Name- Sumit Singh Pundhir

Faculty No.- 18GGB028

Enrollment No.- GL0390
Topic of Report- Poverty and Inequality in India
 Contents

➢
Poverty concept
➢
Causes of Poverty in India
➢
Absolute Vs Relative Poverty
➢
Measures Used to calculate Absolute Poverty
➢
Poverty in Indian States
➢
Concept of Inequality
➢
Methods to Measure Inequality
➢
Measures by the Government to combat Inequality
What Is Poverty?

Poverty is a state or condition in which a person or community lacks the

financial resources and essentials for a minimum standard of living.Poverty
means that the income level from employment is so low that basic human
needs can't be met. Poverty-stricken people and families might go without
proper housing, clean water, healthy food, and medical attention. Each
nation may have its own criteria for determining how many of its people are
living in poverty.

Causes of Poverty
1. Increase rate of rising population:

In the last 45 years, the population has increased at the whopping rate of
2.2% per annum. An average of approx. 17 million people are added
every year to the population which raises the demand for consumption
goods considerably.
2. Less productivity in agriculture:

In agriculture, the productivity level is very low due to subdivided and

fragmented holdings, lack of capital, use of traditional methods of
cultivation, illiteracy etc. The very reason for poverty in the country is
this factor only.

3. Less utilization of resources:

Underemployment and veiled unemployment of human resources and
less utilization of resources have resulted in low production in the
agricultural sector. This brought a downfall in their standard of living.
4. A short rate of economic development:

In India, the rate of economic development is very low what is required for
a good level. Therefore, there persists a gap between the level of availability
and requirements of goods and services. The net result is poverty.
5. Increasing price rise:

Poor is becoming poorer because of continuous and steep price rise. It

has benefited a few people in the society and the persons in lower
income group find it difficult to get their minimum needs.
6. Unemployment:

One of the main causes of poverty is the continuous expanding army

of unemployed in our country. The job seeker is increasing in number
at a higher rate than the expansion in employment opportunities.
7. Shortage of capital and able entrepreneurship:

The much-required capital and sustainable entrepreneurship play a

very important role in accelerating the growth. But these are in short
supply making it difficult to increase production significantly.

8. Social factors:

Our country’s social set up is very much backward with the rest of the
world and not at all beneficial for faster development. The caste system,
inheritance law, rigid traditions and customs are putting hindrances in the
way of faster development and have aggravated the problem of poverty.
9. Political factors:
We all know that the East India Company started lopsided development in
India and had reduced our economy to a colonial state. They exploited
the natural resources to suit their interests and weaken the industrial
base of Indian economy. The development plans have been guided by
political interests from the very beginning of our independence.
10. Unequal distribution of income:

If you simply increase the production or do a checking on population cannot

help poverty in our country. We need to understand that inequality in the
distribution of income and concentration of wealth should be checked. The
government can reduce inequality of income and check the concentration of
wealth by pursuing suitable monetary and price policies.

Absolute Vs Relative Poverty

Absolute Poverty
Any person not in a position to
obtain essential commodities like
food, shelter and clothing are said
to experience absolute poverty
Relative Poverty
Relative poverty does not
concentrate on biological needs but
rather makes a comparison
between two people in the
environment

Income Level is considered in It is not considered when measuring

Absolute Poverty
Absolute poverty, however, does
not include a broader quality of life
issues or the overall level of
inequality in society. What the
concept fails to recognize is that
individuals also have important
social and cultural needs.
Measured using Poverty Line
It is not possible to completely
eradicate absolute
relative poverty as a person will still
be considered poor despite meeting
his. Her basic needs
Although people living in relative
poverty are to an extent well-off
compared to those living in absolute
poverty, they still cannot afford the
same standard of life as other
people in society.
Measured Using the Gini-Coefficient
and Lorenzo Curve
There is a small margin of success
where its eradication is concerned
Quality of life is poor Quality of life is marginally better as
those living under relative poverty
have access to health care services

Methods to Calculate Absolute Poverty

• Absolute Poverty: According to United Nations World Summit for

Economic Development, absolute poverty is a condition
characterized by severe deprivation of basic human needs, including
food, safe drinking water, sanitation facilities, health, shelter,
education and information.

o It depends not only on income but also on access to

social services.
• Poverty Threshold: The poverty threshold in absolute measurement of
poverty is set using the monetary value of the basket of essential
products (required for basic needs) and every household whose
income is less than this value will be classified as poor.
• Limited Scope: Absolute measurements of poverty, used by the
World Bank and developing countries like India, rely on a poverty line
which remains constant across geographies and over time.
• Criticism: Absolute measurement of poverty overlooks deprivation
within countries or the higher cost of living in developed countries.

