Notes on Poverty, Inequality, Concentration of Economic Power,

Balanced Regional Development, Low Capital Formation and Green

Box Subsidies
Poverty
Poverty in India

According to a recent Indian government committee constituted to estimate poverty, nearly 38%
of India’s population (380 million) is poor. This report is based on new methodology and the
figure is 10% higher than the present poverty estimate of 28.5%.

The committee was headed by SD Tendulkar has used a different methodology to reach at the
current figure. It has taken into consideration indicators for heath, education, sanitation, nutrition
and income as per National Sample Survey Organization survey of 2004-05. This new
methodology is a complex scientific basis aimed at addressing the concern raised over the
current poverty estimation.

Since 1972 poverty has been defined on basis of the money required to buy food worth 2100
calories in urban areas and 2400 calories in rural areas. In June this year a government
committee headed by NC Saxena committee estimated 50% Indians were poor as against
Planning Commission’s 2006 figure of 28.5%.

Poverty is one of the main problems which have attracted attention of sociologists and
economists. It indicates a condition in which a person fails to maintain a living standard adequate
for his physical and mental efficiency. It is a situation people want to escape. It gives rise to a
feeling of a discrepancy between what one has and what one should have. The term poverty is a
relative concept. It is very difficult to draw a demarcation line between affluence and poverty.
According to Adam Smith - Man is rich or poor according to the degree in which he can afford
to enjoy the necessaries, the conveniences and the amusements of human life.

Even after more than 50 years of Independence India still has the world's largest number of poor
people in a single country. Of its nearly 1 billion inhabitants, an estimated 260.3 million are
below the poverty line, of which 193.2 million are in the rural areas and 67.1 million are in urban
areas. More than 75% of poor people reside in villages. Poverty level is not uniform across India.
The poverty level is below 10% in states like Delhi, Goa, and Punjab etc whereas it is below
50% in Bihar (43) and Orissa (47). It is between 30-40% in Northeastern states of Assam,
Tripura, and Mehgalaya and in Southern states of TamilNadu and Uttar Pradesh.

Poverty has many dimensions changing from place to place and across time. There are two inter-
related aspects of poverty - Urban and rural poverty. The main causes of urban poverty are
predominantly due to impoverishment of rural peasantry that forces them to move out of villages
to seek some subsistence living in the towns and cities. In this process, they even lose the open
space or habitat they had in villages albeit without food and other basic amenities. When they
come to the cities, they get access to some food though other sanitary facilities including clean
water supply still elude them. And they have to stay in the habitats that place them under sub-
human conditions. While a select few have standards of living comparable to the richest in the
world, the majority fails to get two meals a day. The causes of rural poverty are manifold
including inadequate and ineffective implementation of anti-poverty programmes.The
overdependence on monsoon with non-availability of irrigational facilities often result in crop-
failure and low agricultural productivity forcing farmers in the debt-traps. The rural communities
tend to spend large percentage of annual earnings on social ceremonies like marriage; feast
etc.Our economic development since Independence has been lopsided .There has been increase
in unemployment creating poverty like situations for many. Population is growing at an alarming
rate. The size of the Indian family is relatively bigger averaging at 4.2.The other causes include
dominance of caste system which forces the individual to stick to the traditional and hereditary
occupations.

Since the 1970s the Indian government has made poverty reduction a priority in its development
planning. Policies have focused on improving the poor standard of living by ensuring food
security, promoting self-employment through greater access to assets, increasing wage
employment and improving access to basic social services. Launched in 1965, India's Public
Distribution System has helped meet people's basic food needs by providing rations at subsidized
prices. Although it has affected less than 20% of the Poor's food purchases, the system has been
important in sustaining people's consumption of cereals, especially in periods of drought. It has
provided women and girls with better access to food and helped overcome the widespread
discrimination against female consumption within households. It has also reduced the burden of
women, who are responsible for providing food for the household.

The largest credit-based government poverty reduction programme in the world, the Integrated
Rural Development Programme provides rural households below the poverty line with credit to
purchase income-generating assets. Launched in 1979, the programme has supplied subsidized
credit to such groups as small and marginalized farmers, agricultural laborers, rural artisans, the
physically handicapped, scheduled castes and scheduled tribes. Within this target population,
40% of the beneficiaries are supposed to be women. Although the programme has reached 51
million families, only 27% of the borrowers have been women. The programme has significantly
increased the income of 57% of assisted families.

