Block 3 PDF

Poverty and Inequality
BLOCK 3
ISSUES IN INDIAN ECONOMY
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Issues in Indian Economy
BLOCK 3 : ISSUES IN INDIAN ECONOMY
You have learnt about Economic Development in Block 1 and Determinants
of Growth in Block 2. This block discusses in detail about the major themes of
poverty, its causes, difference between poverty and inequality, unemployment
nature, types and causes, causes and indicators of inequality in income distribution
and need for balanced regional development in India. This block has four units.
Unit 7 deals with Poverty and Inequality. The unit begins with the concepts
of poverty, its types (absolute & relative), measurement, difference between
poverty and inequality is then explained,the need for studying gender equality
and poverty with economic growth is highlighted, whether economic growth
reduces poverty and gender inequality are discussed and in the end the linkages
between inequality and poverty are outlined.
Unit 8 deals with Unemployment in India. The unit begins with the concept
of unemployment and its types (rural and urban), measurement, causes and
consequences of unemployment in India are explained, remedial measures for
unemployment are suggested and in the end the policy measures for employment
generation and labour reforms are highlighted.
Unit 9 deals with the Inequalities in Income Distribution. The unit begins with
the concept of inequality in income distribution, causes of income inequality are
discussed, income inequalities by using different methods are explained and in
the end policy measures taken by the government to reduce income inequality
are highlighted.
Unit 10 deals with Balanced Regional Growth. The unit begins with the concept
of regional imbalance in India, then measurement of regional imbalance is given,
the need for regional balance is highlighted, the factors responsible for regional
imbalance are identified, the impact of regional imbalance is described, and in
the end the policy initiatives by the government to reduce regional imbalance
along with the issues involved in achieving balanced regional growth are outlined.
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Poverty and Inequality
UNIT 7 POVERTY AND INEQUALITY
Structure
7.0 Objectives
7.1 Introduction
7.2 Concept of Poverty
7.3 Measurement of Poverty in India
7.4 Causes of Poverty
7.5 Poverty and Inequality
7.6 Gender Equality, Poverty and Economic Growth
7.6.1 Poverty and Economic Growth
7.6.2 Gender Equality and Economic Growth
7.7 Poverty Alleviation Strategy in India

7.8 Let Us Sum Up
7.9 Key Words
7.10 Terminal Questions
7.0 OBJECTIVES
After going through this unit, you will be able to:
• Describe the concept of poverty and inequality;
• Distinguish between poverty and inequality;
• Identify the need for studying gender equality and poverty with economic
growth;
• Explain whether economic growth reduces poverty and gender inequality;
and
• Describe the linkages between inequality and poverty.
7.1 INTRODUCTION
Human beings have always endeavoured to improve their quality of life. The
advancements made in the field of science and technology, particularly during
past two centuries have impacted human life in the most unusually way. This
has helped societies achieve stupendous economic progress categorically in the
countries of the North America and Europe among others. Lately, economies
in Asia and Africa have also experienced economic growth and development
benefitting their people in multiple ways. However, the economic progress has not
been quite equitable. Certain sections of society, mainly due to social hierarchy,
have been able to reap greater benefits than others, eventually leading to economic
inequalities. People, relatively less equipped with good education, appropriate
training and relevant skill have not been able to contribute quantitatively and/
or qualitatively, and therefore, have remained economically poor. Historical
exploitation of certain sections of the society by the dominant and privileged
people has widened the gap between haves and have-nots and thrown the less
privileged into absolute poverty. M. K. Gandhi once said, “Poverty is the worst
form of violence.” 117
Issues in Indian Economy According to the World Bank, there were 736 million poor in the world in
2015. Sub-Saharan Africa and South Asian countries house around three-fourth
of the total poor population in the world. About half (368 million) of the total
poor in the world live in just 5 countries – India (24 per cent), Nigeria (12 per
cent), Democratic Republic of Congo (7 per cent), Ethiopia (4 per cent) and
Bangladesh (3 per cent). With sustained efforts of the World Bank, the United
Nations Development Program (UNDP), national governments and numerous
development agencies, the extent of absolute poverty globally has been steadily
falling. However, the Covid-19 led pandemic is likely to impact this trend in
poverty reduction in the vulnerable countries. Therefore, poverty elimination has
remained a major challenge right before the developing countries. In this unit,
you will learn the concept, measurment and the causes of poverty. Poverty and
inequality gender inequality and poverty allevation strategy are further discussed.
7.2 CONCEPT OF POVERTY

