RS. IN (C'RRENT PRI('CE.S) 1956-57 1957-58 195'-6(J 1960-61 1961-62 1963-64 1964-65 1965-66 1966-67 Jti - I'S 1968-69 19 t- 1973-74 Andhra Pradesh 141 141 154 1 5-5 15-7 16i2 194 21-2 24.3 25-O 25.9 37-5 Assam 1sf) 17(0 15-8 163 161 18-4 214 23-6 310 35-7 33-9 x 42-9 Bihar 15-6 17-1 16-1 1> 163 18-6 23-7 28-3 36-2 39's 29-5 32-5 53-2 Gujarat 16-5 165 158 16X8 171 17-8 22-3 22-9 257 26-9 26-9 29-1 41-3 Karnataka 13-9 139 15-4 15-6 156 17-1 22-8 26-7 27-9 29-2 284 29-3. 42-9 Kerala 15-9 15-2 16-3 161 17-1 17-6 21-3 24-2 25-9 27-7 31-4 34-5 44.4 N1adhNj Pradesh 142 14-8 14-2 141 14-5 16-8 19-6 22-0 28'5 30-9 27-5 27-9 43-6 Maharashtra 157 158 16-5 16( 15.? 17-7 24-2 25-4 28-0 29-3 28-3 30(7 44-2 Orissa 13-8 14(1 144 14-5 14X8 19() 20-7 23-5 27-7 3(1-3 31-6 31-7 40-9 Punjab & Harvana 15-7 16-0 164 15-9 16-S 18-2 22-1 21-9 27? 30-7 3(0- 30-8 43-4 Rai,isthin 14-1 13-5 14-7 13-8 152 19-4 20-6 24-6 25-4 26-8 '5-4 41-7 Tamil Nadu 16-1 16-1 17 - 16-4 18-5 198 22-6 23-5 28-7 28-2 29-0 28-5 39-7 Uttar Pradesh 14-6 15-6 14-9 14-5 15-2 19-3 23-8 23-9 30-6 34-2 26-0 26-5 43-9 West Bengal 18-1 19-5 19-9 18-I 19-0 24-0 -6 25-3 30-2 43-6 36-0 37-3 50-0 ALL INDIA 14-6 15-1 153 15-0 15I-5 17- 21-3 23-3 28-5 30-9 27-8 28-8 42-9 Sources: The Consumer Price Indices for A gricu I tu r I Labourers used in prepLi ri n r hibi table relate to the agricultural year July-June and are taken from : the Indian Labour Journal. This source does not report estimates for some of the states (Tamil Nadu. Uttar Pradesh and RPjaNch I n) for years z preceding 1964-5. For these states we have used estimates prepared bv Jwoe [/9-4j supplemented by Lal [197T]. Price indices for 1957-8 were H obtained b- ,i%eraging calendair )eyir- 1957 and 1958 from the Intilitt Labour Journal except in the case ofGuaraLt. Maharashtra, Tamil Nadu. and Uttar Prides,h. "here we use averages of 1956 -7 and 1958 -9 as reported by Lal [1976]. i-i  RURAL POVERTY AND AGRICULTURAL PERFORMIANCE IN INDIA 301 Since commodity prices vary significantly across states, the same real consumption level requires different levels of consumer expenditure across states. Bardhan [1971] estimated the level of consumption expenditure for each state in 1960-1, which is equivalent to consumption expenditure of Rs. 15 at all-India rural prices. We have adopted these estimates as our base year estimates of the poverty line in each state. The second step in our analysis is the definition of equivalent poverty lines for different years in terms of consumer expenditure in the current prices for each year. This requires identification of a suitable price index for the rural poor. Price indices for the 'average' consumer are clearly not suitable since the poor spend a much greater proportion of their budget on items whose prices displayed very high inflation rates in the 'sixties (e.g. food and especially coarse grains).6 In the absence of price indices specially designed for the rural poor. we have followed Bardhan [1971] in using the Consumer Price Indices for Agricultural Labourers (CPIAL), prepared by the Labour Bureau, as the most appropriate for our purpose. These indices are available for India as a whole and separately for each state. Applying the CPIAL to the base year estimates of the poverty line in terms of consumption expenditure per person in 1960-1 prices, we can calculate equivalent poverty lines for each of the years for which NSS consumption distributions are available. The resulting estimates of the poverty line for each state, and for India as a whole, for fourteen years spanning the period from the late 'fifties to the early 'seventies, are shown in Table 1. These estimates are obviously subject to all the limitations arising