Question

Consider the following regarding the 1991 reforms:

1. It led to increase in inequality in the society
2. It led to poverty alleviation

Which of the above are correct?

• A.
  1 only
• B.
  2 only
• C.
  Both 1 and 2
• D.
  None of the above

Answer 1

The correct option is C

Both 1 and 2
In the post-reform period, poverty declined faster in the 2000s than in the 1990s.

The official estimates based on Tendulkar committee’s poverty lines shows that poverty declined only 0.74 percentage points per annum during 1993-94 to 2004-05. But poverty declined by 2.2 percentage points per annum during 2004-05 to 2011-12. Around 138 million people were lifted above the poverty line during this period. This indicates the success of reforms in reducing poverty.

There was a significant rise in the Gini coefficient for urban areas from 0.34 to 0.39 during the same period. However, consumption-based Gini underestimates inequality. If we use 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.

In other words, inequality is much higher in India if we use income rather than consumption. If we consider non-income indicators like health and education, inequalities between the poor and rich are much higher.