Poverty in India

Poverty is widespread in India, with the nation estimated to have a third of the world's poor. According to a 2005 World Bank estimate, 41% of India falls below the international poverty line of US$ 1.25 a day (PPP, in nominal terms 21.6 a day in urban areas and 14.3 in rural areas); having reduced from 60% in 1981. According to the criterion used by the Planning Commission of India 27.5% of the population was living below the poverty line in 2004–2005, down from 51.3% in 1977–1978, and 36% in 1993-1994. A study by the Oxford Poverty and Human Development Initiative using a Multi-dimensional Poverty Index (MPI) found that there were 421 million poor living under the MPI in eight north India states of Bihar, Chattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh and West Bengal. This number is higher than the 410 million poor living in the 26 poorest African nations. However, latest estimates by NCAER (National Council of Applied Economic Research), show that 48% of the Indian households earn more than 90,000 (US$ 2,043) annually (or more than US$3 PPP per person). According to NCAER, in 2009, of the 222 million households in India, the absolutely poor households (annual incomes below 45,000) accounted for only 15.6 % of them or about 35 million (about 200 million Indians). Another 80 million households are in income levels of 45,000-90,000 per year.

Since the 1950s, the Indian government and non-governmental organizations have initiated several programs to alleviate poverty, including subsidizing food and other necessities, increased access to loans, improving agricultural techniques and price supports, and promoting education and family planning. These measures have helped eliminate famines, cut absolute poverty levels by more than half, and reduced illiteracy and malnutrition.

Poverty estimates

The World Bank estimates that 456 million Indians (41.6% of the total Indian population) now live under the global poverty line of US$ 1.25 per day (PPP). This means that a third of the global poor now reside in India. However, this also represents a significant decline in poverty from the 60 percent level in 1981 to 42 percent in 2005. The rupee has decreased in value since then, while the official standard of 538 (urban)/356 (rural) per month has remained the same. Income inequality in India is increasing, with a Gini coefficient of 32.5 in 1999-2000. However, according to the latest NCAER estimates, in 2009, only 15.6% of the households or 200 million people, had income levels less than 45,000 annually(US$ 1.4 PPP per person).On the other hand, the Planning Commission of India uses its own criteria and has estimated that 27.5% of the population was living below the poverty line in 2004–2005, down from 51.3% in 1977–1978, and 36% in 1993-1994. The source for this was the 61st round of the National Sample Survey (NSS) and the criterion used was monthly per capita consumption expenditure below 356.35 for rural areas and 538.60 for urban areas. 75% of the poor are in rural areas, most of them are daily wagers, self-employed householders and landless labourers.

Although the Indian economy has grown steadily over the last two decades, its growth has been uneven when comparing different social groups, economic groups, geographic regions, and rural and urban areas. Between 1999 and 2008, the annualized growth rates for Gujarat (8.8%), Haryana (8.7%), or Delhi (7.4%) were much higher than for Bihar (5.1%), Uttar Pradesh (4.4%), or Madhya Pradesh (3.5%). Poverty rates in rural Orissa (43%) and rural Bihar (41%) are among the world's most extreme. A study by the Oxford Poverty and Human Development Initiative using a Multi-dimensional Poverty Index (MPI) found that there were 421 million poor living under the MPI in Bihar, Chattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh and West Bengal. This number is higher than the 410 million poor living in the 26 poorest African nations.

Despite significant economic progress, one quarter of the nation's population earns less than the government-specified poverty threshold of 12 rupees per day (approximately US$ 0.25). Official figures estimate that 27.5% of Indians lived below the national poverty line in 2004-2005. A 2007 report by the state-run National Commission for Enterprises in the Unorganised Sector (NCEUS) found that 77% of Indians, or 836 million people, lived on less than 20 rupees (approximately US$0.50 nominal; US$2 PPP) per day. It is relevant to view poverty in India on a PPP basis as food etc. are purchased in Rupees. So the annual income of a family of four at US$2 PPP/day (current exchange rate of 47 = US$1) would be 137,240 (i.e. 1.37 lakh).  According to a recently released World Bank report, India is on track to meet its poverty reduction goals. However by 2015, an estimated 53 million people will still live in extreme poverty and 23.6% of the population will still live under US$1.25 per day. This number is expected to reduce to 20.3% or 268 million people by 2020. However, at the same time, the effects of the worldwide recession in 2009 have plunged 100 million more Indians into poverty than there were in 2004, increasing the effective poverty rate from 27.5% to 37.2%.

