Indian Poverty

EFFECTS OF ECONOMIC GROWTH ON POVERTY REDUCTION IN INDIA (STATE OVERVIEW) From 1974-2005 By Sagir Khericha ID:1053378
Contact Details: [e-mail], [e-mail]

Topic Page number
Abstract 01
Introduction 01
Literature review 03
Literature review Specific to India 07
Methodology 10
Empirical Findings 11
Conclusion 12
Appendix 13
References 13

ABSTRACT
India has had an impressive record of Economic growth and poverty reduction in the last 2 decades when the country has been growing at just around 8 % every year and managed to reduce poverty from 60% people below the poverty line in 1981 to 42% in 2005.In this paper, the effect of economic growth and consumption expenditure growth on the percentage of population below the poverty line shall be questioned. Through panel data analysis, of 15 different states from 1974 to 2005 with an average of 5 year gaps with data from the NSS rounds that take place in India every 5 years, we regress the effects of economic growth on poverty reduction through a fixed effects model to find that in this case economic growth does not ensure poverty reduction. But this can be achieved via increase in consumption expenditure.

INTRODUTION
Poverty has been common for the developing world for hundreds of years, but the rate at which poverty declined in the last few decades has been phenomenon but nevertheless there is a vague statistic that 1 out of every 5 person is poor. This is mainly because most of the poor in the world are from developing countries out of which most of them have been growing at a very fast pace in the last 4 decades. South Asia , Sub-Saharan Africa , Eastern and Pacific Asia comprises of most of the poor in the world, where population in extreme poverty came down from 28% in 1990 to 21% in 2001 which was mainly because of high economic growth in South and East Asia. Most of the fastest growing economies today come from these regions which give us an idea of the link between poverty reduction and economic growth. We will be looking at a lot of data of these reductions in poverty with respect to economic growth and the effect of inequality which hampers the effect of growth on poverty reduction. India is the specific country I shall be looking at on state level, where we shall be going through a few states in the country which have a high per capita income compared to states which are comparatively poor, and how does that states growth rate reduce poverty in that particular state. There never was a definition for poverty that could prove that one is poor and the other is not, until the World Bank came up with the Poverty line. Poverty line is a estimated minimum level of income needed to afford the necessities of life. The World Bank in 1981 declared the poverty line to be at “$1 a day”. Today we consider this poverty line to be for low income countries and a higher poverty line for a group of relatively higher income countries. But poverty is usually measured as absolute poverty and Relative poverty. Absolute poverty is when we have 2 people where one is poor and the other is rich and Relative poverty is when we have 2 people where one is relatively poor.
In 1991 through PPP’s of different countries Ravallion, Datt, and Van De Walle assembled data from 33 poor countries at the $1 a day at 1985 PPP and using 22 countries house hold data they found that 1/3rd of the population in 1985 lived below the poverty line. Since this, the World Bank has revised the poverty line twice. Once was in 2001 using $1.08 a day at 1993 PPP and in 2008 using $1.25 at 2005 PPP. A survey done in 2008 found out that 1 in every 4 people in the developing world was below the poverty line which adjusted to 1.4 billion people in 2005 which came down from 1.9 billion in 1981. This means that global poverty rates declined from 52% in 1981 to 26% in 2005.
In India, the estimated people staying below the poverty line (($1.25 a day) works out to be Rs 21.6 a day in urban areas and Rs 14.3 in rural areas) in 2005 decreased from 60% in 1981 to 42%. And if we consider the poverty line to be $1 a day, poverty reduced from 42% to 24% which shows that poverty is reducing at a fast rate and according to experts India plans to reduce its poverty to half, about 22% by 2015. The fact that there is a strong relation between developed countries and less number of poor people in that country is inevitable. So is there a link between the growth rate of a country and the rate at which poverty declines? By comparing the situation in which India is right now and what many countries were a couple of hundred years ago is no different. But what was so strongly done in that country that leads them to eradicate poverty at such a high level. The fact that India’s population is 1.2 billion people doesn’t favour it in the poverty department since it is hard to eradicate poverty from such a huge nation compared to England whose population is 51 million. But on the plus side for India who has such a huge population is that in the coming future this country will have the highest working age population in the world. India has come far since it gained independence in 1947. Before independence India never realised its potential in the world markets since colonial rule was more aimed to make the colonial power richer which ended up creating a bad picture of the country. In the first half of the 19thcentury, India’s growth rate was only about 0.9% and more than half of the country was below poverty line. After independence the country was like a tamed horse set free in the wild again. It took a lot of courage and implementation of 5 year plans commissioned by the government of India to reach a growth rate of 9% from 0.9% which is about a 1000% increase in 60 years. Just after independence India managed to grow at a constant pace with a growth rate of 3.6% from 1951-81. This was a slow rate if compared to other developed or rapidly developing countries in the Far East, but for India it was 4 times the growth rate before independence which is quite remarkable. But even though there was a steady growth rate from 1951 to 1981, there was an increase in the percentage of people below the poverty line. It increased from 45.3% in 1951 to 51.3% in 1978. Nevertheless the percentage came down to 44.5% in 1983 and has been receding since then. The growth rates have accelerated since 1981 clocking a growth rate higher than 3.6% every year with 5.6% average between 1981-1991 and touching 8.26% in 1988 which was India’s highest ever growth rate in the 19th century. After 1993 the growth rates each year were above 6% with an average of 6.7% from 1993 to 1997 and in this time we also find that the percentage of people below the poverty line fell to 36%. Could this mean that with a faster growth rate, the percentage of people below the poverty line reduces