CHAPTER 7

Poverty in India: Nature, Dimension, and Policy Measures

This chapter analyzes an important problem of the Indian economy—poverty—covering various facets of it.

Concept of poverty: Poverty refers to the lack of access to basic things like food, clothing, and shelter and is measured in terms of a poverty line, and what fraction of the population is below that line. It is measured by defining a threshold level of expenditure (or income) required to purchase goods and services necessary to satisfy basic needs at the minimal socially acceptable level. This threshold level of expenditure is called the poverty line and the proportion of population living below it is called the ­poverty ratio (NITI Aayog 2019a). Since 1979, India has regularly conducted the academic exercise of identifying a poverty line. This line is nothing but a level of consumption expenditure that represents a standard below which a person should be categorized as poor. What matters is how the poor are identified, not how they are counted. The all-India number hides a wide variation across India as well as between rural and urban areas. Poverty is unequally distributed across India. Poverty has no religion, ­hunger has no creed, and despair has no geography. Poverty is a multidimensional ­phenomenon. The greatest challenge is to end the cause of poverty in India. The poverty line and the poverty ratio have three potential uses:

1. Identification of poor
2. The allocation of expenditures on antipoverty programs across regions
3. Measuring and tracking poverty over time and across regions

Poverty estimates: India has had a huge debate on defining its own poverty line, and there is still no consensus. Reduction of poverty, and hence, how it is measured, has long been a contentious political economy issue in India. There is general discomfort every time the headcount ratio of the number of poor, based upon an accepted methodology recommended by an expert committee, declines; this then triggers a process to revisit known issues by another expert committee. The collective conscience, it seems, expresses a sigh of relief only when the new committee recommends a methodology that raises the headcount ratio as well as the number of absolute poor. Serious policy analysis often becomes a casualty. The government, mostly at the receiving end, is left with the only comfort that the new set of estimates keeps the direction intact, that is, the headcount ratio rises when compared with similar estimates for the previous round. For example, estimates for the year 2004–2005, based on the Tendulkar method, raised the headcount ratio by almost 100 million over the estimates based on the then-existing Lakdawala norms. According to the Tendulkar committee methodology, those whose daily consumption of goods and services exceeds ₹33.33 in cities and ₹27.20 in villages are not poor. While 29.8 percent of the population (350 million people) was below the poverty line in 2009–2010, only 22 percent of the people could be classified as poor in the country. Such estimates were quite consistent with those of the World Bank, which were based upon a poverty line of $1.25 per day per person. The government, however, appointed a new committee that estimated for 2011–2012 on the basis of the Tendulkar norms, indicating a sharp fall in the absolute number of poor to 270 million from 407 million in 2004–2005. The most recent estimates are based on the Rangarajan Committee Report, 2014, which estimated the poverty rate to be 29 percent. The Rangarajan Committee has pegged the new poverty line to monthly per capita consumption expenditure of ₹972 in rural areas and ₹1,407 in urban areas. This translates to daily per capita consumption expenditure of ₹32.4 in rural areas and ₹46.9 in urban areas. The panel estimated that 30.9 percent of the rural population and 26.4 percent of the urban population were poor. The Rangarajan Committee has recommended higher rural and urban poverty lines. These new estimates raised the number of poor by nearly 100 million for 2009–2010 and 2011–2012. The number of poor, according to these new estimates released in June 2016, was 455 million in 2009–2010 and 363 million in 2011–2012 (Kohli 2014).

To recapitulate, six official committees have so far estimated the number of people living in poverty in India. They are:

1. the working group of 1962;
2. V N Dandekar and N Rath in 1971;
3. Y K Alagh in 1979;
4. D T Lakdawala in 1993;
5. Suresh Tendulkar in 2009; and
6. C Rangarajan in 2014.
7. Arvind Panagariya in 2016 has suggested setting up a committee to identify people BPL. It also suggested participation from states in defining the BPL population.

