Disentangling the Poverty Effects of Sectoral Output, Prices, and Policies in India

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  • Note: The paper was presented at: the conference on “Ten Years of War against Poverty” held at the University of Manchester, UK, September 8–10, 2010; the Allied Social Science Associations Annual Meetings (the AIEFS session, January 6–9, 2011, at Denver, and at the AFEE session, January 3–5, 2010, at Atlanta, USA); at the 4th Annual International Conference on Public Policy and Management (in the session on quantitative approaches to public policy in honor of Professor T. Krishna Kumar), August 9–12, 2009, at IIM Bangalore, India. It was also presented as invited lectures at: the University of Hyderabad, August 7, 2008; the Centre for Economic and Social Studies, Hyderabad, August 8, 2008; Osmania University, Hyderabad, August 8, 2008; Utkal University, India, August 12, 2008; and at the Naba Krushna Choudhury Centre for Development Studies, India, August 13, 2008. An earlier version of the paper came out as a Brooks World Poverty Institute (University of Manchester) Working Paper, No. 31 (March 2008). Thanks are due to Tony Addison, Sanghamitra Bandyopadhyay, Keshab Bhattarai, Shashanka Bhide, Huw Edwards, Raghav Gaiha, Subrata Ghatak, Atanu Ghoshray, Shikha Jha, Anirudh Krishna, Casilda Martinez, Camelia Minoiu, Tapas Mishra, Tomoe Moore, M. S. Rafiq, V. M. Rao, Kwok Tong Soo, and Miguel Zarazua for helpful comments and discussions, and Ankush Agrawal, N. R. Bhanumurthy, Ramesh Golait, and N. C. Pradhan for their help with relevant data for this paper.

Abstract

This paper attempts to disentangle the poverty effects of key policy variables that directly affect the poor (namely the government-led channel of development spending and financing) in both agricultural and non-agricultural sectors after accounting for the effect of respective sectoral per capita income and prices, using data from India over five decades. The paper emphasizes the sectoral composition of income and prices as mechanisms influencing the level of poverty and establishes empirically that it is the rise in non-agricultural per capita income that reduces rural poverty via the channel of internal migration, after having controlled for the variation in key components of fiscal spending and monetary/financial policy via the availability of credit. Uneven sectoral growth pattern explains why urban poverty becomes a spill-over of persistent rural poverty when the agricultural sector shrinks. While checking for robustness, there is evidence that the rise in non-agricultural income alone may not reduce rural poverty, when measured in terms of rural infant mortality rate as a non-income indicator of well-being.

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