This paper presents a new set of integrated poverty and inequality estimates for India and Indian states for 1987-88, 1993-94 and 1999-2000. The poverty estimates are broadly consistent with independent evidence on percapita expenditure, state domestic product and real agricultural wages. They show that poverty decline in the 1990s proceeded more or less in line with earlier trends. Regional disparities increased in the 1990s, with the southern and western regions doing much better than the northern and eastern regions. Economic inequality also increased within states, especially within urban areas, and between urban and rural areas. We briefly examine other development indicators, relating for instance to health and education. Most indicators have continued to improve in the nineties, but social progress has followed very diverse patterns, ranging from accelerated progress in some fields to slowdown and even regression in others. We find no support for sweeping claims that the nineties have been a period of “unprecedented improvement” or “widespread impoverishment”.

Since the economic reforms of the early 1990s, the Indian economy witnessed a rapid rise in the mean income level and, simultaneously, changes in the distribution of income. This paper tries to capture the effects of these two factors on poverty levels in India. The total change in poverty over the last two decades is decomposed into the change due to a rise in the mean income level and the change due to changes in the distribution of income. The analysis is carried out separately for the rural and urban sectors of major states in India. It is observed that the decline in poverty measured in terms of the headcount ratio, the poverty gap and the squared poverty gap is largely due to the rise in the mean income levels. The changes in the distribution of income adversely affected the poor. The results indicate that, in India, the potential of rapid growth for drastically reducing poverty levels has been undermined by changes in the distribution of income. JEL classification: D30, I32, R11. Key words: growth, income distribution, poverty, decomposition, economic

MTID Discussion Papers contain preliminary material and research results, and are circulated prior to a full peer review in order to stimulate discussion and critical comment. It is expected that most Discussion Papers will eventually be published in some other form, and that their content may also be revised. ACKNOWLEDGEMENT We are grateful to Jos Mooij for comments on Chapter 3. Thanks are also due to S. Indrakant and Nageswara Rao for the village level information on targeting errors in Andhra Pradesh. TABLE OF CONTENTS

Given its large population, the pattern of poverty reduction in India will have a signi…cant bearing on whether the Millennium Development Goal of halving global poverty by 2015 is achieved. The aim of this analysis is to examine the interaction of initial conditions, institutions and policy in poverty reduction. We will look at the chains of in‡uence via enhancing growth, reducing inequality and/or increasing the anti-poverty e¤ectiveness of growth. This paper examines trends in growth and poverty reduction in the post-Independence period. It records India’s achievements in the poverty reduction domain and examines how poverty reduction has varied across di¤erent Indian states and across rural and urban sectors. Since di¤erent states have experimented with a variety of policies as well as having di¤erent initial conditions, India represents an ideal testing ground for examining the link between growth and poverty and for identifying factors that contribute to poverty reduction. The paper develops a framework to look at the relationship between growth and poverty reduction which allows us to examine whether economic growth has a¤ected the pattern of poverty reduction across Indian states. We show that poverty reduction performance in a state will depend in part on the extent to which a unit of growth a¤ects poverty and in part on whether the state is

An application of Sen’s capability approach to well-being distribution in India: sorting out the issues.