Poverty and Poverty Dynamics in India: Estimates, Determinants and Policy Responses

Aasha Kapur Mehta and Shashanka Bhide1

Introduction
For six decades of planned development the challenge of poverty reduction has been and still
remains a key policy concern for India. Despite high rates of economic growth that exceeded
expectations and led to India being placed in the category of ‘lower middle income countries’,
up from the category of ‘low income countries’, the rate of reduction in incidence of poverty has
been slow. Achievement of the Millennium Development Goals and Plan targets are critically
dependent on a significant reduction in poverty. Hence, the Eleventh Five Year Plan (Planning
Commission, 2008) is concerned with achieving ‘inclusive growth’ rather than just rapid growth.

What is meant by inclusive growth? Who is excluded? In his Foreword to the Eleventh Plan the
Prime Minister explains that the benefits of rapid growth, in terms of income and employment,
must be “adequately shared by the poor and weaker sections of our society, especially the
Scheduled Castes (SCs) and the Scheduled Tribes (STs), Other Backward Classes (OBCs) and
minorities”. For this, “growth must occur not just in our major cities but also in our villages and
small towns. It must be spread across all states and not just limited to some. It must generate
sufficient volumes of high quality employment to provide the means for uplift of large numbers
of our population from the low income low quality occupations in which too many of them have
been traditionally locked.” And that “the higher rate of growth that we have set out for
ourselves, coupled with our thrust on the growth process being inclusive, should ensure that the
struggle for the removal of chronic poverty, ignorance, and disease will register major gains in
the Eleventh Plan.”

What is the extent of poverty and chronic poverty in India? What are the norms or measures that
are used to determine the poverty line and the extent of poverty? Budgetary allocations for
poverty alleviation hinge on estimation of the percent of India’s population that is poor. Are
these estimates accurate? If not, what are the reasons for challenging their accuracy? Has the
State taken cognizance of these critiques especially in view of the linkage between poverty
estimates and poverty alleviation related public expenditure?
This paper will first review some of the estimates of poverty, and critiques thereof, under
discussion in India. It will then present the estimates of poverty persistence, entry and escape
based on using panel data collected for more than 3000 households in 250 villages across the
country in three waves, i.e., 1970, 1982 and 1998. Finally, it will use the literature on poverty
and the limited panel data based research, to draw lessons with regard to policy responses and
safety nets that may be effective in promoting escape from poverty and preventing persistence of
or entry into it.
2. Poverty Incidence and Trends: estimates, critiques and re-estimates

                                                            
1
Aasha Kapur Mehta is Professor of Economics, Indian Institute of Public Administration and Shashanka Bhide is
Senior Fellow, National Council of Applied Economics Research, New Delhi.

  1
Traditionally, discussion of incidence, trends and determinants of poverty in India is based on
household sample surveys conducted on a quinquennial basis by the National Sample Survey
Organisation. Detailed data on consumer expenditure from nationally representative samples are
available from the early 1970s to the present at intervals of five years2. The official poverty
estimates, patterns and trends in poverty are determined on the basis of analysis of data on
household consumption expenditures on which poverty lines are juxtaposed to separate the poor
from the non-poor and determine the extent of poverty. These poverty lines are “not arbitrary
figures, but have been derived from age-sex-occupation-specific nutritional norms by using the
all-India demographic data from the 1971 Census…based explicitly on estimates of the
normative nutritional requirement of the average person in the rural and urban areas of the
country separately (Sen 2005).
Despite high rates of economic growth that exceeded expectations and implementation of several
poverty alleviation programmes by successive governments, India has the largest number of poor
people in the world with 301.7 million poor - 220.92 million of them in rural and 80.79 million
in urban areas3 (Table 2.1). The rise in population has also offset some gains in poverty
reduction. Seven large sample consumer surveys have been conducted by the NSS on a
quinquennial basis since 1973-1974. Poverty measured in terms of head count ratio (HCR)
declined from 54.9% in 1973-74 to 27.5% in 2004-05 (Table 2.1). The pace of poverty reduction
over the last decade has been much lower than anticipated. The decline in poverty was 12.4
percentage points over the decade, i.e. from 51.3% in 1977-78 to 38.9% in 1987-88 while the
corresponding decline was only 8.5 percentage points over eleven years, i.e. from 36% in 1993-
94 to 27.5% in 2004-05. Thus, income poverty in the country has declined over three decades by
less than one million a year (Planning Commission, 2006) The slowdown in the pace of poverty
reduction may indicate relative difficulties in addressing hard core poverty, much of which is
likely to be chronic in nature. (Mehta et al in Shepherd and Moore forthcoming; Bhide and
Mehta 2008).
The bulk of India’s poor live in rural areas. However, the relative distribution of the poor
between rural and urban areas has declined from 81.33% in rural and 18.67% in urban areas to
73.2% in rural and 26.8% in urban areas between 1973-74 and 2004-05 (Table 2.1).
Table 2.1: Poverty Incidence and Rural-Urban Distribution in India, 1973-74 to 2004-05
Year Percent Total population below poverty line % of India’s poor
Population (in million)) located in
below the India Rural Urban Rural Urban
Poverty Areas Areas Areas Areas
Line
1973-1974 54.9 321.3 261.3 60.0 81.33 18.67
1977-1978 51.3 328.9 264.3 64.6 80.36 19.64
1983 44.5 322.9 252.0 70.9 78.04 21.96
                                                            
2
The National Sample Surveys began in the 1950s with the launching of the first nation wide survey of household
expenditures in 1950.
3
These are numbers based on national poverty line. The estimates based on international benchmarks show that
India is home to the largest proportion of the world’s poor with 41.6 per cent of her population living below
PPP$1.25 a day in 2005 (World Bank, 2008).

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1987-1988 38.9 307.1 231.9 75.2 75.51 24.49
1993-1994 36 320.3 244.0 76.3 76.18 23.82
1999-2000 26.1* 260.2* 193.2* 67.0* 74.3 25.7
2004-2005 27.5 301.7 220.9 80.8 73.2 26.8
Source: Planning Commission (1997), Press Information Bureau (2001), Press Information
Bureau, (2007) and own calculations.
Note: * = The estimates for 1999-2000 are based on the mixed recall period method and are not
comparable with estimates for other years, which are based on uniform recall period method.

Poverty Lines Prior to Independence: Dadabhai Naoroji, National Planning Committee

and the Bombay Plan
The basis for identifying the extent of poverty in India has been evolving over time. Attempts to
define a ‘poverty line’ which permits estimation of extent of poverty have had a fairly long
history. Dandekar (1996) pointed to four measures: proportion of expenditure by a household on
essential item such as food, the calorie value of food, the cost of a balanced diet and the cost of
essentials of a tolerable human existence.
Providing a historical perspective to the preparation of poverty lines in India, Srinivasan (2007)
identifies several efforts made in this regard. The earliest was Dadabhai Naoroji’s “Poverty and
Un-British Rule in India” in which he estimated a subsistence-based poverty line at 1867-68
prices. Using the diet prescribed to “supply the necessary ingredients for the emigrant coolies
during their voyage living in a state of quietude” (ibid, p 25), which includes “rice or flour, dhal,
mutton, vegetables, ghee, and vegetable oil and salt” he came up with a subsistence costs based
poverty line, varying from Rs 16 to Rs 35 per capita per year in various regions of India.
Srinivasan draws attention to Naoroji’s submission that this does not include the energy
requirements for work nor does it include the “little luxuries, social or religious wants, expense
on occasions of joy and sorrow”. Comparing the Planning Commission Poverty Line for 2004-
05 with Naoroji’s poverty line corrected for inflation, he concludes that “the official poverty
lines for 2004-05 are much more modest than Naoroji’s”.

As Secretary of the National Planning Committee (NPC), KT Shah prepared a note dated June 4,
1939, stating that “the fundamental aim [of planning] is to ensure an adequate standard of living
for the masses... . Estimates of economists in different parts of India have put down this
irreducible minimum at figures varying from Rs 15 to Rs 20 per capita per month in the present
value of the rupee” (IIAPR 1988, p 53).” The note also “drew attention to the need for bringing
about a more equitable distribution of growing wealth. Clearly, the committee’s view was that
rapid and inclusive growth was the primary instrument to ensure that every Indian had an
adequate standard of living – in other words, to ensure that mass poverty was eradicated.” Tests
to measure progress included improvement of nutrition, clothing and housing, increases in
agricultural and industrial production, elimination of unemployment and elimination of illiteracy.
Srinivasan concludes that under given levels of inflation, the two poverty lines could be
equivalent and that both Naoroji and K T Shah “approached the definition of a poverty line from
a subsistence or irreducible minimum standard of living perspective, in which nutritional
requirements are implicit.”

