Impact of Reforms in India -Lecture 1 by Tarun Das

8/14/2019 Impact of Reforms in India -Lecture 1 by Tarun Das

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Impact of Reforms on

Poverty and Employment

Presented by

Dr Tarun Das

Economic Adviser

Ministry of Finance


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1. Introduction

Growth with social justice is basic

objective of Indian planning

Several anti-poverty programs are inoperations for decades

Two basic approaches for poverty reduction-Trickle down effect, and direct attack on

poverty

On going reforms have a human face and abias for poverty alleviation


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Table 1.1 Expenditure on socialsectors

Year Total

Expend.

As % of

GDP

Expenditure

on social

sectors

as % of

total

expend.

Expenditure

on social

sectors

as % of

GDP

1992-93 17.4 7.8 1.4

1998-99

1999-002000-01

2001-02

2002-03

2003-04

16.0

15.415.5

16.0

16.7

17.0

10.5

10.011.1

11.1

11.3

11.5

1.7

1.71.7

1.8

1.9

2.0


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Table 1.2 Expenditure on socialservices by the Centre and States

I T E MS 1985 1990 1995 1998 1999 2000 2001 2002

Actual Actual Acual Actual Actual Actual RE BE

Finance of Centre & States

As percentage of GDP:

Total Expend. 29.4 26.8 24.2 25.4 26.6 28.1 29.5 29.6

Social services 5.8 5.4 4.9 5.5 5.7 6.3 6.5 6.2

Education 2.9 3.1 2.7 3 3.3 3.1 3.1 3.1

Health 1.3 1.2 1 1.2 1.2 1.3 1.4 1.4

Others 1.6 1.2 1.2 1.3 1.2 1.8 2 1.8As % of total expenditure:

Social services 19.6 20.3 20.4 21.6 21.3 22.4 22 20.9

Education 9.8 11.4 11.3 11.9 12.3 11.2 10.5 10.3

Health 4.4 4.3 4.3 4.6 4.4 4.8 4.8 4.6

Others 5.4 4.6 4.8 5 4.6 6.4 6.7 6

As % of expenditure on social services

Education 50 56 55 55 58 50 48 49Health 23 21 21 22 21 21 22 22

Others 27 23 24 23 21 29 31 29


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2.1 Basic Indicators of Human

Development-1Year Life expectancy

at birth (years)Literacy rate

(percent)

1951 32.1 18.31961 41.3 28.31971 45.6 34.51981 50.4 43.61991 59.4 52.2

2001 63.5 65.4


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2.2 Basic Indicators of Human

Development-2

Year Birth ratePer 1000

Death ratePer 1000

Infantmortality rate

Per 10001951 39.9 27.4 146

1961 41.7 22.8 1461971 41.2 19.0 1291981 33.9 12.5 1101991 29.5 9.8 802001 25.8 8.5 68


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2.3 Change in real wages

Year Percentage

change

1991-92 -6.19

1992-93 +5.21

1993-94 +5.611994-95 -0.39

1995-96 +0.72

1996-97 +1.64

1997-98 +2.501998-99 +3.45

1999-2000 +3.50


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2.4 Reduction of Poverty

Year Poverty Ratios (%) Number of Poor (Million)

______________________ _________________________Rural Urban Combined Rural Urban Combined

__________________________________________________________1973-74 56.4 49.0 54.9 261 60 3211977-78 53.1 45.2 51.3 264 65 3291983-84 45.7 40.8 44.5 252 71 3231987-88 39.1 38.2 38.9 232 75 307

1993-94 37.3 32.4 36.0 244 76 3201999 27.1 23.6 26.1 193 67 260

_________________________________________________________________


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2.5 Poverty in SelectedAsian Economies

Country Povertyratios1975

PovertyRatios1995

AnnualReductionIn 1975-95

% Point

AverageGDP growth1970-1980

AverageGDP growth1980-1995

India 54.9 26.1 1.1 3.2 5.6China 59.5 22.2 1.9 5.0 11.1Indonesia 64.3 11.4 2.6 7.8 6.6Korea 23.0 5.0 0.9 9.0 8.7Malaysia 17.4 4.3 0.7 7.8 6.4Philippines 35.7 25.5 0.5 6.2 1.4

Thailand 8.1 0.9 0.4 7.2 7.9


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2.6 Employment growth rates

Period Rate of growth of

population

(% per annum)

Rate of growth of

labour force

(% per annum)

Rate of growth of

employment

(% per annum)1972-1978 2.27 2.94 2.73

1977-1983 2.19 2.04 2.17

1983-1988 2.14 1.74 1.54

1987-1994 2.10 2.29 2.43

1993-2000 1.93 1.03 0.98


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2.7 Sectoral employment growth rates

Employment (per cent to total) Annual growth rate (%)

