Growth and Poverty in Rural India

Abstract

Higher agricultural yields reduced absolute poverty in rural India, both by raising smallholder productivity and by increasing real agricultural wages. But gains to the poor were far smaller in the short run than in the long run.

Unlike most developing countries, consistent poverty measures for India can be tracked over a long time. Ravallion and Datt used 20 household surveys for rural India for the years 1958-90 to measure the effects of agricultural growth on rural poverty and on the rural labor market and to find out how long it takes for the effects to be felt.

They found that measures of absolute rural poverty responded elastically to changes in mean consumption. But agricultural growth had no discernible impact - either positive or negative - on the share of total consumption going to the poor.

For the rural poor, Ravallion and Datt attribute the long-run gains from growth to higher average farm yields, which benefited poor people both directly and through higher real agricultural wages. And the benefits from higher yields were not confined to those near the poverty line - the poorest also benefited.

The process through which India's rural poor participate in the gains from agricultural growth takes time, although about half of the long-run impact comes within three years.

The long-run elasticity of the head-count index to farm yield was over 2 - of which 40 percent came through wages. Short-run elasticities were far smaller.

Inflation adversely affected the rural poor by eroding their real wages in the short run.

This paper - a product of the Office of the Vice President, Development Economics - is one in a series of background papers prepared for World Development Report 1995 on labor. The study was funded by the Bank's Research Support Budget under the research project Poverty in India, 1950­90 (RPO 677-82). The authors may be contacted at [e-mail] or [e-mail].