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The third poverty line that Srinivasan traces is the Bombay Plan of Thakurdas et al (1944) and he
concludes that the poverty line proposed by them is much more modest than that of the NPC.
Poverty Lines Post Independence
A Working Group of eminent economists appointed by Planning Commission recommended a
poverty line in 1962, set at a minimum level of expenditure of Rs 20 per day for rural areas and
Rs 25 per day for urban areas at 1960-61 prices below which households would not be able to
meet basic requirements for living. This minimum per capita expenditure was determined taking
into account the requirements of balanced food and in the case of urban areas some provision of
housing expenditure. However, the expenditures on health and education were not considered as
they were expected to be provided by the state (Dandekar, 1996). Since there was considerable
inflation between 1938 and 1960-61, Srinivasan concludes that “the Working Group’s poverty
line of Rs 20 per capita per month at 1960-61 prices is much more modest than the Rs 15-Rs 20
per capita per month at 1938 prices of the note of K T Shah.”
Dandekar and Rath (1971) provided the first systematic assessment of the incidence of poverty
based on the NSS data for 1960-61 using a cut-off level of expenditure that was adequate to
provide 2250 kcals per capita per day both in rural and urban areas. The calorie consumption was
estimated based on the consumption of various food items for different expenditure groups and
the expenditure cut-off or poverty line was determined accordingly. The study estimated that
about a third of the rural population and about half of the urban population ‘lived on diets
inadequate even in respect of calories’. The study led to a series of critiques and debates and
alternative estimates. The choice of calories as the key criterion for defining poverty line
provided a further basis for a debate on the ‘norm’ for minimum level of calories for healthy
living. Further work in this area led to calorie consumption norms based on age-sex distribution
of the population separately for rural and urban areas.
The discussion on determining the nutritional or calorific norm in which the poverty line is
rooted, has been long and complex. Sukhatme (1965) provided an additional dimension to the
discussion pointing to the inter- and intra-individual variations in calorie requirements. He
suggested a retail level consumption of 2250 to 2300 kcals per capita per day as the ‘norm’ for
sustenance. The poverty lines specified a ‘minimum level of per capita consumption
expenditure’ below which the households with such expenditure would be considered ‘poor’. A
minimum level of consumption expenditure thus provided a ‘measurable indicator’ and required
the availability of household expenditure data to estimate the proportion of poor in the
population of the country. The National Sample Surveys of household consumption expenditure
began in 1950 although the first comprehensive report on consumer expenditure surveys in the
country became available only in 1959.
In fact one of the serious flaws in the early estimates was that the estimates of shares of
population at different expenditure classes were not available and the estimates of incidence of
poverty were based on the distribution of sample households (Dandekar, 1996).
Planning Commission Task Force and Expert Group for Estimating Poverty

  4
In 1977, Planning Commission constituted a Task Force, which submitted its report in 1979 and
on the basis of a systematic study of nutritional requirements recommended poverty lines
separately for rural and urban areas at national level.

Based on observed consumer behaviour in 1973-74, it was estimated that, on an average,

consumer expenditure of Rs. 49.63 per capita per month was associated with a calorie intake of
2400 per capita per day in rural areas and correspondingly Rs. 56.76 per capita per month with a
calorie intake of 2100 per capita per day in urban areas. The poverty line for subsequent years is
estimated by adjusting the poverty line for the base year 1973-74, for inflation.
Subsequently, in 1989, Planning Commission constituted an Expert Group to review the
methodology used for the assessment of poverty. It recommended:
i) the continuation of the calorie based consumption expenditure as a cut-off to
determine the proportion of population below the poverty line;
ii) disaggregation of national level poverty lines into state-specific poverty lines and
then updating the poverty lines using the Consumer Price Index (CPI) for Industrial
Workers in urban areas and CPI for Agricultural Labour for rural areas; and
iii) dis-continuation of adjustment for the difference between NSS estimate of mean
consumption expenditure and the NAS estimate due to increasing divergence between
the two and since the adjustment increased the level of consumption expenditure for
all the households and decreased the estimated rate of poverty as compared to the
unadjusted data (Planning Commission 1993).

Based on the above criteria, Planning Commission estimated poverty lines separately for rural
and urban areas over the period from 1973-74 to 2004-05 are presented in Table 2.2. The Head
Count Ratio (HCR) estimated on this basis became the key indicator of level of poverty in the
country. The poverty line for 2004-05 is Rs.356.30 per capita per month for rural and Rs.538.60
per capita per month for urban areas (Table 2.2).
Table 2.2: Poverty Line for India (Rs. per capita per month, in current prices)

Year Rural Urban

1973-1974 49.63 56.76
1977-1978 56.84 70.33
1983 89.5 115.65
1987-1988 115.2 162.16
1993-1994 205.84 281.35
1999-2000 327.56 454.11
2004-05 356.30 538.60
Source: Planning Commission (1997), Press Information Bureau (2001), Press Information
Bureau, (2007).

The use of a minimum adequate level of nutrition as a key criterion for defining the poverty line
has come under criticism both with respect to the level at which the norm has been fixed and also
for the inadequacy of the expenditure level of households at which these norms were likely to be
met in providing a minimum standard of living a society may desire for its citizens. It is now
increasingly accepted that the poverty line is unrealistically low and that the numbers in poverty

  5
would be far larger if the poverty line was more realistic. High growth experienced in the 1990s
and in the first decade of the 21st century has not been inclusive.
There is a large body of literature that has questioned the accuracy of official estimates of
poverty, “the official poverty estimates have been severely criticised on various counts” such as
the consumption patterns underlying the rural and urban PLBs remained tied down to those
observed more than three decades ago in 1973-74 and hence had become outdated; changes in
the consumption pattern of the poor are not reflected in the poverty lines; use of Consumer Price
Index for Agricultural Labourers understated the price rise for the rural population and hence
understated the extent of rural poverty relative to urban poverty; basic social services of health
and education were to be provided by the state. Although private expenditure on education and
health was covered in the base year 1973-74, no account was taken of either the increase in the
proportion of these in total expenditure over time or of their proper representation in available
price indices (Tendulkar Committee 2009)4. Additionally there are issues of consistency between
the national accounts and the sample survey data; the deviation of the ‘official poverty lines’
from their original definition based on minimum calorie norms; unrealistically large ratios of
official urban to rural poverty lines compared to the initial 1973-74 ratio etc. (Ray and Lancaster
2005, Popli, Parikh and Palmer Jones, 2005; Himanshu 2010; Mehta and Shah 2001, 2003).

The first official estimates of HCR from the 1999-2000 survey of consumer expenditure survey
led to considerable debate on the comparability of these estimates with the previous surveys as
the questions posed to the respondents in the 1999-00 survey varied with respect to the reference
period of purchases used in the previous surveys. The HCR based on the original estimate
(mixed recall or reference period) by the Planning Commission in 1999-00 was 26.1% marking a
sharp decline from the estimates for 1993-94 at 36% which employed uniform recall period
(URP). The estimate of HCR using the URP in 1987-88 was 38.9%. The decline in the HCR
between 1993-94 and 1999-00 was therefore far steeper than between 1987-88 and 1993-94.
Several researchers provided alternative adjustments to the 1999-00 estimates (Himanshu and
Sen 2004a and 2004b; Sundaram and Tendulkar 2003; Deaton and Dreze 2002). These
adjustments led to upward revisions in the estimated HCR. An alternative perspective was
offered by Bhalla (2003a and 2003b) who suggested that the comparability of the surveys of
1999-00 and 1993-94 was far more seriously affected by the divergence of NSS and NAS
estimates than the differences in recall periods in the questionnaire. Adopting an alternative
approach, he pointed to the rise in real wage rates and provided estimate of HCR for 1999-00
well below the 26.1% obtained from the MRP estimates. Deaton and Kozel (2005) provide a
comprehensive assessment of the debate on estimates of poverty during the period of 1990s
which coincides with the sharp changes in India’s economic policies from one of licensing and
controls to a more liberal regime.
Food and Non-Food Components of Expenditure

                                                            
4
We have referred to the “Report of the Expert Group to Review the Methodology for Estimation of Poverty
(Planning Commission, 2009)” as the Tendulkar Committee here and in subsequent citations. Prof. S.D. Tendulkar
was the chair of this expert committee.

  6
Saith (2005) highlights a fundamental problem caused by the use of different procedures to
estimate the food and non-food components of the poverty line basket. “While dietary
requirements are calculated on a “scientific” basis according to bodily needs, the non-food
component of the poverty threshold is not calculated on a needs basis. Instead, the procedure
essentially identifies households whose expenditure on food exactly matches the cost of the food
component in the poverty line basket, and then checks how much such households actually spend
on non-food items”. Hence there is no guarantee with regard to meeting basic non-food needs
(ibid).
In 1973-74 the share of food in total expenditures of the poverty line class was 81 per cent and
72 per cent in rural and urban areas respectively (Planning Commission 1979). This fell to
around 65 per cent and 59 per cent in 1999-2000 (Sen 2005). “Thus, the reduction in the share of
food is 16 per cent and 13 per cent as compared to the shortfalls in calorie intake of 25 per cent
and 15 per cent. Therefore, even if the poverty line classes were to spend the earlier fraction of
their expenditure on food, they would yet fall short of the calorie norms, especially in rural
areas” (ibid). Sen (2005) accepts the likelihood that the 1973-74 proportion of expenditure to
meet minimum non-food requirements (especially rent and healthcare) is not sufficient, “thereby
leading to a decrease in the income left available for food.”

