Economic Reforms Gdp Growth and Poverty Alleviation Essay Example

valuable insights on the functioning of the Indian Economy. In response to a balance of payment crisis in the mid-1991, significant economic reforms were implemented in the Indian economy. These reforms aimed to address the unfavorable balance of payment situation while also considering other long-term concerns.

The objectives pursued included employment generation, poverty reduction, and industrial development. The accompanying illustration portrays the country's poverty situation before implementing economic reforms. Exhibit 3 presents data on GDP growth rate and the number of individuals below the poverty line from 1991 onwards. It is clear from this information that while GDP growth rate has fluctuated, there has been a consistent decrease in the population living below the poverty line. Exploring the reasons for this trend is important. Is it solely due to GDP growth or are there other contributing factors? Conducting a correlation analysis between these variables is crucial. The correlation coefficient between GDP growth rate and the percentage of population below the poverty line stands at R1 = -0.

51402 R12 = 0. 2642 YearGDP growth percentage BPL percentage Growth in PCI 1991-92 5.638-1.5 1992-931.336.

53. 1 1993-945. 335. 973. 4 1996-977.333.

66.1 1997-987. 8322. 6 1998-994. 831.

34.4 1999-2006. 5304.4 2000-20014.

The given text is a series of numbers and dates within HTML paragraph tags.

52.4 2003-2004

5237.1 2004-2005

521.88 2006-2007

4218. 25

Interpretation

The correlation coefficient between GDP growth and BPL population is negative, indicating that as the GDP growth rate increases during the reforms period, the BPL population decreases, and vice-versa. The coefficient of determination (R12) is only 0.2642, meaning that only 26.42% of the variation in BPL population can be explained by GDP growth, while the remaining 73% is influenced by

other factors.

This statistical analysis suggests that although there is a relationship between reduction in BPL population and GDP growth, it is not strong enough to base policy decisions solely on this.

The correlation between GDP Growth rate and % Growth in PCI (R2 = 0).

Based on the data, a high population growth rate of around 2% per annum does not show a significant correlation between GDP growth rate and an increase in Per Capita income.

During the reforms process, wealth distribution in India is highly unequal, with the top 10% income groups earning 33% of the total income.

Despite significant economic progress, approximately 27% of India's population earns less than $0.40 per day, which falls below the government-specified poverty threshold.

In 2004-2005, around 5% of Indians lived below the poverty line. However, a study conducted in 2007 by the state-run National Commission for Enterprises in the unorganized Sector (NCEUS) revealed that an astonishing 77% of Indians, approximately 836 million people, survived on less than 20 rupees per day. This alarming statistic mainly consisted of individuals working in the informal labor sector without job security or social welfare benefits, which led to extreme poverty. Additionally, India's income inequality is demonstrated by a Gini coefficient of 32.

Between 1999 and 2000, there was a noticeable difference in economic conditions, which led to ongoing discussions about the effectiveness of economic reforms in resolving this matter. This disparity is also apparent in the diverse growth rates of distinct urban spending categories.

The per capita spending of the top 30% experienced a 3% rise.

During the 1990s, India's economic reforms were analyzed by economists, planners, academics, and technocrats to assess their effects on the country's growth, development,

and standard of living. These reforms have been in place for over a decade. The top 10 percent of the population experienced a significant increase in annual growth rate by 31 percent, while the bottom 30 percent saw a slight increase of only 1.70 percent. Interestingly, inequality decreased in rural areas during this period. The bottom 30 percent in rural areas had a decline in their annual growth rate of per capita expenditure. Evaluating the success of these reforms should focus on how well they achieve social and economic objectives with reducing poverty being particularly important as it represents improved living standards, better health, and education. Poverty affects all aspects of economic activity and thus deserves more attention than any other aspect of economic reforms.
Based on World Bank estimates using NSS data (including regular consumption expenditure surveys and annual surveys with thin samples), there was an increase in the head-count ratio (HCR) for rural poverty from 36.percent in 1990-91 to 38.7 percent in 1993-94.This aligns with other studies suggesting that the reforms had a greater impact on the rural population compared to urban areas, leading to higher levels of poverty in rural regions.In terms of GDP (measured by purchasing-power-parity), India holds the fourth position among the world's top ten economies, with significant importance placed on per-capita income.

India's GDP, measured in billion dollars of PPP, has shown substantial improvement over the past few decades. However, during this time period, India's population has also grown at a compounded rate of close to 2 percent (although it notably decreased from 1991 to 2001). This increase in population has offset the country's economic accomplishments. Except for the first year

of reform, per capita income has consistently demonstrated positive annual growth, with different research studies indicating its highest recorded rate at 6 percent.