faster? By the year 2000 the percentage of people below the poverty line dropped 10% to be 26% and that year India grew at 7.24% and since 2003 the country has managed to grow at a fast pace every year and joining in the list of the fastest growing countries in the world clocking an average 8% growth every year which give us an average of 7.26% in the last decade since 2001-2011. Poverty reduction is not an easy task especially when researchers have found that if inequality is high then there is a uphill task to reduce poverty with economic growth and if inequality is low then it is an easier job. We shall be studying the country through panel data of 15 states from 1974 to 2005 with around 5 year gaps. A fixed effects regression shall be used to find the relation of poverty reduction and economic growth with other independent variables. Before we start doing our analysis we shall look at literature of many such economists who have tried to look at this problem from all different perspectives and have found many different ways to find a link between economic growth and poverty reduction and many such different conclusions too. While we talk about the literature, we shall also talk about the states we are going to have a look at so that we can have a better idea of the situation and conclude accordingly. Literature review Gaurav Datt and Martin Ravallion are world renowned economists who have done several papers in their respective fields in economics. This is one time when they come together to do a paper on weather India’s Growth is leaving the poor behind? Signs of Economic growth for India were encouraging for the sole fact that poverty reduction rate could be accelerated. In the 1960s and 70s India’s GDP growth averaged to about 3.4% implying a per capita annual growth rate of mere 1%. Growth in the country accelerated in 1980s and 90s which increased per capita consumption of the country by 1/3rd. This was an encouraging sign after knowing that Growth in the past has lead to an actual reduction in poverty. A survey done by Ravallion and Datt in 1996 with 33 developing countries between 1958-1991, found that high elasticity on the poverty gap indexes signify that the people below the poverty line were benefited with the GDP growth which meant that there was poverty reduction. Hence we can definitely say that before 1991 there was a strong relation between growth and poverty reduction. Many surveys done by different economist’s shows a different picture about the country since 1990. Bhalla (2000) argued that poverty was reduced and Sen (2001) argued that poverty might be stalled or even increased. This paper tries to answer the above questions and conclude a significant result to prove one of those 2 arguments. So here they try and not go into economic reforms and try figuring out what happened to the country’s poor and in the process discuss causes and factors of the responsiveness of poverty to economic growth.
Most of the work here is done through data of NSS (national service scheme). As said earlier different economists found different conclusions and one is of Jha (2000) which concluded that country’s poor were left behind.
The main part of this paper is continued here where we are looking at the country’s growth pattern and aggregate poverty reduction. The fact that high levels poverty is concentrated in a few states, states like Bihar, Madhya Pradesh, Orissa and Uttar Pradesh. But these states do not show any high growth patterns that could help it reduce its poverty. In the 14 major states the co-relation coefficient between the non-agricultural output per person 1994-2000 and the growth elasticity of poverty was -0.1 which is statistically insignificant. The fact is that the rich states are contributing to the country’s GDP the most. Now compared to the states stated above, the percentage of population below the poverty line is much less and so the wealth created does not help reduce poverty as much as it would have helped the poor states.
Another method of assessing the growth and poverty patterns is to find a pattern through the data from 1960-1994 we find that if the same pattern was extended till 1999 then the poverty came down from39.1% to 34.3% which is about 0.8% every year. This is higher than the historic average of 0.6%. But through other data we also realise that the growth rate was much higher in the 1990’s and through certain calculations they find that the poverty reduction rate between 1994-00 should have been around 1.2 or 1.3% per year which is about twice of the actual historic average. Now they try and figure out why was India not able to reduce poverty even though there was a huge scope for it? The answer is found through a cross state regression which states that the initial inequality between the rich and the poor states reduces the prospects for growth mediated poverty reduction.
Factors like less education, agricultural based growth, no markets to sell products, all stands in the way for Growth to effect poverty reduction since jobs are hard to find , since they are either not available since there are no markets and if they are no one is qualified. Initial Urbanization and Infrastructure and access to markets could help reduce poverty. And other conditions such as infant mortality rate, Average farm yield, literacy rate, land distribution are significant predictors of the elasticity of poverty with respect to growth.
To conclude, Gaurav Datt and Martin Ravallion Try their level best to find if there is a link between poverty reduction and economic growth. Through results they find poverty to be reducing every year by just below 1 % in the 1990’s and through other methods other economists found estimates of just above 1%. Not any method can as such be justified but they definitely couldn’t find evidence that could prove an accelerated reduction in poverty with an accelerated growth rate in that decade. The fact that India is such a diverse country it’s hard for all states to respond in the same way. There are certain clues that they find that make it so hard for India to reduce the overall poverty with growth. Growth is concentrated in a few states and so is poverty, and so growth does not meet poverty in many states across the country. If growth occurred in the states where poverty was high, India would have been a different place. And the diversity also makes them realise that , since the poor states do not have the skills or tools to make growth help them come out of poverty, and the rich states do not have the same proportion of poor people.
Besley and Burgess (2003) used World Bank data to find a link between the level of GDP per capita and the reduction in poverty across many developing countries and found that a 1% increase in the GDP per capita leads to a 0.73% reduction in poverty.