The health care system is in shambles (NRHM 2005) and serious concerns have been expressed
regarding the poor state of State budgetary allocations for and State provisioning of healthcare.
Ill health exacerbates the suffering of those who are already poor and leading those who are non-
poor into poverty due to large expenses on health care (Duggal 2009; Mehta 2005; 2007; 2009).
Poverty lines and calories
In a major contribution to the literature on poverty measurement, Jaya Mehta and Shanta
Venkatraman pointed out that the current poverty lines do not correspond to consumption of
2400 kcal in rural and 2100 kcal in urban areas. “Poverty statistics must conform to the
definition of the poverty line so that we know what we mean when we categorise so many
millions as ‘poor’…If the majority in this country are poor the government has to first admit it.
Only then can poverty alleviation be given the priority that it deserves” (Mehta and Venkatraman
2000). Subsequently, Sen (2005), Srinivasan (2007) and Pattnaik (2007 and 2010) confirmed this
serious deviation. “If we define the poor as those with energy intakes below the (nutritional)
norm, as we should if we assume that anchoring of poverty lines in average nutritional norms
makes sense” then poverty in India “increased significantly between 1993-94 and 2004-05”
(Srinivasan 2007). However the “official poverty rates declined significantly between 1993-94
and 2004-05” as can be seen from the last three columns of Table 2.3 (ibid). Further, “it is true
the two methods of estimating poverty are not strictly comparable, since the average per capita
energy intake norms of 2,400 kcals in rural areas and 2,100 kcals in urban areas that are used in
the official method could be below the average norm of 2,700 per consumer unit used by the
NSS” (ibid).
Table 2.3: Proportion of Persons Below the Norm (2700 Kcals per Day) of Household
Calorie Intake per Consumer Unit

Proportion of Persons Below Norm Poverty Proportions based on

relevant Poverty Lines

  7
 1993-94 1999-2000 2004-05 1993-94 1999-2000 2004-05
India Rural 0.575 0.607 0.662 0.372 0.373 0.283
India Urban 0.649 0.645 0.701 0.326 0.324 0.257
Source: Srinivasan 2007 based on NSS
A strong and scathing attack on the “official” poverty lines is made in Pattnaik (2007 and 2010)
who estimates that 87% of the population in rural areas and 64.5% in urban areas lives in poverty
(Tables 2.4 and 2.5 below). She argues that the “lowering of the nutrition standard over time,
inherent in the official method, is the real reason” for the “claimed” poverty “decline” (Pattnaik
2007).
Table 2.4: The Rural Poor as Per Cent of Rural Population in India

Round No 28 32 38 50 55 61
1973-74 1977-78 1983 1993-94 1999-2000 2004-05
Direct method
1. MPCE giving 2400 kcal, Rs (poverty
line) 56* 67 120 325 565 790
2. Per cent below poverty line 72* 65.5 70 74.5 74.5 (77.5) 87
Indirect method
4. Price adjusted poverty line, Rs official 49* 56 86 206 328 356
5. Per cent of officially 'poor' 56.4 53.1 45.7 37.3 27.4 (30.4) 28.3
6. Calorie intake at poverty line 2200* 2170 2060 1980 1890 1820
7. Deviation from RDA of 2400 kcal -200 -230 -340 -420 -510 -580
9. Modified price-adjusted poverty line, Rs,
taking base year MPCE 2400 kcal 56 64 98 235 374 414
10 Per cent which should be officially 'poor' 72 63 54 49.2 39 41.5
Source: Patnaik (2007), Neoliberalism and Rural Poverty in India, Economic and Political Weekly, 28
July, p. 3138.
Note: * 2200 calories was the actual norm accessible with Rs 49, the 2400 calorie norm required Rs 56 as
the poverty line, and about 72 per cent of persons was below this.

Table 2.5: The Urban Poor as Per Cent of Urban Population All-India (1973-74 to 2004-05)

Round No: 28th 38 50 61

1973-74 1983 1993-94 2004-05
1. MPCE giving 2,100 Kcal, Rs (DPL 2,100) 65* 147 398 1,000
2. % of persons below direct PL 60* 58.5 57 64.5
3. Official poverty line OPL Rs 56.6 117.6 285 538.6
4. % of persons below official PL 49.2 42.2 32.6 25.7
5. Calorie intake ar Official PL 2000* 1905 1885 1795
6. Deviation from RDA of 2,100 Kcal -100 -195 -215 -305
7. Ratio of DPL to OPL 1.13 1.25 1.4 1.86
Source: Patnaik (2010), Trends in Urban Poverty under Economic Reforms: 1993-94 to 2004-05,

  8
Economic and Political Weekly, Vol.45, No.4, 23 January, p. 48. Figures marked with an ‘ * ’ are
approximate values. The Rs 56.6 urban official poverty line in 1973-74 is not consistent with 2,100
calories intake and is likely to correspond to 2,000 calories as indicated. Direct poverty line and poverty
percentage in the base year are approximate and derived by assuming the rural-urban differential to
remain constant over 1973-74 to 1983.

Sen (2005) noted that the charge was serious; that the deviations were large and were cause for
concern; that the actual calorie intake of the poverty line class in every state and in both rural and
urban areas was significantly below the calorie norm (except in urban Orissa); that the average
shortfall from the norms was about 25 per cent in rural and 15 per cent in urban areas. “Unless it
can be convincingly shown that lack of income is not the primary cause of the observed non-
consumption of the calorie norm, the poverty lines would have to be raised by about 15 per cent
for rural areas and 10 per cent for urban” (ibid). It needs to be noted that for the poverty line
class, in 1999-2000, based on their food consumption patterns, there were significant deviations
from the official calorific norm in both rural and urban areas. For instance, only 58% of the
calorific norm was met in rural Kerala, 64% in Tamil Nadu and 69% in both Tamil Nadu and
Karnataka. However, Sen (2005) defends the level at which the poverty lines are set by asking
whether it was possible to find a suitable basket in each state that, if consumed by the poverty
line class, would provide the normative calorie values. Answering this in the affirmative he
therefore concludes that “by and large, the poverty lines do not need to be revised on the count
that they violate the calorie consumption norm (ibid). However, he accepts the argument that a
purely calorie-based measure of food adequacy is simply wrong from a nutritional point of view
and the need to “ensure sufficient intake of other nutrients, such as proteins, fats and micro-
nutrients.”

In view of all of the above, Planning Commission set up an expert group headed by Prof S.D.
Tendulkar to re-examine the issue and suggest a new poverty line and poverty estimates. The
Tendulkar Committee Report (Planning Commission 2009) has recommended four major
changes in the methodology for estimating incidence of poverty. The recommendations include:
i) a conscious move away from calorie anchor while testing for the adequacy of actual
food expenditure near the poverty line to ensure certain aggregate nutritional
outcomes.
ii) use the same consumption basket as the urban poor for the rural poor also but apply
the prices prevailing in rural areas to estimate the poverty line for rural areas. This
exercise is to be done for each state and then the estimates of poor are to be built up
to the national level for rural and urban areas.
iii) a price adjustment procedure that is predominantly based in the same data set that
underlies the poverty estimation and hence corrects for the problems associated with
externally generated and population-segment-specific price indices with out-dated
price and weight base used so far in the official poverty estimation.
iv) an explicit provision in price indices for private expenditure on health and education
which has been rising over time and test for their adequacy to ensure certain desirable
educational and health outcomes.

  9
The Tendulkar Committee raised the poverty line for 2004-05 from:
i) Rs 356.30 per capita per month based on previous assessment to Rs 446.68 for rural and
ii) Rs 538.60 per capita per month to Rs 578.80 for urban areas.

The poverty headcount ratio correspondingly increased from 27.5% in 2004-05 to 37.2% in
2004-05 (Table 2.6 below).

Table 2.6: Tendulkar Committee All India Poverty Line and Head Count Ratio 2004-05

Year Poverty Line Poverty Head Count Ratio

Rural Urban Rural Urban Total
2004-05 446.68 578.8 41.8 25.7 37.2
Source; Planning Commission (2009)

This is well above the level of estimates based on the earlier approach to poverty line. The
Tendulkar Committee also recommended use of prices paid by the households as reported in the
NSS survey to construct price indices to update poverty lines in the future. Using the same
approach, the estimates derived for 1993-94 show that HCR had declined by nearly the same
percentage points between 1993-94 and 2004-05 as indicated by the previous approach. The new
approach, thus, essentially redefined the poverty line but did not find any sharp changes in the
direction of trends in HCR over time as compared to the previous assessments. If we were to use
the World Bank’s international norms of per capita expenditure of PPP$1.25 per day, the
proportion of population in poverty would be even higher at 41.6 per cent in 2005.
The Tendulkar Committee has tried to raise the poverty line to more realistically estimate
poverty to meet the rising volume of criticism that the “official” poverty lines were far removed
from reality. However, several criticisms of the approach remain to be addressed. As in the past,
the measure continues to ignore intra-household differences in consumption and poverty
dynamics and persistence. The route taken to correct the poverty lines uses simplistic shortcuts
on the assumption that urban poverty at 25.7% is “generally accepted as being less controversial
than its rural counterpart at 28.3 per cent that has been heavily criticized as being too low”
(Planning Commission 2009). The fact that the quantum of literature pertaining to urban poverty
is less than that on rural poverty does not mean that either the urban poverty line or the level of
“officially” recognized urban poverty is realistic or acceptable.

Pattnaik (2010) questions the claim that at the Tendulkar Committee new rural poverty lines,
overall rural poverty reduced between 1993-94 and 2004-05 from 50.1% to 41.8% and points out
that at its new poverty lines giving these estimates, accessible daily calorie intake also declined
from nearly 2,100 at the earlier date to 1,930 calories at the later one. Similarly, “the report
claims that urban poverty at its new poverty lines declined from 31.8% to 25.7% comparing
1993-94 and 2004-05. It keeps quiet about the fact that at these new urban poverty lines
accessible daily calorie intake also declined from 1,870 to 1,795 calories, making its figures non-
comparable.” She concludes that the “poor continue to be wrongly counted below a changing
standard” and that the Tendulkar Committee has “thrown away the valuable opportunity it had to

  10
correct the basic methodological error preventing valid comparison over time, which underlay
previous estimates.”