Poverty in Indian States

% Of People living
State UT Specific State UT Specific below national
State and UT poverty
Rural (in Rs) Urban (in Rs) percentage
All India 816 1000 21.92
 Andaman and
Nicobar
– – 1
Islan
ds
Andhra Pradesh 860 1009 10.2
Arunachal Pradesh 930 1060 34.67
Assa
m 828 1008 31.98
Biha
r 778 923 33.74
Chandigarh – – 21.81
Chhattisgarh 738 849 39.93
Dadra and Nagar
Haveli – – 39.31
Daman and Diu – – 9.86
Delh
i 1145 1134 9.91
Goa 1090 1134 5.09
Gujarat 932 1152 17.63
Haryana 1015 1169 11.16
Himachal Pradesh 913 1064 8.06
Jammu and
Kashmir 891 988 10.35
Jharkhand 748 974 36.96
Karnataka 902 1089 20.91
Kera
la 1018 987 7.05
Lakshadweep – – 2.77
Madhya Pradesh 771 897 31.65
Maharashtra 967 1126 17.35
Manipur 1118 1170 36.89
Meghalaya 888 1154 11.87
Mizoram 1066 1155 20.4
Nagaland 1270 1302 18.88
Odis
ha 695 861 32.59
Puducherry 1301 1309 9.69
Punj
ab 1054 1155 8.26
Rajasthan 905 1002 15.71
Sikki
m 930 1226 8.19
 States
Tamil Nadu 880 937 11.28
Telangana – – –
Tripura 798 920 18.05
Union
Territories
Uttar Pradesh 768 941 29.43
Uttarakhand 880 1082 11.26
West Bengal 1783 2381 19.98

Concept of Inequality

Inequality—the state of not being equal, especially in status, rights, and

opportunities —is a concept very much at the heart of social justice
theories. However, it is prone to confusion in public debate as it tends to
mean different things to different people. Some distinctions are common
though. Many authors distinguish “economic inequality”, mostly meaning
“income inequality”, “monetary inequality” or, more broadly, inequality in
“living conditions”. Others further distinguish a rights-based, legalistic
approach to inequality—inequality of rights and associated obligations (e.g.
when people are not equal before the law, or when people have unequal
political power). Concerning economic inequality, much of the discussion
has boiled down to two views. One is chiefly concerned with the inequality
of outcomes in the material dimensions of well-being and that may be the
result of circumstances beyond one’s control (ethnicity, family background,
gender, and so on) as well as talent and effort. This view takes an ex-post or
achievement-oriented perspective. The second view is concerned with the
inequality of opportunities, that is, it focuses only in the circumstances
beyond one’s control, that affect one’s potential outcomes. This is an extant
or potential achievement perspective.

Methods to measure Inequality

Lorenz Curve and Gini Coefficient
The distribution of Income in an economy is represented by the Lorenz
Curve and the degree of income inequality is measured through the Gini
Coefficient. One of the five major and common macroeconomic goals of a
government is the equitable (fair) distribution of income. The Lorenz Curve
(the actual distribution of income curve), a graphical distribution of wealth
developed by Max Lorenzin 1906, shows the proportion of income earned
by any given percentage of the population. The line at the 45º angle shows
perfectly equal income distribution, while the other line shows the actual
distribution of income. The further away from the diagonal, the more
unequal the size of the distribution of income.
Advantages and Disadvantages of the Lorenz Curve
A Lorenz curve gives more detailed information about the exact distribution
of wealth or income across a population than summary statistics such as the
Gini coefficient or the Lorenz asymmetry coefficient. Because a Lorenz curve
visually displays the distribution across each percentile (or other unit
breakdown), it can show precisely at which income (or wealth) percentiles
the observed distribution varies from the line of equality and by how much.
However, because constructing a Lorenz curve involves fitting a continuous
function to some incomplete set of data, there is no guarantee that the
values along a Lorenz curve (other than those actually observed in the data)
actually correspond to the true distributions of income.
Most of the points along the curve are just guesses based on the shape of
the curve that best fits the observed data points. So the shape of the Lorenz
curve can be sensitive to the quality and sample size of the data and to the
mathematical assumptions and judgments as to what constitutes a best-fit
curve, and these may represent sources of substantial error between the
Lorenz curve and the actual distribution.
Gini Coefficient