The poverty rate in India has varied throughout the years, reaching its highest level of 36.1 percent in 1996-97 and its lowest level of 2.4 percent in 2000-01. However, these fluctuations do not necessarily indicate an overall decrease in poverty levels. Instead, they reflect changes in the distribution of poverty on a larger scale rather than the average. The National Accounts Statistics (NAS) provides an alternative measure called Private final consumption expenditure (PFCE), which offers a slightly different perspective. On the other hand, poverty ratios are calculated using survey data from the National Sample Survey Organization (NSSO). From 1970-71 to 2000-01, Per capita PFCE adjusted for constant prices has increased from Rs. 4637 to Rs. 7960.

From 1991-92 to the reference period of economic reforms, the per capita PFCE increased from Rs. 6273 to Rs. 7960, showing a growth of 232 or 127 percent. The year with the highest growth rate was 1996-97 at 7.92 percent, whereas the lowest growth rate occurred in 2000-01 at 2.20 percent. These statistics indicate that, on average, the real income and expenditure for individuals are rising. Nevertheless, there are apprehensions regarding income distribution equality.

It cannot be claimed that levels of 'poverty' or 'impoverishment' are decreasing until there is fair growth among all income or expenditure classes. The National Sample Survey (NSS) uses consistent criteria for calculating poverty ratios (Head-Count ratios), despite suggestions for improvements from different researchers. In India, the poverty ratios (percentage of individuals living below the poverty line) have decreased from 54.88 (in 1973-74) to 26.

There

is ongoing debate regarding the cause of the decline in the poverty ratio during 1999-00, with researchers having differing opinions. It should be noted that these ratios have been declining in both rural and urban areas, but there has been a larger decrease observed in urban regions as anticipated. The implementation of new data collection procedures, survey designs, and estimation methods in 1997 has resulted in disagreements over these poverty ratios. Hence, it is necessary to consider other dependable indicators to assess the impact of economic reforms on poverty reduction.

Over the past two decades, there has been a consistent reduction in the percentage of individuals who do not have enough food on a daily basis. This decrease is likely not solely due to an increase in income among impoverished people but rather because of targeted programs that aim to provide sufficient food for those in need. In urban areas, the proportion of individuals receiving adequate daily food intake has risen from 93% (38th round in 1983) to 99.6% (58th round in 2002). Likewise, rural areas have seen a corresponding improvement from 81.1% (38th round) to 98%.

During the post-reform period (58th round), there was an increase in the urban population from 97.3% to 99.3% and in the rural population from 92.3% to 97% between 1991 and 2002.

5% (Rural). These statistics demonstrate a decline in the proportion of the population undergoing daily hunger since the implementation of NSS Expenditure data reforms.

Conclusion

Most factors affecting Per Capita Income (PCI) have exhibited a greater contribution to PCI during the post-reform period. The growth of Per Capita Consumer Expenditure has also been higher during this time. In general, Indians have earned

and spent more! Although poverty rates, on average, have decreased, there has been an increase in income inequality between the rich and poor.

Although the reform period has led to growth in specific states, it has also deepened disparities, showing that growth does not always lead to equality. The wealthier or bigger states have managed to maintain their dominance.

The poverty ratio in the major states has remained largely unchanged. In 2006, the government introduced the National Rural Employment Guarantee Scheme, which aimed to provide financial protection to approximately 60 million households by offering guaranteed work or unemployment benefits. The government believed that this program could reduce the poverty rate from 26 percent to 10 percent within seven years, discourage rural residents from migrating to overcrowded cities for employment opportunities, and develop crucial rural infrastructure. Furthermore, in 2005, the UNDP presented a bill in parliament proposing that poor households be entitled to a minimum guarantee of employment. This proposal sought to ensure that one person per household would receive 100 days of employment at the minimum wage in each state as legally mandated.

Implementing a minimum wage of R$ 60 per day nationwide was initially intended to benefit the 150 poorest districts in India, but it has the potential to uplift two-thirds of the country's population out of poverty within 100 days. In the late 1970s, national self-employment programs were introduced to equip small farmers and agricultural laborers with skills, subsidized credit, and infrastructure support. These initiatives aimed at helping them generate additional income sources. Throughout the 1980s, these programs expanded their scope to include scheduled castes and tribes, women, and rural artisans. The Integrated Rural Development Program

(IRDP) stood as the largest initiative within this effort.