As per Sen’s poverty index, among the poor there are several categories: very poor, poor, and others. A $2-a-day measure doesn’t take into account many variations that influence the conversion of income into good living. The differences lie in how poverty is measured. The Multidimensional Poverty Index (MPI) of the United Nations Development Program (UNDP) and Oxford University’s Poverty and Human Development Initiative factors in living standards ranging from sanitation and the composition of household flooring (dirt, sand, or dung) to child mortality and years of schooling (Morrell 2011).

Recently, the World Bank has suggested poverty lines for three classes of countries—the poor Purchase Parity Standard (PPS) $1.9 per person per day, or pppd, 2011 prices, lower middle income (PPP$ 3.2 pppd) and upper middle income (PPP$ 5.5 pppd). India is no longer a poor country even though povertarians (and the poverty industry) are dependent on this classification for their existence. It is a lower middle-income country and, as such, should adopt a lower middle income poverty line. This poverty line (PPP$3.2) is some 68 percent higher than the Tendulkar line (Bhalla 2018).

Regardless of what poverty line is used, it is clear that poverty remains a problem in the Indian context. The general disenchantment with the poverty line is essentially a result of the fact that, in a growing economy such as India, poverty can no longer be understood merely by the lack of ability to afford minimum subsistence. It seems insensitive to argue that a movement from below to above this artificially drawn line translates into an improvement in the material well-being of households. Poverty lines and measures in any given setting will be socially acceptable only if they accord well with prevailing ideas of what poverty means in that setting. Revising poverty lines on the basis of different methodologies will not put an end to the criticism surrounding them, as these lines are based on the concept of absolute poverty expressed in terms of basic subsistence, as opposed to the concept of relative poverty. Relative poverty acknowledges that the definition of poverty should move with the times and change with general living standards. Poverty lines based on this concept will, however, not allow tracking the proportion of poor over time. From the perspective of policymakers and academics, the purpose of a poverty line is to monitor poverty reduction. Once the definition of the poverty line is set, it cannot keep changing except adjusting for inflation (Kapoor 2014).

According to Amartya Sen

Poverty must be seen as the deprivation of basic capabilities rather than merely as lowness of incomes, which is the standard criterion of identification of poverty. The perspective of capability poverty does not involve any denial of the sensible view that low income is clearly one of the major causes of poverty, since lack of income can be a principal reason for a person’s capability deprivation (Sen, 1999).

Poverty is not just a lack of money; it is not having the capability to realize one’s full potential as a human being. Poverty leads to an intolerable waste of talent. The Rangarajan Committee recommended that the beneficiaries under target group-oriented schemes of the government may be selected from the deprivation-specific ranking of households. A consensus needs to evolve on what the aam aadmi (common man) needs. A multiple indicators approach would be helpful (Alagh 2016).

New political economy approach to poverty estimates: The problem of measuring poverty must not become an obstacle in dealing with it. The poor, as the Bible tells us, are always with us. The focus of policymakers should not be on the level at which the poverty line is fixed, but how to accelerate the pace of poverty reduction and ensure that it is sustainable, and not simply a result of significant bunching, that is, a concentration of poor around the poverty line. In the event of bunching, even modest increases in income can pull large numbers of poor from below to above this line, leading to rapid poverty decline. If the forces that pushed the poor above the poverty line are transitory, a large proportion of them could slip back into poverty if there is a sufficiently large negative shock. For poverty reduction to be sustainable, India needs policies that range from creating more productive jobs, delivering better education and health services and basic infrastructure to protecting the vulnerable. These will make the growth process more inclusive and increase the growth elasticity of poverty. Importantly, while the link between growth and consumption poverty is rather direct, the relationship of growth with other dimensions of poverty such as malnutrition, sanitation, or housing is far from being so. Poverty reduction, hence, has to be strategized in a multidimensional framework (Kapoor 2014).