Rural poverty is largely a result of low productivity and unemployment. The Jawahar Rozgar
Yojana, a national public works scheme launched in 1989 with financing from the central and
state governments, provides more than 700 million person days of work a year about 1% of total
employment for people with few opportunities for employment. The scheme has two
components: a programme to provide low-cost housing and one to supply free irrigation wells to
poor and marginalized farmers. The public works scheme is self-targeting. Since it offers
employment at the statutory minimum wage for unskilled manual labor, only those willing to
accept very low wages the poor are likely to enroll in the scheme. By providing regular
employment and thereby increasing the bargaining power of all rural workers, the public works
scheme has had a significant effect in reducing poverty. It has also contributed to the
construction of rural infrastructure (irrigation works, a soil conservation project, drinking water
supply). Evaluations show that 82% of available funds have been channeled to community
development projects. Targeting was improved in 1996 when the housing and irrigation well
components were delinked and focused exclusively on people below the poverty line.

Inequality

Gender inequality in India refers to health, education, economic and political inequalities

between men and women in India.Various international gender inequality indices rank India
differently on each of these factors, as well as on a composite basis, and these indices are
controversial.
Gender inequalities, and its social causes, impact India's sex ratio, women's health over their
lifetimes, their educational attainment, and economic conditions. Gender inequality in India is a
multifaceted issue that concerns men and women alike. Some argue that some gender equality
measures, place men at a disadvantage. However, when India's population is examined as a
whole, women are at a disadvantage in several important ways.
The graph shows that the Gini coefficient is equal to the area marked A divided by the sum of the
areas marked A and B, that is, Gini = A / (A + B). It is also equal to 2A and to 1 - 2B due to the
fact thatA + B = 0.5 (since the axes scale from 0 to 1).

Inequality in India is the highest in Asia

The chart, from the Credit Suisse Global Wealth report, compares the Gini coefficients of wealth
inequality in India with that of other countries in the region

The Gini coefficient is a measure of inequality of income or wealth—zero denotes perfect

equality, while 100 denotes perfect inequality, with all the wealth or income in the hands of one
person. The chart, from the Credit Suisse Global Wealth report, compares the Gini coefficients
of wealth inequality in India with that of other countries in the region.
The following table compares the population wide data for the two genders on various inequality
statistical measures, according to The World Bank's Gender Statistics database for 2012.

Males Female
[4] Females Males
Gender Statistic Measure (India s
(India) (World)
) (World)

Infant mortality rate, (per 1,000 live births) 44.3 43.5 32.6 37

Life expectancy at birth, (years) 68 64.5 72.9 68.7

Expected years of schooling 11.3 11.8 11.7 12.0

 Males Female
[4] Females Males
Gender Statistic Measure (India s
(India) (World)
) (World)

[5]
Primary school completion rate, (%) 96.6 96.3

Lower secondary school completion rate, (%) 76.0 77.9 70.2 70.5

Secondary school education, pupils (%) 46 54 47.6 52.4

Ratio to males in primary and secondary education

0.98 1.0 0.97 1.0
(%)

Secondary school education, gender of teachers

41.1 58.9 51.9 48.1
(% )

Account at a formal financial institution, (% of

26.5 43.7 46.6 54.5
each gender, age 15+)

Deposits in a typical month, (% with an account,

11.2 13.4 13.0 12.8
age 15+)

Withdrawals in a typical month, (% with an

18.6 12.7 15.5 12.8
account, age 15+)

Loan from a financial institution in the past year,

6.7 8.6 8.1 10.0
(% age 15+)

Outstanding loan from banks for health or

12.6 15.7 10.3 11.6
emergencies, (% age 15+)
 Males Female
[4] Females Males
Gender Statistic Measure (India s
(India) (World)
) (World)

Outstanding loan from banks to purchase a home,

2.26 2.35 6.6 7.4
(% age 15+)

[5]
Unemployment, (% of labour force, ILO method) 4 3.1

Unemployment, youth (% of labour force ages 15–

10.6 9.4 15.1 13.0
24, ILO method)

Ratio to male youth unemployment rate (% ages

1.13 1.0 1.14 1.0
15–24, ILO method)

[5]
Employees in agriculture, (% of total labour) 59.8 43

[5]
Employees in industry, (% of total labour) 20.7 26

[5]
Self-employed, (% employed) 85.5 80.6

Cause of death, by non-communicable diseases,

32.3 33.0 29.5 27.5
ages 15–34, (%)

[5]
Life expectancy at age 60, (years) 18.0 15.9

Causes
N. C. Saxena, a member of the National Advisory Council, suggested that the widening income
disparity can be accounted for by India’s badly shaped agricultural and rural safety nets.
“Unfortunately, agriculture is in a state of collapse. Per capita food production is going down.
Rural infrastructure such as power, road transport facilities are in a poor state,” he said. “All the
safety net programmes are not working at all, with rural job scheme and public distribution
system performing far below their potential. This has added to the suffering of rural India
while market forces are acting in favour of urban India, which is why it is progressing at a faster
rate”.