High and Stubborn Poverty

However, the large amount of work during the 1970s and 1980s on conceptualising and
measuring poverty did not translate into significant reduction in poverty. Dandekar (1996, p.
175) has remarked, “In the last two decades, this rich literature on poverty constitutes the main
progress made on the problem of poverty”. Looking at the period from early 1950s to mid
1990s, the World Bank Report (1997) describes three phases of India’s experience in poverty
reduction: (1) from early 1950s to mid-1970: fluctuations without a clear trend; (2) 1971 to
1986-87: steady decline in poverty; during this period HCR declined by an average 2 percentage
points per year. The decline was slightly more rapid in rural areas. The squared poverty gap and
poverty gap also declined significantly; and (3) after 1986-87: fluctuations at a lower level of
poverty and divergence in measures of poverty and in rural and urban areas.
The high and stubborn levels of poverty in the 1970s led to the slogan “Garibi Hatao (Eliminate
Poverty)” attributed to the late Prime Minister, Indira Gandhi.
There is increasing recognition of the persistence of poverty and its intergenerational
transmission. Chronic poverty or “persistence of poverty on the scale at which it still exists is not
acceptable” (Planning Commission, 2008, Eleventh Plan, Vol I). While the existing methodology
provides valuable insights into the determinants of incidence of poverty, this method of analysis
is less useful in understanding factors influencing entry, exit and persistence of poverty and their
determinants.
Depth and Severity
The measurement of poverty through HCR has been supplemented by other measures such as
poverty gap (PG), squared poverty gap (SPG) and Sen Index in many of the studies. The
measures of inequality of distribution of consumption across population have also supplemented
the monitoring of poverty over time. The measures relating to literacy and health have also
supplemented HCR in assessing the level of living of different segments of population. The
general perception that incidence of poverty measured by HCR has shown decline over the years
has been criticised on account of the slow nature of improvement on the other indicators of
health, especially the nutrition measures. The difficulties in relating consumption expenditures to
nutrition have also been highlighted. For instance, Saxena Committee (2009)5 has argued that in
order to enable households to consume 2400 kcals of energy the accepted poverty line (based on
updating of the 1973-74 poverty line based on consumer price index) may have to be increased
by 100%. The price line corrections used do not fully capture the actual price conditions faced by
the consumers. The difficulty in assessing the level of living based on detailed consumption
expenditure survey led to development of indicator based approach to classify households as
poor and non-poor for issuing ration cards and other benefits (BPL survey).
                                                            
5
We have referred to the “Report of the Expert Group to advise the Ministry of Rural Development on the
methodology for conducting the Below Poverty Line (BPL) Census for 11th Five Year Plan (Ministry of Rural
Development ,2009)”, as Saxena Committee report, as the Committee was chaired by Dr. N.C. Saxena.

  11
Multidimensional Issues
Although expenditure levels of the households remained the main measure of standard of living
by which incidence of poverty was measured and the HCR became the main indicator of poverty,
the need to look at other measures of quality of life was evident in many writings. The idea of
‘minimum needs’ was articulated in the fifth five year plan (FYP) covering 1974-75 to 1977-78
and a time bound goal for achieving universal access to minimum needs- beyond food, clothing
and shelter to health, education, drinking water and sanitation was expressed in the Ninth FYP
(Bhide and Srinivasan, 2004).
The multi-dimensional nature of deprivation in living standards was captured in the composite
Human Development Index launched by the United Nations. Income should be regarded as a
means to improve human welfare, not as an end in itself (Streeten, 1994). According to Mahbub
ul Haq, “the defining difference between the economic growth and the human development
schools is that the first focuses exclusively on the expansion of only one choice - income - while
the second embraces the enlargement of all human choices - whether economic, social, cultural,
or political” (Haq, 1995). Further, the “quality and distribution of economic growth, and not just
on the quantity of such growth” matter and this has to be nurtured consciously and cannot be let
to market mechanisms which benefit the “haves” and exclude the “have-nots” (ibid).
The Poor: An Occupational and Spatial Profile
Although the rural-urban differences and inter-state differences in the incidence of poverty were
recognised from the beginning of exercises to assess the extent of poverty in the country a fairly
comprehensive assessment of the incidence of poverty and other deprivations in different socio-
economic groupings of households was presented in a 1996 report by NCAER (World Bank,
1997).
If one were to address the economic factors behind poverty, the profile of poor emerging from
the 1996 NCAER study provided a stark picture: The households in the rural areas in the country
whose chief earners were landless wage earners constituted 30% of all the poor households. The
other poor landless, whose occupations included self-employment constituted 15 per cent of the
rural poor households. The poor among the marginal farmers, cultivating less than one hectare of
land, accounted for another 31 per cent of the poor rural households. The remaining 19 per cent
poor were found in the cultivator groups who operated more than one hectare of land. The
landless wage earners and marginal farmers accounted for 61 per cent of all the poor households.
The structural nature of poverty was also illustrated in the high rates of incidence of poverty in
some socio-economic groupings. The incidence of poverty for the “wage earner” households was
65%; for SC households it was 50% and ST households it was 51%. For the rural population as a
whole, the HCR was estimated as 39% in 1996 (these results are summarised in World Bank,
1997).
A more recent assessment of the occupational profile of the poor re-iterates the pattern seen in
1996 (Table 2.7). In rural areas, the chief earner in 63 per cent of the bottom household income
quintile is ‘labour’. Another 30 per cent of the households in the bottom quintile are farmers,
presumably operating very small land holdings. In the urban areas, ‘labour’ households account
for the bottom 20 per cent of the households on income scale. Another recent study also shows

  12
that the bottom household quintile essentially depends on earnings from daily wages (54% of
average income of the quintile) and agriculture (21%) (2.8). Bulk of the poverty, therefore, is in
the population segment whose only means of livelihood is daily labour.
Table 2.7: Percentage distribution of households by the occupation of the chief earner and
household income quintiles.

Occupation of chief earner Rural

Q1 Q2 Q3 Q4 Q5
Regular salary/ wages 1.4 3.3 6.1 15.2 34.3
Self-employment in non- 4.3 7.4 13.1 18.4 16.9
agriculture
Labour 63.1 48.4 31.0 18.0 5.7
Self-employment in agriculture 30.3 39.8 47.8 44.6 38.7
Others 0.9 1.1 2.0 3.8 4.4
Total 100.0 100.0 100.0 100.0 100.0
Urban
Regular salary/ wages 10.6 9.7 22.3 36.9 56.2
Self-employment in non- 24.0 16.3 33.2 32.8 33.3
agriculture
Labour 59.0 67.8 38.4 20.5 2.7
Self-employment in agriculture 3.3 2.8 1.9 3.8 2.1
Others 3.1 3.4 4.2 6.0 5.7
Total 100.0 100.0 100.0 100.0 100.0
Source: Tabulation provided by NCAER-CMCR based on data from a sample survey of
households carried out by NCAER for the year 2004-05. Description of the sample is available in
Shukla (2007).
Table 2.8. Percentage distribution of households by sources of income and household
income quintiles
% of Household income from Q1 Q2 Q3 Q4 Q5 All
Salary 7 9 17 29 49 21
Agricultural wages 35 27 17 8 1 18
Non-agr wages 19 28 25 17 5 19
Family business 8 11 15 18 19 14
Cultivators 21 20 20 20 17 20
Other 10 5 6 8 9 8
Total 100 100 100 100 100 100
Source: Desai et. al. (2010), p. 26
Note: Where necessary the largest number in a column was adjusted by one unit to have the
column sum adds up to 100.
The regional concentration of poverty and in a related way unequal pattern of regional economic
development has also been recognised in various policies right from the early days of planning
The second five year plan (1956-60) articulated balanced regional development as a key goal for
development effort (Bhide and Srinivasan, 2004). The World Bank (1997) cites the study by

  13
Dreze and Srinivasan (1996) to illustrate the variations in the incidence of poverty within a state.
Nevertheless at the state level, the poverty in Bihar, Orissa and Uttar Pradesh is significantly
high across the major states of the country. Even in 2004-05, the HCR exceeded 40% in Bihar,
Jharkhand (previously part of Bihar), Orissa and Chhattisgarh (previously part of Madhya
Pradesh). In Uttar Pradesh (excluding Uttarakhand which was part of UP previously), Madhya
Pradesh (excluding Chhattisgarh) and Maharashtra the HCR was below 40% but 30% or higher
(Ministry of Finance, 2009).
3. Poverty persistence, entry and escape: Estimates based on Panel Data
The distinction between chronic or extended duration poverty and transient poverty has generally
been recognised in the discussion on poverty in the Indian context but estimation of the
incidence of these two types of poverty has not been common. Continued large levels of poverty
as measured by HCR indicate that significant proportion of population may have remained poor
over long periods of time. Addison, Hulme and Kanbur (2009) introducing a set of contributions
to the understanding of poverty dynamics note that static analyses of poverty do not shed light on
processes that are central to the persistence of poverty and/ or its elimination. They point to the
three approaches used in the collection of data on poverty dynamics: the panel data methods,
one-off indicators such as those related to nutrition and retrospective data.
Before proceeding with an assessment of poverty dynamics in India, we point to the changes in
occupation structure seen from the sample surveys and population Census. Table 2.9 points to
the findings of a series of sample surveys showing rise in the ‘wage earner’ households,
particularly in the rural areas during the period of 1990s. There is a reduction in the share of
cultivator households during this period and increase in ‘wage earning households’.
Table 2.9: Estimated Percentage Distribution of Households by Occupation
Area/ Occupation 1989-90 1995-96 1996-97 1998-99
Urban
Housewife 0.98 1.07 0.96 0.88
Cultivator 5.79 3.39 3.47 3.54
Wage Earner 18.37 20.74 20.77 20.87
Salary Earner 39.91 40.69 40.51 40.64
Professional 3.92 3.42 3.55 3.31
Artisan 6.87 7.01 7.08 6.77
Petty Shopkeeper 15.33 15.92 15.96 16.68
Businessman 4.13 3.46 3.63 3.77
Others 4.7 4.3 4.08 3.53
Total 100 100 100 100

Rural
Housewife 0.63 1.12 1.07 1.04
Cultivator 50.52 41.02 40.86 40.89
Wage Earner 26.45 35.3 35.23 35.22
Salary Earner 9.86 11.11 11.2 11.26
Professional 1.01 0.64 0.7 0.72
Artisan 3.2 3.45 3.51 3.44
Petty Shopkeeper 5.37 4.86 4.95 4.99