The Arvind Panagariya Panel (2016) observed that it is sensible to set the poverty line at a level that can allow households to get two square meals a day and other basic necessities of life.1 Irrespective of the poverty line one may draw, the analysis of whether poverty increased or decreased will not change a lot. The emphasis on estimates is wrongheaded. Even if one defines a poverty line, citizens keep on getting in and out of that line on the basis of the economic shocks they experience. Those just above the line and those just below it are more prone to those shocks. The important point is how well India targets the poor. That, in turn, depends on the identification of the poor—which has received scant attention. Correlation does not imply causation. High economic growth is a necessary, but not sufficient condition, for poverty alleviation efforts to make a material difference.

Causes of poverty: Poverty is not a naturally ordained state of human existence. It is produced by deeply iniquitous social structures and economic disparities; it persists for the benefit of those who are rich, and is therefore, a product of vested interest. It is generally believed that poverty is the breeding ground for terrorism and plays a major role in fomenting violence as destitution can provoke defiance of established laws and rules. The poor are caught in a poverty trap, unable on their own to escape from extreme material deprivation. Even if they do not wish to be poor, they may be stuck because they do not have access to education, skills, health services, market information, technology, sanitation, and so on. Indian politicians encourage entitlements. Subsidies, transfer of assets, and other poverty alleviation programs are trumpeted in the name of the poor, but benefits are reaped by the middle class, middlemen, and nonelected officials, as they are more articulate than the poor. The privation of the poor in a democratic setup is almost relentless (Jana 2015).

The reasons for poverty are many, since the very concept is multidimensional. In short, the following factors are responsible for poverty in India:

1. High population
2. High population makes per capita income lower
3. Lack of employment, income, and resources
4. High level of illiteracy
5. Poor health care facilities
6. Lack of access to financial resources
7. Social and economic inequities
8. Low growth rate
9. The pressure of constant inflation
10. Ineffective implementation of policies and reforms

There are many other reasons too. Policies have also allowed the country to be thrust demographically into perpetual poverty. There is a close correlation between poverty and social structure in India, and in particular, the persistence of caste-based social hierarchy of occupations in rural India. Sachs (2006) pointed out that at the basic level, the extremely poor lack six major kinds of capital: human capital, business capital, infrastructure, natural capital, public institutional capital, and knowledge capital. The poor are poor because they are poor. They are caught in a classic poverty trap.

The poor start with a very low level of capital per person, and then find themselves trapped in poverty because the ratio of capital per person actually falls from generation to generation. The amount of capital per person declines when the population is growing faster than capital is being accumulated (Sachs 2006).

Indeed, poverty is a complex phenomenon. The spread of poverty in India would show that the poorest areas are certain parts of Rajasthan, Madhya Pradesh, Uttar Pradesh, Bihar, Jharkhand, Odisha, Chhattisgarh, and West Bengal. In general, the poor live in the country’s semiarid tropical regions. There is also a high rate of poverty in the flood-prone areas, extending from eastern UP to the Assam plains, and especially in northern Bihar. Poverty affects tribals in forest areas, where loss of their entitlements to resources has made them even poorer. In the coastal areas, there has been deterioration in the living conditions of fishermen because of environmental degradation, stock depletion, and vulnerability to natural disaster.

Policy response—Government’s approach to curb poverty: A long list of programs and schemes are being implemented to address poverty. The government on its part keeps on attempting to fight poverty and combat this issue by coming up with various schemes. The approach adopted by the government may be categorized as follows:

1. Enhancement of economic growth
2. Specific programs for poverty alleviation
3. Fulfilling of minimum needs of the poor

Since late 2011, though, the government has moved away from using poverty line estimates to cap citizens availing benefits. Several programs have been launched:

