Chapter - Poverty

(Indian economic development)

Notes Part-I

Meaning: Poverty refers to a situation where people are not able to meet their basic minimum needs of life
such as food, clothing and shelter.

Poverty is a challenge not only for India, but for the entire world as more than one fifth of the world’s poor
(around 270 million people) live in India alone and are not able to meet their basic needs.
 Major aim of India after independence – reduction of poverty and providing minimum basic needs to the
people.
 The successive five-year plans after independence laid emphasis on the upliftment of the poorest of the
poor (Antyodaya), integrating the poor into the mainstream and achieving minimum standard of living
for all.

Characteristics of a poor person/ Identifying the poor:

 Malnutrition is alarmingly high among the poor. Starvation and hunger are the key features of the poorest
households.
 The poor people possess few assets. They lack proper housing.
 Ill health, disability or serious illness and poor access to medical facilities make them physically weak.
Their children are less likely to survive or be born healthy.
 They have limited economic opportunities as the poor person lacks basic literacy and skills. So, they face
unstable unemployment. Lack of income yielding assets such as land etc. lead to unemployment.
 They borrow from money lenders who charge high rates of interest that lead them into chronic
indebtedness.
 The poor are highly vulnerable. They are not able to negotiate their legal wages from employers and are
exploited.
 Most poor households have no access to safe drinking water and electricity. Their primary cooking fuel is
firewood and cow dung cakes.
 Gender inequality prevails within the family in regard to participation of gainful employment, education
and in decision-making.

Rural Poor vs Urban Poor

The rural poor are those who work mainly as landless agricultural labourers, cultivators with very small
landholdings, or landless labourers who are engaged in a variety of non-agricultural jobs and tenant
cultivators with small land holdings.

The urban poor are largely the overflow of the rural poor who had migrated to urban areas in search of
alternative employment and livelihood, labourers who do a variety of casual jobs and the self-employed who
sell a variety of things on roadsides and are engaged in various activities. Examples of urban poor people are
push-cart vendors, ragpickers, cobblers, beggars etc.

Rural Poverty
 A large section of the rural poor in India is the small farmers. The land they have is less fertile and
dependent on rains. Their survival depends on subsistence crops and sometimes on livestock.

1
  With rapid growth of population and without alternative source of employment, the per head
availability of land has steadily declined leading to fragmentation of land holdings.
 The income from these small land holdings is not sufficient to meet family's basic requirements.

Urban Poverty
 A large section of the urban poor in India are largely the overflow of the rural poor who had migrated
to urban areas in search of alternative employment and a livelihood.
 Industrialisation has not been able to absorb all these people. The urban poor are either unemployed or
intermittently employed as casual labourers.
 Casual labourers are the most vulnerable in society as they have no job security, no assets, limited
skills, sparse opportunities and no surplus to sustain them.

How are Poor People Identified:

Jail cost of living
In pre-independent India, Dadabhai Naoroji was the first to discuss the concept of Poverty Line.
He used the menu for a prisoner and used appropriate prevailing prices to arrive at what may be called ‘jail
cost of living’. He adjusted this cost of living to arrive at the poverty line:
(1/6)(Nil) + (1/6)(Half) + (2/3)(Full) = (3/4)(Full)
Accordingly, the average poverty line comes out to be three-fourth of the adult jail cost of living.

Attempts made to identify number of poor in the country after independence:

 In 1962, Planning Commission now called as NITI Aayog formed a Study Group.
 In 1979, another body called the ‘Task Force on Projections of Minimum Needs and Effective
Consumption Demand’ was formed.
 In 1989 and 2005, ‘Expert Groups’ were constituted for the same purpose.

Categories of poor

Chronic Poor Transient Poor

 Always poor
 Usually poor but who may
sometimes have a little more
money (example: casual workers)
 Churning poor who regularly move in
and out of poverty. (e.g. small farmers and
seasonal workers)
 Occasionally poor who are rich most of
the time but may sometimes have a patch
of bad luck.

Non-Poor: Who are never poor

2
Poverty Line: Poverty Line is cut-off point on the line of distribution, which usually divides the population
of the country as poor and non-poor.
 It is the minimum amount of money (usually in terms of monthly per capita expenditure) needed for a
person to meet his basic needs.
 The concept of poverty line is used to measure the extent of poverty in a country.

Estimation of poverty line:

(a) Calorie based estimation: The Planning Commission has defined poverty line on the basis of
recommended nutritional requirements of 2400 calories per person per day for rural areas and
2100 calories per person per day for urban areas.
(b) Per capita expenditure based estimation: The government of India uses Monthly Per Capita
Expenditure (MPCE) as proxy for income of households to identify the poor.
Based on 2011-12 prices, the poverty line was defined for rural areas as consumption worth Rs
816 per person a month and for urban areas it was Rs 1,000 per person per month.

