Model Answer
0 min readIntroduction
The economic reforms of 1991 marked a significant shift in India’s development strategy, moving from a closed, centrally planned economy to a more open, market-oriented one. While these reforms unleashed significant economic growth, their impact on inequality and poverty has been a subject of intense debate. Economic growth, measured by GDP expansion, doesn’t automatically translate into poverty reduction or equitable distribution of wealth. Indeed, the post-reform period has witnessed a complex interplay between these three factors, with growth often accompanied by rising inequality and uneven poverty reduction. Understanding this relationship is crucial for formulating effective policies for inclusive and sustainable development.
Pre-Reform Scenario (Before 1991)
Prior to 1991, India’s economic growth was relatively slow, averaging around 3.5% per annum (known as the ‘Hindu rate of growth’). Poverty was widespread, with estimates suggesting that over 40% of the population lived below the poverty line in the early 1980s. Inequality, while present, was relatively lower compared to the post-reform period, largely due to the socialist policies and emphasis on public sector dominance. The focus was on equitable distribution, albeit at the cost of efficiency and dynamism.
Post-Reform Growth and its Distribution (1991-2010)
The 1991 reforms triggered a period of accelerated economic growth, averaging around 6-8% per annum. This growth was driven by liberalization, privatization, and globalization. However, the benefits of this growth were not evenly distributed.
- Rising Inequality: The post-reform period witnessed a significant increase in income inequality. The Gini coefficient, a measure of income inequality, rose from 0.317 in 1990 to 0.390 in 2010 (World Bank data). This indicates a widening gap between the rich and the poor.
- Poverty Reduction: Despite rising inequality, poverty rates declined during this period. The percentage of the population below the poverty line fell from 36% in 1993-94 to 22% in 2004-05 (NSSO data). However, the pace of poverty reduction was slower in some states, particularly those with limited access to the benefits of globalization.
- Sectoral Shifts: Growth was concentrated in certain sectors, such as IT and finance, which primarily benefited skilled workers and urban populations. This led to a widening gap between rural and urban areas, and between skilled and unskilled labor.
The Relationship: Growth, Inequality and Poverty (2010-Present)
The period after 2010 presents a more complex picture. While economic growth slowed down somewhat, inequality continued to rise, and poverty reduction stalled.
- Demonetization and GST: Events like demonetization (2016) and the implementation of the Goods and Services Tax (GST) (2017) had short-term disruptive effects on the informal sector, which employs a large proportion of the poor, potentially exacerbating inequality.
- COVID-19 Pandemic: The COVID-19 pandemic and the subsequent lockdowns had a devastating impact on the Indian economy, particularly on the informal sector and vulnerable populations. This led to a sharp increase in poverty and inequality. According to the World Bank, an estimated 83 million Indians fell into extreme poverty during the pandemic.
- Concentration of Wealth: Recent studies indicate a significant concentration of wealth in the hands of a few. The top 10% of the population owns over 77% of the total wealth in India (World Inequality Report 2023).
Government Interventions
The government has implemented various schemes to address poverty and inequality, including:
| Scheme | Objective | Year |
|---|---|---|
| Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) | Provides 100 days of guaranteed wage employment to rural households. | 2005 |
| National Food Security Act (NFSA) | Provides subsidized food grains to a large section of the population. | 2013 |
| Pradhan Mantri Jan Dhan Yojana (PMJDY) | Financial inclusion scheme providing access to banking services. | 2014 |
However, the effectiveness of these schemes has been limited by issues such as leakages, corruption, and inadequate targeting.
Conclusion
The post-reform period in India has been characterized by a complex relationship between economic growth, inequality, and poverty. While economic growth has been significant, its benefits have not been equitably distributed, leading to rising inequality and uneven poverty reduction. The COVID-19 pandemic has further exacerbated these challenges. Addressing this requires a multi-pronged approach, including investments in education and healthcare, strengthening social safety nets, promoting inclusive growth, and tackling corruption. A focus on skill development and creating employment opportunities in the formal sector is also crucial for ensuring that the benefits of economic growth reach all sections of society. Sustainable and inclusive growth remains a key challenge for India’s future.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.