The economic growth inequality and poverty reduction (Richard H Adamas Jnr).Richard introduces the paper with an argument of researchers which argue about weather economic growth benefits the poor in the developing world since a paper by Kray and Dollar prove that the growth of the average income of the poorest 5th of the society is proportionate to the growth in the average income of the whole society. This means that economic growth benefits the poor as much as everyone else. On the other hand researchers also believe that economic growth benefits the rich more than the poor leading to further inequality.
Hulya Dagdeviren, Rolph van der Hoeven and John Weeks (2002) did a study of 50 developing countires between 1980 and 1990 to find that economic growth is not the only way to reduce poverty. According to them economic growth income redistribution, which is reducing inequality together is the best way to reduce poverty. But reducing inequality is not an easy process and takes several years and so it does not work with every developing country.
In 1974 Chenery argued that a decade of rapid economic growth in underdeveloped countries has a small or no impact on 1/3rd of the population.
Christiaensen, Demery, and Paternostro(2002) did a study of 8 African countries in the 1990’s to find that economic growth has managed to reduce poverty in these countries and that there was no relationship to be found between economic growth and income inequality and the initial income inequality effects poverty reduction.
In 1973 Adelman and Morris argued that with development the average income of the very poor declines too which means that the millions of poor here are hurt rather than helped by economic development.
These arguments are influenced by Kuznets Hypothesis (1955, 1963) which claims that growth and inequality are related with a inverted U shaped curve. This implies that in early stages of economic growth there is inequality then it will take many years for poverty to reduce.
Most modern studies have rejected Kuznets Hypothesis, where Ravallion says that the data does not imply that growth either increases or decrease inequality. Since inequality stays stable with growth it surely will have some effect on poverty reduction. Exactly how much does growth exactly reduce poverty depends on two factors. First being the economic growth rate itself. A study done by Bruno, Ravallion and Squire (1998) of 20 developing countries from 1984 to 1993, they regress the change in the percentage of population below the poverty line against the economic growth rate and found a statistically significant regression coefficient of -2.12. This means that a 10% change in the growth rate reduces poverty 21.2%. The second factor is the extent of inequality. The same authors did the same thing by regressing the change in the percentage of population below the poverty line against the change in both growth rates and change in inequality. They obtained a statistically significant co efficient of -2.28 for growth and 3.86 for the inequality variable. Economic growth has a better chance of reducing poverty if the inequality is low rather than high. Hence any small change in the inequality will have a huge impact over poverty reduction, so higher the fall of inequality, greater is the reduction in poverty.
This paper finds that when mean income (consumption) is used to find economic growth then there is a strong relation between growth and poverty reduction but when GDP per capita is used, the relation is still there but not so strong.
The fact that growth reduces poverty is because economic growth has a small or no impact on income inequality. A survey found that inequality rises on an average of less than 1% a year. Since some income distributions are even over time we find that economic growth leads to more poor being employed and since a lot of people are clustered in below the poverty line, more labour intensive jobs will make the poor work out of poverty. Economic growth reduces poverty in the developing countries since the average income of the poor rise proportionately to the rest of the population.