  14
 Businessman 0.81 0.37 0.43 0.44
Others 2.15 2.13 2.03 2
Total 100 100 100 100
Source: NCAER (2002).
In Table 2.10 we have summarised the change in worker population in the rural and urban areas
during the period 1981 to 1991 and 1991 and 2001 as reflected in the data from decennial
population census. The data here suggests much greater change in the structure of employment
than indicated in the structure indicated by the occupation of the chief earner of the household.
Between 1991 and 2001, relatively more rural workers have found employment in household
industry and ‘other occupations’ than in farming as cultivators or labour. The trends reflect the
situation where agricultural sector may not provide increased level of employment in the coming
years. Alternatively, the non-agricultural sectors are emerging as growing sources of
employment now than before.
Table 2.10: Percentage Change in the number of workers between the decennial population
census years
Area/ Type of Cultivators Agr HHD Other Total
workers/ Year Labour Industry
Rural, Total Workers
1991 over 1981 20.9 32.5 -11.5 39.0 26.2
2001 over 1991 2.9 25.9 124.8 72.1 24.5
Rural, Main
Workers
1991 over 1981 36.5 53.0 -12.7 39.7 37.7
2001 over 1991 -25.0 -6.8 123.7 46.9 41.7
Rural, Marginal Workers
1991 over 1981 21.2 33.5 -11.8 39.4 28.4
2001 over 1991 2.1 24.2 124.5 57.7 28.0
Urban, Total Workers
1991 over 1981 19.3 33.4 -11.5 35.8 26.0
2001 over 1991 -5.8 -14.0 73.2 49.1 3.1
Urban, Main Workers
1991 over 1981 32.5 52.9 -12.5 44.1 38.1
2001 over 1991 -27.2 -30.0 94.4 37.6 31.7
Urban, Marginal Workers
1991 over 1981 19.6 34.4 -11.8 40.5 28.5
2001 over 1991 -6.4 -14.9 79.4 42.5 9.5
Source: Derived from data on worker population available from selected population census
(IAMR, 2009).
In one of the early studies referring to the period 1968-70, based on national level rural
household survey, Gaiha (1988) pointed to the dynamics of poverty in rural India. Using a data
set based on a household survey by the National Council of Applied Economic Research
(NCAER), Gaiha provided estimates of changes in the levels of poverty for a panel of
households over a three year period of 1968 to 1970.

  15
Gaiha estimated the following distribution of households in 1968-69 as compared to their status
in 1970-71:
• Poor in both the years (Still poor): 21.09%
• Poor in 1968-69 and became poorer in 1981-82 (More poor): 12.18%
• Poor in 1968-69 but non-poor in 1970-71 (exit): 24.00%
• Non-poor in 1968-69 but became poor in 1970-71 (entry): 12.69%
• Never Poor: 30.04%
The survey pointed to considerable mobility across ‘poverty line’, although 33.27 per cent were
‘chronically poor’ (still poor and more poor) over the three year period. The study concludes that
“the escape from poverty was not a result of growth trickling down to the poor; instead it was
largely outcome of the direct involvement of section of the cultivating poor in the growth process
itself, initiated by the new agricultural technology”.
In a follow up survey of the same households in 1981-82, NCAER (1986a and 1986b) reported
extent of persistence, exit and entry into poverty between 1970-71 and 1981-82. The two
estimates are based on different poverty lines and the number of households used in the panel
also varies in the two studies because of attrition, and therefore the estimates differ to some
extent with respect to the percentage of poor in 1970-71. The NCAER estimates show much
lower incidence of chronic poverty (poor in both the periods considered) for 1970-71 to 1981-82
than the estimates for 1968-70:

• Chronic poor: 27.88%

• Exit from poverty: 25.06%
• Entry into poverty: 17.01%
• Never poor: 30.05%
• Panel: 100%

The rates of exit from poverty are similar but rate of entry is higher in the second period
considered. The two periods spanned very different length of time- the first study had only one
intervening year whereas the second study had 10 intervening years- and therefore the variation
in poverty dynamics are not surprising. A broad estimate that 30 per cent of the poor were unable
to break through the poverty line emerges from these early studies. It may be pointed out that
between 1973-74 and 1983, HCR in rural areas estimated from NSS data declined by 16
percentage points according to the estimates by the Task Force methodology (Planning
Commission, 1979) and by about 11 percentage points by the Expert Group methodology
(Planning Commission, 1993). Although these are large reductions, HCR remained 40-45% as
per the alternative estimates. The chronic nature of poverty at the household level is one
significant factor behind the persistence of high levels of poverty.
World Bank (1997) noted that its report “takes a longer term perspective by focusing on
determinants of persistent chronic poverty”. The report refers to the transient poverty arising
from unforeseen shocks to income and points to the role of effective safety nets to address this
problem. The report also refers to a number of village studies which point to “widespread and
pervasive poverty which has been slowly falling over time”. The studies which capture the
‘duration’ of poverty spells are few in India. World Bank (ibid) refers to the studies by Jodha
(1989) in two villages and presents brief reviews of some village level studies.

  16
Results of studies by Gaiha and Deolalikar (1993), Singh and Binswanger (1993) and Krishna
(2003) show that incidence of persistent or chronic poverty is by no means small. Gaiha and
Deolalikar and Singh and Binswanger analysed the ICRISAT panel data from six villages in the
semi arid region of rural South India that covered the period 1975-76 to 1983-84. Gaiha and
Deolalikar indicated that 87.8% of sample households were poor some time during the 9 year
panel period. Further, over 60% of households were poor roughly half the time (i.e. during 5 out
of 9 sample years) and more than one-fifth of households were poor during all 9 years. They
conclude that “the persistently poor are by no means a small subset of the poor.”   Singh and
Binswanger in their study showed that 60% of the households in the panel were initially poor.
After nine years, 37% of poor households escaped poverty while 63% were chronically poor. In
other words, 38% of all households (and 63% of those in poverty) were chronically poor.

Using qualitative techniques of enquiry, involving 25 year recall for 6376 households in 35
villages in the state of Rajasthan Krishna (2003) found that 17.8% of households remained poor
over this period while 11.1% escaped poverty, 7.9% became poor and 63.2% remained non-poor.
Rajasthan is a state that has experienced a decline in poverty. Shah and Sah (2003) also
corroborate the findings on the magnitude of the long-term poverty using qualitative methods in
two tribal villages in South Western Madhya Pradesh. They found that about 58 per cent of the
sample households were in chronic poverty. Further, all the severely poor were also chronically
poor.

Gaiha and Imai (2004) based on the ICRISAT panel data for 183 households belonging to 5
sample villages in Andhra Pradesh and Maharashtra in India for 1975-84 found that large
segments of rural households experienced long spells of poverty (over 3 years) even without
negative crop shocks Occurrence of crop shocks led to an increased proportion of households
experiencing short spells of poverty (1 to 2 years).
There are a few studies of poverty dynamics in other countries of the South Asian region. Sen
(2003) used longitudinal data for 1987-88 and 2000 for 379 households in Bangladesh, and
found that 119 households or 31% of the sample were chronically or “always poor”; 25% of
households were never poor; 26% ascended out of poverty while 18% descended into it.

These studies in India and Bangladesh seem to be somewhat different from the experience in
Pakistan. Results of a 5-year longitudinal household survey of 686 households in rural Pakistan
showed that while the incidence of income poverty was high at 60% only 35% remained in
poverty for two years or more and only 3% of sample households were poor in all 5 years of the
panel (Baulch and McCulloch, 1998).
Bhide and Mehta (2005) extended the analysis of NCAER rural household panel using one
additional round of the survey in 1998. Between 1981-82 and 1998-99, they find that about 39%
of the poor households remained poor, a measure of chronic poverty. The chronic poor were
about 24 per cent of the total sample. This estimate is lower than estimates for the period 1970-
71 to 1981-82 presented in NCAER (1986a) and 27 per cent reported by Dhamija and Bhide
(2009). With some changes in the panel’s composition to enable further analysis, Dhamija and
Bhide (2009) report that the chronic poor were 23 per cent of the entire sample (as compared to
24 per cent in Bhide and Mehta, 2005). Although the overall estimates of chronic poor among

  17
the total sample remained the same in Bhide and Mehta (2005) and Dhamija and Bhide (2009),
the share of chronic poor among the poor varied significantly because of changes in the
composition of panel. Nevertheless, the chronic poor among the total rural poor were an
estimated 40-50% in the various formulations of the NCAER panel data covering the surveys in
1970-71, 1981-82 and 1998-99.
The fact that a fairly significant proportion of the poor continue to remain poor over long periods
of time, significant proportion exit from poverty, and many non-poor enter into poverty highlight
the need to understand the factors that influence this dynamics. A variety of programs have been
implemented in India since the early 1950s to achieve economic development and poverty
alleviation While some of them have long-term effects on the poor, many are short-term efforts
to provide consumption support to the poor.
Several characteristics of chronic poverty have been identified in longitudinal studies. Casual
agricultural labourers were identified as the largest and cultivators the second largest group
among the chronically poor. Most of the chronically poor were either landless or near-landless
and were more dependent on wages. Household size was about the same and dependency burden
and illiteracy was slightly higher among them than the just poor. (Gaiha, 1989)
Poverty was closely associated with the resource base of the people in addition to their personal
characteristics (Singh, 1990 cited in Singh and Binswanger, 1993). Compared to the non-poor
households, the poor cultivating households had poorer quality land, poorer resource base, lower
risk bearing capacity, stronger subsistence orientation and a stronger preference for coarse gains
in their cropping pattern (Singh and Binswanger, 1993).
The correlates of entries and exits differ from correlates of poverty status (Baulch and
McCulloch, 1998). Greater access to cultivable land combined with modern agricultural inputs
enabled the cultivating poor to overcome poverty. “Escape from poverty was not a result of
growth trickling down to the rural poor…”. (Gaiha, 1988) Among the factors associated with the
upward movement of households in the lower income categories were more 'intensive use' of
labour resources and acquisition of land (NCAER, 1986a and 1986b).
The initially poor, who escaped poverty, experienced a decline in their family size by more than
one member, were able to maintain their operational holding size in the face of increased
demographic pressure and were able to increase its irrigation level (Singh and Binswanger, 1993)
Escape from poverty was also associated with diversified income sources and information and
contacts (Krishna, 2003).
Another study found that escape resulted from overcoming structural obstacles by pursuing
multiple strategies such as crop intensification, agricultural diversification, off-farm activity and
irrigation that permit rapid accumulation of a mix of assets Further, ascending households were
faster accumulators of human, physical and financial assets, better diversifiers, with regard to
adopting modern varieties of rice and occupational diversification to higher productivity non
agricultural activities. They showed increased supply of labour with declining dependency. The
pace of improvement in human capital (years of schooling) was highest for ascending
households. (Sen, 2003).
The factors associated with downward mobility were symmetrically opposite to those associated
with upward mobility (NCAER 1986a, NCAER 1986b). Other reasons for descent into poverty