As per the 2001 census, 35.5% of Indian households availed of banking services, 35.1% owned a radio or transistor, 31.6% a television, 9.1% a phone, 43.7% a bicycle, 11.7% a scooter, motorcycle or a moped, and 2.5% a car, jeep or van; 34.5% of the households had none of these assets.  According to Department of Telecommunications of India the phone density has reached 33.23% by Dec 2008 and has an annual growth of 40%. . This tallies with the fact that a family of four with an annual income of 1.37 lakh Rupees could afford some of these luxury items.

Causes of poverty in India

Caste system

Further information: Caste system in India

According to S. M. Michael, Dalits constitute the bulk of poor and unemployed.

According to William A. Haviland, casteism is widespread in rural areas, and continues to segregate Dalits. Others, however, have noted the steady rise and empowerment of the Dalits through social reforms and the implementation of reservations in employment and benefits.

Caste explanations of poverty fail to account for the urban/rural divide. Using the UN definition of poverty, 65% of rural forward castes are below the poverty line.

British era

The Mughal era ended at about 1760. Jawaharlal Nehru claimed "A significant fact which stands out is that those parts of India which have been longest under British rule are the poorest today." The Indian economy was purposely and severely deindustrialized, especially in the areas of textiles and metal-working, through colonial privatizations, regulations, tariffs on manufactured or refined Indian goods, taxes, and direct seizures..

India's economic policies

A rural worker drying cow dung in Bihar.

In 1947, the average annual income in India was US$439, compared with US$619 for China, US$770 for South Korea, and US$936 for Taiwan. By 1999, the numbers were US$1,818; US$3,259; US$13,317; and US$15,720. (numbers are in 1990 international Maddison dollars) In other words, the average income in India was not much different from South Korea in 1947, but South Korea became a developed country by 2000s. At the same time, India was left as one of the world's poorer countries.

License Raj refers to the elaborate licenses, regulations and the accompanying red tape that were required to set up and run business in India between 1947 and 1990. The License Raj was a result of India's decision to have a planned economy, where all aspects of the economy are controlled by the state and licenses were given to a select few. Corruption flourished under this system.

The labyrinthine bureaucracy often led to absurd restrictions - up to 80 agencies had to be satisfied before a firm could be granted a licence to produce and the state would decide what was produced, how much, at what price and what sources of capital were used.

—BBC

India had started out in the 1950s with:

high growth rates

openness to trade and investment

a promotional state

social expenditure awareness

macro stability

but ended the 1980s with:

low growth rates

closure to trade and investment

a license-obsessed, restrictive state (License Raj)

inability to sustain social expenditures

macro instability, indeed crisis.

Poverty has decreased significantly since reforms were started in the 1980s.

Also:

Over-reliance on 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, agriculture growth rate has dropped from 4.8% to 2%. About 60% of the population depends on agriculture whereas the contribution of agriculture to the GDP is about 18%.

High population growth rate, although demographers generally agree that this is a symptom rather than cause of poverty.

Liberalization policies and their effects

Other points of view hold that the economic reforms initiated in the early 1990s are responsible for the collapse of rural economies and the agrarian crisis currently underway. As journalist and the Rural Affairs editor for The Hindu, P Sainath describes in his reports on the rural economy in India, the level of inequality has risen to extraordinary levels, when at the same time, hunger in India has reached its highest level in decades. He also points out that rural economies across India have collapsed, or on the verge of collapse due to the neo-liberal policies of the government of India since the 1990s. The human cost of the "liberalisation" has been very high. The huge wave of farm suicides in Indian rural population from 1997 to 2007 totaled close to 200,000, according to official statistics. That number remains disputed, with some saying the true number is much higher. Commentators have faulted the policies pursued by the government which, according to Sainath, resulted in a very high portion of rural households getting into the debt cycle, resulting in a very high number of farm suicides. As professor Utsa Patnaik, India’s top economist on agriculture, has pointed out, the average poor family in 2007 has about 100 kg less food per year than it did in 1997.

