Illiteracy, Poverty, Unemployment
and Population Growth
Lecture 8
Poverty: Measurement and Causes
Absolute Poverty
When Income of a person is not sufficient to provide
the basic necessities of life, he/she is said to be in absolute poverty.
Relative Poverty
Relative poverty occurs when a comparison of the
standard of living or income distribution of various income groups is
undertaken in a country. The income inequalities between different groups are a
reflection of relative poverty.
In India people living below poverty line are quite
high as compared to other Asian countries like Malaysia, Thailand and China.
According to the projections of the Planning Commission poverty is expected to
decline to 18 per cent in 2002 and further to 4 per cent in 2012.
Measurement of Poverty
The Planning Commission set up a Study Group in
July 1962 to examine the question of poverty in the country. The Study Group
suggested a private consumption expenditure of Rs. 20 (at 1960-61 prices) per
capita per month as a basic minimum requirement of life, below which are
regarded as poor. In 1979, following the recommendation of the Task Force on
Projection of Minimum Needs and Effective Consumption Demand, the poverty line
is defined as “the per capita monthly expenditure needed to obtain the
consumption of 2,400 calories per-capita per day in rural areas and 2,100 in
urban areas in the base year 1973-74.” The poverty line so defined was Rs.
49.10 for rural areas and Rs. 56.60 for urban areas per capita per month. The
same poverty line was updated for subsequent years using stable indicators of
changes in cost of living.
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International Poverty Line
World Banks estimates suggest that the percentage
of people living below $1.25 a day in 2005 (which, based on India‟s PPP rate,
works out to Rs 21.6 a day in urban areas and Rs 14.3 in rural areas in 2005 )
decreased from 60% in 1981 to 42% in 2005. Even at a dollar a day ( Rs 17.2 in
urban areas and Rs 11.4 in rural areas in 2005 ) poverty declined from 42% to
24% over the same period.
Poverty in India
Indian Poverty Line
India‟s official poverty measure has long been
based solely upon the ability to purchase a minimum recommended daily diet of
2,400 kilocalories (kcal) in rural areas where about 70 percent of people live,
and 2,100 kcal in urban areas. Rural areas usually have higher kcal
requirements because of greater physical activity among rural residents.
The National Planning Commission, which is
responsible for the estimate, currently estimates that a monthly income of
about Rs. 356 (about US$7.74) per person is needed to provide the required diet
in rural areas and Rs. 539 in urban areas. Factors such as housing, health
care, and transportation are not taken into account in the poverty estimates.
The Planning Commission's estimates are significant
since they are used to determine the official national and state level below
poverty line (BPL) population. The BPL population is currently estimated at 29
percent in rural areas and 26 percent in urban areas. The BPL estimates set a
rough ceiling on how many people are eligible for BPL identity cards, which
provide some commodities at greatly reduced prices.
The income amounts given above to estimate the BPL
population have been criticised by critics as “ridiculously low” and “astounding”.
To address the issue, the Tendulkar Committee was set up in 2008 and reported
its recommendations in November 2009. It proposed that the previous calorie
requirement be eliminated and that national and state poverty lines be based on
the current urban estimate of 26 percent. After adjustment, the rural poverty
percentage was increased from 29 percent to 42 percent. The monetary cutoffs
were raised to Rs. 447 of expenses a month for rural areas and Rs. 579 a month
for urban areas. These new poverty lines also accounted for education and
health needs.
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Although the direction of change was clearly
correct, it was branded as “meager” by one researcher who pointed out that
raising the rural daily minimum income from Rs. 12 to Rs. 15 alone added over
100 million to the BPL population. In addition, given the fact that the
2004-2005 NSS showed that 77 percent of the population had an average daily
income of just Rs. 16, there are vast numbers barely above the poverty line who
are nonetheless excluded from BPL benefits. The committee was also careful to
point out that, despite the higher estimate of poverty, their analysis of past
surveys showed that poverty had declined as the government had previously
claimed.