  18
included high health care costs, high interest consumption debt from private money lenders, and
social expenses on deaths and marriages (Krishna, 2003). Low caste households and small
farmers were more vulnerable to long spells of poverty in the event of a large or severe crop
shock (Gaiha and Imai, 2004).
Descent into poverty was found to be associated with lifecycle changes and crises like floods and
ill-health. The key causes of downward mobility were crisis or discrete shocks, unfavourable
lifecycle factors and structural factors such as loss of natural or human or financial assets or
adverse market conditions. (Sen, 2003).
Similarly, based on a panel of 300 poor women informal sector workers and their households in
Madras city over a five-year period, 1980-85, Noponen (1991) found that on average, four
economic stress events affected the sampled households over the 5 year study period. The event
with the greatest influence on the sampled households was illness. The stress of fire or flood
related house damage was also prominent. The overwhelming response to economic stress events
was ‘indebtedness.’
The likelihood of escape from poverty and entry into it, is sensitive to initial asset position. The
pattern of livelihood change has been of a lower quality and potential and increased at a slower
pace in the case of the chronic poor than were changes observed for ascending households.
Poor households who remained poor neither accumulated wealth nor reduced liabilities (Singh
and Binswanger, 1993). Persistence of poverty was also seen to result from “deep-rooted
characteristics" such as schooling of head of household, and drastic measures such as income
transfers on a continuing basis were needed to compensate subsets of the poor for their innate
disadvantages (Gaiha and Deolalikar, 1993).
Different types of anti-poverty interventions are needed to address chronic and transitory
poverty. While interventions to improve human and physical capital of the poor are likely to be
successful in the long run in reducing chronic poverty, in the short term large reductions in
income poverty could be achieved through smoothing incomes for instance through provision of
micro-credit, seasonal public works, crop insurance and food price stabilization schemes
(McCulloch and Baulch, 2000).
The causes of poverty have been linked in the literature on poverty to 'capability' with which
households utilise economic opportunities for income and employment. The capability can be
innate to the households or external. For example, the social segmentation of the economic
opportunities may limit a household’s access to different occupations. Poor infrastructure
facilities such as roads or communication may limit a poor household’s access to information or
markets. Lack of assets will restrict household’s access to credit or risk bearing ability. Lack of
education limits a household’s access to opportunities for jobs. These very factors may also
influence a poor household’s ability to break out of poverty.
Bhide and Mehta (2008) examine the factors or characteristics that explain the persistence of,
and escape from, poverty.
The ST status of a household emerges as an important characteristic in explaining persistence of
poverty. However, caste or SC status, is not a statistically significant variable in explaining
persistence of poverty. The ST households are characterised by remote habitations much more

  19
than the others. More than the caste status, occupation, assetlessness and inability to benefit from
opportunities in nearby urban economies influence the persistence of poverty.
Households that were poor in 1970/71 and had larger number of members tended to remain poor
in 1981/82 relative to those with fewer members. Thus, even if poor households chose larger size
for additional earning potential, it did not help them escape poverty. Increase in household size
and in the proportion of children also increases the probability of persistence of poverty, whether
moderate or severe. Incidentally, the proportion of females among the household members does
not appear to have any impact on the persistence of poverty6.
Across three types of assets considered, the initial level of cropland is not a statistically
significant variable in explaining the mobility of poor households out of poverty. However, the
initial levels of ownership of house and income from livestock as also change in the area
cultivated between the two data points, emerge as significant explanatory variables. An increase
in the crop area cultivated by the poor household and improvement in asset positions relating to
house and livestock are also significant in explaining the probability of reduction in persistence
of poverty.
Households with literate heads in the initial period are found to have greater probability of
moving out of poverty, more particularly in the case of households that were severely poor
initially. Acquiring literacy over time does help moderately poor households escape from
poverty although the results are ambiguous for the severely poor.

Larger villages provide relatively more diverse opportunities for employment than the smaller
villages and therefore can be expected to reduce the incidence of poverty. This result was strong
and unambiguous in the regressions of determinants of incidence of poverty. While the initial
size of village does not have significant impact on the mobility of the poor out of poverty,
increase in the village size does seem to reduce the probability of persistence of poverty,
particularly severe poverty. Relatively larger urban population in the neighbourhood in the initial
period reduces the probability of persistence of poverty. Increase in the urban population of the
district also reduces the probability of persistence of poverty, although the results are not evident
for severe poverty.
Better infrastructure is found to have significant positive impact on reducing the persistence of
poverty, especially if the initial infrastructure levels are good, regardless of the severity of
poverty. Thus, variation in the state of infrastructure at the village level does influence the
mobility of poor households out of poverty.
In summary, factors that are related to the persistence of poverty are the scheduled tribe status,
larger household size, increase in household size, larger number of dependent children and
increase in number of dependent children.

Escape from poverty is enabled by literacy, ownership of a house, increase in cultivated area and
income from livestock. In addition, infrastructure and a large urban population in the
                                                            
6
In the analysis carried out separately for the two years also the impact of gender-composition on incidence of
poverty was found to be significant only in 1970/71.

  20
neighbourhood were other factors that helped exit from poverty. Escaping severe poverty was
also enabled by the same factors. Additionally, increase in the size of the village was significant
in creating opportunities for employment and income. Conversely, increase in literacy and larger
urban population in the neighbourhood were not significant factors in reducing severe poverty,
possibly indicating that it is not enough to become literate but income-opportunities relating to
literacy must be available. Also, merely growth in urban population in the district may not be
enough to bring more opportunities for the poor- the size of the population appears to be the
more important determinant. In contrast, exit from moderate poverty was driven by access to and
increase in income from cropland, increase in income from own house, increase in literacy and
availability of infrastructure.
In the context of poverty related policy interventions then, it is important differentiate between
those factors and conditions driving poverty, persistence of poverty, escape from and entry into
poverty. While this paper does not specifically look at mobility into poverty, the literature
stresses the importance of crises and shocks caused by ill health or floods or market fluctuation
in demand for a given product in forcing descent into poverty. Policy may need to respond to the
specific crisis to alleviate its impact, perhaps for an entire village or spatial unit or occupation.
Escape from poverty and severe poverty is enabled by increased income earning opportunities
through growth in size of the village, or proximity to urban areas, improved infrastructure,
literacy, access to assets and income from assets, thereby highlighting the importance of
employment and income generating investments in rural areas as also infrastructure development
and growth. Scheduled tribe status of a household emerges as an important factor in explaining
persistence of poverty. Since the scheduled tribes live in villages that are often far from good
roads, lack electricity, clean drinking water, sanitation, schools and health care facilities,
increased allocation of resources to enable human and infrastructure development in these areas
should be a policy priority.
4. Policy Responses and Safety Nets: Adequacy and Effectiveness

Sections 3 and 4 of this paper clearly show that despite the many disputes around estimating
poverty in India, there is agreement that while the percentage of those in poverty has declined,
the numbers of those in poverty remains unacceptably high. Further, as noted in the Eleventh
Plan, “given the chronic and multi-dimensional nature of poverty in India it is imperative that the
programmes to address poverty rely on a multi-pronged approach.” There is a “geography of
poverty” since it is concentrated in the rural areas of certain States as well as a “sociology of
poverty” since the proportion of poor is higher among certain social groups. Additionally, there
are “identifiable occupational features of the poor: they are concentrated in agricultural labour
and artisanal households in rural areas, and among casual labourers in urban areas.” (Eleventh
Plan Vol III p. 84; Bhalla 2004; Bhide and Mehta 2004; Kumar 2003; Mehta and Bhide 2003;
Mehta and Shah 2001 and 2003). Despite the large number of programmes and schemes that
have been in place in different forms for many years, the outcome is that there is “persistence of
poverty” and “the scale at which it still exists is not acceptable.” Further, “a decisive reduction in
poverty and an expansion in economic opportunities for all sections of the population should
therefore be a crucial element of the vision for the Eleventh Plan” (Eleventh Plan, Volume 1:
page 2).

  21
Panel data analysis shows that poverty incidence and chronicity are associated with absence of
assets, especially land, lack of education, belonging to a scheduled caste or scheduled tribe and
working as daily wage labourers or farming with extremely small land holdings. Factors enabling
escape from poverty include ownership of or access to income from physical assets such as
cropland, livestock, or a house, increased income earning opportunities such as due to proximity
to growing urban areas, improved infrastructure and literacy status of the household head.
Possible reasons for entry into poverty include shocks such as high health care costs, drought and
crop failure, adverse market conditions, loss of assets, disasters, conflicts, and high interest from
private money lenders. Many of these factors can be addressed through policies, programmes
and schemes (Bhide and Mehta (2004; 2008); Mehta and Shepherd (2006)).