Impact
The growing income inequality in India has negatively impacted poor citizens' access
to education and healthcare. People working in unorganized sectors are the worst sufferers of
economic inequality. They are characterized by low wages; long working hours; lack of basic
services such as first aid, drinking water and sanitation.
Concentration of Economic Power
Monopoly is a concept of power which manifests itself in one’s power to:-

i) control production, supply, etc

ii) control prices
iii) prevent, reduce or eliminate competition
iv) limit technical development
v) retard capital investment
vi) impair the quality of goods.

The MRTP Act, before the 1991 amendments sought to curb such power arising out of a
monopoly.

The MRTP Act, 1969

Post independence, many new and big firms have entered the Indian market. They had little
competition and they were trying to monopolize the market. The Government of India
understood the intentions of such firms. In order to safeguard the rights of consumers,
Government of India passed the MRTP bill. The bill was passed and the Monopolies and
Restrictive Trade Practices Act, 1969, came into existence. Through this law, the MRTP
commission has the power to stop all businesses that create barrier for the scope of competition
in Indian economy.

The MRTP Act, 1969, aims at preventing economic power concentration in order to avoid
damage. The act also provides for probation of monopolistic, unfair and restrictive trade
practices. The law controls the monopolies and protects consumer interest.

Monopolistic Trade Practice

Such practice indicates misuse of one's power to abuse the market in terms of production and
sales of goods and services. Firms involved in monopolistic trade practice tries to eliminate
competition from the market. Then they take advantage of their monopoly and charge
unreasonably high prices. They also deteriorate the product quality, limit technical development,
prevent competition and adopt unfair trade practices.

Unfair Trade Practice

The following may result in an unfair trade practice:

 False representation and misleading advertisement of goods and services.

 Falsely representing second-hand goods as new.
 Misleading representation regarding usefulness, need, quality, standard, style etc of goods
and services.
 False claims or representation regarding price of goods and services.
 Giving false facts regarding sponsorship, affiliation etc. of goods and services.
 Giving false guarantee or warranty on goods and services without adequate tests.

Restrictive Trade Practice

The traders, in order to maximize their profits and to gain power in the market, often indulge in
activities that tend to block the flow of capital into production. Such traders also bring in
conditions of delivery to affect the flow of supplies leading to unjustified costs.

Prior to the 1991 amendments, the MRTP Act essentially was implemented in terms of
regulating the growth of big size companies called the monopoly companies. In other words,
there were pre-entry restrictions therein requiring undertakings and companies with assets of
more than Rs.100 crores (about US $22 million) to seek approval of Government for setting up
new undertakings, for expansion of existing undertakings, etc.

Major amendments were effected to the MRTP Act in 1991. Provisions relating to concentration
of economic power and pre-entry restrictions with regard to prior approval of the Central
Government for establishing a new undertaking, expanding an existing undertaking,
amalgamations, mergers and take-overs of undertakings were all deleted from the statute through
the amendments. The causal thinking in support of the 1991 amendments is contained in the
Statement of Objects and Reasons appended to the 1991 Amendment Bill in the Parliament,
extract in part of which, runs as follows:

Since attaining Independence in 1947, India, for the better part of half a century thereafter,
adopted and followed policies comprising what are known as “Command-and-Control” laws,
rules, regulations and executive orders. The competition law of India, namely, the Monopolies
and Restrictive Trade Practices Act, 1969 (MRTP Act, for brief) was one such. It was in 1991
that widespread economic reforms were undertaken and consequently the march from
“Command-and-Control” economy to an economy based more on free market principles
commenced its stride. As is true of many countries, economic liberalisation has taken root in
India and the need for an effective competition regime has also been recognised. (For a history of
evolution of competition policy in several countries, see Ewing, 2003).