In 2008, the Union (national) Rural Development
Ministry set up a commission to examine alternative methods of estimating
poverty. The commission reported its findings in late 2009. The Commission felt
that monetary amounts specified by the Planning Commission for a minimal diet
were too low. Instead of Rs. 356 a month per person in rural areas, Rs. 700 was
considered necessary (Rs. 1,000 in urban areas). The Commission recommended
that the proportion of the rural population living below poverty be raised to
at least 50 percent. But the figure was achieved by lowering the rural kcal
requirement to 2,100, the same as in urban areas, and adding a minimum monthly
cereal consumption of 12.25 kilograms. If the 2,400 kcal criterion had been
kept, the percentage of India's rural population living in poverty would have
risen to about 80 percent.
Two other Indian estimates are worth mentioning.
The National Commission for Enterprises in the Unorganised Sector (NCEUS) was
established in 2004 to examine ways to provide the welfare of that group. The
unorganized sector comprises 86 percent of the Indian labour force and nearly
always works below the daily minimum wage of Rs. 152 per day, have no benefits,
pay no taxes, and often have little or no job security. In its study, NCEUS set
an overall minimum of Rs. 20 per day per person as its poverty cut-off and
calculated that 77 percent of Indians live below poverty.
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The figure of Rs. 20 per day was cited in the
Central Government‟s Economic Survey 2008-2009, but in recalculating poverty
based on the 2004-2005 NSS it estimated that 60.5 percent lived in poverty
nationally – 72 per cent in rural areas and 32 percent in urban areas.
The World Bank estimates that 41.6 percent of
India's population lives below $1.25 per day and 75.6 percent live below $2 per
day measured on PPP basis.
It is clear from the studies cited above that
relatively minute changes in daily rupee cut-offs can add hundreds of millions
of people to the poverty population. Thus, the official BPL figure currently used
defines those living in truly abject poverty. The NCEUS, in its reports, noted
that India's recent economic growth had simply bypassed the vast majority of
the population, benefitting a relative few.
Statewise Poverty Comparison
Incidence of poverty varies largely across states.
On the one end of the spectrum lie the developed states like Punjab and Haryana
where poverty ratio lies within a single digit, while Orissa and Bihar lie at
the other end with above 40 percent of the population remaining below the
poverty line in recent years.
The overall ranking of states has not undergone
much change over the years. The highest poverty incidence continues to prevail
in Orissa for rural areas and in Madhya Pradesh for urban areas. Bihar and
Uttar Pradesh too have high poverty.
Poverty incidence is the least in Punjab at 5-6% of
the population in both rural and urban areas. Haryana ranks second best with
8-10% poverty. Kerala and Andhra Pradesh have made big progress in reducing
rural poverty to a low level of about 10% in rural areas, but not as much in
urban areas. Kerala, Andhra Pradesh, Punjab, Haryana and Gujarat are among the
best performing states in terms of poverty reduction. These are also the states
which have been doing better than average on the growth front. Karnataka and
West Bengal, the two best performers on the growth front in the post reform
era, have reduced poverty only moderately.
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Incidence of Poverty
Incidence of poverty varies widely across social
groups. High incidence of poverty prevails among the scheduled tribe and
scheduled caste population, which have suffered from social and/or economic
exclusion for centuries in India. More than 45% of households among the ST
group are poor while the corresponding number is only 15% among the
non-backward households classified under the „others‟ category, Data suggests
that the ¾th of the rural poor belong to the category of landless labourers and
marginal farmers. The incidence of poverty is highest among agricultural labour
households (59%), labour households (38.5%) and among Marginal Farmers (30%).
Factors responsible for poverty are Unemployment or underemployment among rural
labourers. It has been established that incidence of unemployment is highest
among the casual labourers. Even when they are employed, their weak bargaining
power results in low wages being paid to them. The market forces are so strong
that the minimum wage legislation is observed more in breach than in
compliance.
Another cause of rural poverty is low asset base of
the poor. According to data – worst 10 percent of rural population owns
virtually nothing and bottom 30 percent just own 2 percent of total assets. It
may also be noted that large number of rural poor remain in poverty not only
because they have very few assets, but also because most of these assets are in
the form of durable consumer goods, rather than assets such as land,
implements, livestock etc. which can increase their productive capacity.