India has implemented a plethora of poverty alleviation programmes and schemes over the last
six decades. What is the Eleventh Plan strategy for reducing poverty? In order to alleviate
poverty, the Eleventh Plan argues for the need for:

i) an area development approach for each agro-climatic zone for alleviating poverty. For
instance, regions which have large number of chronic poor people include tribals who
live in forests but suffer adverse incorporation into labour markets due to a
combination of limited access to resources and low human capital endowment (e.g.,
low literacy and poor health services).
ii) watershed development as the strategy for poverty reduction in rainfed agriculture
iii) special initiatives for backward districts/regions such as the Backward Regions Grant
Fund, Border Area Development Programme, and Hill Area Development
Programme.
iv) effective land reforms and agricultural services for reducing poverty in areas with
irrigated agriculture.
v) since dependence on casual labour has grown, and a large proportion of the chronic
poor are dependent on wage labour, this calls for an effective wage employment
programme in rural areas, especially focusing on women, of the NREG kind.
vi) diversification of incomes to non-farm sources through for instance formation of
SHGs, and with credit etc support,
vii) safety nets to prevent the cycle of inter-generational transfer of poverty. Provision of
homesteads to the houseless with a small plot of land where they can diversify their
income by rearing goats and poultry and growing vegetables on the family plot.
viii) social assistance to the elderly destitute, widows and disabled.
ix) improvement in the quality of public health services and the integrated child
development services as also the universalization of elementary education with
quality.

However, the Eleventh Plan also argues that “an inclusive growth strategy that focuses only on
human capital formation or directly targeted poverty reduction is likely to fail. The structure of
growth and also the pattern of production have to be employment-generating, especially outside
agriculture. Therefore the Plan strongly argues for strategy that is three-pronged, comprising
economic growth, income-poverty reduction through targeted programmes, and human capital
formation, so as to put India on a sustainable growth path (Eleventh Plan pages 84 to 86). Hence
economic growth is critical to reduce poverty in a sustainable way. Composition of growth

  22
matters and has to generate jobs but growth needs to be reasonably high in order to provide the
resources required for poverty alleviation schemes.
Poverty Alleviation Schemes and Poverty Dynamics: A Tentative Framework
Do the many poverty alleviation schemes try to address dynamics of poverty? Table 4.1 below
lists some of the major direct and indirect poverty-alleviation programmes and schemes and
categorises them into five groups, i.e., Employment and Self Employment; Infrastructure and
Basic Services; Nutrition and Education; Health and Insurance and Programmes for specific
groups. It tries to identify whether the scheme seeks to prevent entry into poverty, enable escape
from it or ameliorate persistent poverty and improve quality of life.
Table 4.1: Poverty Alleviation Schemes and Poverty Dynamics

Name of the Scheme The Scheme Seeks to:

Prevent Entry Enable Escape Ameliorate
into Poverty from Poverty Persistent
Poverty/Improve
Quality of Life
Employment and Self Employment
NREGS x x
SGSY x
SJSRY(a) USEP x
SJSRY (b) UWEP x
SJSRY (c) STEP x
SHGs and Microfinance x x
Nutrition and Education
TPDS x
ICDS x x x
MDM x x
SSA x
Health and Health Insurance
NRHM x x
JSY x x
NACP-III x x
AABY x x
RSBY x x
Infrastructure and Basic Services
PMGSY x
IAY x x
TSC x x
Bharat Nirman x
JNNURM x
ARWS x x
IWDP x x
BRGF x

  23
Programmes for specific groups

SC and TSP x x
ICPS x
NOAPS x
KSY x
Source: Mehta and Pratap (forthcoming)
Note:
NREGS = National Rural Employment Guarantee Scheme
SGSY = Swarnjayanti Gram Swarozgar Yojana
SJSRY = Swarna Jayanti Shahari Rozgar Yojana
USEP = Urban Self-Employment Programme
UWEP = Urban Wage Employment Programme
STEP = Support to Training and Employment Programme for Women
Self Help Groups = SHGs
TPDS = Targeted Public Distribution System
ICDS = Integrated Child Development Services
MDM = Mid-Day Meals
SSA = Sarva Shiksha Abhiyan
NRHM = National Rural Health Mission
JSY = Janani Suraksha Yojana
NACP = National AIDS Control Programme
AABY = Aam Admi Bima Yojana
RSBY = Rashtriya Swasthiya Bima Yojana
PMGSY = Pradhan Mantri Gram Sadak Yojana
IAY = Indira Awaas Yojana
TSC = Total Sanitation Campaign
JNNURM = Jawahar Lal Nehru Urban Renewal Mission
ARWS = Accelerated Rural Water Supply Programme
IWDP = Integrated Watershed Management Programme
SCSP and TSP = Scheduled Caste Sub-Plan and Tribal Sub-Plan
ICPS = Integrated Child Protection Scheme
NOAPS = National Old Age Pension Scheme
KSY = Rajiv Gandhi Scheme for Empowerment of Adolescent Girls
SC and TSP= Scheduled Caste and Tribal Sub Plan

If these schemes were adequate and effective, a significant dent would have been made on
poverty. Why has this gamut of schemes failed to deliver desired outcomes? Are there design
flaws? Weaknesses in implementation? Inadequate funds? Errors of exclusion due to lack of
access to scheme benefits due to inability to get BPL cards by those who deserve them? Issues
identified in the context of some of these schemes are discussed below.
ICDS

  24
The ICDS is an extremely important government intervention that tries to provide nutrition, pre-
school education and immunisation for children below six and for pregnant and lactating
mothers. ICDS is a Centrally-sponsored Scheme implemented through the State
Governments/UT Administrations. Prior to 2005-06, 100% financial assistance was provided by
the Government of India for inputs other than supplementary nutrition, which the States were to
provided out of their own resources. Since many States were not providing adequately for
supplementary nutrition in view of resource constraints, in 2005-06 it was decided to provide
support to States up to 50% of the financial norms or to support 50% of expenditure incurred by
them on supplementary nutrition, whichever is less. From the financial year 2009-10,
Government of India has modified the funding pattern of ICDS between Centre and States. The
sharing pattern of supplementary nutrition in respect of North-eastern States between Centre and
States has been changed from 50:50 to 90:10 ratio. So far as other States and UTs, the existing
sharing pattern of 50:50 continues. However, for all other components of ICDS, the ratio has
been modified to 90:10 (from 100% Central Assistance earlier).
The Government of India has recently revised the cost of supplementary nutrition for different
category of beneficiaries as follows:

• For Children of 6-72 months of age the amount has been revised from Rs.2.00 to Rs.4.00
per beneficiary per day.
• For Severely malnourished children of 6-72 months of age from Rs.2.70 to Rs.6.00 per
beneficiary per day.
• For Pregnant women and Nursing mothers from Rs.2.30 to Rs.5.00 per beneficiary per
day (http://wcd.nic.in/icds.htm)
There are a large number of reasons why the ICDS has not significantly reduced malnutrition.
First is the inadequate coverage of the supplementary nutrition programme. Based on the
submission of the Supreme Court Commissioners, the Supreme Court has ordered that “ICDS be
geographically universalized”, or in other words that there is an anganwadi centre in every
habitation. In a judgment dated 13th December 2006, the Supreme Court ordered that
“Government of India shall sanction and operationalize a minimum of 14 lakh AWCs in a
phased and even manner starting forthwith and ending December 2008. In doing so, the Central
Government shall identify SC and ST hamlets/habitations for AWCs on a priority basis”
(Supreme Court Commissioners 2009).
Dreze (2006) notes that Tamil Nadu provides an example of the potential of Integrated Child
Development Services since 96 per cent of the sample mothers in Tamil Nadu considered ICDS
to be “important” for their child’s well-being, and half of them considered it to be “very
important”. The FOCUS survey points out that 79 per cent of the anganwadi workers have been
mobilised for non-ICDS duties during last six months and 60 per cent have not been paid for the
last 30 days (FOCUS 2006: 88).
Problems in regard to the functioning of ICDS include poor quality of the supplementary
nutrition provided; unsanitary conditions in and lack of regular cleaning of public spaces in
slums and JJ clusters; poor and unsafe water; lack of funds for toys, weighing scales, charts,
medical kits, mats, stationery, brooms etc that are inexpensive but important sources of support
(Mehta and Ali 2008). The anganwadi worker and helper form the pivot that determines the
success or failure of the ICDS project and yet the remuneration paid to the worker is just Rs

  25
1500/- and Rs 750/- per month respectively and that too is frequently delayed for several months.
With overworked supervisors; scattered geographical coverage; poor supervision due to
overloading of the workers and supervisors with non-ICDS tasks; lack of training, skills and
motivation of workers and helpers; and it is hardly surprising that the programme is unable to
make a dent on malnutrition. Rents provided for anganwadi centres are just Rs 500/- or Rs 750/-
so they get housed in very small spaces such as verandahs. Absorption of food depends on
cleanliness of the vicinities in which children grow as well as clean water. Having a Scheme in
place is not enough. Unless ICDS Projects are adequately resourced, significantly strengthened
and closely monitored, they cannot achieve the massive task that has been assigned to them
(Mehta 2008).
NREGS
The NREGS is not just another wage employment programme. It draws on the experience of the
Maharashtra Employment Guarantee Scheme (MEGS) that has been in operation for several
decades and additionally the several versions of wage employment generation schemes. The
flaws in the MEGS included the a) limited number of days of work actually provided, b) low
wages paid, c) lack of worksite facilities, d) lack of upgradation of skills, e) limited
administrative systems for monitoring and tracking the implementation of the scheme, f) poor
sustainability of assets created under the scheme and g) lack of convergence with other schemes
(Shah and Mehta, 2008). The NREGA has tried to correct many of these. Like the MEGS, it
makes a provision for compensation and treatment in case of injury and for on-site facilities like
safe drinking water, care of small children, periods of rest and a first-aid box. It bans contractors
and restricts the use of labour-displacing machines. It requires that the wage component should
be at least 60 percent of the expenditure in any project. It tries to create much needed rural assets
through watershed development, water conservation and harvesting methods, irrigation works,
forestry, land development, flood control, construction of roads etc. (CSE, 2008; PACS, 2006
cited in Ghosh, Satpathy and Mehta 2008). The programme is implemented as a Centrally
Sponsored Scheme on cost sharing basis with the Central Government bearing the cost of
payment of wages for unskilled manual workers under the scheme; upto 75% of the material cost
and wages of skilled and semi-skilled workers; administrative expenses towards the salary of the
Programme Officers and his supporting staff, Gram Rozgar Sevak and work site facilities.