An individual, for a healthy living, needs certain basic goods such as food, water
and shelter. Expansion of the existing cities and continuous increase in population
has made it difficult for some sections of society to fulfill their fundamental
needs of life. Poverty is a state or a condition in which an individual, a family
or a community fails to possess the required material wealth. People living in
such situation are called poor. Poverty can be defined as a condition in which an
individual or household lacks the financial resources to afford certain minimum
standard of living.
World Bank provides an international definition of poverty – for the year 2022
it refers to an income of $1.90 dollar per day (in PPP terms). It means those
individuals, whose income is more than $1.90 per day are said to be living above
poverty line and those who earn less than one dollar a day are said to be living
below poverty line. According to the UNDP, “The way people experience poverty
goes beyond living on less than $1.90 a day. Poverty is not only about lacking
the means to make ends meet or pay the bills for basic services on time. Poverty
is multidimensional and encompasses much more than income.”
In recent years, there is a shift in the definition of poverty. The emphasis now is on
monitoring and addressing deficits in several dimensions; not just income. These
dimensions could be housing, education, health, environment and communication.
There is an increasing perception that poverty is multidimensional, although there
is a tendency to focus on human development outcomes such as health, education,
and nutrition when looking beyond income measures. Thus, the prime concern
with the material dimensions of poverty alone has expanded to encompass a more
holistic model of the components of well-being, including various non-material,
psycho-social and environmental dimensions.
Absolute Poverty
Any person not in a position to fulfill his basic needs of life is said to be living
in absolute poverty. It is a condition of extreme poverty for an individual person
or a family. Absolute poverty is poverty below a set line of what is required to
access minimum needs for survival. This type of poverty is usually inherited
by children from their poor parents so it can be chronic by nature. Households
living in poverty experience problems such as malnutrition, child labour, lack
of education, child marriage and disease. Poor people are moderately built in
their physique, inadequately fed with nutritive food, and likely to have high
infant mortality rate, high maternal mortality rate and low average life. Poverty
118 can be measured using poverty line. So, a family may be called Above Poverty
Line (APL) or Below Poverty Line (BPL) family. Literacy rate, life expectancy Poverty and Inequality
at birth, maternal mortality rate and infant mortality rate are very low in such
families. Quality of life of people is of sub-standard. People living in urban slums,
hutments and roadside makeshift arrangements are generally living in absolute
poverty. Poor countries from Asia, Africa and Latin America face the problem
of absolute poverty. Anti-poverty programmes are started by government from
time to time to eradicate this kind of poverty.
Relative Poverty
When distribution of wealth or national income is unevenly distributed among
different sections of society, some people are poorer compared to others. We
describe such situations as relative poverty. Thus relative poverty is a comparative
aspect of income distribution. Presence of relative poverty shows economic
inequality in the society. Inequality is measured by ‘Gini Coefficient’ and ‘Lorenzo
Curve’. A higher value of the Gini coefficient implies greater inequality. Literacy
rate, life expectancy at birth, maternal mortality rate and infant mortality rate
may not be very low in such families. Relative poverty is found everywhere, but
it is an economic problem found more in the developed countries. Quality of
life is not equal for all. Some people live a better quality of life than others. This
problem can be corrected to some extent if the government adopts fiscal measures
including high tax rates on income and expenditure of rich people.
Extent of Poverty in India
The United Nations estimated the number of poor in India to be 364 million in
2019, or 28 per cent of the population. According to a study of the Health Ministry,
Government of India, half of Indians above 45 years are either undernourished
or overweight. As mentioned earlier India has the highest number of poor in the
world. Around 68.8 per cent of the Indian population lives on less than US$ 2 a
day. Over 30 per cent even have less than US$ 1.25 per day available – they are
considered extremely poor. Poverty in India is deeply rooted and widely present
all over the country.
Poor are found principally working as agricultural labour in villages or as workers
in the unorganized sector in the towns and cities of India. The most underprivileged
sections of society, viz., Scheduled Castes (SCs) and Scheduled Tribes (STs) are
living in abject poverty. From the table, it is evident that the percentage share of
SC and ST people living below poverty line is much higher than other sections
of the society. Urban slums have become new places of dwellings for the poor
migrants from rural India. India is a country of mass poverty, i.e., numerous
people are homeless and jobless.
The first Millennium Development Goal (MDG) is to reduce extreme poverty.
Since the 2000s, India has made remarkable progress in reducing absolute poverty.
Between 2011 and 2015, more than 90 million people were lifted out of extreme
poverty. The economic slowdown triggered by the outbreak of Covid-19 pandemic
is expected to have a significant impact on poor and vulnerable households. The
following section, describes the important reasons behind poverty in India.
Self-assessment Exercise A
1) Define the concept of poverty.
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Issues in Indian Economy 2) What is meant by inequality?
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3) Distinguish between the concepts of absolute poverty and relative poverty.
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4) Discuss the extent of poverty in India.
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7.3 MEASUREMENT OF POVERTY IN INDIA

