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Poverty in India:

Assessment, Remedies


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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

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Introduction
Indias 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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1 billion of worlds 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
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Poverty in the States of India
One half of Indias poor is located the
three states of Uttar Pradesh, Bihar, and
Madhya Pradesh

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

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United Nations documents emphasize
human development, measured by
life expectancy,
adult literacy,
access to all three levels of education,
and peoples average income.
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WHY IS POVERTY HAPPENING IN INDIA?
Indias 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)
P
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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%
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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 Indias 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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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 51
st
-54
th
rounds 13-18% larger
than that from the 30-day recall period basis.

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

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 OTHERS
Andhra Pradesh 30.5 15.4 9.5 4.1
Assam 14.1 27.7 18.8 25.4
Bihar 53.3 64 37.8 26.6
Chhattisgarh 54.7 32.7 33.9 29.2
Delhi 0.0 0.0 0.0 10.6
Gujarat 34.7 21.8 19.1 4.8
Haryana 0.0 26.8 13.9 4.2
Himachal Pradesh 14.9 19.6 9.1 6.4
Jammu & Kashmir 8.8 5.2 10.0 3.3
Jharkhand 54.2 57.9 40.2 37.1
Karnataka 23.5 31.8 20.9 13.8
Kerala 44.3 21.6 13.7 6.6
Madhya Pradesh 58.6 42.8 29.6 13.4
Maharashtra 56.6 44.8 23.9 18.9
Orissa 75.6 50.2 36.9 23.4
Punjab 30.7 14.6 10.6 2.2
Rajasthan 32.6 28.7 13.1 8.2
Tamil Nadu 32.1 31.2 19.8 19.1
Uttar Pradesh 32.4 44.8 32.9 19.7
Uttarakhand 43.2 54.2 44.8 33.5
West Bengal 42.4 29.5 18.3 27.5
All 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 16.0
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Poverty Measures
Head Count Ratio (HCR),
Poverty Gap (PG) and
squared poverty gap (SPG)


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n
m
HCR =
Poverty Measures
Head Count Ratio (HCR), Poverty Gap
(PG) and Squared Poverty Gap (SPG)

( ) ) (
1
1

=
m
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y z
n
PG
( )
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.
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=
m
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y z
n
SPG
m= no. of poor population, n = total population,
z= poverty line, yi =income of i-th person
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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
i i i
QC QC P L
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From Household income/expenditure Survey
Compute data on each households 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
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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
16000
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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
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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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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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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.
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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.

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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.
.
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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
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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.