The biggest flaw in the NREGA in the context of efforts to address poverty, is that while the
MEGS provides round the year guarantee (except for the peak agricultural season) to all adults
willing to do unskilled manual work provided they are above 18 years of age, the NREGA
provides the guarantee at the level of the household and not that of the individual. Therefore, the
rights of women get subsumed under those of the household, (though the Act requires that at
least one-third of the beneficiaries should be women). Additionally, the NREGA waters down
the entitlement provided by the MEGS by limiting work on demand to 100 days. 100 days work
per household per year is not enough to move poor households out of poverty. Committing to
that would require at minimum doubling the entitlement in terms of days and providing access
to work on demand to all adults instead of limiting the entitlement to the level of the household
(Mehta 2008).
The track record of different states in implementing NREGS varies; performance differs across
villages and worksites; deviations from guidelines continue to occur; delayed payment of wages

  26
remains an issue as does payment below minimum wage. However, none of the audit reports
mention lack of demand for work or villagers not needing the job opportunities required by
NREGS. However, long term increase in agricultural productivity and generation of future
livelihoods requires the use of NREGS allocations are used for building quality assets that are
sustainable.
Kishori Shakti Yojana (KSY)
Kishori Shakti Yojana (KSY) is implemented by Ministry of Woman and Child Development
(MWCD). The scheme covers all the blocks in the country and grant-in-aid of Rs. 1.10 lakh per
block is released to the States/UTs every year. The Supreme Court Commissioners (2009) draw
attention to the fact that “since the programme is implemented in 6,108 blocks, the total grant in
aid released would be around Rs. 6,718.8 lakh. According to the norms for per beneficiary per
day allocation of funds the amount to be allocated for adolescent girls is Rs. 2.30 of which the
centre’s share would Rs. 1.15. Therefore the budget allocated is sufficient to cover 19.4 lakh
girls”. The Supreme Court Commissioners (2009) estimate that “since as per the 2001 census,
the total female population in the 11–18 year age group stands at approximately 844 lakh,
therefore only 2.3% adolescent girls are being covered under this scheme, even if there are no
leakages.”
Clear from the above is the existence of a combination of inadequacy of resources allocated to
each of these programmes – limited number of days of work to make a dent on poverty in the
case of NREGS; inadequate provision of funds for functioning of anganwadi centres whether in
terms of rent or equipment and infrastructure or remuneration/ honorarium of staff; or
supervisory resources as in the case of the ICDS; funds that can cover only 2.3% of adolescent
girls in the case of KSY.
In the case of other schemes these problems apply but additionally there are other issues such as
mis-allocation of BPL cards; targeting of program benefits based on ownership of a BPL card,
resulting in errors of exclusion. Cash payments into bank/ post office accounts are often
proffered as solutions. However, in the case of the Indira Gandhi National Old Age Pension
Scheme (IGNOAPS) village visits and rapid assessments reveal irregular payments of sums well
below the amount due in a year with no explanation of the reason for delays in payments
Conclusions:
Poverty is the largest and most serious development challenge facing India. Although there has
been sustained overall economic growth performance since the early 1980s, the reduction in the
rate of incidence of poverty has been extremely slow. Performance has been unsatisfactory not
only with regard to income poverty but it has also been weak with regard to measures such as life
expectancy and literacy.
India has undertaken periodic assessment of the incidence of poverty right from 1950s. The
consumption expenditure surveys have been used to identify the cut-off levels of expenditure
below which households have been classified as being poor. There have been a number of
improvements and changes in the methodology for assessing the poverty lines used to estimate
poverty and in gathering the information. Despite the various changes, the incidence of poverty
measured by officially accepted measures remains at about a third of the population. The

  27
differences in approaches provide estimates of HCR in the range of 27.5% to around 80% of the
population. By the measure of international poverty line of PPP$ 1.25 per capita per day, the
HCR is estimated at 41% in 2005. The latest World Bank assessment points out that India is
home to the largest proportion of poor in the world.
Nevertheless, it must be recognized that it is difficult to measure the incidence of poverty in a
comparable manner over time and across regions. This complexity has given rise to alternative
approaches. The ‘absolute poverty’ measures such as calorie norms are also not devoid of
controversies. Besides the HCR, it is also common to use the measures of depth of poverty and
its severity. The consumer expenditure surveys permit the estimation of these measures. The
latest expert group on the measurement of poverty in India has revisited the issues and
recommended adoption of a common ‘basket of consumption’ of poor in both rural and urban
areas for construction of the poverty line, unlike the previous practice of adopting different
consumption baskets in the rural and urban areas. The measurement methods have been
strengthened by using household data on prices of consumption goods rather than estimates
obtained from other sources. The revisions also include use of ‘mixed recall periods’ in obtaining
consumption expenditure data from households rather than the ‘uniform recall period’. It,
however, recommends continuation of the practice of not reconciling the difference between the
sample survey findings on consumption and the estimates provided by the National Accounts.
Besides the measurement of poverty based on detailed information on consumption and
consumption expenditure, there have been attempts to apply alternative measures of poverty in
India. For example, households have been classified into “Below Poverty Line” and “Above
Poverty Line” based on a selected set of indicators such as type of house of the household, assets
owned, occupation, social class and so on. This classification is used to target certain welfare
program benefits to the poor. Poverty status has also been linked to measures of hunger.
The analysis of pattern of incidence of poverty has shown that there is a “geography of poverty”
since it is concentrated in the rural areas of certain States. There is also a “sociology of poverty”
since the proportion of poor is higher among certain social groups. Additionally, there are
“identifiable occupational features of the poor: they are concentrated in agricultural labour and
artisanal households in rural areas, and among casual labourers in urban areas.”
In the context of systematic and regular measurement of the extent and nature of poverty,
attempts to understand the ‘duration of poverty’ are fewer and episodic. Alternative approaches
have been used by the researchers to assess the duration dimension of poverty. Panel data
approach has been followed in the studies based on NCAER and ICRISAT. These studies have
covered rural India. The urban panel studies have been far more limited in the Indian context.
Additionally, anthropometric measures of nutrition or under-nutrition have been used to assess
chronic poverty and life-history methods have also been adopted for assessing dynamics of
poverty.
The studies on dynamics of poverty indicate that significant proportion of households remain in
poverty for long periods of time. The estimates of high levels of incidence of poverty over long
periods, is a reflection of persistence of poverty faced by the poor. Absence of ladders for the
poor to move out of poverty can only mean persistence of poverty.

  28
The various assessments show that India continues to face enormous challenge in reducing the
incidence of poverty. Although the measurement of the complex phenomenon is not easy and
requires continued improvement, it is necessary to address the problem of poverty with urgency.
The resources available for poverty alleviation are scarce and the numbers are large. Making the
poverty reduction programs effective is a severe challenge facing the policy makers.
India has used a large variety of programs to achieve poverty reduction. Poverty reduction can
not be viewed simply as a welfare issue in isolation of the need for creating opportunities for
income growth. It also cannot be achieved without addressing the issue of population growth.
The need for combining economic growth, targeted anti-poverty programs and human capital
formation can not be over-emphasised in the context of the enormity of the problem.
Economic growth remains central to the poverty reduction strategies. It is well known that the
bulk of the poor are daily wage earners in rural and urban areas and/or belong to cultivator
households who have meager land holdings. Improvements in labour productivity are needed to
increase real earnings of labour. It is also necessary to improve the skills of labour force and
create employment opportunities for semi-skilled and skilled labour. While these are relatively
longer term solutions, for sustained reduction in poverty these remain essential conditions.
A review of the major programs for poverty reduction in India points to the inadequacy of
resources and the need for improving effectiveness of program delivery. Economic growth has
increased the quantum of resources now available for poverty reduction programs. But despite
this, the resources remain inadequate. Delivery of social services such as health and education
needs priority attention.
The need for improving implementation of the poverty reduction programs has seen some
convergence with the push for decentralisation of governance in rural and urban areas. In the
rural areas, the Panchayati Raj Institutions (PRIs) have begun to take increased responsibility for
the delivery of some of the poverty reduction programs, especially in the identification of
beneficiaries of targeted programs. In urban areas, the resources of the local body governments
are being strengthened for more effective delivery of public services. The issue of
decentralisation is critical not only in terms of the role of PRIs but also the role of Central and
State governments. The need for flexibility in the design of poverty reduction programs has also
led to support for greater role for the states in the design of programs.
So as to improve the targeting of benefits to the poor, efforts are being made to provide Unique
Identity Numbers to the residents. The program aims to pay particular attention to identifying the
poor among the population so that targeting of the programs to the poor becomes more effective,
reducing the leakages.
One final point we wish to note in the context of the policy response to persistence of poverty
and the need for more effective ways of delivering poverty alleviation measures is the growing
prominence of cash transfers in policy thinking. The direct delivery of services is seen as costly
and more vulnerable to corruption and inefficiency. The cash income transfers- conditional
where relevant- are seen to provide more efficient means of providing purchasing power to the
poor. Arguments in favour of and against cash transfers are many. In either case, these are not
substitutes for creating necessary infrastructure for health and education and providing access to

  29
these services to the poor. However, improvements in the efficiency of service delivery remain
critical to maximize coverage of the poverty reduction programs.

  30
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