Economic liberalisation strategies and poverty reduction across Indian states

The focus of the study is the pace of poverty reduction across Indian states and its determinants. In particular, the role of foreign direct investment (FDI) and industrialisation in reducing poverty is examined. Empirical evidence shows that poverty reduction did occur during the 1990s following the implementation of India's economic liberalisation program, which included mainly industrial and FDI policy reform. The empirical analysis shows that, thus far, FDI has not contributed significantly to poverty reduction, but it did influence structural changes in the economy, particularly with respect to industry, which is an important driver of poverty reduction. The analysis clearly shows that states with dominant industrial sectors have been able to reduce poverty faster than states dominated by agriculture. It is argued that targeting of FDI in India has been misplaced. Had it been in the more labour-intensive manufacturing, it would have more effectively contributed to the reduction of poverty. Copyright © 2010 The Authors. Journal compilation © 2010 Crawford School of Economics and Government, The Australian National University and Blackwell Publishing Asia Pty Ltd..