Government policies encouraging farmers to switch to cash crops, in place of traditional food crops, has resulted in an extraordinary increase in farm input costs, while market forces determined the price of the cash crop. Sainath points out that a disproportionately large number of affected farm suicides have occurred with cash crops, because with food crops such as rice, even if the price falls, there is food left to survive on. He also points out that inequality has reached one of the highest rates India has ever seen. In a report by Chetan Ahya, Executive Director at Morgan Stanley, it is pointed out that there has been a wealth increase of close to US$1 Trillion in the time frame of 2003-2007 in the Indian stock market, while only 4-7% of the Indian population hold any equity. During the time when Public investment in agriculture shrank to 2% of the GDP, the nation suffered the worst agrarian crisis in decades, the same time as India became the nation of second highest number of dollar billionaires. Sainath argues that

Farm incomes have collapsed. Hunger has grown very fast. Public investment in agriculture shrank to nothing a long time ago. Employment has collapsed. Non-farm employment has stagnated. (Only the National Rural Employment Guarantee Act has brought some limited relief in recent times.) Millions move towards towns and cities where, too, there are few jobs to be found.

In one estimate, over 85 per cent of rural households are either landless, sub-marginal, marginal or small farmers. Nothing has happened in 15 years that has changed that situation for the better. Much has happened to make it a lot worse.

Those who have taken their lives were deep in debt – peasant households in debt doubled in the first decade of the neoliberal “economic reforms,” from 26 per cent of farm households to 48.6 per cent. Meanwhile, all along, India kept reducing investment in agriculture (standard neoliberal procedure). Life was being made more and more impossible for small farmers.

As of 2006, the government spends less than 0.2% of GDP on agriculture and less than 3% of GDP on education. However, some government schemes such as the mid-day meal scheme, and the NREGA have been partially successful in providing a lifeline for the rural economy and curbing the further rise of poverty.

Reduction in Poverty

Despite all the causes, India currently adds 40 million people to its middle class every year.[citation needed] Analysts such as the founder of "Forecasting International", Marvin J. Cetron writes that an estimated 300 million Indians now belong to the middle class; one-third of them have emerged from poverty in the last ten years. At the current rate of growth, a majority of Indians will be middle-class by 2025. Literacy rates have risen from 52 percent to 65 percent in the same period.

Efforts to alleviate poverty

Since the early 1950s, govt has initiated, sustained, and refined various planning schemes to help the poor attain self sufficiency in food production. Probably the most important initiative has been the supply of basic commodities, particularly food at controlled prices, available throughout the country as poor spend about 80 percent of their income on food.

Outlook for poverty alleviation

Eradication of poverty in India is generally only considered to be a long-term goal. Poverty alleviation is expected to make better progress in the next 50 years than in the past, as a trickle-down effect of the growing middle class. Increasing stress on education, reservation of seats in government jobs and the increasing empowerment of women and the economically weaker sections of society, are also expected to contribute to the alleviation of poverty. It is incorrect to say that all poverty reduction programmes have failed. The growth of the middle class (which was virtually non-existent when India became a free nation in August 1947) indicates that economic prosperity has indeed been very impressive in India, but the distribution of wealth is not at all even.

After the liberalization process and moving away from the socialist model, India is adding 60 to 70 million people to its middle class every year. Analysts such as the founder of "Forecasting International", Marvin J. Cetron writes that an estimated 390 million Indians now belong to the middle class; one-third of them have emerged from poverty in the last ten years. At the current rate of growth, a majority of Indians will be middle-class by 2025. Literacy rates have risen from 52 percent to 65 percent during the initial decade of liberalization (1991-2001).