from the use of the CPIAL as the price index. Ideally, we should use separate price indices for different groups comprising the poor, especially distinguishing landless l-bourers relying on wage income from subsistence farmers who rely upon own consumption.,8 More seriously, it can be argued that the very approach of using a base weighted price index is flawed since it cannot reflect the impact of changing relative prices upon the commoditN conmposition of consumption,9 In defence of our estimates we can only state that they are certainly in line with past practice, and are probably the best estimates possible given available data. III. TRENDS IN RURAL POVERTY 1956-7 TO 1973-4 The poverty lines presented in Table 1 have been used in conjunction with the NSS consumption distributions to estimate our two alternative poverty measures: the percentage of the rural population below the poverty line and the Sen Poverty Index. These estimates are obtained from a two-stage procedure. First, we estimate the Lorenz curve of the consumiiption distribution for each year using the method of Kakwani and Podder [1976]. The estimated parameters of the Lorenz curves are then used to obtain point estimates of the two poverty measures."' This procedure has been used to estimate the incidence of poverty over time for rural India as a wvhole as well as for each state separately, (a) All-India Results Our estimates of the two poverty mneasures for rural India as a whole are presented in Table 2. The NSS data permit two different estimates of the  TABLE 2 NSS BASE)F S I If AlII S 0)F Rl.RAI POVL:RTY IN INNDIA Penrc entage of' Rutra*l Povety Si ze ot Pol'e'lrty- Population Populationll il Povl-ilu 1(1ujlrnx Derived from Derived froml Ehslinuet I Eiv)tiniate /I Etinimte I Evtinote II 1956- 7 541 n.a. 0-23 181-0 n.a. (Sub-sample 1) (53-5) (0-22) (Sub--,ample 2) (54-7) (0-24) 1957 8 50-2 53*4 0-22 171-0 182-0 (Sub-s;ample 1) (48-6) (021) (Sub-N.ample 2) (51-7) (0-)3) 1;58 9 46-5 n.a. 0.19 162-0 n.a. (Sub-sample 1) (47-9) (0-20) (Sub-sample 2) (44-9) (0.19) 199 6Hi 444 48-7 0-17 158-() 1730 (Sub-sample 1) (463) (0I18) (Sub-sample 2) (42-5) (0-16) 1960- 1 38-9 42-0 0(14 141.0 152-0 iSub-sdirple I) (384) (((14! (Sub-samIlple 2) (39-3) (0-15) 1961 2 39-4 42-3 0-14 .46-0 157-0 (Sub-sample 1? (41-5) (015) (Sub-sample 2) (39-8) (0-14) (Sub--Jniple 3) (36-9) (0-13) 1963 4 445 49-1 0-16 1710 189.(0 (Sub-sample 1) (460) (0-17) (Sub-sample 2) (45-7) (0-17) 1964 5 46-8 50-4 O. (X8410 198-C0 (Sub-sample 1) (46-8) (0-18) (Sub-sample 2) (468) (0 17) 7 1965 6 539 511 0)21 216-0 205-0 z (Sub-samiple 1) (54-7) (0-22) (Sub-sample 2) (53-0) (0-21) 1966 -7 56-6 57-4 (0-24 231() 235-0 1967- 8 56-5 57-9 0-24 235-0 241-0 1968 9 51-0 53-S 0-20 2 17-0 227-0 1970- 1 47-5 49-1 (.18 210-0 217-0 1973-4 46-1 47-6 0-17 214-0 21-0 *As explained in note 3, this index ranges from 0 to I1  RURAL POVFRTY AND AGRICIULTURAL PERFORMANCE IN INDIA 303 percentage of the rural population in poverty in India as a whole. Estimate I is obtained by applying the all-India poverty line for various years (see Table 1) to the NSS consumption distribution for rural India. Estimate II is obtained as a weighted sum of the estimated percentages in poverty in individual states, obtained from the NSS distributions for individual states and the state specific poverty line. As there were substantial interstate differences in prices in the base year, and furthermore, inflation occurred at different rates across states, it can be argued that Estimate II, which is based on state specific poverty lines, is a better estimate of the percentage of the rural population in poverty. The most important feature of the results presented in Table 2 is