What has happened to the Indian economy over the last two decades ? The general consensus is that there has been a significant expansion of the economy, but that the rural areas have been ‘left out’, leading to an economic and social chasm between India and Bharat. I have talked about this chasm in a qualitative sense before. The objective of this post is to provide a more quantitative discussion regarding the rural-urban inequality. How much richer did urban India really get compared to the rural areas ? How do these patterns vary across different areas ? What about the rural economic growth numbers ? The paper ‘Lineal Spread and Radial Dissipation‘ published by Anirudh Krishna of Duke University and Devendra Bajpai of the Birla Institute of Management Technology provides some answers to these questions.
One critical aspect of any quantitative analysis is the definition of variables; what to measure, where and when to measure it. Clearly, one can just look at populations in rural and urban areas, and then compute the appropriate economic metrics for both. However, Krishna and Bajpai refine this process a step further by introducing a ‘distance from an urban centre’ metric. Basically they subdivide the population into four categories:
- Urban areas (cities and towns)
- Villages less than 5 km away from an urban area
- Villages between 5 and 10 km from an urban area
- Villages more than 10 km away from an urban area
The authors mention the rationale for such a subdivision as follows,
Distance from market, both physical and cognitive, can importantly influence an individual’s economic prospects.
The physical distance from the market here is captured by the distance from an urban area; since urban areas are the major market area in India. The authors then computed the change in income (adjusted for inflation) in each of the four subdivisions between the years of 1993 and 2005. The figure below summarizes their results,
The figure clearly illustrates that economic growth has been rapid and concentrated in urban areas and their peripheries. But alarmingly, in areas outside this urban and peri-urban circle, where the majority of population lives, incomes have actually fallen ! The authors point out that,
Being less well linked to towns is no longer a matter of merely standing still, of being a bystander left behind by the train of economic progress. Those who were left behind have tended to fall further behind.
Perhaps, the difference in the income growth rates between places in and around urban areas and the rural core would not be surprising for most readers. The serious question though is why have the incomes in rural areas actually declined. And the question becomes even more serious if we look at the changes in income for different income groups (very poor, poor, lower middle, middle and rich/upper middle class) within a single subdivision.
Figure 2 shows these changes for the population living in villages more than 10 km away from an urban area,
The figure above is shocking. The Indian government and media goes into a huff when the rupee falls or the stock market fluctuates. Analysts and experts predict dire futures if FDI inflows fall down or if ‘market sentiment is hurt’. But the wholesale impoverishment of the poor and very poor in Bharat, (who certainly make up a huge chunk of the population, if not the majority) did need not merit alarm ? The author’s point out,
To be further away from towns and markets is a bane in this era of market led growth, but to be poorer and further away is a recipe for disaster.
To see others get rich while not being able to improve one’s own income is irksome. But others getting rich while one gets poorer is usually seen as an injustice. In my opinion, Figure 2 partly explains both the defeat of the BJP led NDA in 2004 and the rise of left wing extremism in the 2000’s.
Is there a silver lining ? If one sees the analog to Figure 2 for rural areas within 5 km from an urban area, we see perhaps a more promising picture.
We see that even the most poor section of urban and peri-urban Indians saw inflation adjusted incomes improve between 1993-2005. This shows that India’s growth can indeed reduce poverty and improve the lives of all its people, and achieve the much vaunted ‘inclusive growth’ goal. The NREGA (implemented post 2005) was an attempt in this direction. It would be interesting to see how the NREGA has affected Figures 2 and 3 since its inception. In its ideal form, the scheme provided a direct boost to the incomes of the poor and very poor in Bharat and in the process employed them to create the infrastructure for future rural economic growth. Perhaps, the Congress led UPA’s success in the 2009 election indicates that the scheme did indeed address some of these imbalances.
However, the NREGA will not form an engine for growth by itself. It addresses inequality by state investment, not actual wealth and job creation. Creating the conditions for such wealth and job creation remains a challenge for Indian society and its government.
Readers might also be interested in reading: ‘The Three Layers of Emerging India‘
(Thanks to Vinay Pandey for Figure 1, Akanksha Jain for Figure 2 and 3)