Poverty in India:

Assessment, Remedies

2

Thanks to

Manoj Panda

Centre for Economic and Social Studies

(CESS),

Hyderabad

Plus others on web for valuable info copied.

Coverage

• Introduction

• Concepts of Poverty and Poverty Line

• Measurement of Poverty

• Trends in Poverty over Time

• Variations across States and Social Groups

• Inequality: Concept and Measurement

• Some Policy Issues

3

Introduction India‟s economic structure has changed dramatically

over last 5-6 decades; among the most dynamic

economies recently.

However, benefits of growth not widely spread to

various sections in society, reached only marginally

to low income groups.

Similar experience exists in other countries too. Can

we guarantee to all at least a minimum level of living

necessary for physical and social development of a

person in India?

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5

1 billion of world‟s people are not on the

ladder of economic progress Extreme poor

Unable to escape from extreme material

deprivation

Trapped by disease, physical isolation,

climate stress, environmental degradation,

extreme poverty

6

Poverty in the States of India

One half of India’s poor is located the three states of Uttar Pradesh, Bihar, and Madhya Pradesh

Maharashtra, West Bengal and Orissa account for 22.5% of poverty

7

United Nations documents emphasize

“human development,” measured by

• life expectancy,

• adult literacy,

• access to all three levels of education,

and people‟s average income.

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WHY IS POVERTY HAPPENING IN INDIA?

• India‟s economy is growing but the wealth

distribution is uneven

• 1/4 of the nation's population earns less than the

government-specified $0.40/day

• Unemployment and underemployment

• Over-reliance on agriculture

• High population growth rate

Let us estimate poverty

Poverty estimates are vital input to design, monitor and

implement appropriate anti-poverty policies.

•Analysis of poverty profiles by regions, socio-economic groups

•Determinants - factors affecting poverty

•Relative effects of factors affecting poverty

•Allocation of resources to different regions and to various

poverty reduction programs

Precise estimates of poverty neither easy nor universally

acceptable. Yet, an estimate can act as a broad and

reasonable policy guide.

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EARLY WORK: Intellectual genesis of poverty very old

Adam Smith, Ricardo, Marx: subsistence wage concept

An early empirical work by Dadabhai Naoroji, 1901

Estimated an income level “necessary for the bare wants of a

human being, to keep him in ordinary good health and

decency”. Estimated cost of food, clothing, hut, oil for lamp,

barber and domestic utensils to arrive at „subsistence per

head‟.

In the absence of income distribution data, Naoroji compared

computed subsistence level with per capita production to draw

attention to mass poverty.

Remarkable work that parallels an early work on British

poverty by Rowntree, 1901.

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Poverty is multi-dimensional, and its components are

correlated, but this complexity can be reduced to a small

number of separate components through a statistical

procedure. This procedure identified food quality, clothing,

education and good housing as the most important

indicators.

Calorie intake was not closely correlated with poverty.

However, the quality of food was an extremely powerful

indicator. The connections between poverty and social

exclusion were also complex.

Poverty is multidimensional, it is about

• deprivation in income,

• illiteracy,

• malnutrition, mortality, morbidity,

• access to water and sanitation,

• vulnerability to economic shocks.

Income deprivation is linked in many cases to other

forms of deprivation, but do not always move

together with others.

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Measurement of Poverty (Percentage of Poor)

Two basic ingredients in measuring poverty:

(1)Poverty Line: definition of threshold income or consumption level

(2)Data on size distribution of income or consumption (collected by a sample survey representative of the population)

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Poverty Line (PL): Absolute vs. Relative

Relative PL defined in relative terms with reference

to level of living of another person; or, in relation to

an income distribution parameter.

Examples: 50% of mean income or median, mean

minus one standard deviation.

Absolute PL refers to a threshold income

(consumption) level defined in absolute terms.

Persons below a pre-defined threshold income are

called poor.

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Indian Poverty Line

A minimum level of living necessary for physical and

social development of a person.

Estimated as: total consumption expenditure level that

meets energy (calorie) need of an average person.

•PL comprises of both food and non-food components

of consumption.

•Considers non-food expenditure actually incurred

corresponding to this total expenditure.