Controversy over extent of poverty reduction

The definition of poverty in India has been called into question by the UN World Food Programme. In its report on global hunger index, it questioned the government of India's definition of poverty saying:

The fact that calorie deprivation is increasing during a period when the proportion of rural population below the poverty line is said to be declining rapidly, highlights the increasing disconnect between official poverty estimates and calorie deprivation.

While total overall poverty in India has declined, the extent of poverty reduction is often debated. While there is a consensus that there has not been increase in poverty between 1993-94 and 2004-05, the picture is not so clear if one considers other non-pecuniary dimensions (such as health, education, crime and access to infrastructure). With the rapid economic growth that India is experiencing, it is likely that a significant fraction of the rural population will continue to migrate toward cities, making the issue of urban poverty more significant in the long run .

Some, like journalist P Sainath, hold the view that while absolute poverty may not have increased, India remains at a abysmal rank in the UN Human Development Index. India is positioned at 132ond place in the 2007-08 UN HDI index. It is the lowest rank for the country in over 10 years. In 1992, India was at 122ond place in the same index. It can even be argued that the situation has become worse on critical indicators of overall well-being such as the number of people who are undernourished (India has the highest number of malnourished people, at 230 million, and is 94th of 119 in the world hunger index), and the number of malnourished children (43% of India's children under 5 are underweight (BMI<18.5), the highest in the world) as of 2008.

Economist Pravin Visaria has defended the validity of many of the statistics that demonstrated the reduction in overall poverty in India, as well as the declaration made by India's former Finance Minister Yashwant Sinha that poverty in India has reduced significantly. He insisted that the 1999-2000 survey was well designed and supervised and felt that just because they did not appear to fit preconceived notions about poverty in India, they should not be dismissed outright. Nicholas Stern, vice president of the World Bank, has published defenses of the poverty reduction statistics. He argues that increasing globalization and investment opportunities have contributed significantly to the reduction of poverty in the country. India, together with China, have shown the clearest trends of globalization with the accelerated rise in per-capita income.

A 2007 report by the state-run National Commission for Enterprises in the Unorganised Sector (NCEUS) found that 77% of Indians, or 836 million people, lived on less than 20 rupees per day (USD 0.50 nominal, USD 2.0 in PPP), with most working in "informal labour sector with no job or social security, living in abject poverty."However, a new report from the UN disputes this, finding that the number of people living on US$1.25 a day is expected to go down from 435 million or 51.3 percent in 1990 to 295 million or 23.6 percent by 2015 and 268 million or 20.3 percent by 2020. 

A study by the McKinsey Global Institute found that in 1985, 93% of the Indian population lived on a household income of less than 90,000 rupees a year, or about a dollar per person per day; by 2005 that proportion had been cut nearly in half, to 54%. More than 103 million people have moved out of desperate poverty in the course of one generation in urban and rural areas as well. They project that if India can achieve 7.3% annual growth over the next 20 years, 465 million more people will be lifted out of poverty. Contrary to popular perceptions, rural India has benefited from this growth: extreme rural poverty has declined from 94% in 1985 to 61% in 2005, and they project that it will drop to 26% by 2025. Report concludes that India's economic reforms and the increased growth that has resulted have been the most successful anti-poverty programmes in the country.

Persistence of malnutrition among children

According to the New York Times, is estimated that about 42.5% of the children in India suffer from malnutrition. The World Bank, citing estimates made by the World Health Organization, states "that about 49 per cent of the world's underweight children, 34 per cent of the world's stunted children and 46 per cent of the world's wasted children, live in India." The World Bank also noted that "hile poverty is often the underlying cause of malnutrition in children, the superior economic growth experienced by South Asian countries compared to those in Sub-Saharan Africa, has not translated into superior nutritional status for the South Asian child."

A special commission to the Indian Supreme court has noted that the child malnutrition rate in India is twice as great as sub-Saharan Africa

(source:wikipedia)