Income distribution, inequality and poverty in Sri Lanka, 1963-82

The relative intensity of concern between growth and distribution has now gone full circle. The achievement of a high rate of economic growth, the major emphasis of the development strategy, that reached its peak in the "decade of development" in the 1960s, ceded its place of priority to redistribution and eradication of mass poverty in the 1970s. A backswing of this emphasis, from redistribution to growth and from direct distributional measures to the "trickle-down", has been evident since late 1970s. The world has once again brought the objective of growth to the forefront and redistribution to a relatively low priority. The present study is carried out in the context of this changing emphasis of growth and distribution. This study analyses the pattern of income distribution and poverty in Sri Lanka over the last three decades using income and consumption data gathered from four nationwide surveys of 1963, 73, 79 and 82. The study adopts an analytical approach, distribution of incomes are examined using two types of disaggregation, by economic sectors and ethnic groups. Standard summary and descriptive measures of income inequality are employed. Poverty is analyzed using two poverty lines; absolute versus relative. Separate poverty lines are defined for three major socioeconomic regions: urban, rural and estate. Absolute poverty lines are defined on the basis of chosen basic needs, and relative poverty lines on the basis of overall living standards of the community. Relative inequality of incomes in Sri Lanka declined between 1963-73 and worsened after 1973. The changes are broad based; inequality of size distribution of personal, family [spending units] and per capita incomes declined between 1963- 73 and increased between 1973-82. A similar change in the income inequality was evident among all ethnic groups and within major industrial sectors. This change in the pattern of income distribution is not merely a statistical artifact. It has been accompanied by significant changes in the living standards of the lower income groups. This inference emerges from the analysis of the incidence of absolute poverty. The percentage in absolute poverty in the economy, as well as within three major socio-economic regions, [urban, rural and estate], declined significantly between 1963-73. Between 1973-79 and 79-82 the opposite occurred, the incidence of absolute poverty increased, with such increases most pronounced between 1973 - 79. The change in the relative poverty however, was less pronounced during this period. The changes are explained by referring to the development strategy and growth patterns of the economy. In contrast to many of the suggestions in literature, Sri Lankan experience indicates that the pattern of distribution of incomes of an economy is influenced largely by the policy measures rather than the growth per se. Finally, the results suggest that the shift from redistribution to 'trickle-down' which occurred during the latter part of the 1970s has brought increased economic inequalities among the Sri Lankan population in general, and an absolute impoverishment among the lower income groups in particular