There are several methods of measurement of poverty. We discuss these methods
below.
Headcount Ratio
This is the simplest method of poverty measurement. We count the number of
poor persons in this method. Suppose in a locality, the population size is 1000. Out
of these, suppose 235 persons are poor. The percentage of poor in the locality is
H=235/1000×100=23.5
Thus, we can say that 23.5 per cent people in the locality are poor. A major
limitation of this approach is that it does not take into account the intensity of
poverty, that is, how severe is poverty among people.
Poverty Line
In India poverty was defined initially in terms of energy requirement to enable
a person lead an active and healthy life. The energy norm during the 1950s was
2900 kilo calorie (Kcal) per day for rural areas and 2400 kilo calorie per day for
urban areas. Based on this norm, it was estimated that Rs. 20 per person per month
(1961-62 prices) was required for a person in rural area. The corresponding figure
for urban areas was Rs. 25 per person per month. These figures defined the poverty
line. Thus, if a person in rural areas earned less than Rs. 20 per month (below Rs.
25 per month for urban areas), he was considered to be below the poverty line.
Later, during the 1980s, the calorie requirement was reduced to 2400 Kcal per day
for rural areas and 2100 Kcal for urban areas. Due to inflation in the economy, the
poverty line figures were revised to Rs. 49 per capita per month for rural areas
and Rs. 57 per capita per month for urban areas. The poverty line was estimated
on the basis of consumption requirements. It did not include other essential items
required for an active and healthy life.
During 2004-05, apart from energy requirement, five non-food items were also
taken into consideration for estimation of poverty line. Accordingly, poverty line
was defined as Rs. 720 per capita per month for rural areas Rs. 840 per capita per
120 month for urban areas. Such estimates of poverty line continued for many years.
Percentage of population below poverty line was also estimated on the basis of Poverty and Inequality
such poverty lines. The Planning Commission of India released the estimates of
persons below poverty line till 2011-12, after which the practice was discontinued.
Multidimensional Poverty Index (MPI)
Over time it was perceived that poverty is strongly linked with many other
economic and social variables. A poor person is deprived of not only food, but also
of education, health, housing and durable assets. Thus poverty is multidimensional
in nature. In order to measure poverty a comprehensive index is required, which
will measure deprivation of people from consumption of essential goods and
services. Such thoughts gave rise to the concept of Multidimensional Poverty
Index (MPI).
MPI was first released by the Oxford Poverty and Human Development Initiative
(OPHI) and the United Nations Development Programme (UNDP) in 2010.
Since then the OPHI has been bringing out MPI which gives the poverty index
for India as a whole. Recently, in 2021, the NITI Aayog has brought out the
baseline report on multidimensional poverty index in India. This report presents
the multidimensional poverty index for the states and union territories of India.
As per the MPI, there are three important dimensions of poverty: (i) Health, (ii)
Education and (iii) Standard of Living. Under the category ‘health’, we consider
nutrition, child mortality and antenatal care. Under the category ‘education’ we
consider years of schooling and school attendance. For determination of the
standard of living, we consider seven criteria: (i) cooking fuel, (ii) sanitation, (iii)
drinking water, (iv) electricity, (v) housing, (vi) assets, and (vii) bank account.
According to the MPI report, the percentage of poor in certain states is very
high in 2021. For example: Bihar (51.91%), Jharkhand (42.16%), Uttar Pradesh
(37.79%) and Madhya Pradesh (36.65%). On the other hand, certain states have
relatively low levels of poverty. For example: Kerala (0.71%), Goa (3.76%),
Sikkim (3.82%), Tamil Nadu (4.89%) and Punjab (5.59%).
7.4 CAUSES OF POVERTY

Several factors are responsible for the prevalence of poverty and inequality in
India. We discuss some of these factors below.
(i) Weak Asset Base: An individual in India is poor because he has a weak asset
base. He is born in a family that hardly owns an ancestral profitable farm
land and a big house or possesses previous metals or a professional degree.
The poor in India inherit poverty and debt. Exactly in the same way, wealth
of a family is passed on from one generation to another. The disadvantaged
groups receive very limited assets in inheritance. Therefore, we observe
rampant poverty among the disadvantaged groups.
Table 7.1: Poverty Ratio among Social Groups (2011-12)