Limitations of using Per Capita Monthly Expenditure or Limitations of Poverty Line

1. It groups all the poor together and does not differentiate between the very poor and the other poor.
Hence, it would be difficult to identify who among the poor need help the most.
2. This mechanism takes into account expenditure on food and a few select items as proxy for income.
There are many factors, other than income and assets which are associated with poverty like the
accessibility to basic education, health care, drinking water and sanitation which need to be considered
to develop poverty line.
3. The existing mechanism for determining poverty line also does not take into consideration social
factors that trigger and perpetuate poverty such as illiteracy, ill health, lack of access to resources,
discrimination or lack of civil and political freedoms.
4. Many a times, the way the data are collected, items that are included in the consumption basket,
methodology followed to estimate the poverty line and the number of poor are manipulated to arrive at
the reduced figures of the number of poor in India.

Alternative Indices/ Tools to estimate poverty: Sen Index, Poverty Gap Index and Squared Poverty
Gap.

3
 Measures
of Poverty

Absolute Relative
Poverty poverty

 Absolute poverty: It is a condition characterized by severe deprivation of basic human needs,

including food, safe drinking water, sanitation facilities, health, shelter, education etc. It depends not only
on income but also on access to social services. (It refers to the total number of people living below
poverty line)
 Relative poverty: It refers to poverty of people, in comparison to the other people, regions or nations.

People who have a considerable amount of income can meet their basic necessities but still be considered
poor under the relative poverty model as their economic condition is not good enough with respect to that of
the society, they live in.

Relation between Employment and Poverty

Yes, there does exist a direct relationship between unemployment and poverty. An unemployed person has
no means to earn a living and cannot fulfil his basic needs. He cannot avail quality education, medical
facilities and has no means to create income-earning assets.
A large section of urban poor in India are largely the overflow of the rural poor who migrate to urban areas in
search of employment and a livelihood.
 The urban poor are either unemployed or intermittently employed as casual labourers. Casual labourers are
among the most vulnerable in society as they have no job security, no assets, limited skills, sparse
opportunities and no surplus to sustain them.
 Poverty is, therefore, closely related to nature of employment. Unemployment or under employment and
the casual and intermittent nature of work in both rural and urban areas that compels indebtedness, in turn,
reinforces poverty.
 Indebtedness is one of the significant factors of poverty.

Poverty Trends in India 1973-74 to 2011-12

When the number of poor is estimated as the proportion of people below the poverty line, it is known as
‘Head Count Ratio’.
a) The official data on poverty is now made available to the public by the NITI Aayog (erstwhile, Planning
Commission). It is estimated on the basis of consumption expenditure data collected by the National
Sample Survey Office (NSSO).
b) In 1973-74, more than 320 million people were below the poverty line. In 2011-12, this number has come
down to about 270 million.
c) In terms of proportion, in 1973-74, about 55 per cent of the total population was below the poverty line. In
2011-12, it has fallen to 22 per cent.
d) In 1973-74, more than 80 per cent of the poor resided in rural areas and this situation has not changed even
in 2011-12. This means that more than three-fourth of the poor in India still reside in villages.

4
Rural Urban Poverty
a) In the 1990s, the absolute number of poor in rural areas had declined whereas the urban numbers
increased marginally.
b) The poverty ratio (number of poor to total population) declined continuously for both urban and rural
areas.
c) During 1973-2012, there has been a decline in the number of poor and their proportion. The ratio is
declining much slower than the absolute number of poor in the country.
d) The gap between the absolute number of poor in rural and urban areas got reduced whereas in the
case of ratio the gap has remained the same until 1999-2000 and has widened in 2011-12.

Inter State Poverty

a) The proportion of poor in India during 1973-2012 has come down from 55 to 22 per cent.
b) Six states - Tamil Nadu, Uttar Pradesh, Bihar, Madhya Pradesh, West Bengal and Orissa - contained a
large section of poor in 1973-74.
c) During 1973- 2012, many Indian states like West Bengal and Tamil Nadu reduced the poverty levels to
a considerable extent due to socialist government and green revolution as well as economic development.
d) The poverty levels in four states - Odisha, Madhya Pradesh, Bihar and Uttar Pradesh are still far
above the national poverty level.

Causes of poverty in India

The poor are deprived of quality education and unable to acquire skills which fetch better incomes. Also
access to health care is denied to the poor. These can be caused as a result of (i) social, economic and political
inequality (ii) social exclusion (iii) unemployment (iv) indebtedness (v) unequal distribution of wealth.
Poverty is also explained by general, economy-wide problems, such as (i) low capital formation, (ii) lack of
infrastructure, (iii) lack of demand (iv) pressure of population.