Literature Review Specific to India
There is a lot of literature on the growth patterns of most of the states in the country spread out from 1950-2000.
Nair(1983) did a study of 14 states with data of State domestic product (SDP) of years 1950,1955,1960 and 1975. The study showed that inter-state disparities in per capita NSDP, as measured by the coefficient of variation (CV). The CV was about 24 per cent in 1950-51, 18 per cent in1964-65 and 28 per cent in 1976-77. Punjab, Gujarat and West Bengal were the high income states in 1950-51, 1960-65 and 1971-76. Bihar, Orissa and Uttar Pradesh were Low income states.

Roychoudhury (1993)found out that CV of per capita in NSDP in current prices increased from 1967 to 1977 and decreased from 1977-1985, but at constant prices it increased steadily from 1967-1985. Mathur (2001) focussed on the growth patterns of the country in 1980s and 1990s. His study resulted in finding a acceleration in the CV of per capita incomes between 1991-96. The middle income states were starting to converge whereas the high and low income states were diverging. Kurian(2000) did a comparative study of 15 Indian states on social and economic development indicators. Divided the states into 2 parts, the forward group consisted of Andhra Pradesh, Gujarat, Haryana, Karnataka, Kerala, Maharashtra, Punjab and Tamil Nadu while the Backward group is Assam, Bihar, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh and West Bengal.

The states that have had the slowest growth in per capita GDP in 1990’s are the states that had the lowest level of per capita GDP in 1980s and the 2 states with the highest level of per capita GDP in 1980’s( Punjab and Haryana). States which had high growth rates in 1990’s were middle income states.
In theoretical models, a decrease in the costs of trade can in some cases lead to divergence between two trading regions and then later to convergence (Baldwin, Martin and Ottaviano, 2001). Nevertheless, the regional imbalance evident in the 1990s growth process will be an important factor in the following analysis. India’s GDP growth rate averaged 6.7% per year from 1993 to 2000 while agricultural sector grew by 3.2% per year. The dependence of the rural people on the agricultural sector is huge since the agricultural sector employs over a third of the country’s population. Hence the importance of rural economic growth and agricultural sector growth to poverty reduction is quite obvious.