The Gini Coefficient, which is derived from the Lorenz Curve, can be used as
an indicator of economic development in a country. The Gini Coefficient
measures the degree of income equality in a population. The Gini
Coefficient can vary from 0 (perfect equality) to 1 (perfect inequality). A Gini
Coefficient of zero means that everyone has the same income, while a
Coefficient of 1 represents a single individual receiving all the income.
he Gini coefficient measures the inequality among values of a frequency
distribution, for example, levels of icome. A Gini coefficient of 0 expresses
perfect equality, where all values are the same (i.e. where everyone has the
same income). A Gini coefficient of 1 (or 100%) expresses maximal
inequality among values (i.e. for a large number of people where only one
person has all the income or consumption and all others have none, the Gini
coefficient will be nearly one).
For larger groups, values close to 1 are unlikely. Given the normalization of
both the cumulative population and the cumulative share of income used to
calculate the Gini coefficient, the measure is not overly sensitive to the
specifics of the income distribution, but rather only on how incomes vary
relative to the other members of a population. The exception to this is in the
redistribution of income resulting in a minimum income for all people.
When the population is sorted, if their income distribution were to
approximate a well-known function, then some representative values could
be calculated.
The Gini coefficient was proposed by Corrado Gini as a measure of
inequality of income or wealth. For OECD countries, in the late 20th century,
considering the effect of taxes and transfer payments, the income Gini
coefficient ranged between 0.24 and 0.49, with Slovenia being the lowest
and Mexico the highest. African countries had the highest pre-tax Gini
coefficients in 2008–2009, with South Africa the world's highest, variously
estimated to be 0.63 to 0.7, although this figure drops to 0.52 after social
assistance is taken into account, and drops again to 0.47 after taxation. The
global income Gini coefficient in 2005 has been estimated to be between
0.61 and 0.68 by various sources.
There are some issues in interpreting a Gini coefficient. The same value may
result from many different distribution curves. The demographic structure
should be taken into account. Countries with an aging population, or with a
baby boom, experience an increasing pre-tax Gini coefficient even if real
income distribution for working adults remains constant. Scholars have
devised over a dozen variants of the Gini coefficien
Kuznets Curve

The Kuznets curve is a hypothetical curve that graphs economic inequality

against income per capita over the course of economic development (which
was presumed to correlate with time). This curve is meant to illustrate
economist Simon Kuznets’ (1901-1985) hypothesis about the behavior and
relationship of these two variables as an economy develops from a
primarily rural agricultural society to an industrialized rban economy .
One explanation of such a progression suggests that early in development,
investment opportunities for those who have money multiply, while an
influx of cheap rural labor to the cities holds down wages. Whereas in
mature economies, human capital accrual (an estimate of income that has
been achieved but not yet consumed) takes the place of physical capital
accrual as the main source of growth; and inequality slows growth by
lowering education levels because poorer, disadvantaged people lack
finance for their education in imperfect credit-markets.
The Kuznets curve implies that as a nation undergoes industrialization – and
especially the mechanization of agriculture – the center of the nation's
economy will shift to the cities. As internal migration by farmers looking for
better-paying jobs in urban hubs causes a significant rural-urban inequality
gap (the owners of firms would be profiting, while laborers from those
industries would see their incomes rise at a much slower rate and
agricultural workers would possibly see their incomes decrease), rural
populations decrease as urban populations increase. Inequality is then
expected to decrease when a certain level of average income is reached and
the processes of industrialization – democratization and the rise of the
welfare state – allow for the benefits from rapid growth, and increase the
per-capita income. Kuznets believed that inequality would follow an
inverted "U" shape as it rises and then falls again with the increase of
income per-capita. Kuznets had two similar explanations for this historical
phenomenon:
 1. workers migrated from agriculture to industry; and
2. rural workers moved to urban jobs.
In both explanations, inequality will decrease after 50% of the shift force
switches over to the higher paying sector .

→ Measures taken by government to reduce Inequality

1. Land Reforms and Redistribution of Ceiling Surplus Land:
In India, income inequalities are mostly resulted from the concentration of
agricultural land in the hands of a few big landlords. The Zamindary system
prevailing in our country has created a system of absentee landlords in the
farm sector who appropriated a major portion of the agricultural produce by
exploiting the farmers.

