A comparative study of pre & post liberalized Economic growth, Inequality and Poverty

in UP
Introduction:
Pre-liberalized Indian economy:
The Indian Economy:
The Economy of India is the tenth largest in the world by nominal GDP and the fourth
largest by purchasing power parity (PPP). The country's per capita GDP (PPP) is $3,339
(IMF, 129th) in 2010. Following strong economic reforms from the post-independence
socialist economy, the country's economic growth progressed at a rapid pace, as free market
principles were initiated in 1991 for international competition and foreign investment.
Despite fast economic growth India continues to face massive income inequalities, high
unemployment and malnutrition.
The Indian economy before the economic reforms in 1991was a highly centralised economy
in which the Five Year Plans played an important role. In the post-reform period, though the
Plans still continue, focus of the five year plans has changed. Noting the change in functions,
Planning Commission (2006a) observed that .From a highly centralised planning system the
Indian economy is gradually moving towards indicative planning where Planning
Commission concerns itself with the building of a long term strategic vision of the future and
decide on priorities of nation.(Planning Commission, 2006a).
Due to the high economic growth, there has been rapid progress in the civic amenities. The
per capita income has increased which has improved the standard of living of the masses. As
economic growth is a great factor behind the improvement of the poverty, the rise in the
economic condition of India had a favorable impact on the reducing the rate of poverty in the
country.
Effects of Reforms:

We are the Fourth Largest Growing Economy in terms of PPP with a GDP of
US $3.36 trillion.

In Exchange terms, we are the Tenth Largest in the world with a GDP of US $
691.87 billion (2004)

Second Fastest Growing Major Economy of the World with a growth rate of
8.1% for the 1 Q of 2005-06
st

After reforms in 1992, huge amounts of foreign direct investment came into India
In 1993, foreign institutional investors were allowed to purchase shares of listed Indian
companies in the stock market
UTTAR PRADESH: At a glance:

Uttar Pradesh is the most populous state in the country accounting for 16.4 per cent of the
countrys population. It is also the fourth largest state in geographical area covering 9.0 per
cent of the countrys geographical area, encompassing 2,94,411 square kilometres and
comprising of 83 districts, 901 development blocks and 112,804 inhabited villages. The
density of population in the state is 473 people per square kilometres as against 274 for the
country.
Population
The total population of the state was 8.8 crores in 1971. It increased to 11.1 crores in 1981
and then reported to be 13.9 crores in 1991. The increase, in population in these two decades
was almost identical at 25 per cent. As against this, the national population shows a declining
trend from 25 per cent in 1971-81 to 23.8 per cent in 1981-91. Since 1971-81 the decadal
variation of U.P. population in percentage forms has remained higher than that of the
national. Uttar Pradesh is the most populous state in India with a population of 199,581,477
million people as of 1 March 2011. If it were a separate country, Uttar Pradesh would be the
world's fifth most populous nation, next only to China, India, the United States of America
and Indonesia. As of the 2001 census of India, about 80% of Uttar Pradesh population is
Hindu, while Muslims make up around 18% of the population. The remaining population
consists of Sikhs, Buddhists, Christians and Jains.
Urbanisation
The pace of urbanisation has been lower in the state. The level of urbanisation has also been
lower than most other states. The numbers of urban centres with more than one lakh
population have grown slowly over last thirty years. The growth of urban centres with
population less than five thousand have, on the other hand, have grown more significantly
and these centres have grown in larger numbers in the western part of the state.

Economic Development in UP
Only during the Fifth (1974-79) and the Seventh Five Year Plan period (1985-90) that is,
prior to the reforms, the states growth rate has equalled or surpassed the countrys growth
rate. In the post-reform period that is, after 1991 while the countrys growth rate has been
much higher, the growth rate of the state has lagged considerably behind. The overall growth
rate of the state has been very low particularly, since 1997-98. During the year 2002-03, the
states growth rate declined by 1.5 per cent, largely due to a decline in the agricultural output.
The low growth rate of the state is a reflection of the growth in the states agriculture,
industry and the services sector. Of all the decades. growth rate was highest in the eighties
while in the nineties, growth slowed down in all the sectors. The two sets of factors, which
explain slow growth of the state in the post-reform period, are: i) economic factors; and ii)
social and political factors. The economic factors are: tapering of the green revolution effect
in the nineties in the western region of the state (N. Bajpai & Volavka, 2005); decline in
investment (Government of UP, 2002) and lack of human capital. The other reasons that
explain the state.s poor performance are social and political in nature like caste, class and
gender relations. Pai (2002) showed that political instability in the state was very high in the
state in 1990s and no government was able to complete its term. It was this combination of
factors which led to the low growth in the nineties.