Another major cause is low educational attainment of the poor. These
educational differentials are one of the main factors for relatively lower
level of income among poor. Another popular myth for poverty is rapid increase
in population. Population growth puts pressure on the land base and as a
consequence the real per capita income falls. Semi-feudal agrarian relation is
another important cause of poverty. Land reforms initiated after independence
has not brought about substantial changes in agrarian relations.
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Trend of Poverty in India
The proportion of India's population below the
poverty line has fluctuated widely in the past, but the overall trend has been
downward. However, there have been roughly three periods of trends in income
poverty.
·
1950 to mid-1970s: income poverty
reduction showed no discernible trend. In 1951, 47 per cent of India's rural
population was below the poverty line. The proportion went up to 64 per cent in
1954-55; it came down to 45 per cent in 1960-61, but in 1977-78, it went up
again to 51 per cent.
·
Mid-1970s to 1990: Income poverty
declined significantly between the mid-1970s and the end of the 1980s. The
decline was more pronounced between 1977-78 and 1986-87, with rural income
poverty declining from 51 per cent to 39 per cent. It went down further to 34
per cent by 1989-90. Urban income poverty went down from 41 per cent in 1977-78
to 34 per cent in 1986-87, and further to 33 per cent in 1989-90.
·
After 1991: This post-economic
reform period evidenced both setbacks and progress. Rural income poverty
increased from 34 per cent in 1989-90 to 43 per cent in 1992 and then fell to
37 per cent in 1993-94. Urban income poverty went up from 33.4 per cent in
1989-90 to 33.7 per cent in 1992 and declined to 32 per cent in 1993-94. Also,
NSS data for 1994-95 to 1998 show little or no poverty reduction. The evidence
till 1999-2000 was that rural poverty had increased during post-reforms period.
However, the official estimate of poverty for 1999-
2000 was 26.1 per cent, a dramatic decline that led
to much debate and analysis. The latest NSS survey (2004-05) shows poverty at
28.3 per cent in rural areas, 25.7 per cent in urban areas and 27.5 per cent
for the country as a whole, using uniform recall period consumption. These
suggest that the decline in rural poverty over the period during 1993-94 to
2004-05 actually occurred after 1999-2000.
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Vicious Circle of Poverty
The vicious circle of poverty refers to the
interconnectedness of different factors that reinforce each other for
generating poverty. According to Nurkse and Kindleberger the reasons for this
vicious circle of poverty can be classified into three groups.
·
Supply side factors
·
Demand side factors
·
Market imperfection
Supply Side Factors
The supply side of the vicious circle indicates
that in underdeveloped countries, productivity is so low that it is not enough
for capital formation. According to Samuelson, "The backward nations
cannot get their heads above water because their production is so low that they
can spare nothing for capital formation by which their standard of living could
be raised." According to Nurkse on the supply side there is small capacity
to save, resulting from low level of national income. The low real income is
the result of low productivity, which in turn, is largely due to the lack of
capital. The lack of capital is a result of the small capacity to save, and so,
the circle is vicious. Thus, it becomes clear from the above diagram that the
main reason of poverty is the low level of saving. Consequently, investment is
not possible in production channels. A huge chunk of GDP is used for
consumption purposes.
People cannot save. So, there is lack of investment
and capital formation. Although rich people can save, they spend their surplus
in some on luxurious goods instead of saving. They gave preference to high
priced items and foreign products. Thus, their demand does not enlarge the size
of the market. The developing countries, therefore, lack investment facilities.
Demand Side Factors
According to Nurkse, poverty is caused by several
factors in the demand side. In underdeveloped countries the inducement to
invest is low because of the low purchasing power of the people, which is due
to their small real income. The main reason for poverty in these countries is
the low level of demand. Consequently, the sizes of markets remain low. The
small size of the market becomes a hurdle in the path of inducement to invest
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Market Imperfections
According to Meier and Baldwin, the existence of
market imperfections prevents optimum allocation and utilization of natural
resources, and the result is underdevelopment, and this, in turn, leads to
poverty. The development of natural resources depends upon the character of
human resources. But due to lack of skill and low level of knowledge, natural
resources remain unutilized, underutilised and misused.