•Difficult to consider minimum non-food needs entirely

on an objective basis

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Relationship Between Calorie Intake and

Per Capita Expenditure

0

500

1000

1500

2000

2500

3000

3500

0 100 200 300 400 500 600 700 800 900 1000

Per Capita Consumption Expenditure per Month

(Rupees)

Pe

r C

ap

ita

Ca

lori

e In

tak

e p

er

da

y

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An Example of Size Distribution of Consumption Expenditure

MPCE %Population

0-150 3.2

150-200 4.0

200-250 6.5

250-300 8.6

300-340 10.0 (half of 10% are below poverty line 320)

340-400 11.3

400-450 8.6

450-500 9.2

500-550 9.3

550-650 11.4

650-800 8.9

800-1000 5.0

Above 1000 4.0

All classes 100.0

MPCE: Monthly Per Capita Consumption Expenditure

Poverty Line: Rs. 320 per capita per month

HCR= 3.2+4.0+6.5+8.6+5.0 = 27.3% 18

Incidence of poverty Vs. Under-nutrition

Classification of Population by Poverty Line and

Calorie Norm - Rural India, 1977-78

Below

Poverty

Line

Above

Poverty

Line

Total

Below Calorie

Norm 45.32 12.47 57.79

Above Calorie

Norm

12.31 29.21 42.21

Total 57.63 42.37 100.00

Source: Government of India (1993): Report of Expert Group.

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Official PL in India

Originally estimated for 1973-74: Rs 49 and 56 for

rural and urban areas respectively.

Updated using an appropriate price index (CPIAL

for rural India, CPIIW for urban).

A monthly per capita consumption expenditure of

Rs. 356 and 539 for rural and urban areas

respectively for 2004-05.

More than a quarter of India‟s population remain

below PL in 2004-05.

28.3% Rural 25.7% Urban 27.5% Total

Absolute no.: 302 million in 2004-05

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Poverty in India: Changes over time

Up to mid-1970s – fluctuations with cycles

Since mid-1970s – continuous fall

Except a few years immediately after start of reforms (early 1990s)

Controversies around estimates for 1999-2000 (under estimates poverty)

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25

30

35

40

45

50

55

60

65

70

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

%

po

pu

lati

on

bel

ow

PL

Rural HCR

Urban HCR

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Data Contamination in 1999-2000

7-Day Recall versus 30-Day Recall

NSSO expenditure data collected on 7-day recall

period basis during 51st-54th rounds 13-18% larger

than that from the 30-day recall period basis.

This difference is reduced to 3 to 4% in the 55th

round. Critics attribute this reduction to mix up of

recall periods by respondents affecting

comparability with previous large-scale surveys.

The 7-day recall period reports more food

expenditure and very significant fall in poverty.

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Comparison of Poverty After Reforms

Uniform Recall Period

1993-94 2004-05

Rural 37.3 28.3

Urban 32.4 25.7

Total 36.0 27.5

Mixed Recall Period

1999-2000 2004-05

Rural 27.1 21.8

Urban 23.6 21.7

Total 26.1 21.8

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Poverty Head Count Ratio: Major Indian States

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Poverty By Social Groups: Rural 2004-05

States ST SC OBC OTHERSAndhra Pradesh 30.5 15.4 9.5 4.1Assam 14.1 27.7 18.8 25.4Bihar 53.3 64 37.8 26.6Chhattisgarh 54.7 32.7 33.9 29.2Delhi 0.0 0.0 0.0 10.6Gujarat 34.7 21.8 19.1 4.8Haryana 0.0 26.8 13.9 4.2Himachal Pradesh 14.9 19.6 9.1 6.4Jammu & Kashmir 8.8 5.2 10.0 3.3Jharkhand 54.2 57.9 40.2 37.1Karnataka 23.5 31.8 20.9 13.8Kerala 44.3 21.6 13.7 6.6Madhya Pradesh 58.6 42.8 29.6 13.4Maharashtra 56.6 44.8 23.9 18.9Orissa 75.6 50.2 36.9 23.4Punjab 30.7 14.6 10.6 2.2Rajasthan 32.6 28.7 13.1 8.2Tamil Nadu 32.1 31.2 19.8 19.1Uttar Pradesh 32.4 44.8 32.9 19.7Uttarakhand 43.2 54.2 44.8 33.5West Bengal 42.4 29.5 18.3 27.5All India 47.2 36.8 26.7 16.1