1. The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS)
2. The Integrated Child Development Scheme
3. Subsidized food provisioning
4. The pension schemes
5. Entitlements under the National Food Security Act
6. Jan Dhan Yojana
7. Pradhan Mantri Jeevan Jyoti Bima Yojana
8. Pradhan Mantri Suraksha Bima Yojana
9. Atal Pension Yojana
10. Pradhan Mantri Mudra Yojana
11. Stand Up India Scheme
12. Pradhan Mantri Vaya Vandana Yojana

It is better to have a clear identification of the poor for the success of any direct benefit transfers in the future. Till 2018, however, the country did not have a clear functional solution. A NITI Aayog report reveals that Tamil Nadu, Mizoram, Tripura, Meghalaya, Andhra Pradesh, Kerala, and Uttarakhand are front-runners in reducing extreme poverty as identified by the Sustainable Development Goals (SDGs) of the UN, while Gujarat, Uttar Pradesh, Maharashtra, Bihar, and Madhya Pradesh are “aspiring” to do so. The SDGs are a set of 17 universal goals and 169 targets to help organize and streamline development actions for greater achievement of human well-being, while leaving no one behind (Mukherjee 2018).

An increase in GDP per capita is strongly associated with decrease in poverty, and a 1 percent increase in GDP per capita should reduce poverty by about 0.78 percent. These results imply that a higher GDP growth rate reduces poverty (Agarwal 2015). In other words, an additional 1 percent increase in the GDP per capita can potentially lift about 3 million Indians out of poverty. A World Bank (2005) study revealed that faster the growth rate, the faster is poverty reduction, and vice versa. But there are many more cases where high growth has been combined with a worsening of poverty ratio or where high per capita income has not been translated to adequate progress in the human development index and toward improving the lot of the poor. South Asian countries like Bangladesh and India have decent economic growth but feeble welfare systems. Contrary to popular belief, growth by itself cannot change the associated processes for creating livelihood security, which is a basic prerequisite for empowerment of the people. While the indirect approach focuses on the policy framework that generates the growth process, the direct approach relies on the targeted programs. Direct provision of wage employment is obviously an effective instrument to eliminate poverty. But getting a job does not provide a solution on its own if the employment is insecure. The distinction between the two approaches is not always watertight.

According to Bhagwati (2011), the optimal strategy for poverty elimination is bound to be a mixed strategy involving a combination of the direct and indirect approaches. Poverty has certain patterns. Rural India remains economically backward. Driven by the need for education, health care, and better income opportunities, the rural poor are migrating rapidly to urban areas in the hope of an equitable share in opportunities, but often contending with despair and destitution and even more challenging realities. The urban poor actually end up paying a poverty penalty. One major aspect of poverty elimination is to ensure that cities overflow into the country, and new links are forged between the two areas—rural and urban.

Economic reforms should focus more on efficient delivery systems of public services. Many reckon that poor governance is the biggest constraint in achieving the aspirations of a new generation and a reduction in poverty. A major institutional challenge is the accountability of service providers, particularly the public sector. Issues like electoral reforms, crony capitalism, election funding, and corruption should be part of the reform agenda to reduce poverty (Dev 2016b). The problem of measuring poverty must not become an obstacle in doing something about it. If there is sustained growth of employment for the millions trapped in low-productivity jobs, one could get them a livelihood that will protect them from poverty (Desai 2014).

The poor are not without ideas, but they cease to be agents of their own improvement or instruments in tackling their own predicament. As the Bangladeshi Nobel Prize winner Muhammad Yunus once remarked,

Poor people are bonsai people. There is nothing wrong in their seeds. Simply, society never gave them the base to grow on. All it needs to get poor people out of poverty is for us to create an enabling environment for them. Once the poor can unleash their energy and activity, poverty will disappear very quickly. ­(Muhammad Yunus Quotes, n.d.)