In the context of the new economic policy paradigm, India has chosen to enact a new
competition law called the Competition Act, 2002 (Act, for brief). The MRTP Act has
metamorphosed into the new law, Competition Act, 2002. The new law is designed to repeal the
extant MRTP Act. As of now, only a few provisions of the new law have been brought into
force and the process of constituting the regulatory authority, namely, the Competition
Commission of India under the new Act, is on. The remaining provisions of the new law will be
brought into force in a phased manner. For the present, the outgoing law, MRTP Act, 1969 and
the new law, Competition Act, 2002 are concurrently in force, though as mentioned above, only
some provisions of the new law have been brought into force.

Balanced Regional Development

Balanced Regional Development: Meaning and Considerations
Meaning of Balanced Regional Development:
Balanced regional development is an important condition for the harmonious and smooth
development of a country. It does not imply equal development of all regions of a country.
Rather it indicates utilisation of development potential of all areas as per its capacity so that the
benefit of overall economic growth is shared by the inhabitants of all the different regions of a
country.

Thus the regional balance implies uniform distribution pattern of the planned investment among
different regions of a country. Alternatively, regional balance demands distribution of investment
in such a way so that the regional rates of growth in different parts of the country be equally
attained, eliminating the regional disparities prevailing in the country.

Thus to attain regional balance, it is quite important that the backward regions should try to
attain higher rate of growth than that of developed areas.

Balanced regional development does not indicate attainment of self-sufficiency of level of

industrialization or uniform economic pattern for each state rather it simply indicates wide
spread diffusion of industry in backward areas.
The balanced regional development is broadly guided by the people in backward areas which can
be attained simply through its development of agriculture, industry, infra-structure, trade and
commerce. According to Mumford, “it is a problem of increasing habitability, a problem of
social and economic renewal.”
Thus by the term regional development, we mean economic development of all regions
simultaneously, raising their per capita income and living standards by exploiting their natural
and human resources fully.

Considerations and Need for Balanced Regional Development:

Balanced regional development as a policy is considered both on economic, social and political
grounds. The policy is considered in order to redress inequalities between different regions of a
country and also for raising standard of living to a higher level at a uniform rate.

The Second Five Year Plan documents of India observed in this connection, “In any
comprehensive plan of development, it is axiomatic that the special needs of the less developed
areas should receive due attention. The pattern of development must be so devised as to lead to
balanced regional development.”

Balanced regional development is having both economic and non- economic considerations.

Economic Considerations:
Balanced regional development is advocated mostly for the following three economic
considerations:
(a) Utilisation of local resources:
Balanced regional development paves the way for optimum utilisation of resources available in
different regions of the country. Over concentration of industrial activity into certain centres
leads to wastage of local resources like raw materials, fuels, labour, skills, etc. for their non
utilisation.

(b) Expansion of employment opportunities:

Employment opportunities in a country will be expanded uniformly at a satisfactory rate under
balanced regional development opportunities in different industries over different parts of the
country.

(c) Utilisation of Infra-structural Facilities:

Balanced regional development paves the way for total utilisation of various infra-structural
facilities like means of transport and communications, power resources, irrigation facilities,
educational and health facilities developed in all the different regions of the country.

Non-Economic Considerations:
The following are the two non-economic considerations of balanced regional development:
(a) Socio-Political Arguments:
Balanced regional development can remove those socio-political problems related to health,
housing, law and order, cultural decadence etc. arising out of concentration of industries at a few
points. Moreover, it can avoid the necessity of large scale emigration of labour to distant
industrial centres through regional dispersion of industrial activity.

Besides, balanced regional development can pave the way for an egalitarian society having
negligible differentials in per capita incomes and other parameters existing between classes and
regions.

(b) Strategic Considerations:

Balanced regional development favours regional dispersion of industrial activities under strategic
considerations, i.e., under considerations of national defence and industrial security. Now-a-days,
concentration of industries at a few points is risky as it becomes easy targets of attack and
bombardment during wars.

Proper Strategy for Regional Development:

Development of backward regions requires a proper strategy to be adopted for attaining a
balanced regional development.

Adoption of a proper strategy includes:

(a) An examination of the existing criteria for the identification of backward areas of the country,

(b) Adoption of a selective and purposeful system of fiscal incentives so as to fulfill the basic
objectives of expansion of employment opportunities, utilisation of available local resources,
exploitation of local development potential, linkage effects, distributional impact, expansion of
infra-structural facilities, etc.,

(c) Proper co-ordination of development strategy formulated by various agencies, viz., the
central and State Governments, financial institutions, private sector units, etc.,

(d) Adopting location specific and appropriate project oriented programmes having importance
on growth centre approach,

(e) Introducing a sustained programme of investment by the public sector to realise the objective
of employment expansion and income distribution, if) development of proper and adequate
institutional framework to attain the development of backward areas.

