In an attempt to delineate the sources of change in the incidence of poverty in India and
to assess their relative contribution in reducing (or raising) the poverty incidence in the
eighties and nineties this paper employs two decomposition exercises. The first one
expresses the percentage change in the poverty index between two time points into
growth effect, inequality effect and the population shift effect while the second one
measures it in terms of changes in per capita income (GDP), sectoral composition of
value added, labour productivity and employment in organized manufacturing relative to
the poor who are largely engaged in low productivity activities. The growth effect which
dominates over the inequality and population shift effects caused poverty to decline both
in the eighties and nineties. A rise in the beneficial effect of growth both in the rural and
urban areas and a fall in the adverse inequality and population shift effects in the urban
areas in the nineties compared to the eighties, are noteworthy. The change in the
composition of growth (the shift in value added mix towards industry and tertiary
activities) seems to have caused a larger decline in the incidence of poverty in the
nineties than the eighties. Labour productivity growth and employment growth in the
organized industry are also important for poverty reduction. Economic reforms seem to
have a positive effect on the levels of living though a great deal needs to be done to
reduce inequality in the process of growth and make the latter pro-poor.