[op-ed snap] Is India winning the battle against extreme poverty?
Mains Paper 3: Economy | Development and employment
From UPSC perspective, the following things are important:
Prelims level: Definitions of Poverty
Mains level: The news card talks about the dynamic nature of poverty and deprivation. Old definitions will dramatically reduce persons below the poverty line. It is outdated to see it in terms of income levels or extreme forms such as hunger. Poverty has now to be equated with inequality to address the present problem.
India out of extreme poverty cycle
- India is perhaps no longer home to the highest number of people living in extreme poverty.
- Researchers at Brookings Institution say Nigeria had 87 million people living in extreme poverty in May 2018, compared to 73 million in India.
- They predict that the Indian number is expected to drop to around 20 million over the next four years.
Poverty – a disguise in India?
- The World Bank defines a person as extremely poor if she is living on less than 1.90 international dollars a day, which are adjusted for inflation as well as price differences between countries.
- The results of the recently concluded consumer expenditure survey conducted by the National Sample Survey Organisation are used to generate estimates of absolute poverty.
- It will show that there are only 50 million Indians now living below the poverty line defined by the Suresh Tendulkar committee, or one in 25.
- Poverty numbers have always been a source of heated debate in India and the claims that India is on the verge of winning the battle against extreme poverty sit uneasily with the current concerns about job creation or rural distress.
Comparing with China
- China began to score massive wins against extreme poverty at the turn of the century when its per capita income in terms of purchasing power parity (PPP) was around $4,000.
- It was thus very likely that India would see a similar result after it reached a similar average income level at the end of the previous decade.
- PPP incomes average around $7,000 right now, compared to around $2,500 in the year 2000.
- Chinese success has no doubt that rapid economic growth as the main reason why extreme poverty could be rolled back.
What pulled China out of extreme poverty?
- The centrality of economic expansion is often lost in the heated ideological debates in India.
- But there were also other factors at play—the shift of people to jobs in formal enterprises, investments in human capital, relatively equal land ownership in rural areas, and targeted interventions to help the extremely poor.
- These allowed China to pull most of its citizens out of extreme poverty despite rising inequality.
Indian Scenario of Poverty Reduction
- Poverty Reduction isn’t the only Indicator
- It is time to close the tired debate about whether the economic reforms of 1991 have only helped the rich, though empirical proof will not come in the way of grand claims that poverty is actually increasing in India.
- Other indicators of well-being such as infant mortality and nutrition have also been improving.
- Outdated poverty definition in India
- India will once again have to redefine what it means by poverty. Poverty lines have to be recalibrated depending on changes in income, consumption patterns and prices.
- The usual poverty line used in narratives is 1.90 international dollars a day, but the World Bank has two others—$3.20 per day for middle-income countries and $5.50 per day for rich countries.
- India is now a middle-income country, with an estimated per capita income of around $9,000 in purchasing power parity.
- Economists suggest that a poverty line of $3.20 translates into ₹75 a day, or 68% higher than the Tendulkar poverty line.
- Poverty not to be assumed as Hunger only
- Third, the Indian political, policy and administrative systems have to adjust to the new realities of the transition to a middle- income country.
- Here poverty does not mean living at the edge of hunger but, rather, lack of income to take advantage of the opportunities thrown up by a growing economy.
- The focus of government spending should be on the provision of public goods rather than subsidies.
- Also, the rate at which economic growth translates into poverty reduction depends on what happens to inequality.
- India was battling the threat of widespread famine some five decades ago when even its ability to feed a growing population was questioned. There has been a lot of progress since then.
- Even the very possibility of a final victory against the sort of extreme poverty that was common not so long ago is no mean achievement.
- Inequality along with poverty needs to be targeted.
Definitions of Poverty
Read more about the Poverty Line in India in this blog
[op-ed snap] Prosperity in the 21st century:
Mains Paper 1: Social issues | Poverty and development issues
From UPSC perspective, the following things are important:
Prelims level: Not much
Mains level: Importance of agricultural growth for poverty reduction.