Category Rural (in per cent) Urban (in per cent)
SC 31.5 21.7
ST 45.3 24.1
OBC 22.6 15.4
Others 15.5 8.2
Total Population 25.7 13.7
Source: Planning Commission of India 121
Issues in Indian Economy (ii) Social Factors: Indian society is hierarchical in nature. It is dominated
by caste system, discriminatory inheritance laws, and rigid traditions have
directly or indirectly aggravated the problem of poverty in the country. Caste-
based occupational reservation in India has discouraged people from learning
skill sets and venture into the labour market on the basis of efficiency. There
is discrimination against women in Indian society. Education of girl child
is an important factor in this context. Further, there is a need to change our
mindset, as certain families do not allow women to work outside.
(iii) High Population Growth : As per the Population Census of India, population
in India was around 36 crores in 1951 but increased to around 121 crores in
2011. India is the second most populous country in the world after China.
Population in India has increased over two per cent per annum during
the last half a decade. On an average, about 17 million people are added
every year to the population of the country. In 2011, population of India at
1210.8 millions, was almost equal to combined population of the United
States, Indonesia, Brazil, Pakistan, Bangladesh and Japan put together. The
population of India increased by more than 181 million during the decade
2001-11. The estimated population of India in 2022 is 135 crores.
High population growth has increased the burden on the natural resources.
Population growth increases demographic pressure on land, resulting into
fragmentation of landholding, and ‘disguised unemployment’. It leads to
reduced agricultural productivity and fall in income of farmers. Marginal
farmers, particularly with large family size, use traditional methods of
cultivation on their fragmented land holdings. Indian cities and towns
have neither been able to provide enough jobs nor a decent living for the
migrant workers. During 2001-11, certain states registered low population
growth (for example, Kerala, Andhra Pradesh, Odisha, West Bengal, Punjab
and Himachal Pradesh) while certain states (such as Bihar, Chhattisgarh,
Jharkhand, Rajasthan, Uttar Pradesh and Madhya Pradesh) recorded high
population growth rate.
(iv) Low Level Literacy: Illiteracy is a major cause of poverty. According to the
United Nations Children’s Fund (UNICEF), “About 25 per cent of children
in India have no access to education”. According to a study in the medical
journal The Lancet, “44.5 per cent of girls are still married in India before
they are of legal age”. The illiterate people – for not possessing relevant
skill and education – are trapped in a vicious cycle of poverty. The illiterate
people end up with petty jobs, usually employed in informal sector, and are
paid poorly. As per Census 2011, literacy rate at all India level was 72.98
per cent. There is a wide gap in the literacy rate for females (64.63 per cent)
and males (80.9 per cent). Education of the girl child again is the need of
the hour.
(v) Inflationary Pressure: High rate of inflation adversely affect the purchasing
power of people. The annual inflation rate in India has remained over 5
per cent. The lower economic stratum of people is hit hard when prices of
food grains, fuel and edible oil exceed the rise in income levels. They find
it difficult to get their minimum needs fulfilled. For example, India, after
Green Revolution, has become self-sufficient and self-reliant in food grain
production. The increase in food production however has not increased the
122 food availability for the poor in the country.
(vi) Unemployment: Indian economy has structural bottlenecks that hinder Poverty and Inequality
economic development. This results in structural unemployment, seasonal
unemployment as well as disguised unemployment. Half of India’s population
still depend on agriculture and allied activities for livelihood. Employment
opportunities are limited in urban areas as well. Non-agricultural sector
(industries and services) has not been able to absorb the unemployed people.
(vii) Lack of Investment: India is a capital scare and labour abundant country.
Lack of capital reduces the extent of investment. During the early years
after independence, the government used to invest heavily in key sectors
including minerals and metals, transport and communication, health and
education, among others. Unfortunately, Foreign Exchange Regulation
Act (FERA), Monopolistic and Restrictive Trade Practices (MRTP) Act,
Industrial Licensing and high tax regime kept the private sector from
participating in the industrial development of the country. So, whatever little
investment was seen in the country, it prioritized select industrial and/urban
clusters. Restricted or limited availability of credit/capital for investment
in industries discouraged entrepreneurship in the country. The shortage of
supply of capital made it difficult for production and reduced employment
opportunities in the private sector particularly for the poor.
(viii) Regional Imbalance: There is regional imbalance in distribution of income
and wealth in India. We observe disparities across states in per capita income
in India. Two major features are observed so far as regional disparities is
concerned. One, there is wide disparity across states in per capita income.
Sates such as Punjab, Haryana, Goa and Karnataka have very high per capita
income while states such as Bihar, Uttar Pradesh, Jharkhand, Manipur and
Madhya Pradesh have very low per capita income. Second, the gap between
rich and poor states is widening over time. While rich states are getting richer,
poor states are getting poorer.
The north-eastern states in India, popularly known as the Seven Sisters,
despite being endowed with abundant natural resources, do not contribute
much to the GDP of the country. States such as Chhattisgarh, Jharkhand,
Odisha, Madhya Pradesh and Rajasthan are rich in minerals and metals,
but due to lack of conducive business environment, many people migrate
to other states in search of jobs.
(ix) Populist Measures: Political parties have learnt the skill of pursuing populist
policy measures so as to create vote banks. Provision of subsidies eats
away a substantial portion of our budgets. Free electricity to farmers and all
households in certain states are major heads of expenditure. In the process
there is little resources left for investment in capital formation. If productive
capacity of the economy does not increase, employment generation and
output growth will be slower. Such populist measures are not always meant
to reduce poverty.
Self-assessment Exercise B
1) Describe the major causes of poverty in India.
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Issues in Indian Economy 2) Why is inflation an important cause of poverty in India?
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3) Comment on the statement that high population growth and illiteracy are
the main causes of poverty in India.
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7.5 POVERTY AND INEQUALITY

Inequality needs to be distinguished from poverty. Inequality refers to the degree
of dispersion in the distribution of assets, income or consumption. Inequality
shows the classification of people into economically well off class, middle class
and poor class. It shows whether assets of the country are fairly distributed or not.
Poverty, on the other hand, refers to assets, income or consumption of those at
the bottom of the distribution. Poverty could be conceptualised in relative terms
or in absolute terms. Inequality indicates power balance in the society.
Since industrial revolution, there has been tremendous growth achieved by
countries across the world. With passage of time, the role of state has significantly
changed. The modern states –particularly those practicing democracy – have
become welfare states. However, there is widespread concern that economic
growth has not been fairly shared, and that the economic crisis has only widened
the gap between rich and poor. For instance, during the post-independence period,
the distribution of agricultural land is highly skewed in favour of the so called
upper castes of the Indian society while the farmers of the SC and ST communities
are either small and marginal farmers or landless labourers. Concentration
of economic power in India has been skewed and in favour of the trading or
business communities, interestingly these communities are predominantly non-
SC and non-ST castes. There exists relationship between inequality and poverty
described below.
Inequality and poverty are linked with each other.
a) In poor countries, there exists a wide difference between health and education
parameters of the rich and the poor. India’s pharmaceutical industry is
one of the largest in the world. However, due to their inability to pay for
medical treatment, the poor have very high infant mortality rate and maternal
mortality rate.
b) Gender-based discrimination is rampant and gender inequalities are much
deeper in poor countries compared to developed and rich countries. The
asset ownership among women in rural India is very low compared to men.
c) There exist major differences in job quality, wage rate and extent of economic
security of workers in advanced countries and in their counterparts in Asia,
Africa and Latin America. Despite implementation of important labour laws,
exploitation of labour has continued leading to persistent inequalities.
Poverty is related to non-availability of resources for a household. Poverty is seen
124 in people whose income and/or asset base is so low that it is difficult to maintain
certain quality of life. Inequality refers to disparities among people based on Poverty and Inequality
income, wealth, education, health, nutrition, living space, and social indicators.
Poor people are unable to fulfill their basic needs such as food, health facilities,
education and shelter. Poverty leads to capability deprivation; that means poor
people are not capable of doing certain activities at par with others. Poor do not
have access to quality education, as a result of which they have low employment
opportunities. Poor people do not have access to health services, as a result of
which their productivity is low. Inequalities are ‘fundamentally about relational
disparities, denial of fair and equivalent enjoyment of rights, and the persistence
of arbitrary discrepancies in the worth, status, dignity and freedoms of different
people’ (UNICEF & UN Women, 2013). Inequality can exist in a variety of
different spheres such as income, wealth, education, health and nutrition.
Inequality is can be of two types: (i) vertical inequality, and (ii) horizontal
inequality. Vertical inequality refers to the inequality among individuals
and households (for example, inequality among households in income or
consumption). Horizontal inequality refers to inequality among groups of
individuals who share a common identity. Thus inequality is not due differences
in intelligence or skill among people. Horizontal inequality could be due social
dimensions such as gender, disability, race, ethnicity, caste, religion or language.
As you may have observed, there is a strong linkage between poverty and caste in
India. Further, there are discriminations in society in the sense that some groups
of people not have access to certain facilities (for example, in rural areas). These
socially excluded groups often suffer from spatial inequalities as they tend to be
concentrated in disadvantaged locations.
7.6 GENDER EQUALITY, POVERTY AND

