chapter  5
20 Pages

India: Rashmi Banga and Shruti Sharma


The ongoing process of economic globalisation has led to an ever-growing debate on the relationship between trade, growth and poverty reduction. An important dimension which has often been ignored in this debate is the impact of openness to trade on growth and poverty at the sectoral level. Since the relationship between trade and poverty is multi-faceted, to estimate the overall impact of trade on poverty as a whole may not be appropriate. What is desirable is to estimate the impact of trade on producers and consumers in different sectors. This will enable the economy to be better prepared to face the challenges of trade. In this context, the main objective of this chapter is to empirically estimate the impact of exports and imports on indicators of poverty, i.e. wages and employment of unskilled labour in agriculture and manufacturing sectors in India. One of the concerns that arise in undertaking such an exercise for India is

the absence of continuous time series data on the number of people below the poverty line or of the poverty gap. The data on headcount ratio (HCR) or poverty gap are available from large sample surveys which have been carried out since 1972-3, every five years, by the National Sample Survey Organisation. However, these survey results are not comparable. In particular, the results for 1999-2000 are not comparable to those in 1993-4. This makes it difficult to empirically estimate the impact of any trade-related variables on direct indicators of poverty over time. The chapter therefore estimates the impact of trade on an indirect indicator of poverty, which is wages of unskilled workers in the manufacturing sector and the agriculture sector. Another concern that arises in estimating the impact of trade on indicators

of poverty in the manufacturing sector is the lack of data on trade at the industry level. The data at the industry level is available from the Annual Survey of Industries (ASI), while the data on trade is available at the product level. To undertake this exercise, a concordance matrix has been constructed to match eight-digit HS 2002 codes to three-digit National Industrial Classification (NIC), and trade data at the industry level is arrived at. The analysis has been undertaken for the organised manufacturing sector at

three-digit industry level for the period 1998-9 to 2005-6.1 For the agriculture sector, the impact of trade on wages of unskilled agricultural labour is

estimated at the state level for total agricultural products and separately for five agricultural products, i.e. cereals; fruits and nuts; vegetable, roots and tubers; and oilseeds. The period of analysis is 1990-1 to 1999-2000, for which the data on wages to unskilled agricultural workers is available. The chapter is organised as follows: section 2 briefly reviews the empirical

studies on the trade-poverty nexus in India; section 3 outlines the trends in trade, growth and poverty in India; section 4 discusses the methodology adopted to estimate the impact of trade on wages; section 5 presents the empirical results in the manufacturing and agriculture sectors; finally section 6 derives conclusions and policy implications.