Indian experience of inequality(reduction) and poverty(elimination)
- Essentially, inequality can be reduced by taxing the rich, a form of ‘levelling down’
- but poverty can be permanently eliminated only by raising the incomes of the poor, a form of ‘levelling up’
- Public policy in India has paid far too little attention to the latter but also some of the measures adopted to tackle inequality may have exacerbated(worsen) poverty here
Long and short term solution
- The long-term strategy should be to tackle these two jointly through the equalisation of capabilities
- However, in the short-term, public policy must address livelihood opportunities for the poor
Is poverty in India declining?(after economic reforms of 1991)
- It is only the estimate for 2009-10 that shows a decline in the number of poor in India once again
- This is followed by a quite spectacular decline over the next two years
- To get an idea of the magnitude of the decline, the numbers for 2004-05, 2009-10 and 2011-12 are 407 million, 355 million and 270 million, respectively
- So while it is correct say that poverty had declined rapidly since the reforms, it actually declines only after about one and a half decades from 1991
Contribution of agricultural growth in poverty reduction
- The reduction took place when agricultural growth was at its fastest ever
- Experts have estimated average annual agricultural growth at 4% during 2005-06 to 2013-14 compared to 2.5% for the decade prior to this
- A 60% increase in the rate of growth of agriculture sustained for a reasonably long stretch is likely to have impacted poverty significantly
- Similarly, the 1980s, when poverty reduction first accelerated, had also been a period of accelerated agricultural growth
Agricultural growth has also contributed in reduction of urban poverty
- The economic reforms had mainly focussed on trade, industry and financial sector reforms
- Activity in these sectors is mostly based in urban areas
- For well over a decade after 1991 it had not succeeded in reducing the number of urban poor
- It is only after the agricultural sector began to grow faster from around the middle of the next one that the number of urban poor begins to decline
- It is only after 2004-05 that we see for the first time ever a reduction in the number of the urban poor
- Till that date this figure(urban poverty rate) has steadily risen while rural poverty had resumed its downward trend after 1993-94 itself
Why is agricultural growth important?: Contribution in reduction of urban poverty
- Two processes are likely to have been at play in this
- Rural prosperity could have fuelled demand for urban products and, following the significant decline in rural poverty, migration from the villages, swelling the numbers of the urban poor, may have slowed
- The role of agricultural growth in reducing poverty is apparent in the fact that between 2004-05 and 2009-10 the number of rural poor declined by 15% while the number of urban poor declined only by 5%
- This points to the possibility that economic reforms without a robust agricultural growth may not have made much of a difference to urban poverty
[op-ed snap] Countering growing inequality
Mains Paper 1: Social issues | Social empowerment
From UPSC perspective, the following things are important:
Prelims level: World Inequality Report 2018, World Development Indicators data
Mains level: Inequality prevailing in India and ways to reduce it
World Inequality Report 2018
- It has brought into focus an aspect of economic progress in India
- There is a continuous growth in inequality here since the mid-1980s
- The top 1% of income earners received 6% of the total income in the early 1980s, close to 15% of it in 2000, and receives 22% today
Comparison of economic progress made in India and China
- Since 1980, the Chinese economy has grown 800% and India’s a far lower 200%
- Inequality in China today is considerably lower than in India
- The share of the top 1% of the Chinese population is 14% as opposed to the 22% reported for India
- They had both been large agrarian economies at similar levels of per capita income when they had started out in the early 1950s
Growing inequality a sign of progress?
- Growing inequality need not necessarily accompany faster growth as inequality actually declined in China from the early 21st century
- By then China had grown faster for longer than most countries of the world ever did
Other indices also prove China’s success
- The World Development Indicators data released by the World Bank show that per capita income in China was five times that of India in 2016
- The percentage of the population living on less than $1.90 a day was about 10 times less at the beginning of this decade
What is it that China did better than India?
- Its leadership combined the drive for growth with the spreading of human capital
- Human capital may be understood as a person’s endowment derived from education and robust health
- China had by the early 1970s achieved the level of schooling India did only by the early 21st century
- The spread of health and education in that country enabled the Chinese economy to grow faster than India by exporting manufactures to the rest of the world
- These goods may not have been the byword for quality but they were globally competitive, which made their domestic production viable
- The resulting growth lifted vast multitudes out of poverty
- An ingredient of this is also the greater participation of women in the workforce of China
Is democracy pulling India behind?