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Poverty By Social Groups: Urban 2004-05 States ST SC OBC OTHERS

Andhra Pradesh 50 39.9 28.9 20.6

Assam 4.8 8.6 8.6 4.2

Bihar 57.2 67.2 41.4 18.3

Chhattisgarh 41.0 52.0 52.7 21.4

Delhi 9.4 35.8 18.3 6.4

Gujarat 21.4 16 22.9 7.0

Haryana 4.6 33.4 22.5 5.9

Himachal Pradesh 2.4 5.6 10.1 2.0

Jammu & Kashmir 0.0 13.7 4.8 7.8

Jharkhand 45.1 47.2 19.1 9.2

Karnataka 58.3 50.6 39.1 20.3

Kerala 19.2 32.5 24.3 7.8

Madhya Pradesh 44.7 67.3 55.5 20.8

Maharashtra 40.4 43.2 35.6 26.8

Orissa 61.8 72.6 50.2 28.9

Punjab 2.1 16.1 8.4 2.9

Rajasthan 24.1 52.1 35.6 20.7

Tamil Nadu 32.5 40.2 20.9 6.5

Uttar Pradesh 37.4 44.9 36.6 19.2

Uttarakhand 64.4 65.7 46.5 25.5

West Bengal 25.7 28.5 10.4 13.0

All India 33.3 39.9 31.4 16.026

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Poverty Measures

Head Count Ratio (HCR),

Poverty Gap (PG) and

squared poverty gap (SPG)

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n

mHCR

Poverty Measures

Head Count Ratio (HCR), Poverty Gap

(PG) and Squared Poverty Gap (SPG)

)(1

1

m

i

i

z

yz

nPG

2

1

1

m

i

i

z

yz

nSPG

m= no. of poor population, n = total population,

z= poverty line, yi =income of i-th person 30

Alternative Poverty Measures

Head Count Ratio (HCR): proportion of total

population that falls below poverty threshold

income or expenditure. Based on either national

PL or dollar-a-day PL.

Poverty Gap Index (PGI): unlike HCR, it gives us

a sense of how poor the poor are. It is equivalent

to income gap below PL per head of total

population, and expressed as a percentage of the

poverty line.

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• Squared Poverty Gap index (SPG): Adds the

dimension of inequality among the poor to the

poverty gap index. For a given value of the

PGI, population with greater dispersion of

income among poor indicates a higher value for

the SPG.

• Monotonicity Axiom: Not satisfied by HCR

• Transfer Axiom: Not satisfied by HCR and PGI

Incidence of poverty affected by two factors:

(1)Growth in average income (2)Distribution.

Poverty reduction fast when average income rises and

inequality falls.

Fluctuations in poverty incidence till early 1970s

primarily due to slow per capita income growth.

Incidence of poverty started to fall after mid-1970s when

there was marked acceleration in per capita GDP growth

rate to above 3 per cent.

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Lorenz curve: a curve that represents relationship between

cumulative proportion of income and cumulative proportion of

population in income distribution by size, beginning with the

lowest income group.

If perfect income equality, Lorenz curve coincides with 45-degree

line.

Gini coefficient: a commonly used measure of inequality; ratio of

area between Lorenz curve and 45-degree line, expressed as a

percentage of area under 45-degree line.

If perfect equality, Gini coefficient takes value 0

If perfect inequality, equals 1.

Internationally, Gini coeff. normallyranges between 0.25 & 0.7

)(1

1

m

i

iii QCQCPL

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From Household income/expenditure Survey

Compute data on each household’s income/expenditure

Rank the families from lowest income to highest income.

% of Pop. (Pi)

% of Inc. Cumulative % of Pop.