ECONOMIC GROWTH
Economic growth should ideally reduce gender inequalities and the extent of
extreme poverty. In India, too, the monumental progress made in all spheres
of life during post-economic reforms, have been accompanied by increased
participation of women in economic activities and reduction in the extent of
the most brutal forms of poverty. Gender inequalities are systematically greater
in poor countries than in rich countries. The reasons behind wider gender gaps
are more structural and/or systemic. For instance, the systems of patrilineality
(inheritance through male descendants) and patrilocality (married couples living
with or near the husband’s parents) play a central role in perpetuating gender
inequality in India’s male dominated society.
7.6.1 Poverty and Economic Growth
Economic growth is a result of the increase in investment leading to greater
employment opportunities and expansion of the GDP of the economy. Higher
economic growth benefits the society at large. It is important to note here that
economic growth has an impact on poverty and inequality. Higher economic
growth, however, may lead to reduction in the extent of poverty but it may not
necessarily reduce the extent of economic inequality. The reason is that faster
economic growth increases earnings of well-educated, well-trained people and
those who have better access to resources and opportunities. The poorer sections
of society however are not fortunate enough in this regard; their earnings may not
increase at the same pace the economy is growing. Therefore, the gap between the
rich and the poor is widening. In this regard, appropriate policy measures are very
important. In order to reduce inequality, a just and more equitable redistribution 125
Issues in Indian Economy of national income and factor rewards need to be a part of the policy. If economic
inequality persists, or accentuates over time, then there is always a high probability
of recurrence of poverty for the low income groups.
Globalization has transformed the way businesses operate. Opening up of the
Indian economy has led to increased exposure of the country to the rest of the
world. This has expanded the size of the market and led to higher level of output.
India now ranks among the fastest growing economies of the world.
You should note that higher economic growth is not the only objective for any
economic policy. Benefits of economic growth should percolate down to all
sections of society including the lower strata. In developing countries including
India, the poor strive hard to fulfil their minimum consumption needs of food and
non-food items. Therefore, the government has been continuously increasing its
expenditure on social sectors such as health, education, sanitation, etc.
7.6.2 Gender Equality and Economic Growth
Gender-based discrimination is defined as the difference in opportunities and
rewards available to people solely on the basis of gender. It is a social process by
which men and women are not treated equally. There can be numerous cases of
gender inequality practiced in India. For the same nature and quantum of work,
there is unequal payment of wages for men and women. Ownership of assets is
usually in the name of the male members of the family. A woman’s viewpoint is
not considered as important on critical issues in the family.
In many developed countries there is greater equality between men and women.
Women in the industrially developed countries are mostly educationally qualified,
economically secure and socially empowered. The developed countries rank high
on the Gender Development Index (GDI). In developing countries, on the other
hand, women are not privileged enough. Despite higher economic growth, gender
inequality continues in Third World countries.
Women in India are discriminated both at home and outside. According to the
UNICEF, “India is the only large country where more girls die than boys and
school dropout rate is higher among girls compared to boys”. Crime against women
is rampant in India. A survey conducted by the Thomson Reuters Foundation
has ranked India as the world's most dangerous country for women, ahead of
Afghanistan, Syria and Saudi Arabia. Equal representation of women in the state
legislative assemblies and India Parliament is far from near. For instance, there are
78 women members of parliament (14 per cent), the highest since independence.
As per the Human Development Report 2020, the gender development index
(GDI) value of India is 0.820, with the GDI value for females at 0.573 and that
for males at 0.699. This indicates the sharp contrast in empowerment between
men and women. In this measure, India is behind Bangladesh, with a GDI value
of 0.904, while it stayed ahead of Pakistan (0.745). The average GDI for the
South Asian region stood at 0.824, while that for medium HDI countries was
0.835, with India’s value being lower than both.
Despite rapid economic growth, the growth of microcredit programme and self-
help groups, and laudable efforts to increase women’s political participation,
gender disparities have remained deep and persistent in India. Gender inequality
prevails in all sectors of the economy such as education, health, politics, and
business among others. The UN Gender Inequality Index has ranked India below
several Sub-Saharan African countries. Women participation in non-agricultural
and white collar economic activities has increased in recent times. However, the
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number of women in power hierarchy in business enterprises is far less than men. Poverty and Inequality
India ranks 136th among 144 countries in women’s labour force participation rate
and the situation is worsening over time (Economic Survey 2017-18). For the
same work, males are paid higher wages compared to females particularly in the
unorganized sector. Despite recent economic advances, India’s gender balance
for entrepreneurship remains among the lowest in the world. The labour market
participation of women in economic activity in India stood at 76.1 per cent for
males and at 20.5 per cent for females. The Human Development Report 2020
estimated gross national income per capita for males as $10,702 and for females
as $2,331.
Women empowerment and economic development are closely related. There
is two-way relationship between economic development and gender equality.
While economic development can play a major role in reducing gender inequality,
empowering women will lead to faster economic development. According
some studies, gender inequality in labour market earnings often implies power
asymmetries within the household, with men having more bargaining power than
women. Despite the sharp increase in investment, output and exports in India,
women in general and from the disadvantaged sections in particular, are the most
discriminated. India’s economic power would be greatly enhanced if women are
given proper healthcare, education, and economic opportunities.
7.7 POVERTY ALLEVIATION STRATEGY IN INDIA

