Trends and prospects for poverty reduction in rural India: context and options

This paper lays out the macroeconomic and structural contexts for poverty reduction in India and discusses opportunities and constraints in relation to public investment and service provision that have a bearing on rural livelihoods. On the basis of evidence shedding light into how public services and investments have or have not been accessed by poor people at local level, the authors find that:that around 70% of the poor in India live in rural areas, mainly in areas weakly integrated into mainstream economic, political and social infrastructures, and over 70% of these rely mainly on agriculture, more than half being primarily agricultural labourers.there has been substantial economic growth, averaging 6%/yr in the 1990s, but with some evidence of recent slow-down, especially in agriculture. Particularly strong growth in high-skill sectors such as ITrelated industries and financial services, which have low multiplier effects on employment prospects for the poor.there has been limited progress in strengthening the financial sector, so that a high proportion of loans remain outstanding and the performance of banks, especially rural banks, is weak.agriculture continues to be the most important source of employment and self employment in rural areas, but is diminishing in importance, with a decline in the proportion of all rural households receiving income from cultivationthe prospects for public investment in general, and for expenditure geared specifically towards poverty reduction, are overshadowed by a severe deterioration in public finances, both at the centre, and (especially) at state levels.there is a case for examining whether the resources used for poverty alleviation schemes and for various types of subsidies in the name of the poor may not be more effective in alleviating poverty if directed to various types of asset creation programmes in rural areas.governance: in the present context, at the higher levels of publi sector perormance is characterised by by the allocation of portfolios and funds in ways intended to consolidate ruling alliances, and at middle and lower levels by the diversion of funds towards current or potential political supporters.[adapted from author]