Inequalities Grew Significantly in Post-Reform Period: IMF
Live Mint
March 9, 2008

In the 1990s, the top of the population enjoyed a substantially larger share of the gains from economic growth compared to the previous decade, says an IMF research paper on India

New Delhi: One of the side effects of economic reforms, launched by the government in 1991, was the rapid increase in income inequality with rich getting richer faster than ever before, says an IMF research paper.

“In the 1990s, the top of the population enjoyed a substantially larger share of the gains from economic growth compared to the previous decade. This had significant effects on income inequality, which grew within states, across states, and between rural and urban areas,” said the IMFs working paper ‘India: Is the rising tide lifting all boats?´

Pointing out that inequalities were much less before the launch of the market-oriented economic reforms by Manmohan Singh, the then Finance Minister and current Prime Minister, the paper said: “In the 1980s, the growth rate of consumption of the bottom of the income distribution was substantially large than that of the top.”

However, between 1993-94 and 2004-05, it said the consumption of the richest grew by an average of 3% every year, while for the poorest, it rose by only about 1%.

Quoting the income tax data, the report said “the incomes of the top one per cent (of the population) increased by 70%, while the income of the top 0.01% tripled” during the 11-year period.

Suggesting the economic growth in the post-reform period did not have any discerning impact on poverty reduction, the paper said that “despite the pick-up in consumption growth from the 1980s to the 1990s, the decline in poverty incidence remained roughly unchanged.”

While the poverty rate fell by 9.4% between 1983 and 1993-04, the decline works out to be 8.4% during the slightly longer period between 1993-94 and 2004-05, it said.

“With real consumption growth significantly higher in urban areas especially in the 1990s, in most states and in India as a whole the urban-rural gap widened,” the IMF paper said.

The paper further pointed out that Orissa, which was the poorest state in 1983, has continued to remain so with the highest incidence of poverty, “with more than 45 % of the people living below poverty line in 2004-05”.

Similarly, it added, Punjab, which had the lowest incidence of poverty in 1983, has retained its position with 8% of the people living below poverty line during 2004-05.

The report further said that despite recording an economic growth rate of over 8.5% during the last four years, “India still has the largest concentration of poor people in the world.”

The issue of rising income inequality in the post-reform period has assumed importance for the policy makers, with the government and the Planning Commission focusing on “inclusive growth”.

The need to broad-base the benefits of economic growth has prompted the government to make “inclusive growth” a key element of state policy, the IMF report added.

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