As a country grows and shifts from the low-income to the middle-income category, the nature of agriculture typically changes from subsistence-oriented farming to more commercialized and market farming. It then has a closer linkage with the nonagricultural sector. Spillovers from agricultural growth rate are twice as large as from nonagricultural growth. Besides, agricultural growth has a much stronger poverty-reducing effect than nonagricultural growth. Agriculture’s contribution to poverty reduction is five times more than that of metropolitan cities. Although a definitive conclusion about public investment priorities will depend on the pattern of rural transformation and urbanization, there is a strong case for rural transformation through easier access to new technology, credit, and markets. Strengthening of extension services, rural infrastructure, and skill formation will not only raise productivity and living standards but also curb rural to urban migration. Our analysis shows that creating more remunerative opportunities in rural areas deserves greater emphasis (Gaiha 2016).

A one-shot approach or a single-input intervention like offering a poor household an asset-bearing project can hardly alleviate poverty. Sachs (2006) believed that the public sector should focus mainly on investment in human capital (health, education, nutrition), infrastructure (roads, power, water and sanitation, environmental conservation), natural capital (conservation of biodiversity and ecosystems), institutional capital (a well-run public administration, judicial system, police force), and knowledge capital (scientific research for health, agriculture, climate, ecology). “Developing countries need help from the developed world to get their foot on the first rung of the ladder of development. They need basic infrastructure to meet their needs for food and clean water. They need help acquiring education and developing expertise. They require help from the outside world so that they can ensure their basic survival. It is only after basic needs are met that economic development has a chance to move forward. Once they’re on the first rung of the ladder of development, they’ll start climbing just like the rest of the world” (Sachs 2006).

Politics of poverty: Even after 70 years of planned growth, poverty alleviation remains a mere rhetoric. The persistence of poverty is explicable only in terms of the wider system of class and power relations in which it is embedded. Despite declaration of inclusion of the poor, they have been facing marginalization and exclusion in the urban settings at the same time. No doubt, things have somewhat changed. But while improvements are visible, the deteriorations are not. The construction boom and growth in the manufacturing sector have attracted millions of people to urban centers, where the trouser-wearing and egg and chicken eating unskilled workers have to lead a hellish life on the pavements or underneath huge flyovers built by them. Children of the poor may seem be slightly better fed and better dressed but they are certainly learning less. These things are happening at a time when the world has become a global village and the aspirations of even the poorest of the poor are increasing. One should bother about the quality of their education. Various literacy-for-all campaigns have made them barely literate—to the point when they can read and note down telephone numbers (Ahmed 2015).

In India, poverty is a political industry. Poverty in India has been falling, according to all estimates, and this has been happening gradually over four decades. Max Hartwell has stated that if economics is a “study of poverty,” then Indian elections are essentially the politics of poverty. Poverty has been the most dominant vote bank in Indian politics. All major and regional political parties in India have always used populist schemes to ensure support of the poor as the backbone of their power. The classroom and conference hall intellectualism fails to understand the changing definition of poverty, from the poor’s point of view. It defies all official yardsticks of poverty. Far beyond extreme, absolute, and relative poverty, this is a phase of civilizational poverty, when the poor want to live like civilized citizens with dignity, not like pigs. The poor are equally conscious of their future. They have ambitions too. Most of them use smartphones. Poverty is no longer confined to hunger for two square meals a day, but redefined in the changing categories of hunger—hunger for better life, better future, education for children, building own house, and remarkably, hunger for being able to achieve all these through hard work (Mishra 2017). Fueling aspirations for votes may be easy. But meeting these rising expectations are not easy. Given the political economy equilibrium, the rate at which economic growth translates into poverty reduction depends on what happens to inequality, or how the growth dividend is distributed.2 The dynamic view of poverty suggests that, at a general level, the population at any given time would be composed of the poor and the nonpoor. There cannot also be one format for reducing poverty in a multicultural continent-sized nation like India.