the marked fluctuation over time in the extent or incidence of rural poverty. The percentage in poverty declines initially from over 50 per cent in the mid-'fifties to around 40 per cent in 1960-61, rises sharply through the mid- 'sixties, reaching a peak in 1967-8, and then declines again, The Sen Index also displays the same pattern. Since this index reflects not only the percentage below the poverty line, but also the average shortfall of this group from the poverty line, it is reasonable to conclude from the range of variation in this index that we are measuring substantial fluctuations in the intensity of poverty and not merely nmaiaginal shifts of large numbers from a position slightly above the poverty line to a positiorn slightly below. It is important to determine whether the observed fluctuations arise solely from the samlpling variation over time in our estimates, or whether they reflect genuine chantges in the incidence of poverty arising from underlying economic factors. Fortunately, NSS surveys are conducted on the basis of interpenetrating sub-samples and differences between estimates of the incidence of poverty based on different sub-samples for the same year provide an indication of the range of variation in sample estimates. Separate tabulations of the data by sub-sample are available for the earlier years (up to 1965-6) and have been used to obtain sub-sample estimates of each of our poverty measures for India as a whole (see figures in parentheses in Table 2). The range of variation between sub-sample estimates for the same year is clearly much smaller than the variations observed over time. This suggests that the measured fluctuation in the incidence of poverty reflects real changes in the severity of the poverty problem over time. The existence of fluctuations over time implies that we cannot generalise about uinderlying trends on the basis of comparisons between selected endpoints. For example, Bardhan [1971] reported a sharp increase in the incidence of rural poverty between 1960-1 and 1968-9 while Lal[1976] has argued that the incidence of rural poverty declined between 1 956--7 and 1970-1.11 Our estiimates for these years (derived by a different estimation method) confirmni the direction of change between these particular endpoints as reported in each study, but they also point to the danger of using such comparisons for any assessment of underlying trends. This can onlv be done on the basis of the time series as a whole. A linear time trend fitted to each of ourtwo estimates ofthepercentage in poverty and our estimates of the Sen Index yields the following results (terms in parentheses are t ratios).  304 JOURNAL. 0[ DEVLL()PNI'IFNT S1T'l)I[ S Estimiate I 46&56 + 021 1 T RI = 004 (15 25) (0(67) Estimate 11 = 47 74 + 0(262 T R2 = 0 06 (14 10) (0'81) Sen Index = (191 + 0(0001 T R =000 (10 (06) (0(04) These results provide no e. idenice for asserting a trend increise or decrease in rural poverty over the period as a whole. The increiasin[g incidenlce of poverty over the 'sixties repor-ted by Bardhan appears as an uipswing in a pattern of cyclical x ariation. We note that our conicilision also differs from M,Tinhias [1970]. whoi reported a decline in the percentage of the rural populaLtion in po\ ert\ over thc period 1956 7 to 1967 8. This difference is due to identifiable differences on some kev issues in estimating rural poverty. 12 The absence of any discernible trend in the incidence of poverty bcahiousLe impilies an increase in the absolute number-s of people in povert; beca .e of the arowth in rural popLIaItion over the period. The .ibsollite size of the poor population also flLctuates ovcr tlhe period, as shio-wrn in Table 2, but in this case, fittine a time trend to each estinmate (Pl and P. re.pepctivel) yields the tolltm in- results: P1 = 15(136 + 4'546 R2 = 0.54 (11 74) (3'76) PI = 153-99 + 4855 T R2 = 060 .