Uttar Pradesh GDP in 2010

State

UP

GDP

GDP per capita

(in USD million)

(in USD millions)

109,770

488

Net State Domestic Product of Uttar Pradesh (at factor cost)

(Rs. Crore)
Year
1980-81
14112
1990-91
49496
% change(pre liberalization)
250%
1999-2000
% change(post liberalization)

144160
199%

2008-09
% change(post liberalization)

350297
142%

PER CAPITA NET STATE DOMESTIC PRODUCT AT FACTOR COST

- STATE-WISE (At Constant Prices)
Rupees(Crore)
Year

1980-81

1278

1990-91

1652

% change(pre liberalisatio)

29%

1999-2000

5675

% change(post liberalisation)

243%

2008-2009

12481

% change

119%

The per capita income of the state at Rs. 4787 in 1993-94 is one of the lowest in the country
except Orissa (Rs. 4726) and Bihar (Rs. 3620). The per capita of the state in 1950-51 at Rs.
259 was very close to the national per capita income of Rs. 267, short by only Rs. 8 i.e. 3 per
cent only. In 1995-96 this shortfall stood at Rs. 35.8 and is likely to go up. The average
annual growth in total income of the state in the period between 1951-74 was always far less
than the country. However, the population growth in the state being lower in the country
during the period, the gap in the per capita income between the state and the country was
constructed to some extent.
The post-1974 period was, however, marked by a significant improvement in the total income
of the state. The state achieved a growth of 5-7 per cent per annum, which is higher than the
national growth of 5.3 per cent . But this gain in higher growth rate of total income in the
state was lost to the state due to increase in the growth rate of population from 1.8 per cent
per annum in 1961-71 to 2.3 per cent in 1971-81 which is higher than the countrys
population growth rate of 2.2 percent.
The increasing trend of growth in income in the period following 1974 is likely to be replaced
by an average annual growth of even less than 3 percent which is much lower that the
countrys growth rate of almost six per cent. This means that the shortfall in the states per
capita income, which was 35 percent in 1994-95, is unlikely to change in recent time.
Thus the lower rates of growth in the total income of the state during the period 1951-74
was followed by high population growth in the last two decades. But the state is now
faced with the reappearance of lower growth of income while the population growth
remaining unchanged in foreseeable future.
The structure of state income shows that the contribution of primary sector has declined to 41
percent of the state income though the sector still sustain 73 percent of the total working
force. This shows the continued pressure of working population in the primary sector. The
share of secondary sector, on the other hand, has gone up to 20 percent of the total state
income which now employ 9 percent of the total workers in the state. This pecentage is the
lowest among all the major Indian states except Bihar (4.6 percent in 1991 census), Madhya
Pradesh (8.4 percent in 1991) and Orissa (7.5 percent in 1991). The share of tertiary sector
has been more impressive from 25 percent in 1970-71 to 37 percent in 1994-95 and the