In this connection, Gunner Myrdal has rightly observed that,“inequality and the trend towards
rising inequality stand as a complex of inhibitions and obstacles to development and
consequently there is an urgent need for reversing the trend and creating greater equality as a
condition for speeding up development.”
Balanced regional development is a well known proven objective. All regions must develop itself
along with the national economy. Different regions can try to utilise its potential fully as an
integral part of the country. Thereby, with the advancement of national economy, all round
regional development is attained.

Under the present circumstances, what is imperative is that in order to reduce regional
imbalance, it is necessary to exploit the natural resources of backward regions, to work
continuously in those directions where development is attained and also to attain a selective and
judicious dispersal of the available resources so as attain rational and balanced regional
development.

Low Capital Formation

The term capital formation or capital accumulation simply indicates all the reproduced wealth
which helps to accumulate wealth both directly and indirectly. The word capital indicates that
part of current produce which is used for further production instead of being consumed
immediately.

Similarly, capital formation indicates that part of current product, which is directed to the making
of those goods facilitating productions, i.e., machines, tools and instruments, means of
transportation and communication, irrigation project, canal etc. Therefore, capital formation
broadly involves a sacrifice of immediate consumption in order to obtain a larger flow of
consumable goods in future.

However, the term capital formation is used both in broader as well as narrow sense. In narrow
sense, capital formation indicates physical capital stock viz., machines, tools etc., but in a
broader sense it includes non-physical capital or human resources which include visible and
invisible capital, human efficiency, craft, public health etc.

Prof. Colin Clark observed that capital goods are “reproducible wealth used for purposes of
production. But capital formation refers to the net addition made to the existing stock of capital
in a given period of time.” Thus capital formation may take the form of material goods as well as
non-material goods such as knowledge, skill, health etc.

According to Prof. Ragnar Nurkse, “The meaning of capital formation is that society does not
apply the whole of its productive activity to the needs and desires of immediate consumption but
directs a part of it to the making of capital goods, tools and instrument, machines and transport
facilities, plant and equipment— all the various forms of real capital that can so greatly increase
the efficiency of productive effort.”
Again Dr. Singla has aptly stated, “Capital formation consists of both tangible goods like
plants, tools and machinery and intangible goods such as high standards of education,
health, scientific tradition and research.”

Top 16 Causes of Low Rate of Capital Formation in India

The sixteen major causes of low rate of capital formation in India.
(i) Low rate of growth of national income and per capita income.

(ii) High rate of growth of population leading to heavy population pressure in the country.

(iii) Vicious circle of poverty.

(iv) Higher marginal propensity to consume of the people in India leading to lower propensity to
save.

(v) Poor banking facilities in (he rural areas of the country.

(vi) Demonstration effect and conspicuous consumption reduces the urge and ability of the
people to save.

(vii) Lack of financial institutions to mobilize savings.

(viii)  Peoples’ indifferent attitude towards raising the rate of capital formation.
(ix) Continuous inflationary pressures are eroding the saving capacity of the people of the
country.

(x) Small size of the market.

(xi) Lack of enterprise.
(xii) Higher rate of taxation in the country is creating disincentive to raise the level of savings
and investment.
(xiii)  Lack of infrastructural facilities in the country is creating disincentive to raise the level of
investment.
(xiv) Backwardness of agriculture resulting in low agricultural productivity is limiting the How
of investment in this sector.
(xv)  Application of out-dated and primitive technique of production due to low level of
technological knowhow available in the country leads to low productivity in the productive
sector.
(xvi) Huge deficit financing adopted continuously by the Government has led to inflationary rise
in prices, creating disincentive to investment activities.
 Green Box Subsidies
AoA classifies subsidies into two parts:

Box

 Subsidies that don’t disrupt trade balance OR

 Only cause minimum damage to trade balance.
GREEN  E.g. agriculture research-development, extension services, farmer training programs, pest-disease
control program, flood/drought relief money paid to farmers etc.
 WTO Limit: nothing. Governments can give as much as they want.

Pillar What they want from member states?

1.Market access reduce import duties

2.export
reduce export subsidies
competition

3.domestic
reduce Amber box subsides
support