poverty and prosperous india

8/12/2019 Poverty and Prosperous India

http://slidepdf.com/reader/full/poverty-and-prosperous-india 1/65

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



IntroductionIndia‟s economic structure has changed dramatically

over last 5-6 decades; among the most dynamiceconomies recently.

However, benefits of growth not widely spread to

various sections in society, reached only marginallyto low income groups.

Similar experience exists in other countries too. Can

we guarantee to all at least a minimum level of livingnecessary for physical and social development of aperson in India?

4



5

1 billion of world‟s people are not on theladder 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 thethree states of Uttar Pradesh, Bihar, andMadhya Pradesh

Maharashtra, West Bengal and Orissaaccount for 22.5% of poverty



United Nations documents emphasize

“human development,” measured by

• life expectancy,

• adult literacy,

• access to all three levels of education,

and people‟s average income.



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 variouspoverty reduction programs

Precise estimates of poverty neither easy nor universallyacceptable. Yet, an estimate can act as a broad andreasonable policy guide.

9



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 ahuman being, to keep him in ordinary good health anddecency”. Estimated cost of food, clothing, hut, oil for lamp,

barber and domestic utensils to arrive at „subsistence perhead‟.

In the absence of income distribution data, Naoroji compared

computed subsistence level with per capita production to drawattention to mass poverty.

Remarkable work that parallels an early work on Britishpoverty by Rowntree, 1901.

11



Poverty is multi-dimensional, and its components are

correlated, but this complexity can be reduced to a smallnumber 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 otherforms of deprivation, but do not always movetogether with others.

13



Measurement of Poverty

(Percentage of Poor)

Two basic ingredients in measuring poverty:

(1)Poverty Line: definition of threshold income orconsumption level

(2)Data on size distribution of income orconsumption (collected by a sample surveyrepresentative of the population)

14



Poverty Line (PL): Absolute vs. Relative

Relative PL defined in relative terms with referenceto level of living of another person; or, in relation toan 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 arecalled poor.

15



Indian Poverty Line

A minimum level of living necessary for physical and

social development of a person.Estimated as: total consumption expenditure level thatmeets 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

16



Relationship Between Calorie Intake and

Per Capita Expenditure

0500

1000

1500

2000

2500

3000

3500

0 100 200 300 400 500 600 700 800 900 1000

Per Capita Consumption Expenditure per Month

(Rupees)

P e r C a p i t a C a l o r i e I n t a k e

p e r d a y

17



An Example of Size Distribution of Consumption Expenditure

MPCE %Population

0-150 3.2150-200 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 5.0Above 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.

19



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 (CPIALfor rural India, CPIIW for urban).

A monthly per capita consumption expenditure of

Rs. 356 and 539 for rural and urban areasrespectively 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

20



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 ofreforms (early 1990s)

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

20

25

30

35

40

45

50

5560

65

70

1 9 6 0

1 9 6 3

1 9 6 6

1 9 6 9

1 9 7 2

1 9 7 5

1 9 7 8

1 9 8 1

1 9 8 4

1 9 8 7

1 9 9 0

1 9 9 3

1 9 9 6

1 9 9 9

2 0 0 2

2 0 0 5

% p o p u l a t i o n b e l o w P L

Rural HCR

Urban HCR

21



Data Contamination in 1999-2000

7-Day Recall versus 30-Day Recall

NSSO expenditure data collected on 7-day recallperiod basis during 51st-54th rounds 13-18% largerthan 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 ofrecall periods by respondents affectingcomparability with previous large-scale surveys.

The 7-day recall period reports more foodexpenditure and very significant fall in poverty.

22



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

23



Poverty Head Count Ratio: Major Indian States

24

Poverty By Social Groups: Rural 2004 05



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 25.4

Bihar 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 23.4

Punjab 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

25



Poverty By Social Groups: Urban 2004-05States 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 18.3Chhattisgarh 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 7.8Jharkhand 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 28.9Punjab 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



27



Poverty Measures

Head Count Ratio (HCR),

Poverty Gap (PG) and

squared poverty gap (SPG)

29



n

m HCR

Poverty Measures

Head Count Ratio (HCR), Poverty Gap

(PG) and Squared Poverty Gap (SPG)

)(1

1

m

i

i

z

y z

n PG

2

1

1

m

i

i

z y z

nSPG

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

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

Alt ti P t M



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. 31



32

• 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:



Incidence of poverty affected by two factors:

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

Poverty reduction fast when average income rises andinequality falls.

