Urban Growth and Rural Poverty in India

Analysis of time series data on poverty in India has revealed a clearly discernable link between urban poverty decline and rural poverty decline. Previous analysis, focusing on the pre-reform period, had failed to identify an impact of urban development on rural poverty. This paper examines one possible route through which urban development might have come to exercise an influence on rural livelihoods: the impact of urban development on rural non-farm diversification. The paper shows that the non-farm sector in rural India has grown steadily during the past 25 years, with some acceleration during the late 1990s and first half of the present decade. This process has contributed to declining rural poverty both directly, through employment generation, and indirectly through an impact on agricultural wages. The paper illustrates that urban consumption growth contributes to growth in the rural non-farm economy, and thereby to rural poverty reduction. It speculates that the link from urban development to rural poverty reduction might have been stronger if urban poverty reduction had been centered in India‘s smaller towns and cities. It is in such small towns and cities that the bulk of the urban poor are concentrated, and these same towns and cities are also more tightly connected to surrounding rural areas. The paper ends by asking whether the patterns described here are unique to India, and presents evidence for Brazil that suggest that a similar process may be underway there.