Chanakya IAS Academy Blog

The article analyses the performance of 1991 reforms in terms of Poverty and Inequality in the society and the way forward.

  • India embarked on big-bang economic reforms 25 years back in 1991. The success of reforms depends on whether the well-being of people, particularly that of poor, increased over time.
  • In this context, let’s examine the impact of economic reforms on poverty and inequality.
  • There are two conclusions on trends in poverty:
  • The first one, shown in a World Bank study is that poverty declined by 1.36 percentage points per annum after 1991, compared to that of 0.44 percentage points per annum prior to 1991.
  • The study shows that among other things, urban growth is the most important contributor to the rapid reduction in poverty even though rural areas showed growth in the post-reform period.
  • The second conclusion is that 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.
  • Higher economic growth, agriculture growth, rural non-farm employment, increase in real wages for rural labourers, employment in construction and programmes like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) contributed to higher poverty reduction in the 2000s compared to the 1990s.
  • Another issue discussed all over the world is rising inequality. The evidence shows that inequality increased in India in post reform period.
  • Inequality is much higher in India if we use income rather than consumption as base to compare. If we consider non-income indicators like health and education, inequalities between the poor and rich are much higher.
  • What should be done to reduce poverty and inequality?

  • Policymakers must continue to follow the two-fold strategy of achieving high economic growth and direct measures through social protection programmes.

  • The focus should also be on increase in urban growth and income as the share of urban poverty will rise with urbanization.

  • There can be several solutions, but let’s focus here on the two important measures:

  • Creating productive employment and providing quality education for reduction in poverty and inequality.

  • There is a feeling that we should have some flagship programmes like MGNREGA to reduce poverty.

  • But equitable growth is much broader than this and productive inclusion in terms of generating quality employment should be the focus of any inclusive approach.

  • Employment focus is the major part of equity approach. Studies have shown that agricultural growth leads to reduction in poverty twice as that of non-agriculture.

  • We need more diversified agriculture for raising the income of farmers. However, future employment has to be created in manufacturing and service.

  • In this context, the Make in India initiative, focus on start-ups, Mudra, financial inclusion, etc., are steps in the right direction.

  • Equally, service sector employment has to be promoted. Over time, the share of the organized sector has to be raised while simultaneously improving productivity in the unorganized sector.

  • Youth unemployment is high. This is one reason for unrest and social tensions. The need for skill development and productive jobs to reap the demographic dividend is obvious.

  • For reducing inequality:

  • The tax/GDP ratio has to be raised with a wider tax base.

  • Fiscal instruments like public investment in physical and social infrastructure can be used to reduce inequality.

  • Everyone irrespective of caste, class and gender should have equal opportunities in education, health, employment and entrepreneurship.


Many reckon that poor governance is the biggest constraint in achieving the aspirations of a new generation and reduction in poverty and inequality. Examine the statement in the context of Indian society.

Suggested Approach:

  1. Current status of poverty and inequality in our society.

  2. The reforms needed to tackle, in brief.

  3. Economic reforms can’t be successful without the governance reforms.


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