The Swarnajayanti Gram Swarojgar Yojana (SGSY) incorporated various self-employment programs in 1999. The SGSY's notable aspect is its focus on training groups in specific skills to enable them to develop microenterprise proposals, rather than promoting individual economic activities. Additionally, wage-employment programs were initiated by both central and state governments. Among these programs, the largest one was the Jawahar Rozgar Yojana (JRY), which was later revamped as the Jawahar Gram Samridhhi Yojana (JGSY) in 1999. In 2001, the JGSY merged with the Employment Assurance Scheme (EAS) to establish the Sampoorna Grameen Rojgar Yojana (SGRY). Its primary objective was to provide rural areas with additional wage employment alongside food security.

Area development programs were introduced in the 1970s to prevent environmental degradation and provide employment to the poor in various regions. These programs include Drought Prone Area Programs (DPAP), Desert Development Programs (DDP), Hilly Area Development Programs, and Tribal Area Development Programs. The Tenth Plan brought a new scheme called the Rashtriya Sam Vikas Yojana (RSVY), which aimed to address extreme deprivation in backward pockets of the country. The RSVY has four components: a special plan for Bihar, a special plan for the extremely backward Kalahandi-Bolangir-Koraput (KBK) region of Orissa, a backward districts initiative, and a reforms component where states are encouraged to increase resource mobilization efforts and undertake fiscal reforms. Other programs such as the Indira Awaas Yojana (IAY) provide free housing to below the poverty line scheduled caste and scheduled tribe families in rural areas. The maximum cost of a house under IAY is Rs 22,000, with the central and state governments sharing the cost on

a 75:25 basis. Additional poverty alleviation programs like the Pradhan Mantri Gramodaya Yojana have also been launched to provide basic minimum services like primary health, primary education, and drinking water.The Pradhan Mantri Gram Sadak Yojana, launched in December 2000, aims to provide road connectivity to 1.6 lakh remote habitations with a population of over 500 by the end of the Tenth Plan period. The Antyodaya Anna Yojana, launched in December 2001, provides highly subsidized rates of 25 kg of foodgrain to 100 million of India's poorest families below the poverty line. These anti-poverty programs have a specific focus on women. Under the wage employment scheme of Sampoorna Grameen Rozgar Yojana, 30% of the created employment opportunities are reserved for women. The Indira Awas Yojana stipulates that houses under the scheme are to be allotted in the name of the female member of the beneficiary household. Various initiatives such as the Targeted Public Distribution System, Antyodaya Anna Yojana, and Grain Bank Schemes attempt to ensure food security for the poorest. The Right to Food Campaign and use of Right to Information Acts by activist groups have played a key role in expanding the reach of these programs, especially to poor and vulnerable women.

Financial inclusion in India is witnessing steady growth, with the economy expanding at a rate of 8.5% to 9% in the past five years. The major contributors to this growth are the industry and services sectors, while agriculture is experiencing a modest increase of around 2%. However, there is immense potential for growth in the primary and small and medium-sized enterprise (SME) sectors.

Access to affordable financial services, including credit and insurance, has the potential

to increase opportunities for livelihoods and empower those living in poverty to have control over their own lives. Financial inclusion (FI) also provides individuals with a formal identity, as well as access to payment systems and safety nets such as deposit insurance. Therefore, FI is seen as essential in promoting inclusive growth, which in turn is necessary for ensuring sustainable overall growth in a country. There are two perspectives through which FI can be viewed.

One type of exclusion is not having access to a bank account, which excludes individuals from the payments system. The second type of exclusion is not having access to formal credit markets, forcing those excluded to rely on informal and exploitative markets. In recent times, there has been a focus on ensuring that every person has the basic right to access affordable basic banking services. The percentage of the adult population with bank accounts is a common measure of financial inclusion, as shown in Chart-2, where the extent of exclusion from credit markets is much higher, with only 14% of the adult population having loan accounts. In rural areas, this coverage drops to 9%.

In rural areas, the percentage of people with credit coverage is 5% compared to 14% in urban areas. There are significant regional differences, with the Southern Region having a credit coverage of 25% and the North Eastern, Eastern, and Central Regions having credit coverage as low as 7%, 8%, and 9% respectively. Looking at the total number of households in the country, out of 203 million, 147 million are in rural areas, with 89 million being farmer households. Among farm households, 51.4% have no access to formal or

informal sources of credit, while 73% have no access to formal sources of credit. Examining the different sources of credit, it is observed that the share of non institutional sources decreased from 70.8% in 1971 to 42%.