percentage share of workers employed by this sector has risen from 15 percent to 18 percent
in 1991. It thus shows that the U.P.'s growth has been more capital intensive than labour
intensive, more urban based than rural based and the shift income from primary to other
sectors is not accompanied by corresponding change in employment pattern.
Distinguishing feature of Uttar Pradesh's economy is its regional imbalances. In terms of
economic indicators like agricultural productivity, infrastructural facilities, industrial growth,
the Uttar Pradesh's economy can be categorise into five regions; Western, Eastern, Central,
Ruhelkhand and Hill. The Western Uttar Pradesh is agriculturally prosperous. It is relatirely
industrialised and has seen greater degree of urbanisation. At the other end is Bundelkhand.
Low agricultural growth, less number of industrial units, lesser gross value of industrial
products marks touts his region as the least developed in the state.
Economic Reforms in UP:
Economic reforms commenced in the country in 1991. Though the central government gave
the overall direction to the economic reforms, states also introduced major policy changes at
their level. Many states initiated the reforms in the early 1990s though they varied in
effectiveness and credibility (World Bank, 2004). The economic reforms, in UP, were
introduced in 1998-99. The preoccupation of the government with the rise of communalism,
casteism, poor governance and political instability in the nineties, led to the late entry of
economic reforms in UP. In the present chapter, the focus is only on the reforms carried out
by the state government, and excludes those carried out by the central government and
Reserve Bank of India (the central bank of the country). The national level reforms, however,
can affect the state level reforms. The state government introduced reforms in agriculture,
industry (large as well as small-scale sector) and in the services sector, which includes
tourism and information technology. Since the ability of the state government to reorient its
policies and expenditure on various sectors would depend on its income, fiscal reforms were
the most significant.
Globalisation and disparities in UP: Globalization has also not done much good to reduce
disparities in UP. Uttar Pradesh with 4.4% is far behind the fast growing states like Gujarat
with 8.8%, Delhi with 7.4% and Haryana with 8.7%. Some of the states which have a high
income are In comparison to these, Bihar with 5.1%, and Madhya Pradesh with 3.5% are
some of the lowest ranking states with very little socio economic growth.

Poverty in UP:
Poverty: The word poverty has been used in two senses, in the broad and all encompassing
one it describes the whole spectrum of deprivation and ill-being, and in a narrow sense, it is
used for purposes of measurement and comparison has been defined as low income, or more
specifically, as low consumption which is considered more stable and easier to measure. In
common parlance, this (the second definition) is known as income poverty (Srivastava,
2001).
Poverty could be relative as well as absolute. People falling below some basic minimum level
of the chosen poverty indicator depict absolute poverty. For example, in India those who do
not meet nutrition level of 2400 Kilocalorie per day (kcal/day) in rural areas are poor (in
absolute sense).
A measure of relative poverty defines poverty as being below some relative poverty
threshold. For instance, when poverty is defined as households that earn less than 50 percent
of the median income. Relative poverty compares two individuals on the chosen poverty
indicator. In developing countries like India, relative poverty is not taken to be as much a
cause of concern as absolute poverty is.
The most common measure of poverty is the 'Head-Count' ratio, defined as the percentage of
population living below the poverty line.
Individual x and y both are poor as their incomes being `50 and `90 whereas the poverty line
is `100. Though both are poor by HCR as their income is below the poverty line, individual
xs poverty gap is 50 whereas that of y is 10 only.
A sizable chunk of Indias poverty comes from Uttar Pradesh (UP). As per Government of
India (GOI) estimates, UP is home to sixty million poor and 20% of total population of India.
Based on an estimate by World Bank, about 8% of worlds poor lived in UP during 19981.

The very notion of the fact that it is one of the BIMARU2 states, gives a general picture of
poverty and lack of development in the state. With a large share in Indias population and a
deep rooted poverty within, UP acts as a drag on the Indian economy.

From the above shown chart it is clear that in UP multidimensional poverty index (.387)is
very high in comparisons to Indian multidimensional poverty index(.296)
Riding on the high waves of Green Revolution, UP was performing well during 1970s, when
economic performance of most sector of this state were better than the rest of India (Kozel &
Parker, 2003). Rich in potential - in human and natural assets Uttar Pradesh once appeared
to a pace setter for the countrys economic and social development (World Bank, 2002).
Since then, the economic pace in UP staggered and it lagged behind rest of India. Failing to
seize opportunities created by economic reforms in 1991 is cited as a reason (Kozel & Parker,
2003). A study by World Bank (2003) opines that loss of effectiveness of public sector lies at
the heart of loss of economic momentum by UP. This inefficacy of public sector led to
discouragement of private investment and growth and to poor delivery of social and
infrastructure services (World Bank, 2002). A lacklustre performance in UP would result in a
similar show at country level as UP commands a large population size in country.
Inequality Measures: Inequality is a broader concept than poverty as it takes into account
income distribution over entire population rather than focusing only on the poor (Handbook
of Poverty and Inequality, p.101).
Although globalization has led to the economic development in the country, it has not really
helped to minimize income inequalities across the country. Recent surveys say that lots of
people across the country still live below the poverty line and their standard of living has
gone down considerably. The wealth distribution pattern is also uneven in the country. Recent
surveys have shown that the top 10% of the income groups share around 33% of the total
income of the country. Even after globalization and economic progress, around a quarter of
the population of the country has a earning less than the minimum level of $0.40 per day.