The government of India has made concerted efforts to reduce the extent of
poverty. In this initiative, we observe certain policy shifts over time. There have
been at least three policy shifts in the past.
(i) Trickle-Down Theory: During the 1950s and 1960s it was believed that
economic growth will take care of poverty and inequality. When economic
growth takes place, the benefits percolate downwards. Income of people
increase. Thus, there will be an increase in the income of poor households
also. With an increase in income, poor households will be able to elevate
themselves above the poverty line. Thus the objective of the government
was to achieve higher economic growth.
The trickle-down theory however was not found to have a positive effect
on poor households. The benefit of economic growth was cornered by the
rich sections of society. Poor households continued to remain poor, while
economic inequality increased in the country (as the rich became richer).
Such developments compelled the government to change its strategy
regarding poverty alleviation.
(ii) Public Distribution System: The failure of the trickle-down approach led the
government to make special provisions for the poor households. During the
1970s the ‘Public Distribution System (PDS)’ was strengthened. The PDS
served two purposes – it procured food grains from farmers during harvest
season. During the harvest season the price of agricultural commodities
decreases sharply due to excess supply. Government purchase of food grains
helped in maintaining remunerative prices in the market. This benefitted the
farmers. The procured food grains were sold to poor households at subsidized
prices. Thus poor households could obtain essential commodities such as
rice, wheat, sugar and oil at a cheaper price. Procurement of food grains
continues these days also.
127
Issues in Indian Economy (iii) Direct Attack on Poverty: During the 1980s the government extended cheaper
credit to poor households. Not only the rate of interest was very low on the
loans extended to poor households, there was a substantial amount of subsidy
on repayment of the principal amount. The objective of the programmes
was to provide self-employment to poor households. It was envisaged that
poor households would carry out small business, goat-rearing, milk cow,
weaving, etc. with the help of the credit given to them.
Self-employment programmes for poor households, however, did not succeed
as there was a lack of entrepreneurial skill among the poor. The beneficiaries
could not manage the activities. Income generated from such activities was
also very low, as a result of which the beneficiaries could not repay the loan.
This called for a new strategy for poverty alleviation.
(iv) Wage Employment Programmes: With the failure of self-employment
programmes, the government continued with the employment generation
schemes during the 1990s. The focus was on creation of infrastructure and
community assets (such as road, houses, water reservoir, etc.) which would
generate additional wage employment for people. Many small projects were
completed under such schemes. There were doubts on the quality of the
assets created under such schemes. There were also complaints of workers
not getting their wages.
The wage employment generation approach has continued under different
nomenclature. Employment generation under the Mahatma Gandhi National
Rural Employment Guarantee Act (MGNREGA) is one such measure. In
order to remove the irregularities in payments, government has emphasized
on financial inclusion and direct benefit transfer to poor households. Under
the MGNREGA, there is assured wage employment up to 100 days in a year
for each household.
(v) Social Security Measures: Apart from employment generation, the
government has made provisions of certain social security measures that
supplement the income of poor households. There is provision for subsidized
food, subsidized cooking gas, subsidized housing, pension for the aged and
widows, health insurance, etc. under various schemes.
Self-assessment Exercise C
1) Do you think, high economic growth can reduce poverty but not inequality?
........................................................................................................................
........................................................................................................................
........................................................................................................................
2) India has made remarkable economic progress but poverty continues to
prevail. Explain.
........................................................................................................................
........................................................................................................................
........................................................................................................................
3) Discuss the various measures taken by the government for alleviation of
poverty.
128 ........................................................................................................................
........................................................................................................................ Poverty and Inequality
........................................................................................................................
4) Gender empowerment may help India achieve higher economic growth.
Comment.
........................................................................................................................
........................................................................................................................
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7.8 LET US SUM UP