Causes of Poverty in India
Colonial
Exploitation: Colonial rule in India is the
main reason of poverty and backwardness
in India. The Indian economy was purposely and severely de-industrialized
through colonial privatizations. British rule replaced the wasteful warlord
aristocracy by a bureaucratic-military establishment. However, colonial
exploitation caused backwardness in India. In 1830, India accounted for 17.6
per cent of global industrial production against Britain's 9.5 per cent, but,
by 1900, India's share was down to 1.7 per cent against Britain's 18.5 per
cent. This view claims that British policies in India, exacerbated by the weather
conditions led to mass famines, roughly 30 to 60 million deaths from starvation
in the Indian colonies. Community grain banks were forcibly disabled, land was
converted from food crops for local consumption to cotton, opium, tea, and
grain for export, largely for animal feed.
Lack of
Investment for the Poor: There is lack of investment for
the development of poorer section of
the society. Over the past 60 years, India decided to focus on creating world
class educational institutions for the elite, whilst neglecting basic literacy
for the majority. This has denied the illiterate population – 33 per cent of
India – of even the possibility of escaping poverty. Thus, there is no focus on
creating permanent income-generating assets for the poor people.
Social
System in India: The social system is another
cause of poverty in India. The social
subsystems are so strongly interlocked that the poor are incapable of
overcoming the obstacles.
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India's
Economic Policies: In 1947, the average annual
income in India was US$439, compared
with US619 for China, US$770 for South Korea. But South Korea became a
developed country by the 2000s. License Raj prevailed with elaborate licenses,
regulations and accompanying red tape. Corruption flourished under this system.
Over-reliance
on Agriculture: In India there is high level of
dependence on primitive methods of
agriculture. There is a surplus of labour in agriculture. Farmers are a large
vote bank and use their votes to resist reallocation of land for higher-income
industrial projects. While services and industry have grown at double digit
figures, the agriculture growth rate has dropped from 4.8 per cent to 2 per
cent. About 60 per cent of the population depends on agriculture, whereas the
contribution of agriculture to the GDP is below 18 per cent. The agricultural
sector has remained very unproductive. There is no modernization of agriculture
despite some mechanization in some regions of India.
High
Illiteracy: Indian literacy rate rose almost
tenfold during the British era. In 1947,
India's literacy rate matched China's. However, in 2007, China reported at
91 per cent literacy rate versus 66 per cent for India. Now India suffers from
about 35 per cent illiteracy among the adult population. Literacy levels among
SC, ST and females are very low.
High
Unemployment: There is high degree of
underutilization of resources. The whole
country suffers from a high degree of unemployment. India is marching with
jobless economic growth. Employment is not growing, neither in the private
sector, nor in the public sector. The IT sector has become elitist, which does
not improve the poverty situation in the country. Disguised unemployment and
seasonal unemployment is very high in the agricultural sector of India. It is
the main cause of rural poverty in India.
Lack of
Entrepreneurship: The industrial base of India has
remained very slender. The industrial
sickness is very widespread. The whole industrial sector suffers from capital
deficiency and lack of entrepreneurial spirit.
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Causes for Urban Poverty
The
causes of urban poverty in India are:
1. Migration
of Rural Youth towards Cities
2. Lack of
Vocational Education / Training
3. Limited
Job Opportunities of Employment in the Cities
4. Rapid increase
in Population
5. Lack of
Housing Facilities
6. No proper
Implementation of Public Distribution System
References
Agrawal, AN (Latest Edition), Indian Economy, Biswa
Pakashan, New Delhi. Dutta, R and KPM Sundarama (Latest Edition), Indian
Economy, S. Chand & Sons, New Delhi.
Sen, Amartya (I 999), Development as Freedom, Oxford University Press,
London. World Bank (2000), Attacking Poverty, World Development Report 2000, ?
Washington
Questions
1. What is
absolute poverty?
2. What is
relative poverty?
3. What are
the yardsticks to measure poverty?
4. Discuss
the causes of poverty in urban India.
5. How is
poverty line in India different from the international poverty line?
6. What do
you mean by supply side factors of poverty?
7. What do
you mean by demand factors of poverty?
8. What do
you mean by market imperfection?
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