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Decreasing poverty and increasing inequality in India

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India's GDP accelerated in the post‐reform period, but it was accompanied by rising inequality. This growth in inequality can be partly traced to the peculiar sectoral composition of India's growth, with the tertiary sector taking the lead in terms of both employment and value added. This rather unique feature of India's growth can in turn be traced to the dualistic nature of India's modern (non‐household) manufacturing sector ‐ with the two strong modes of very small‐sized firms (fewer than ten workers) and very large firms (500 or more workers). The dual structure of manufacturing is partly caused by the content and implementation of labour laws, but other factors connected with education, infrastructure and industrial policies are equally, if not more, important. The resultant concentration of employment growth in the large informal sector has left policy makers struggling to build adequate systems of social protection and assistance which extend benefits to workers in this sector as well as to the formal sector of the labour market. These programmes have been enacted in various fronts, but have still not been implemented adequately.

Document Type: Review Article

Publication date: 2010-10-01

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