Cummulative % of Income

(QCi)

10 3.3 10 3.5

10 5.3 20 8.6

20 13.3 40 21.9

20 17.0 60 38.9

20 22.7 80 61.6

10 14.6 90 76.2

10 23.8 100 100

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Lorenz Curve

Cumulative % of Population

Cumulative

% of Income

X=Area of the hatched region

Gini coefficient = [X/50]100 36

Average Annual Growth Rates: Real GDP

1951-2 to 1980-81

1981-82 to 1990-91

1991-92 to 1999-2000

2000-01 to 2006-07

2002-03 to

2006-07

(Tenth Plan

Period)

Agriculture 2.6 3.8 3.0 2.5 2.2

Industry 5.3 7.0 5.7 7.8 9.1

Service 4.6 6.7 7.9 8.5 9.4

GDP (total) 3.6 5.6 5.8 6.9 7.6

Per Capita GDP 1.4 3.4 3.6 5.2 6.0

Neglect of agriculture after economic reforms even as

overall economic growth accelerated

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Average Annual Growth Rate in Per Capita GSDP

Arranged by 1993-94 Per Capita GSDP

0

2000

4000

6000

8000

10000

12000

14000

16000P

unja

b

Mah

aras

htra

Har

yana

Guj

arat

Tam

il N

adu

Him

acha

l Pra

desh

Ker

ala

Kar

nata

ka

And

hra

Pra

desh

Jam

mu

and

Kas

hmir

Wes

t B

enga

l

Mad

hya

Pra

desh

Raj

asth

an

Ass

am

Utt

ar P

rade

sh

Oris

sa

Bih

ar

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Per capita Income 1993-94 Growth Rate 1993-2004

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Coefficient of Variation in Per Capita GSDP among 16 Major States

0.3100

0.3200

0.3300

0.3400

0.3500

0.3600

0.3700

0.3800

0.3900

0.4000

1993-

94

1994-

95

1995-

96

1996-

97

1997-

98

1998-

99

1999-

00

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

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States

Urban MPCE as % of Rural MPCE

1993-94 2004-05

Andhra Pradesh 141.5 173.9

Assam 177.9 194.8

Bihar 142.9 166.9

Chhatishgarh 180.6 232.9

Gujarat 149.8 187.1

Haryana 123.1 132.3

Himachal Pradesh 212.8 174.2

Jharkhand 190.7 232.0

Karnataka 157.2 203.3

Kerala 126.7 127.4

Madhya Pradesh 155.7 205.9

Maharashtra 194.1 202.1

Orissa 183.2 189.7

Punjab 118.0 156.6

Rajasthan 132.0 163.1

Tamil Nadu 149.0 179.4

Uttar Pradesh 141.2 151.2

Uttaranchal 166.7 158.5

West Bengal 169.9 200.0

All India 163.0 188.2

Urban-Rural Differences in Mean Consumption Expenditure

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Factors affecting Poverty

Poverty depends on per capita household income

which in turn affected by employment, wage rate,

land productivity, industrialisation, expansion of

service sector and other general growth and

distribution factors

Special role of

•per capita agricultural income

•Employment and real wage rate

•Inflation rate and relative food prices

•Government expenditure

Per capita development expenditure

Social sector expenditure 41

Indian growth process since 1950s more or less distribution

neutral till 1980s.

Importance of a critical minimum steady growth in per capita

income for poverty reduction.

Inequality increased in recent years after reforms.

Income elasticity of poverty has fallen.

A given growth will be associated with more limited gains for

the poor

Higher growth might more than compensate the adverse

effect if fall in elasticity is small.

Reasons for weak participation of poor: limited access to

education, land, credit; low agrl growth, underdeveloped

infrastructure such as irrigation, roads, electricity in poorer

states

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Demographic Dividend

• AS fertility drops, ratio of workers to non-workers rises.