- India has lower per capita income, persistent poverty and by all accounts rising inequality
- Democracy per se cannot be held responsible for this
- There are States in India with superior social indicators than China
- This shows that democracy not a barrier to development
- It also shows that similar political institution across India have not resulted in same development outcomes across its regions
- There is need to spread health and education far more widely amidst the population
- We now need to reorient public policy so that the government is more enabling of private entrepreneurship
- This has to be done while being directly engaged in the equalization of opportunity through a social policy that raises health and education levels at the bottom of the pyramid
[op-ed snap] Rural vs Urban: the better poverty alleviator
- Current pattern of Urbanisation: Taking place on the fringe of cities- unplanned and outside the purview of city codes and bylaws, imposes high costs
- Urban population growth effects on poverty: Consumption linkages, rural non-agricultural employment, remittances, rural land/labour ratios, rural land prices and consumer prices
- Rural transformation effects on poverty reduction: Modernisation of agriculture reduces rural poverty and overall poverty
- This is possible through greater demand for chemical fertilisers, pesticides, machine services, processed seeds or fuels, which promote non-agricultural production
- Higher incomes in rural areas promote demand for processed foods produced mainly in urban areas and generate employment
- Decrease in food prices results in better food security and overall poverty reduction
- Reduction of food prices lowers the real product wage in the non-agricultural sector, raising profitability and investment
- 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 commercialised and market farming
- It then has a closer linkage with the non-agricultural sector
- Rural transformation possible through easier access to new technology, credit and market
- Strengthening of extension services, rural infrastructure and skill formation will not only raise productivity and living standards but also curb rural-urban migration
Task force moots new panel on BPL
- Context: A task force headed by NITI Aayog Vice-Chairman Arvind Panagariya to prepare a road map for elimination of poverty has submitted its report to PMO
- It suggested setting up of a committee to identify people below the poverty line (BPL) & has also suggested participation from the States in defining the BPL population
- Background: Official measures are based on the Tendulkar poverty line
- But the line is not without its share of controversies, with many terming it being too low
- This had prompted the previous government to appoint the Rangarajan Committee, which has recommended higher rural and urban poverty lines
- Discuss: Present poverty line level in India is too low to capture real poverty. In this context, discuss the need for a new poverty line. What factors should be considered to make it real representative of poverty in India?
Earlier poverty lines
- Suresh Tendulkar panel: Those spending at least Rs 27 in rural and Rs 33 in urban areas daily in 2011-12 were identified as being above the poverty line
- Led to a public outcry as these numbers were considered unrealistic and too low
- C Rangarajan panel: Set up to review the line, raised the limit to Rs 32 and Rs 47 for rural and urban areas, respectively
- However, the report, submitted in 2014, wasn’t accepted by the Modi government
New poverty line
- News: The government may soon come out with a new definition of poverty, with the Niti Aayog likely to set up a panel of experts to formulate a new poverty line
- The new line, which will be different from the existing Tendulkar line and Rangarajan line, will also be based on the latest consumption expenditure survey
- Reasons: To set a target for poverty reduction while preparing its first 15-year vision document and 7-year strategy paper, which have replaced the 5-year plan
- Also, to measure the impact of the government’s anti-poverty schemes and other welfare initiatives
Niti Aayog task force backs ‘Tendulkar poverty line’
- News: A panel tasked with devising ways to reduce poverty has backed the controversial Tendulkar poverty line
- Context: Tendulkar poverty line, computed for 2004-05 at a level that was equivalent, in PPP terms to Rs 33 per day
- Tendulkar Committee: Computed poverty lines for 2004-05 at a level that was equivalent, in purchasing power parity (PPP) terms, to 1 U.S. dollar per person per day
- PPP model: Refers to a method used to work out the money that would be needed to purchase the same goods and services in 2 places
- Niti Aayog’s Task Force Report: Argues that the poverty line is not the basis of identification of poor in India
- It is the BPL Census on the basis of which state govts identify the poor. Latest of these is the Socio-Economic Caste Census 2011