According to CSO data, per-capita consumer expenditure has grown at much the same rate as per capita GDP between 1993-94 and 1999-2000, about 3.5 percent per year in real terms.
When we interpret and compare poverty reduction over time in different states, it’s a good idea to provide the poverty indexes with the growth rate of average per capita consumption expenditure (APCE). In the table below we have APCE growth for every state ranked in ascending order from 1993 to 2000. Here we find regional patterns, the low growth states come from eastern India (Assam and West Bengal) and the World famous BIMARU states which means ill states in Hindi consist of Bihar, Madhya Pradesh, and Uttar Pradesh and also Andhra Pradesh.
The high growth states come from the South except Andhra Pradesh include Karnataka, Kerala, Tamil Nadu ,the Western States , Gujarat and Maharashtra; and the Northern States include Punjab Haryana and Himachal Pradesh . It gets more interesting when we link this data with growth of per capita State domestic product. With a few exceptions, most of the states in the Low APCE growth group had comparatively low per capita SDP from 1993 to 2000 just below 4% and on the other hand most of the high APCE growth group had comparatively high growth rates of per capita SDP.
This relation found above raises a few concerns, where the states that start off with low growth rates also have comparatively low levels of APCE or per capita SDP. What is worth knowing is to what extent this regional pattern found by the APCE data supports poverty decline over states. A problem here is that it is hard to compare the extent of poverty reduction across states. Using Headcount ratios we give an advantage to the states that start out with a high poverty ratio, for example the entire decline in Rural HCR 1993-2000 was 7.4% in Bihar compared to Punjab’s 3.8% and APCE grew by only 6.9% in Bihar compared to 20.9% in Punjab. The reason why there were more people alleviated from poverty in Bihar compared to Punjab is because first of all there is more poverty to alleviate from Bihar then from Punjab and the second reason being that there are more people living closely below the poverty line in Bihar and hence only a little bit of increase in APCE leads to a bigger proportion of people coming out of poverty.
Another way is to look at proportionate changes in HRC’s which is highly correlated with the growth rates of APCE. This shows that poverty reduction is strongly driven by the growth rate of APCE rather than by changes in distribution.
One reason why we talked about this is that many claims that the 1990’s was a huge achievement in poverty reduction, where as the truth could be something much more complicated and that the 1990’s was just a coincidence and that poverty reduction rates were nothing different from before.The growth factor reflects the increase in the per capita expenditure.
We use the table below to analyse the relation between growth rate and poverty alleviation. The first column is the Head count ratio in 1993-94 in all the states, the 2nd column shows the estimated reduction in the HCR associated with a distribution-neutral, 1 % increase in the APCE in the relevant state. For example, a 1% increase in APCE in 1993-94 in Rural Andhra Pradesh with no change in the distribution leads to a 0.9% change in rural head count ratio. Column 3 is the total growth of the state from 1993-1994 to 1999-2000.
Now if we multiply the 2nd column (the derivative with respect to growth) by the third column (the actual amount of growth) we get an approximation of the amount of poverty that has been alleviated with respect to growth only, without any changes in the distribution. In column 4 we estimate what the HRC would have been in 1999-2000 if the distribution of consumption was similar to what it was in 1993-1994, but increased by the amount of growth in real per capita expenditure that took place. This can be done by reducing the 1993-1994 poverty lines by the amount of growth rate that took place and re estimating the HRC with respect to the expenditure data in 1993-1994.
Now these assumed changes can be compared to the actual amount of reduction in the HRC in the 5th column, and the difference could only be characterised by a change in the consumption distribution. We note here that column 4 and 5 are highly co-related with coefficients of 0.97 in rural areas and 0.93 in urban areas, hence we can prove that growth alone can forecast the patterns of reduction in HCR’s.
On the other hand growth single-handedly would have reduced poverty more than what actually was reduced, which means that an increase in inequality could have subdued the growth effect. Inequality effects are different in different states and are far weaker in rural areas than in urban areas.
The actual decline for all India urban estimates in HRC is 5.9% compared to 7.4% that would have taken place if growth was equally distributed within each state.
But a fun fact is that if all households grew at the all India growth rate of 10.9% from 1993-1994 to 2000, then the HCR would have been 21.4%, compared to the actual HCR 22.7%. This means that HCR of India in 2000 was 1.3% higher than what would have been (with the same APCE growth rate) in absence of any increased inequality.
After reviewing most of these authors work on Economic growth, inequality, poverty reduction provides us with a strong consensus on the relationship between these variables. Even though most of them have used different data in different countries with different methods, they all seem to be consistent in believing the fact that economic growth reduced poverty. The effect of inequality on poverty reduction is eminent in most of the authors work that help us conclude that inequality does play a pivotal role in poverty reduction and the fact that economic growth does not ensure a reduction in inequality makes inequality an external factor which can be used to find out relations between economic growth and poverty reduction.