0.17

Change in Inequality: India & 0.18

UP (1993-94 to 2004-05) 0.16
0.07

India
0.04

0.04UP

0.03

0.14
0.12
0.1
0.08
0.06
0.04
0.02
0

0.03

0.02

Rural0.03

0.18

0.05
0.05

0.04

Urban

Urban
Rural

1993-94

2004-05

Inequality in UP: apart from economic growth and reduction in poverty rate, inequality
remain the major problem of UP. Globalization has also not done much good to reduce
disparities between various regions and states across the country. While some states have a
high earning, there are also some states which have a very low growth rate. Some of the
states which have a high income are Gujarat with 8.8%, Delhi with 7.4% and Haryana with
8.7%. In comparison to these, Bihar with 5.1%, Uttar Pradesh with 4.4% and Madhya
Pradesh with 3.5% are some of the lowest ranking states with very little socio economic
growth.
We have chosen the first option in the present study and traced trends in monthly per capita
consumer expenditure (used as a proxy for income) by estimating the value of Gini
Coefficient in 1973 , 1977, 1983, 1987- 88, 1993-94, 1999-2000 and 2004-05.
The Gini coefficient is being used to describe household income inequality, then no
household can have a negative income. When used as a measure of income inequality, the
most unequal society will be one in which a single person receives 100% of the total income
and the remaining people receive none (G=1); and the most equal society will be one in
which every person receives the same income (G=0).
Gini Coefficient of India in comparison to UP :

Indi
a
U.P.

1973-74

1977-78

1983

1993-94

R
.28

U
.30

R
.34

U
.34

R
.30

U
.32

R
.28

.24

.29

.30

.33

.29

.31

.28

U
.34

19992000
R
U
.26 .34

2004-05
(URP)
R
U
.30 .37

2004-05
(MRP)
R
U
.25 .35

.32

.25

.29

.23

.33

.37

.34

This table shows the level of inequality rural & urban India and rural & urban U.P.
Monthly per Capita Consumption Expenditure:
For rural India, average MPCE of Rs. 565 comprised Rs. 305 for food and Rs. 260 for nonfood. Food expenditure included Rs. 103 for cereals and cereal substitutes, and Rs. 107 for

milk and milk products, vegetables and edible oil. Non-food expenditure included Rs. 54 for
fuel and light, and Rs. 45 for clothing and footwear.
In the rural sector, among the major states, Jharkhand, Orissa, Chhattisgarh, Madhya
Pradesh and Bihar had MPCE less than Rs. 450. Kerala had the highest MPCE (Rs. 990),
followed by Punjab (Rs. 947).
In the urban sector, among the major states, Bihar and Madhya Pradesh had MPCE
less than Rs. 800. Kerala had the highest MPCE (Rs. 1372), followed by Maharashtra (Rs.
1259).
Average MPCE across Uttar Pradesh (2004-05)
Sector

State Av.
MPCE
(Rs.)

Best
MPCE
District

Av.
MPCE
(Rs.)

Worst
MPCE
District

Av.
MPCE
(Rs.)

Least
Poor
District

HCR
(%)

Most
Poor
District

HCR
(%)

Rural

647

Faijaba
d

917

Chitrakoo
t

348

GB
Nager

2.6

Chitrakoo
t

81.5

Urban

978

1393
Agra

436
Banda

3.6
Shanjapu
r

74.5
Chaundli

The people just above the poverty line. These could be called possible poor and are most
susceptible to fall in poverty given an income shock. To begin with, UP had either lower (in
rural areas) or almost equal (in urban areas) incidence of possible poverty (Table A6.1). But
possible poverty rose in rural UP by more than 9% and by 6% in urban UP whereas for allIndia, it declined in both rural as well as urban areas.