Between 1981 and 2002, the percentage of non institutional sources in the debt of rural households decreased overall from 40% to around 25%. However, the share of moneylenders in the debt of these households increased from 17.5% in 1991 to 29% in 2002.

The financially excluded population consists of marginal farmers, landless laborers, oral lessees, self-employed and unorganized sector enterprises, urban slum dwellers, migrants, ethnic minorities, socially excluded groups, senior citizens, and women. The North East, Eastern, and Central regions have the highest concentration of financially excluded individuals. There are various reasons for financial exclusion, including lack of physical access in remote areas with poor infrastructure, low awareness and incomes/assets, social exclusion, illiteracy, distance from bank branches, inconvenient branch timings, complicated documentation and procedures, unsuitable products, language barriers, and staff attitudes. The requirement for independent documentary proof of identity and address can be a significant obstacle to opening a bank account for migrants and slum dwellers. The Reserve Bank of India (RBI) has implemented several initiatives to incentivize the financially excluded population to join the formal financial system.

Banks were advised in November 2005 to offer basic banking accounts with low or no minimum balances and charges in order to reach a larger population. In addition, pilots for credit counseling and financial education were suggested. The Reserve Bank launched a website in 13 Indian languages on banking and the common person on June 18, 2007. At the regional level, the State

Level Bankers’ Committee (SLBC) has been operating since nationalization. SLBC consists of bankers and government officials convened by a bank with a major presence in the state, known as the SLBC convenor bank. Some SLBCs have reported achieving 100% financial inclusion in the Union Territory of Puducherry and certain districts in Haryana, Himachal Pradesh, Karnataka, Kerala, and Punjab.

The efforts made are reflected in the increase of 6 million new ‘no frills’ bank accounts opened between March 2006 and 2007. One way to facilitate access to banking services is through Self Help Groups (SHGs), which are groups of usually women who pool their savings and provide loans to members. SHGs are given loans against the guarantee of group members. Currently, there are 2.6 million SHGs linked to banks, reaching nearly 40 million households through its members. Banks provide credit to these groups at reasonable interest rates.
On the other hand, commercial banks have the advantage of lower funding costs and economies of scale, which allows them to offer more competitive interest rates compared to Micro Finance Institutions (MFIs). However, commercial banks have not been as successful in addressing the issue of providing financial services to the most remote areas.
Thus, partnering with SHGs and MFIs, which have reasonable funding costs, has been considered a more optimal approach until now.

A recent important regulatory measure allows banks to utilize various intermediaries, including post offices, cooperative societies, and non-government organizations set up as trusts or societies, as business correspondents (agents) for branchless banking. Prior to approving these intermediaries, banks must conduct due diligence to minimize agency risk. The use of well-respected local organizations and IT solutions helps track

transactions in bank accounts. Many banks are currently exploring this model to expand their reach and provide doorstep banking services.

Microfinance

Microfinance refers to the provision of financial services, such as microcredit, micro savings, or micro insurance, to the poor and needy. This practice helps them accumulate usable sums of money, increasing their choices and reducing risks they face. Microfinance can address the needs of both the chronic poor and the transitory poor in different ways.

The traditional interpretation of poverty is the lack of access to essential assets for higher income or welfare by poor households. These assets include human (education), natural (land), physical (infrastructure), social (network of obligations), and financial (credit) resources. Financial services encompass various functions such as keeping money safe, allowing withdrawals, issuing checkbooks, providing loans and credit cards, enabling transactions at branches or ATMs, facilitating standing orders and direct debits, offering overdraft agreements and charge card advances. Additionally, financial services include the provision of prepaid and guaranteed checks. Micro insurance refers to insurance specifically designed for individuals in low-income countries who are not covered by existing social or commercial insurance schemes.Different sources have various interpretations of the term "microcredit," but in general, it refers to the extension of small loans (microloans) to individuals who are unemployed, poor entrepreneurs, or living in poverty and are unable to obtain traditional credit due to lack of collateral, steady employment, or a credit history. Microcredit is a component of microfinance, which encompasses a broader range of financial services for the extremely poor. The main objectives of microfinance include reaching those in severe poverty, effectively lifting households out of poverty, and demonstrating

cost effectiveness as a poverty targeting tool.