Historical reasons:
1) De-industrialisation: There was substantial de-industrialisation in India under the British rule. Imports of
manufactured cotton cloth from England displaced much local production, and India became an exporter
of cotton yarn, and not cloth which resulted in massive unemployment and poverty in India.
2) Decline of agriculture: The British introduced the revenue settlement systems like zamindari system
which exploited farmers and caused immense misery and poverty. British policies involved sharply
raising rural taxes that enabled merchants and moneylenders to become large landowners. The British Raj
impoverished millions of people in India by exporting raw materials and food grains to Britain. Many
people died due to famine and hunger.
3) Drain of wealth: India’s foreign trade with Britain resulted in drain of wealth from India as Britain’s
main goals were to provide market for British exports, use the export surplus generated to service its debt
payments to Britain and for India to provide manpower for the British imperial armies.

After independence
1) Unequal distribution of income and assets: The unequal distribution of income and assets has led to the
persistence of poverty in India.
 Ownership of land is an important determinant of material well-being. Those who own some land
have a better chance to improve their living conditions.
 Since independence the government has attempted to redistribute land amongst the landless. However,
this move was successful only to a limited extent.

5
  Large sections of agricultural workers were not able to farm the small holdings that they now
possessed as they did not have either money (assets) or skills to make the land productive and
landholdings were too small to be viable.

2) Rapid population growth:

 With the rapid growth of population and without alternative sources of employment, the per head
availability of land for cultivation has steadily declined leading to fragmentation of land holdings.
 The income from these land holdings is not sufficient to meet the family’s basic requirements.

3) Indebtedness:
 Indebtedness is one of the significant factors of poverty.
 This situation arises among farmers due to their inability to pay back the loans they have taken for
cultivation and other domestic needs either due to crop failure or due to drought or other natural
calamities.
 Unemployment or underemployment and the casual and intermittent nature of work in both rural and
urban areas that compels people to borrow at very exorbitant interest rates leads to indebtedness
which in turn, reinforces poverty.

4) Social exclusion:
 Most members of scheduled caste and scheduled tribes are not able to participate in the emerging
employment opportunities in different sectors of the urban and rural economy as they do not have the
necessary knowledge and skills to do so.

5) Unemployment and underemployment:

 A large section of urban poor in India are largely the overflow of the rural poor who migrate to urban
areas in search of employment and a livelihood.
 However, industrialisation has not been able to absorb all these people Thus the urban poor are either
unemployed or intermittently employed as casual labourers who are among the most vulnerable in
society as they have no job security, no assets, limited skills, sparse opportunities and no surplus to
sustain them.
 Poverty is, therefore, closely related to nature of employment.

6) Inflation:
 A steep rise in price of food grains and other essential goods further intensifies the hardship and
deprivation of lower income groups.

7) Low economic development and slow industrial growth:

 Growth has been quite low in both agricultural as well as industrial sector. In agriculture sector, there
has been a decline in public investments in the last two decades resulting in low productivity
accompanied by the problem of small and fragmented land holdings.
 Industrialisation has not been able to absorb the overflow of the rural poor who migrate to urban areas
in search of employment.

Scholars cite several factors that have led farmers to commit suicides
1. The shift from traditional farming to the farming of high yielding commercial crops without adequate
technical support combined with withdrawal of the state in the area of agricultural extension services in
providing counselling on farm technologies, problems faced, immediate remedial steps and lack of
timely advice to farmers
2. Decline in public investment in agriculture in the last two decades.
3. Low rates of germination of seeds provided by large global firms, spurious seeds and pesticides by

6
 private agents.
4. Crop failure, pest attack and drought.
5. Debt at very high interest rate of 36 % to 120 % from private money lenders.
6. Cheap imports leading to decline in pricing and profits.
7. Lack of access to water for crops which forced the farmers to borrow money at exorbitant rates of
interest to sink borewells that failed.

Vicious circle of poverty: It implies circular constellation of forces tending to act and react one another in
such a way as to keep a poor country in a state of poverty
In economics, the cycle of poverty is the "set of factors or events by which poverty, once started, is likely to
continue unless there is outside intervention".

This cycle can be broken only with some external stimulus such as foreign investments which will lead to
higher capital formation, higher productivity and higher income.

3-Dimensional approach
towards poverty
alleviation

Employment
Growth oriented Basic minimum
oriented
approach needs approach
approach

Self-employment Wage employment

programmes programmes

 Click on the following link for further explanation:

https://www.youtube.com/watch?v=8IlGuBPoprQ

7
8