Policy Strategy and Instruments for Alleviating Rural Poverty

The paper departs from the present policy emphasis for and more recent literature on rural poverty in advocating six major conclusions based on its validation of a multi-variate model explaining the behaviour of this poverty for 1960-61 to 1990-91 which is extended up to 1993-94. These are: One, contrary to the view that non-agricultural growth would provide off-farm employment opportunities to the rural poor we think that the strategy underlying such growth at an all-India level being capital-intensive with limited demand pull growth these opportunities do not bear fruits for the rural poor. What is, therefore, required is to shift industrialization strategy from “Machines First” to “Textiles First” which has high and dispersed employment and income multipliers and linkages. Two, what follows from the above suggestion is that agricultural growth should receive higher priority than is accorded now. And since such a growth has no trade-off with poverty ratio it would alleviate this poverty more rapidly. Three, the strategy for technology-led agricultural growth is even more potent than either poverty alleviation programs or land redistribution measures in alleviating absolute rural poverty. This follows from the finding that total factor productivity in agriculture is relatively more important than these other policies and programs in reducing this poverty. Rapid and broad-based technical change would therefore require higher priority for government expenditure on agricultural R&D, extension, irrigation and watersheds, electricity, seeds, rural roads etc. it would also require encouraging private investments in seeds, fertilizers, pesticides, farm implements and machinery through more conducive interest rates on (rural) credit and fiscal and other incentives for industries making these inputs. Four, between the poverty programs and land reforms latter may be prioritized more. But between egalitarian tenancy reforms and land ownership distribution the former may be more emphasized as inequality in land ownership unlike in operational land seems to generate process that alleviate rural poverty ration. Simultaneously, land consolidation programs also need to be urgently undertaken to make effective farm size lartger. Five, economic programmes for poverty alleviation may be prioritized next. These programs also need to have better sectoral integration such as for agriculture, dairying, fisheries etc. with an emphasis on technical change as these have a lion’s share in rural work-force. And six, price reforms through macro stabilization measures, and through reducing protection to trade and industry have the least impact on alleviating absolute rural povery. This may be because (a) inflation is more of a structural rather than monetary phenomenon, and (b) industries and business that are protected produce products that are perhaps remotely connected to poor’s consumption pattern.