( I 1(.6) (3 84) In otlier words, the aibsoluite iiiiniber of the rutral poor has grown sionifilcantl oxer time, increarsing on average by ahbout five million every year. (b) Relts dyfi In- huividhl .Stat's Our estimiates of the twvo po%erty measures for individual states are r eporited in Tables 3(a) and 3(b) respectively. In general, the time pattern of the incidence of poverty in individual statles follo%'.s the pattern of fluctuIation described for) India as a whole. The inicidence of poverty for almnl(ost all states, using either of lhe two poverty mlealsuil-es, declinies up to the earl\ 'sixties and thien begins to rise again,. rcaching a peak in 1967- 8 or 1968 69, and (declininiig again thercafter. Ontce aiain, \\c hiive tested for the existence of an underlying tr-eni(d by fitting a linear time trenid to eaclh of oLr poverty 1neIsuIres for individiual mtate.s. The resuflts are sLuimimiiiarlised in Table 4. Only two states (Assamil aind West Bengal) show a significant trend increase in poverty, according to both our poverty mneasires. Andhlir;i Praidesih and Tamil adlu show a trend decline in the incidence of poverty although in Tamil Nadu this is significant onlyv when we use the Setn Index. For all othiei states there is no significant time trenid in the inicidence of rural poverty using either measure.  TABLE 3(a) PERCENTAGE OF RURAL. POPULATION IN POVERTY aY STATFS 195'-8 1959 -60 1960-1 1961--2 1963-4 1964 5 1965-6 1966-7 196 7 V 1968-9 1970-71 1973-4 0 Andhra Pradesh 53-5 48-8 50-1 47-2 45-6 41-5 45-4 47-9 46-0 47-3 41-0 39-8 Assam 28-0 31-4 25-6 29-4 24-4 24-2 31-3 46-8 38-4 47-3 35-3 39.3 > Bihar 59-7 55-7 41-5 49-9 52-3 54-3 59-4 74-4 70-9 594 59-0 584 Z Gujarat * 41-5 31-6 39-7 45-7 49-8 50-7 54-1 50-8 42-8 43-8 35-6 Karnataka 41.3 48.9 39-1 35-4 50-5 55-1 63-9 59-5 56-9 58-8 47-2 46-9 0 Kerala 59-6 62-3 57-8 50-3 52-8 607 70-7 67-1 63-4 64-6 62-0 49-3 S Madhya Pradesh 57-7 46-4 43-8 40-0 43-6 42-1 47-2 58-3 62-3 56-0 52-9 52-3 Maharashtra * 54-5 48-4 43-6 48-2 59-1 57-8 63-2 57-2 54-8 46-6 49-8 Ofissa 66-6 63-4 62-4 49-3 600 61-9 62-1 64-2 64-7 71-2 65-0 58-0 Punjab 2 Haryanat 28-0 24-2 18-8 22-3 29-4 26-5 26,5 29-5 33-9 24-0 23 6 230 o Rajasthan 33-4 n.a. 32-3 33-0 326 31-8 308 37-1 35-9 41-4 41-8 29-8 > Tamil Nadu 67-8 64-4 53-9 51-0 52-0 57-4 59-5 62-7 58-1 60-6 57-3 48-3 Uttar Pradesh 52-3 36-7 37-9 35-4 56-6 53-7 47-1 55-2 60-2 46-4 40-6 47-3 West Bengal 62-3 61-4 40(4 58 3 63-3 64-0 56-5 64-3 80-3 74-9 70-1 66-0 INDIA Estimate 11 53-4 48-7 42-0 42-3 49-1 50-4 51-1 57-4 57-9 53-5 49-1 47-6 Z (Weighted A6erages) * Figures for Gujarat and Maharashta are not available separalely for the year 1957-8 since NSS tabulations for that )ear refer to the old Bombay State including both Maharashtra and Gujarat. The poverty incidence for Bombay State is 56-2 and this figure has been used with the combined weights for U Gujarat and NMaharashtra to calculate the all-India weighted average. t NSS data report a single distribution for the old Punjab State (including lHaryana) up to 1963-4, after which separate distributions are reported for Punjab and Haryana. The poverty incidence for the years after 1963-4 is based on a pooling of the data for the two states, using rural populations of Punjab and 1laryana as recorded in the 1971 Census as weights. It should be noted, however, that parts of the old Punjab States were merged into u Himachal Pradesh and the Union Territory of Delhi. Our procedure ignores this problem but the error is likely to be extremely small.