After independence, various legislative measures were introduced for

abolishing the system of absentee landlords and other intermediaries and
imposing ceiling on land holdings. But all these measures failed to achieve
the desired level of success. Moreover, the redistribution of agricultural
land has also limited role in respect of poverty alleviation.

In this connection, Dandekar and Rath observed, “However simple it may

appear, it is futile to try to resolve the problem of rural poverty, in an over-
populated land, by redistribution of land which is in short supply……..
(Further) any drastic lowering of the ceilings and redistribution of the
surplus land to the landless workers will serve no useful purpose.”
2. Control Over Monopolies and Restrictive Trade Practices:
In order to reduce the income inequalities, the control of monopolies is
considered as an important step. Initially, no attempt was made to control
the growth of monopoly houses. It was only in 1969, the Monopolies and
Restrictive Trade Practices Act was passed which made necessary provision
for the control of monopolies and for prohibiting restrictive trade practices.

Accordingly, Monopoly and Restrictive Trade Practices Commission was

formed to make necessary judgment on the erring enterprises. But existing
procedure and even the industrial licensing machinery had failed to
protect the interest of small enterprises as these measures were found
rather inadequate and ineffective. Moreover, under the present regime of
liberalization of the industrial sector, the monopoly trends are likely to be
strengthened further and thereby economic disparities may aggravate
further.
3. Social Security Measures:
Social security measures for the workers are considered as an important step
towards reduction of income inequalities. India is not having a
comprehensive network of social security system although the country has
adopted some social security provisions for the workers engaged in the
organized sector. Workmen’s Compensation Act for providing compensation
in case of any injury to industrial workers, Maternity Benefit Act for women
workers and Employees

Provident Fund Act for providing the benefit of provident fund to the
workers and other employees engaged in organized industries. Again, the
most comprehensive social security measure in the country is the
Employees State Insurance Act which provides the insured workers various
facilities like medical benefits, disability benefits, sickness benefit,
maternity benefits and also benefit too dependent.

All workers drawing Rs. 10,000 or less are covered under this scheme at
present. All these measures are playing important role in poverty
alleviation especially in urban areas. But the rural areas and the
unorganized sectors remain mostly untouched. Even the unemployment
allowance and the old age pension, which are considered as vital measures
for removing poverty, are almost absent in India.
4. Employment Program and Wage Policies:
With the growing menace of unemployment problem in India, the
Government of India has introduced some special employment program
since the Fourth Plan onwards in order to provide some relief and scope for
gainful employment to unemployed. These programs include Crash Scheme
for Rural Unemployment, the Drought Prone Areas Program, Food for
Work Program, self-employment schemes for engineers, employment
scheme for educated unemployment etc.
All these programs were short lived and ad-hoc in nature. During the Sixth
Plan period, the Integrated Rural Development Program (IRDP) was initiated in
1978-79 and after that National Rural Employment Program (NREP), Rural
Landless Employment Guarantee Program (RLEGP) were also introduced.

All these programs were mostly guided by the objective of poverty

alleviation in rural areas through generation of gainful employment
opportunities. Again, since April 1, 1989, the NREP and RLEGP were
merged into a new program, namely, Jawahar Rojgar Yojana (JRY).
Although a huge amount of money is regularly being spent in India every
year on these programs but the implementation and achievement of these
program are not at all encouraging.

Moreover, the wage policy can also play an important role in raising the
income of the poorer sections of society. Although the statutory minimum
wage provision is being made in India but it has benefitted mostly the 10
per cent workers engaged in the organized sector keeping the remaining 90
per cent of working population almost untouched.
5. Minimum Needs Program:
Development economists are arguing to introduce the minimum needs
program in developing countries since the early part of 1970s. Meeting
basic needs of lower sections of society is also considered as an important
step towards elimination of income inequalities. Realizing its importance,
Indian planners have introduced the Minimum Needs Programme since the
Fifth Plan in order to alleviate poverty and to attain higher growth rate.

The Sixth Plan documents observed, “The Programme is essentially an

investment in human resources development. The provision of free
or
subsidized services through public agencies is expected to improve the
consumption levels of those living below the poverty line and thereby
improve the productive efficiency of both rural and urban workers. This
integration of social consumption programmes with economic
development programmes is necessary to accelerate growth and to ensure
the achievement of plan objectives.”
6. Upliftment of the Rural Poor:
Programmes for the upliftment of the rural poor have been considered as
an important step towards poverty alleviation and reduction of income
inequalities.