A major election plank in 2019: Election time announcement by political parties is a kind of the political courage not seen in India earlier to seek vote is evident in the income-support scheme announced as Congress’s major election plank. Few ideas have excited politicians across the ideological aisle as that of a state-funded “basic income” to citizens. The promise of granting the poor, the worst off one-fifth of Indians, ₹6,000 (equal to $84) every month is no surprise. This assault on poverty will relieve about 50 million households of penury. The fiscal math is such whether India can afford this, as the country lacks enough financial resources to meet the challenge. With its annual cost placed at ₹3.6 trillion, even if only a single member of every poor family gets the payout, government spending elsewhere would need to be slashed drastically. If two members of every poor home are paid, the bill would double, exceeding the center’s entire fiscal deficit for FY19. This amount to be given to the poor is about 13 percent of the center’s budget, as large as the explicit subsidy bill plus the outlay on the national employment guarantee scheme. It is also about 14 percent of the taxes collected by the center. The policy can be ruinous, if it adds on to existing subsidy. It can be redemptive, if all extant subsidies are reconfigured and some repressed prices allowed to rise. With leaders preferring patronage and identity politics to mobilize support, minus political daring, however, the scheme can spell ruin or jumla (words with no substance).3 And since income is a personal thing, all poverty-stricken adults ought to get it. Globally, an income handout was first proposed as a universal basic income: a small sum for everyone, no questions asked, no confusion over eligibility, and no exclusions. Such an idea has its merits. A scheme with riders, however, lets politicians set its terms. The risk: It could end up as yet another political tool.4

According to N.R. Bhanumurthy (professor at the National Institute of Public Finance and Policy), implementing such a scheme will be a challenge. “However, the proposed scheme is not un-implementable since direct benefit transfer is getting more and more traction. But we need to see which subsidy programmes need to be curtailed and which need to be scaled up.”5 In a country with a large number of poor, the only antidote to poverty is sustained double-digit growth over the next 20 to 30 years. This alone will create jobs, helping India reap its demographic dividend, and in the process, lift millions out of poverty. This will require governments to simultaneously create an enabling environment for the young and for reviving the animal spirits (the term animal spirits was innovated by John Maynard Keynes and indicates the psychological (spontaneous) urge of investors and consumers to get into more economic activities) of entrepreneurs and businessmen and women. A handout may be good politics, but it’s a leg up that’s both good politics and economics.6

Endnotes

1. 1. Syskool. July 15, 2018. “Niti Aayog Task Force on Eliminating ­Poverty.” https://syskool.com/niti-aayog-on-eliminating-poverty/, (accessed September 17, 2019).
2. 2. MINT. July 5, 2018. “Is India Winning the Battle Against Extreme Poverty?” Editorial Comment. https://www.livemint.com/Opinion/TmdVu3hYfU1PizyEjUlrYI/Is-India-winning-the-battle-against-extreme-poverty.html, (accessed September 26, 2019).
3. 3. The Economic Times. March 26, 2019. “Justice for the Poor or Path to Ruin?” Editorial Comment. https://economictimes.indiatimes.com/blogs/et-editorials/justice-for-the-poor-or-path-to-ruin/, ­(accessed September 26, 2019).
4. 4. MINT. March 26, 2019. “Minimum Income Guarantee, Rahul Gandhi’s Poll Gambit,” Quick Edit. https://www.livemint.com/elections/lok-sabha-elections/minimum-income-guarantee-rahul-gandhi-s-poll-gambit-1553563844902.html, (accessed September 26, 2019).
5. 5. MINT. March 25, 2019. “Congress Strikes a Populist Tone, Commits Largesse for the Poor,” News Headline. https://www.pressreader.com/india/mint-st/20190326/282991106251547, (accessed October 27, 2019).
6. 6. The Indian Express. March 27, 2019. “Not So Basic,” Editorial ­Comment. https://indianexpress.com/article/opinion/editorials/rahul-gandhi-guaranteed-minimum-income-congress-5644303/, (accessed October 27, 2019).