Growth. Employment and Poverty Reduction: The Post Reform Indian Experience Himanshu and Abhijit Sen

The Indian Economy grew at more than 5% per year for the last 25 years ( ). It rose in the early 1980s because of improved efficiency of capital use and again after 2001, because of higher investment. Liberalisation in 1991 was a less significant break for either investment or efficiency of capital use.

The 1990s was a period of very slow growth of non-farm employment. Agriculture grew quite fast till mid-1990s, but has become stagnant since then. However, non-farm employment growth has picked up from late 1990s onwards.

The share of profits in Net Value Added in organised manufacturing increased slightly in the early 1990s, and almost doubled during

Nominal wages of workers grew slowly, and real wages declined after mid- 1990s in both rural and urban areas. But managerial emoluments increased much faster after reforms. This gap has increased very sharply after 1999.

Distribution of national income by factor shares over the 1990s: Only the private non farm sector has increased its share, mainly organised sector surpluses. Shares of both agriculture and the public sector have declined. Innermost circle ( ), middle circle ( ) and outer circle ( )

But employment shares show no growth in private organised employment and a sharp decline in agricultural wage employment. The real expansion was in self-employment. Innermost circle ( ), middle circle ( ) and outer circle ( )

Monthly incomes of cultivators have declined in the latest period. All other workers incomes have increased, especially in the organised sector.

The gap between organised sector salaries and self- employed/wages started at the end of 1990s and has been growing thereafter. Real incomes of self-employed in agriculture have declined since the onset of agrarian crisis after

Consumption inequality has increased quite sharply after the early 1990s. This has happened in both rural and urban areas but more in urban areas.

However, despite inequality increase and agrarian stagnation, the period after 1999 has seen significant poverty reduction, and this is much more in rural areas than in urban.

The major reason for higher poverty reduction in the period was the sharp decline in inflation particularly of food prices. But this was also the source of distress among farmers.

The other reason for poverty decline is because demographic changes permit higher worker participation rates. Per capita consumption expenditure of workers has grown much less than average consumption expenditure in the more recent period.

Why did poverty reduce faster during ? The two obvious things are: lower inflation, particularly food prices and higher worker participation rates However, wages per worker have grown much less during this period and this has increased profits and allowed more private investment. The Indian economy has become more Lewisian Income distribution has worsened but poverty has declined

But is it sustainable? After , consumer price inflation is again on the rise, led primarily by increase in food prices. This can not be solved without faster growth in agriculture. There are limits to what the non-farm sector can absorb without driving down wages further Most of the self-employed are in informal sector in low productivity sectors and any further increases in these sectors do not appear sustainable.