Sector 1983 1987-

1988

1993-

1994

1999-

2000

1983 to

1987-

1988

1987-

1988 to

1993-

1994

1983 to

1993-

1994

1993-

1994 to

1999-

2000

Agriculture 63.2 60.1 60.4 56.7 1.8 2.6 2.2 0.0

Mining & quarrying 0.7 0.9 0.8 0.7 7.4 1.0 3.7 -1.9

Manufacturing 11.6 11.9 11.1 12.1 3.6 1.2 2.3 2.6

Electricity, gas andwater supply

0.3 0.3 0.5 0.3 2.9 7.2 5.3 -3.6

Construction 3.0 4.4 3.5 4.4 12.1 -1.4 4.2 5.2

Trade, hotels and

restaurant

7.6 8.3 8.5 11.1 4.9 3.0 3.8 5.7

Transport, storage

and communication

2.9 3.0 3.1 4.1 3.2 3.5 3.4 5.5

Financial, real estate

& business services

0.9 1.0 1.1 1.4 4.7 4.5 4.6 5.4

Community, social

& personal services

9.8 10.1 11.1 9.2 3.6 4.1 3.6 -2.1

All Sector 100 100 100 100 2.9 2.5 2.7 1.1


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Level:Log-Linear Regression Equations(All India time series data for the period 1977-78 to 1999-

2000).

Independent variables (Log of) Log of Poverty ratioas theDependent variable

Coefficient t-statistic

Constant 41.43

Per capita national income -0.651 5.59

Growth rate of real GDP at factor cost 0.003 0.73

Growth rate of population 0.021 1.96

Inflation rate based on WPI 0.014 3.08

Gross fiscal deficit as percentage of GDP 0.025 1.87Share of social sectors in central govt. expend. -0.043 1.98

Literacy rate -3.979 9.00

Expectation of life -3.622 3.17

Growth rate of agricultural GDP -0.003 0.83

Share of service sectors in overall GDP -1.078 5.79

Share of private sector in overall GDP 0.190 0.61

Share of private sector in gross domestic invest. -0.052 2.04

Gini ratio for consumer expenditure 0.161 1.95

Time (1977-78=1) -0.139 6.50

R squared 0.999

No. of observations 23


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Table-4.1: Determinants ofPoverty across StatesLog-Linear Multiple Regression Equations

Log of Poverty ratio as the Dependent variableIndependent variables (log of) Rural sector Urban sector Combined

Coeffi-cient

t-statisti

c

Coeffi-cient

t-statisti

c

Coeffi-cient

t-statisti

c

Constant 42.610 34.831 33.397

Time (catch-all variable,

1983=1)

0.297 3.11 0.220 2.65 0.199 3.56

Per capita Net state domesticprod.

-0.749 4.23 -0.684 4.26 -0.595 5.60

Rate of unemployment 0.125 2.28 0.006 2.00 0.138 2.12

Literacy rate 1.135 2.92 0.509 0.57 0.692 2.29

Expectation of life -9.623 5.42 -7.117 3.89 -6.217 5.83

Old-age dependency ratio 1.797 3.50 0.839 2.71 -0.182 0.53

Gini ratio for consumerexpenditure 1.018 1.96 0.701 2.00 1.144 2.84

Degree of urbanisation -0.351 2.01 0.296 2.32 0.101 1.96R squared 0.803 0.760 0.789

No. of observations 68 68 68


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Table 4.2 Panel and Pooled Data:

Log linear relations with log of poverty as dependent variable

Independent variables (log of) Equation-1 Equation-2

Coefficient t-statistic Coefficient t-statistic

Constant 38.18 33.307

Dummy (0 for Urban, 1 for National, 2for Rural)

-0.241 3.50 -0.337 6.06

Time (catch-all variable, 1983=1) 0.226 4.37 0.094 2.40Per capita net state domestic product

(NSDP)

-0.658 7.18

Inequality adjusted per capita NSDP -0.0006 8.76

Rate of unemployment 0.117 2.09 0.160 2.46Literacy rate 0.823 3.39 0.575 2.47Expectation of life -8.161 8.51 -8.393 8.92Old-age dependency ratio 1.019 4.76 .243 6.53

Gini ratio for consumer expenditure 0.861 3.07Degree of urbanisation 0.005 2.00 0.076 2.01

R squared 0.685 0.690

No. of observations 204 204


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5 Concluding observations

Higher growth is essential for poverty reduction.But it is by no means sufficient.It is important to focus on pro-poor public

policies- creation of employment opportunities

and enhancing the level of health, education and

skill of the poor.A stable macroeconomic environment,

characterized by low inflation and sustainable

level of fiscal deficit helps the poor to safeguard

their purchasing power.Reduction of government deficit allows banks to

provide more funds for private investment, which

is more productive.


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THANK YOU

Impact of Reforms in India -Lecture 1 by Tarun Das

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