Methodology
The goal here is to evaluate weather economic growth rate of different states leads to poverty reduction in those states and hence an overall reduction in poverty. And what is the effect of APCE on poverty reduction too. And whether consumption expenditure would be a better estimate for a reduction in poverty rather than gdp growth.
The states used here are Andhra Pradesh, Assam, Bihar, Gujarat, Haryana, Madhya Pradesh, Maharashtra, , Kerala, Karnataka, Orissa ,Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh, West Bengal. And the years are 1974,1978,1984,1988,1994,2000,2005.
Poverty could be a function of economic growth. Which means higher the growth higher is the chance of poverty to be reduced and by increasing household incomes and living conditions. When inequality is high this might not be the case, however if inequality is low there is quite a high chance that poverty will be reduced.
Poverty could also be a function of education. Which means a higher education could lead you out of poverty and vice versa. Poverty could be a function of APCE (Average per capita consumption expenditure) which means that with an increase in consumption we can see a trend where percentage of population below the poverty line reduces since for more expenditure their incomes need to be rising as well.
Hence I shall be using Panel data Analysis via Fixed effects regression to test whether the above are or are not a function of poverty alleviation. The Variables we shall be choosing are percentage of population below the poverty line (pbpl), GDP growth rate ( gdpcon), Per capita consumption expenditure(ce), Inequality(ineq) and Literacy rate (litrate). The dependant variable is poverty below the poverty line and the independent variables are the gdpcon, ce, ie, and litrate.
Pbpl= Constant + gdpcon+ ce + litrate+ ineq+ e.
In another situation to check whether there is a correlation between consumption expenditure increase and GDP growth rate we do one more regression where the dependant variable is consumption expenditure and pbpl, ie, gdpcon, litrate are independent variables.
Ce= Constant + gdpcon+ pbpl + litrate+ ineq+ e.

The reason why I am choosing these variables is because in the past many such tests have been done by economists leading them to conclude that there is a relation and the variables are significant. Hence through panel data we shall look at the combined effects of all the state’s variables rather than the country as a whole on poverty reduction. Most of my data has been from an official website called planning commission of India. But some of the data for a few variables was hard to find and hence I chose to take some data from past journals. And I also had to adjust quite a bit of the data since I needed different years than what was provided and through growth methods I managed to speculate what would have been the case in some years.
Empirical Analysis

From the first Regression where poverty below the poverty line is the dependant variable we see that our model has a comparatively high R-sq of 0.556. This shows that our model fits the set of observations well. The objective of this process was to test the significance of GDP growth on poverty reduction. The reason behind this could be that for the last 2 decades, growth has been volatile. This kind of an inconsistent growth rate cannot ensure stable levels of poverty reduction. Poverty reduction has a much more consistent pattern and this could be the reason why gdp growth in our study is not a great determinant of poverty reduction. Although we see that consumption expenditure and literacy rate are significant with a negative coefficient for both the variables which means that both have a negative impact on poverty reduction which means that with an increase in literacy rate and expenditure we see a decrease in the percentage of population below the poverty line. Inequality has been stable for the last 3 decades in the country and normally what we would expect is to see equality go down and poverty to go down too, but in this data set we find that there is still high inequality in the country and so there is no effect of this variable on the percentage of population below the poverty line.
Hence we can see here that out of the 4 explanatory variables, consumption expenditure and literacy rate are significant whereas inequality and gdp growth is not. In the second regression we look at the effects of gdp growth on consumption expenditure with the same explanatory variables and the dependant variable being consumption expenditure. With this regression we see that our model has a very high R-sq of 0.7319. This shows that our model fits the set of observations really well. The objective of this process was to see weather GDP growth is significant. What we find is that 3 of the 4 variables are significant which include GDP growth rate, percentage of Population below the poverty line and literacy rate. Inequality is insignificant here as well. Poverty reduction has a negative impact on consumption which means that if poverty below the poverty line increases then there will be a fall in the consumption expenditure. And in the other cases with an increase in literacy rate and gdp growth there will be an increase in the consumption expenditure. Since gdp growth is significant when consumption expenditure is the dependant variable, and consumption expenditure is significant when percentage of population below the poverty line is the dependant variable. This relation gives us an idea that poverty reduction must have something to do with gdp growth rate, and that is only in this data set that a strong relation has not been found. So this model does not ensure poverty reduction through GDP growth but when we see an relation between growth rates and increase in expenditure, and a relation in poverty reduction and increase in expenditure. Hence not possibly not directly but in out model indirectly GDP growth can reduce poverty.
Conclusion
Poverty reduction remains a big task for India. There have been disputes in the past about the extent of poverty reduction in the country but there is no denying that poverty has reduced over the last 3 decades in the country. There has been a steady decline in poverty since independence and an accelerated decline in the last 2 decades and if the pace keeps increasing, soon India won’t be known as one of the poorest nation in the world. Ravallion’s study provides us with a great insight of the relation between poverty and growth and also the effect equality plays in the process of poverty alleviation. After our regression results we can conclude that economic growth in India as a whole is stable but when we look at individual state level growth it is volatile. 15 states with a few which have a real high literacy rate compared to the others, a few states which have a real high percentage of population below the poverty line compared to others, a few states where growth is really high compared to the others provides us with a very diverse idea of the situation of these economic factors in India. The effect of economic growth on reduction in poverty is not seen here since we find growth as insignificant but we find that per capita consumption expenditure is significant in reducing poverty which happens only when there is a growth in the economy. Literacy rate is a very significant factor to reduce poverty and since inequality does not change much in the 3 decades there is not much of an effect of it on reducing poverty. But all said and done, there is no denying that India can only achieve its goal of reducing poverty by a large extent if there is an equal distribution of income. Higher the inequality, harder it is to reduce poverty through growth and hence what India requires is not only increasing growth but also increasing equality.
APPENDIX
http://planningcommission.nic.in/data/datatable/0211/data%2040.pdf http://planningcommission.nic.in/data/datatable/0211/data%2044.pdf http://planningcommission.nic.in/data/datatable/0211/data%2042.pdf http://planningcommission.nic.in/data/datatable/0211/data%20102.pdf http://planningcommission.nic.in/data/datatable/0211/data%20135.pdf http://www.planningcommission.gov.in/aboutus/speech/spemsa/msa007.pdf Table 7,table 4 http://www.rbi.org.in/scripts/statistics.aspx http://www.princeton.edu/rpds/papers/pdfs/deaton_dreze_poverty_india.pdf Table 7,table 4

