Economic inequality in Gujarat worsens under Narendra Modi

In my previous posts this series on economic development performance of BJP and Congress, I analyzed the GDP growth and Human Development Index improvement achieved by Gujarat under Narendra Modi, in comparison to other peer states. In this post, I will address changes in economic inequality in Gujarat under Modi and compare it to similar changes in other states. Similar analysis of economic inequality in India under UPA can be found in another post.

The questions I seek to answer here are:

  • What was the improvement in the economic situation of the rural and urban poor in Modi’s Gujarat? How about the abject poor in both rural and urban areas?
  • How do those improvements compare to improvements achieved in other states during the same time period?

The key data for my analysis are from the National Statistical Surveys on household expenditure. These surveys tell us how much people are spending per person per month in rural and urban areas. This is not a measure or income or wealth, but of consumption. Poor people spending just Rs. 720 per person per month (at 2011 prices) do not have significant savings, and tend to spend most of what they earn. So when looking at the situation of the poor people, these data provide a good proxy for improvements in the income at the bottom rungs of the economic ladder.

There are several problems with the official definitions of poverty levels, so I chose not to use them. Instead, I took the actual consumption thresholds from the NSS 2011 which characterize the bottom 20% of rural and urban India. According to the survey, the bottom 20% of rural people in India spent less than Rs. 720 per person per month in 2011. In urban areas, the bottom 20% spent less than Rs. 1,090 per person per month.

In order to compare different states, I analyzed the percentage of population in each state that was below these thresholds. I then compared them to the percentages in 2004, after adjusting for inflation. The chart below shows a comparison of the situation in ten major states.

ten-states-percentage-of-poor-people

The states in this chart are ordered by percentage of poor people in 2011, worst at the top. This is how you read the chart. On the left hand side, the total length of each bar (including both colors) shows the percentage of population that was “poor” in 2004 in that state. The red bar shows the percentage that was “poor” in 2011. The green bar, then, represents the improvement between those years. The threshold used for poverty is the same for both years; i.e. the red bar shows what percentage of the population spent Rs. 720 or less a month in 2011, while the sum of red and green shows the percentage of population that spent Rs. 720 at 2011 prices in 2004. The percentage in parentheses in each green bar is the degree of improvement.

My key take-aways from this chart are:

  1. Gujarat had less poverty to begin with in 2004, than all states in the chart except Rajasthan. In urban poverty, Gujarat was the best in 2004.
  2. When it comes to reducing rural poverty, Gujarat was behind Andhra Pradesh, Karnataka, and Tamil Nadu. It matched the performance of Maharashtra. Gujarat did better than Uttar Pradesh, Bihar, Madhya Pradesh, Rajasthan, and West Bengal.
  3. When it comes to reducing urban poverty, Gujarat was again behind its southern and western peers, and even Rajasthan. Gujarat did better than West Bengal, Bihar, Uttar Pradesh, and Madhya Pradesh. In 2004, AP had twice its urban population in poverty; by 2011, it had caught up with Gujarat on urban poverty. In this period, Gujarat has lost is position as the best on urban poverty; it is now behind Kerala and Maharashtra, and tied with Andhra Pradesh.

Now, let us see if the picture changes much when we analyze how the poorest of the poor did. For this, let us consider people in the bottom 5% of the national consumption levels. In 2011, the bottom 5% of India’s rural people spent Rs. 525 per person per month. The bottom 5% of India’s urban people spent Rs. 725 per person per month on average. The chart below shows how the percentage of each state’s population that falls in this “bottom 5%” bucket changed between 2004 and 2011.

ten-states-percentage-of-poorest-of-the-poor

My key take-aways from this chart are:

  1. Gujarat’s starting position in 2004 for abject poverty was similar to its position for the broader definition of poverty: best in urban areas, better than all except Kerala in rural areas.
  2. When it comes to reducing abject poverty in rural areas, Gujarat is behind Tamil Nadu, Andhra Pradesh, and Karnataka. It is ahead of the other states.
  3. When it comes to reducing abject poverty in urban areas, Gujarat is behind Andhra Pradesh, Maharashtra, and Rajasthan. Andhra Pradesh and Maharashtra, which used to have twice the level of abject urban poverty in 2004, have caught up with Gujarat.

The results of the analysis for the bottom 5% consumption level are consistent with those from analyzing the bottom 20% consumption level. Gujarat has a middle-of-the-road performance under Narendra Modi when it comes to reducing poverty. Gujarat easily beats states like Uttar Pradesh, but it lags behind the southern states and Maharashtra. During this time period, Gujarat has actually lost the lead it had on other states, in terms of the percentage of its people that were in the nation’s bottom 20% consumption group. Gujarat has made less progress on combating poverty than states that grew slower than Gujarat. This means that inequality has increased more rapidly in Gujarat than it has in these other states.

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