• Provides an window of opportunity provided potential workers acquire skills and find productive employment

• About a fourth of poverty reduction could be attributed to demographic factors in India

• Right economic policies critical, otherwise the scenario could turn out to be demographic liability

• Dividend for 2-3 decades only since proportion of older population would eventually increase increasing dependency ratio again

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Long term scenario for Poverty

• Long term growth prospects fairly optimistic: India likely to

continue among the fasted growing economies, BRIC to

dominate world economy

• India might surpass Japan and Germany in terms of total

size of the economy, yet its per capita income would be

less than world average for a long time

• Poverty could be reduced faster provided inequality is

under control, labour intensive activities must grow,

removal of rigidities in land and labour market critical for

reallocation of resources

• Government can afford to devote more resources for

poverty removal programmes: wage employment

(NREGA) or self employment type (SJSY).

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The main goal of economic development is improving the

economic well being of a community through efforts that

entail job creation, job retention, tax base enhancements

and quality of life. As there is no single definition for

economic development, the re is no single strategy, policy

or program for achieving successful economic

development. Communities differ in their geographic and

political strengths and weaknesses. Each community

therefore, will have a unique set of challenges for

economic development.

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Innovation is the only sustainable source of regional

prosperity.

Talent is the key asset in fostering innovations (its about

human capital).

Building a cultural environment that supports entrepreneurial

activity is critical.

To build an innovation region requires more collaboration

than ever.

Culturally vital communities will be accessible, affordable,

applauded, diverse, distinctive, and dynamic.

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Economic development encompasses three major

areas:

• Policies that government undertakes to meet

broad economic objectives including inflation

control, high employment and sustainable growth.

• Policies and programs to provide services

including building highways, managing parks and

providing medical access to the disadvantaged.

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• Policies and programs explicitly directed at

improving the business climate through

specific efforts, business finance, marketing,

neighborhood development, business

retention and expansion, technology transfer,

real estate development and others.

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Economic growth is poverty reducing only if it „enables the

poor to actively participate in and significantly benefit from

economic activity‟.

Job creation by industrial expansion is clearly the way

forward along with redistributive policies to solve

poverty problems. While fostering industrialization India

could pursue strategic import substitution and leverage

the large domestic market that has now developed in

several modern sectors.

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54

55

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How BIHAR alleviates poverty The low levels of nutrition in the state_ were related to high levels of poverty.

The implementation of programmes such as ICDS had improved in the recent past.

There was low levels of literacy,

especially female literacy in the state.

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59

There has been mass recruitment of teaching

staff, now it was imperative to transfer the focus

on the quality of education provided.

One-third of the total housing deficit in the

country occurred in the state of Bihar, and 75

per cent of the housing in the state constituted

kuccha housing.

60

Nature of urban and rural poverty is very different; the

former has to do with consumption, whereas the latter has

to do with the lack of facilities, and therefore, it may be

argued that the definition of urban poverty needs to be

distinguished from that of rural poverty.

Three fundamental problems in poverty alleviation in

Bihar— the lack of universal access to health and

education, the poor quality of delivery, and the prevalence

of plenty of leakages.

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Two important direct poverty alleviation

programmes— the Mahatma Gandhi National Rural

Employment Guarantee Scheme (MNREGS) and

the Public Distribution Scheme (PDS). The

MNREGS had not reached its full potential in the

state, though targeting has improved. The PDS had

improved after the introduction of food coupons but

issues pertaining to godowns, and food

procurement remained.

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The strengthening of institutions to improve delivery

mechanisms were to be identified and institution and

capacity building were the major challenges facing

Bihar.

In a country like India, it was not easy to substitute the

various government programmes by cash transfers.

Hence, in many programmes, we needed to move to

universalisation, for instance schooling, in the context of

right to education.

63

Migration had increased during the last few

decades. An exercise may be undertaken to

register migrants who leave the state for work. At

the same time, it was suggested to undertake skill

development and capacity building programmes for

migrant workers, to enhance their employability

and enable them to get better work opportunities in

Bihar and other parts of the country.

.

64

The six „Is‟, namely

institutions,

incentives,

infrastructure,

investment,

income transfers and

innovative thinking

present a useful framework for formulating conditions

for poverty reduction in India

65

It was noted that serious problems occur from estimation

to identification of the poor. The Tendulkar committee

provided an estimate of the percentage of the poor, while

for the targeted programme intervention, we needed to

identify the poor. In terms of targeting the areas where

the proportion of poor was very high, the real problem

was not related to the estimation of poor, but with their

identification.