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Gaurav Datt and Martin Ravallion
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[ 13 ]. Economic growth and social equity in Developing countries. By Adelmen, Cynthia Morris Standfod University Press.
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[ 15 ]. http://books.google.co.uk/books?id=JZ90M5oEV8gC&pg=PP3&lpg=PP3&dq=squire+martin+bruno&source=bl&ots=LfYeBipsJa&sig=2RXXkCGPLv_6CesAHs7kr0TAAYQ&hl=en&sa=X&ei=5FhRT4WtG6bP0QXSy9SiBw&ved=0CDEQ6AEwAw#v=onepage&q=squire%20martin%20bruno&f=false
[ 16 ]. Nair, K.R.G. 91982), Regional Experience in a Developing Economy, Wiley Eastern,
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[ 17 ]. Mathur, A. (2001), “National and Regional Growth Performance in the Indian
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[ 18 ]. Kurian, R. (2002). India: To Act and Learn. In (pp. 41-55) Oslo: Fafo.
[ 19 ]. Baldwin, Richard & Martin, Philippe, 2003. "Agglomeration and Regional Growth," CEPR Discussion Papers 3960, C.E.P.R. Discussion Papers.
[ 20 ]. http://www.princeton.edu/rpds/papers/pdfs/deaton_dreze_poverty_india.pdf
[ 21 ]. http://www.princeton.edu/rpds/papers/pdfs/deaton_dreze_poverty_india.pdf table 4
[ 22 ]. http://www.princeton.edu/rpds/papers/pdfs/deaton_dreze_poverty_india.pdf

References: [ 2 ]. Ravallion, Martin, Gaurav Datt and Dominique Van de Walle, 1991 “Quantifying Absolute Poverty in the Developing World.” Review of Income and Wealth 37: 345-361. [ 16 ]. Nair, K.R.G. 91982), Regional Experience in a Developing Economy, Wiley Eastern, New Delhi. [ 17 ]. Mathur, A. (2001), “National and Regional Growth Performance in the Indian Economy: A Sectoral Analysis”, paper presented at National Seminar on Economic [ 18 ]. Kurian, R. (2002). India: To Act and Learn. In (pp. 41-55) Oslo: Fafo. [ 19 ]. Baldwin, Richard & Martin, Philippe, 2003. "Agglomeration and Regional Growth," CEPR Discussion Papers 3960, C.E.P.R. Discussion Papers.