Fluctuations in poverty incidence till early 1970sprimarily 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 growthrate to above 3 per cent.

33

Lorenz curve: a curve that represents relationship between



Lorenz curve: a curve that represents relationship betweencumulative proportion of income and cumulative proportion ofpopulation in income distribution by size, beginning with thelowest income group.

If perfect income equality, Lorenz curve coincides with 45-degreeline.

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

area between Lorenz curve and 45-degree line, expressed as apercentage of area under 45-degree line.

If perfect equality, Gini coefficient takes value 0If perfect inequality, equals 1.Internationally, Gini coeff. normallyranges between 0.25 & 0.7

)(1

1

m

i

iii QC QC P L

34



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

35

Lorenz Curve



Lorenz Curve

Cumulative % of Population

Cumulative

% of Income

X=Area of the hatched region

Gini coefficient = [X/50]100 36

A A l G th R t R l GDP



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

37



Average Annual Growth Rate in Per Capita GSDP

Arranged by 1993-94 Per Capita GSDP

0

2000

4000

6000

8000

10000

12000

14000

16000

P u n j a b

M a

h a r a s h t r a

H a r y a n a

G u j a r a t

T a m i l N a d u

H i m a c h a l P r a d e s h

K e r a l a

K

a r n a t a k a

A n d h r a

P r a d e s h

J a m m u a n d

K a s h m i r

W e s t B e n g a l

M a d h y a

P r a d e s h

R

a j a s t h a n

A s s a m

U t t a r P r a d e s h

O r i s s a

B i h a r

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Per capita Income 1993-94 Growth Rate 1993-2004

38



Coefficient of Variation in Per Capita GSDPamong 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

39



Factors affecting Poverty



Factors affecting Poverty

Poverty depends on per capita household incomewhich in turn affected by employment, wage rate,

land productivity, industrialisation, expansion ofservice sector and other general growth anddistribution factors

Special role of

•per capita agricultural income•Employment and real wage rate

•Inflation rate and relative food prices•Government expenditurePer capita development expenditureSocial sector expenditure

41



Indian growth process since 1950s more or less distributionneutral 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 forthe poor

Higher growth might more than compensate the adverseeffect if fall in elasticity is small.

Reasons for weak participation of poor: limited access toeducation, land, credit; low agrl growth, underdevelopedinfrastructure such as irrigation, roads, electricity in poorerstates

42

i i i



Demographic Dividend

• AS fertility drops, ratio of workers to non-

workers rises.• Provides an window of opportunity provided

potential workers acquire skills and findproductive employment

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

• Right economic policies critical, otherwise thescenario could turn out to be demographic

liability• Dividend for 2-3 decades only since proportion

of older population would eventually increaseincreasing dependency ratio again

43



Long term scenario for Poverty

• Long term growth prospects fairly optimistic: India likely to

continue among the fasted growing economies, BRIC todominate world economy

• India might surpass Japan and Germany in terms of totalsize 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).

44



45

The main goal of economic development is improving the

economic well being of a community through efforts thatentail 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, policyor 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.



46

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 entrepreneurialactivity is critical.

To build an innovation region requires more collaboration

than ever.Culturally vital communities will be accessible, affordable,

applauded, diverse, distinctive, and dynamic.



47

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.



48

• Policies and programs explicitly directed at

improving the business climate through

specific efforts, business finance, marketing,

neighborhood development, businessretention and expansion, technology transfer,

real estate development and others.



49

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 wayforward along with redistributive policies to solve

poverty problems. While fostering industrialization India

could pursue strategic import substitution and leveragethe large domestic market that has now developed in

several modern sectors.



50



51



52



53



54



55



56



57



How BIHAR alleviates povertyThe low levels of nutrition in the state_were related to high levels of poverty.

The implementation of programmes

such as ICDS had improved in therecent past.

There was low levels of literacy,

especially female literacy in the state.

58



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 thecountry 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.



61

Two important direct poverty alleviation

programmes— the Mahatma Gandhi National RuralEmployment 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 butissues pertaining to godowns, and food

procurement remained.



62

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 touniversalisation, 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 skilldevelopment 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 thinkingpresent a useful framework for formulating conditions

for poverty reduction in India



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.

poverty and prosperous india

Documents