The advancements made in the field of science and technology, particularly
during the past couple of centuries have impacted human life in the most
favourable manner. The economic progress made by mankind has not been quite
equitable. Certain sections of society, due to prevalence of unequal privileges
among individuals, have been able to economically benefit more than others.
Such unequal benefits eventually have led to poverty and inequalities. The
disadvantaged sections of society have remained economically poor.
Poverty is of two types: absolute poverty and relative poverty. A person not in
a position to fulfil his basic needs of life is said to be living in absolute poverty.
When distribution of wealth or national income is unevenly distributed among
households, we can say that there is relative poverty among the poorer households.
The United Nations estimated the number of poor in India to be 364 million in
2019, or 28 per cent of the population. Poverty in India is deeply rooted and
widespread.
There are many reasons behind poverty in India such as weak asset base, unequal
distribution of national income, high population growth, populist policy measures,
inflationary pressure, illiteracy, and lack of investments. Poverty is related to
non-availability of resources for an individual or a family. Inequality refers to
disparities and discrepancies among people based on income, wealth, education,
health, nutrition, space, politics and social identity among others.
Gender inequalities are systematically greater in poor countries than in rich
countries. The reasons behind wider gender gaps are more structural and/or
systemic.
The developed countries rank high on the Gender Development Index (GDI).
Women of the Global South –that included India- are not privileged enough.
Despite notable economic progress made by India in various fields, gender
inequality has not reduced as desired.
Concentration of economic power in India has been skewed and in favour
of the trading or business communities, interestingly these communities are
predominantly non-SC and non-ST castes.
7.9 KEY WORDS

Poverty: Poverty is the inability of a person to get the minimum consumption
requirements for life, health and efficiency. It can be absolute or relative in nature.
Absolute Poverty: When poverty is measured in the context of per capita
intake of calories and minimum level of per capita consumption expenditure, it
is absolute poverty.
129
Issues in Indian Economy Relative Poverty: When we compare per capita income of different households
or regions, it indicates relative poverty.
Poverty Line: The line which indicates the level of purchasing power required
to satisfy the minimum needs of a person for life, health and efficiency, is called
poverty line. It divides population in terms of ‘poor’ and ‘not poor’.
Inclusive Growth: It means extending the benefits of growth to all sections of
society including small farmers, landless laborers, downtrodden people, etc.
Below the Poverty Line (BPL): Those people who do not have required minimum
purchasing power are considered BPL.
Basic Needs: An individual for a healthy living needs certain basic necessities
of life which include food, water and shelter.
Inequality: The state of not being equal, especially in status, rights and
opportunities.
Gender Inequality: Gender inequality is defined as the prevalence of different
opportunities solely on basis of gender.
Developing Countries: All those countries that are industrially backward and
they rank low on the human development index (HDI), gender development index
(GDI) and other important parameters of well-being of people.
Economic Growth: It refers to the increase in the aggregate output of an economy
compared to the previous year.
7.10 TERMINAL QUESTIONS