In the world of micro financing, there are several considerations to keep in mind. The Microenterprise Access to Banking Services (MABS) program focuses on helping rural banks expand their services for the micro enterprise sector. In India, a program started by the National Bank of Agricultural and Rural Development (NABARD) involves private banks participating in microfinance. Lack of credit access is often due to the absence of collateral and the complexities and costs associated with dealing with many small, often illiterate borrowers. Microfinance needs to be attractive to potential lenders, as there is a high demand for financial services from the poor that can be met through capital mobilization from the formal sector. In addition to financial inputs, providing managerial support to target groups is essential and requires close interaction. The entry of public sector banks in microfinance can greatly impact the lives of the poor, given their branch network and reach, which helps distribute default risk.

Criticism of Microfinance The poor, who often experience fluctuations in income that bring them close to or below the poverty line, benefit from microfinance as it provides them with the opportunity to access credit during times of need. By utilizing this credit or their savings, they can avoid sharp declines in their family expenditures and achieve "consumption smoothing." This type of financial support is necessary for the poor to meet short-term needs arising from income shortfalls, medical emergencies, or social events such as medical bills. However, due to their risk aversion, the poor are limited beneficiaries of microfinance as they primarily borrow for protective purposes rather than for future investments. Despite having less

capital, the marginal returns for this group may be considerably lower. If the core poor cannot afford the high interest rates associated with microfinance, they may end up facing financial difficulties instead of benefiting from the service. Moreover, group lending practices often exclude the very poor as other members consider them to be bad credit risks.

Professional staff acting as loan officers may unintentionally exclude individuals who are extremely poor from accessing funds, which goes against the goal of Microfinance to reach the poor. There is currently a strong interest within the donor community for microfinance programs, but there is very limited research available on their outreach, impact, and cost-effectiveness. This scarcity of research reflects the challenges in establishing appropriate statistical methodologies and implementing higher standards in practice. It also likely reflects the variations that exist within the field of microfinance.

Reaching the most economically disadvantaged individuals is a difficult task, especially when using traditional financial instruments that are considered high-risk and therefore unattractive to microfinance clients. To effectively alleviate poverty, suggestions include providing access to quality education and addressing other factors related to human development.

In India, where a majority of the necessary investments for developing human capital come from public sources rather than private ones, it is crucial for poverty-reduction strategies to prioritize increased public spending on improving the poor's access to quality education and healthcare. Some recommended actions to reduce poverty include directing government funding towards primary education, tackling communicable diseases, enhancing water and sanitation, and reducing household insecurity through public employment programs.In order to avoid increasing the current large fiscal deficit, it is suggested that increased funding for these activities should be obtained through

the reduction of expensive and untargeted subsidies. These subsidies are currently causing substantial fiscal imbalances and microeconomic distortions.

Effective health programs should work alongside education to enhance the potential productivity of labor. However, public expenditure on health as it currently stands is expected to have a limited redistributive impact.

To reduce infant and child mortality rates and improve maternal health, it is important to improve access to safe water sources, sanitation facilities, and vaccinations. These areas are significantly lacking in service provision for the poor compared to the non-poor. Public interventions in these areas will have the greatest impact on the poor.

Analyses have demonstrated that health education plays a crucial role in fostering behavioral changes necessary for long-term improvements in health outcomes. This education encompasses basic hygiene, the importance of proper nutrition, and preventive care such as public campaigns against tobacco use and promoting the use of appropriate measures to prevent contracting HIV-AIDS and other sexually transmitted diseases.

• Public subsidies to hospital care can serve as an important means of redistribution, as long as changes are made to referral systems to ensure that access is based on need rather than income and social status. This is crucial because the rural poor often face the financial burden of medical emergencies through debt, distress sales of assets, or reductions in consumption. Subsidizing hospital treatment can help alleviate this burden.
• In addition to publicly managed hospitals, the poor can also be served by public financing of private services in rural areas, provided there is a proper system of incentives and monitoring. Another option is to improve the quality of care through training, changes in
  

incentives, and regulations. Community-based insurance schemes are also a possibility. Indian policymakers will need to evaluate the possibility of subsidizing hospital treatment in comparison to other alternatives in order to support the most appropriate services to reduce poverty.

It is evident that there is a significant requirement to enhance the quality and promptness of the statistical database that is vital for measuring, tracking, and analyzing poverty in India. This encompasses not just the data required for directly measuring poverty (such as national sample surveys and annual consumer expenditure surveys), but also other databases and statistical information available at the sectoral level (for example,

For the development of institutes, it is suggested that an apex bank should be created through a public-private partnership, inspired by the Industrial Development Finance Corporation. This approach differs from traditional apex institutions such as HUDCO and NABARD. The governance, organizational culture, and operating principles of this new institution should embrace 21st-century values and aim to cater to the underprivileged urban population in terms of their overall economic and social well-being.