Short questions:
1. Distinguish between relative poverty and absolute poverty.
2. Define the concept of inequality.
3. What is meant by gender inequality?
Essay type of questions:
1. What is meant by poverty line? Define the term ‘poverty’ in India.
2. Discuss the measures adopted by the government to reduce poverty in India.
3. Discuss the causes of poverty in developing countries like India.
4. Describe the various measures taken by government for welfare of the poor
and socially disadvantaged groups.
5. Bring out the important causes of poverty.
6. Do you agree that higher economic growth can reduce the extent of poverty?
Substantiate your answer.
7. Describe the linkage between poverty and inequality.
8. Does economic growth always bring in gender equality? Discuss your answer
keeping India in mind.
FURTHER READINGS
The following textbooks and online resources can be referred for further in-depth
reading on the topics discussed in this unit.
130
Deaton and Kozel. The Great Indian Poverty Debate, Laxmi Publications, 1 Poverty and Inequality
January 2006
Martin Ravallion. The Debate on Globalization, Poverty, and Inequality: Why
Measurement Matters, Policy Research Working Papers, April, 2003.
Nilakantha Rath and V M Dandekar. Poverty in India, Economic and Political
Weekly, Vol. 6, Issue No. 2, 09 January, 1971
Amartya Sen. Poverty and Inequality, Stanford University Press, 2006
Jonathan Haughton, Shahidur R. Khandker. Handbook on Poverty + Inequality,
World Bank Publications, 27 March, 2009
Abhijit Banerjee and Esther Duflo. Poor Economics: A Radical Rethinking of
the Way to Fight Global Poverty, 26 April 2011
Paul Collier. The Bottom Billion: Why the Poorest Countries are Failing and
What Can be Done About it, Oxford University Press, 31 August 2012
Gary S. Fields. Poverty, Inequality, and Development, Cambridge University
Press, October 2009,
P. Sainath. Everybody Loves a Good Drought: Stories from India’s Poorest
Districts, Penguin Books, 14 October 2000
Online references:
https://www.drishtiias.com/to-the-points/paper3/poverty-estimation-in-india
World Bank publication. Poverty and Shared Prosperity 2020: Reversals
of Fortune,https://www.worldbank.org/en/publication/poverty-and-shared-
prosperity
Amitabh Kundu and P. C. Mohanan. Employment and Inequality Outcomes in
India. https://www.oecd.org/employment/emp/42546020.pdf
Note: These questions/ exercise will help you understand the unit
better. Try to write answers of these questions, but do not submit
your answers to the University for assessment. These questions are
for your practice only.
131
UNIT 8 UNEMPLOYMENT IN INDIA
Structure
Objectives
8.1 Introduction
8.2 Types of Unemployment
8.3 Nature and Extent of Unemployment in India
8.4 Causes of Unemployment
8.5 Consequences of Unemployment
8.6 Policy Initiatives for Employment Generation in India
8.7 Let Us Sum Up
8.8 Key Words
8.0 OBJECTIVES
● Explain the concept of unemployment;
● Describe the types of unemployment;
● Discuss the causes and consequences of unemployment in India;
● Suggest remedial measures for unemployment; and
● Highlight the policy measures for employment generation and labour reforms.
8.1 INTRODUCTION
Unemployment is a situation where a person is willing to work at the ongoing
wage rate, but does not find work. In other words, if a person is able to work
and willing to work, but does not get work at the prevailing wage rate, he is
considered as unemployed.
Classical economists held that there is always full employment in the economy.
Their viewpoint however was proved wrong during the ‘Great Depression’ of
1929-33. Famous economist J M Keynes explained the concept of depression and
associated it with unemployment in his book “The General Theory of Employment
Interest and Money”, which was published in 1936. Keynes also suggested
remedial measures for controlling depression as well as unemployment. Hence
the problem of unemployment gained importance only after the Great Depression.
Unemployment is one of the major problems in India. Unemployment is not only
a social stigma for a person; it leads to wastage of human resources, poverty,
inequality and ill-health. The nature of unemployment in India is different from
that in the developed countries. In developing countries unemployment exists
mainly due to the lack of capital. Capital deficiency does not permit various
economic sectors to expand and generate jobs. In this Unit, will learner the
nature, extant, causes and conseqmences of unemployment the policy initiatives
for employment generation has been further eleborated.
132
Unemployment in India
8.2 TYPES OF UNEMPLOYMENT
It is relevant to distinguish between two concepts: ‘voluntary unemployment’
and ‘involuntary unemployment’. If a person does not want to work or wants
wage which is higher than the current market rate, he will be called ‘voluntarily
unemployed’. Such unemployment is not an economist’s concern and nothing can
be done about it. The other type of unemployment is ‘involuntary unemployment’;
the person is willing to work, but cannot find work at existing wage rate. In
economics, unemployment means involuntary unemployment alone.
Apart from the two types of unemployment mentioned above (voluntary
unemployment and involuntary unemployment), there are some other forms of
unemployment.
(i) Cyclical Unemployment: Cyclical unemployment is caused by business
cycles and hence it is called cyclical unemployment. During the depression
phase of the business cycle, effective demand falls leading to accumulation
of inventories. Consequently, large scale retrenchment takes place and
unemployment is there. It is called deflationary unemployment also.
However, this sort of unemployment automatically disappears once the
depression phase of business cycle ends and economic recovery starts.
(ii) Frictional Unemployment: Frictional unemployment exists when job
opportunities are enough but labour is unemployed. This happens due to
frictions in the economy. There could be lack of information about job
availability, immobility of workers from one place to another, lack of desired
skill on the part of unemployed workers. There could be shortage of raw
materials, breakdown of machinery and power crisis due to which there
is under-utilization of production capacity. This type of unemployment is
temporary in nature.
(iii) Seasonal Unemployment: Seasonal unemployment, as the name suggests, is
a seasonal phenomenon. It is associated with activities carried out in certain
seasons only. Such unemployment is very common in agriculture; there is
a lean season after harvest. It can also be found in seasonal industries like
ice making, sugarcane crushing, etc.
(iv) Structural Unemployment: Structural unemployment is caused by certain
bottlenecks in the very structure of the economy. These bottlenecks could be
lack the capital, backward socio-economic framework, too much dependency
on agriculture, and very high population growth.
Sometimes structural unemployment arises due to structural changes in the
economy. Due to structural changes, some sectors grow faster than others.
Further, there is a change in production technology in the economy also.
For example: introduction of electric vehicles in India. This will lead to
the demand for an altogether different type of repair services for electric
vehicles and the existing lot of mechanics will be unemployed unless they
are re-skilled.
(v) Disguised Unemployment: Disguised unemployment occurs when laborers
are employed, but their contribution to output is zero. It implies that the
marginal productivity of labour is zero. This type of unemployment is
quite common in agricultural sector of most over-populated poor countries.
Disguised unemployment can be explained with the help of Fig. 8.1.
133
Fig. 8.1: Disguised Unemployment

In Fig. 8.1, we measure labour on the x-axis and output on the y-axis. The curve
OAB is the total output curve. When we increase the labour input, there is an
increase in output. When labour employed is OL1, output produced is OQ1.
You should notice that output increases till labour input employed is OL2. The
maximum output is OL2. When labour input employed is greater than OL2, there
is no increase in output. In Indian agriculture, family labour is widely used. They
get engaged in work, but their contribution to output is negligible.
In Fig. 8.1, the segment L2L3 refers to disguised unemployment. If we withdraw
L2L3 quantity of labour, output does not decline and remains unchanged at OQ2.
It shows that L2L3 labour has zero marginal productivity.
8.3 NATURE AND EXTENT OF UNEMPLOYMENT

IN INDIA
In developed countries there is cyclical unemployment is very much prevalent
due to presence of business cycles. According to Keynes, the main cause of this
type of employment is low effective demand. But in India, as in many other less
developed countries, there exists chronic unemployment. Unemployment in India
for rural and urban areas is of different types. We present the typology of rural
and urban unemployment in India in Fig. 8.2.
Fig. 8.2: Types of Unemployment in Rural and Urban India

Rural Unemployment Scenario
Unemployment is caused by many factors such as over population, low skill
level, failure of planning, defective education system, slow economic growth,
134 and lack of capital.
Majority of India lives in villages. The following are the three main forms Unemployment in India
of unemployment in rural India: (a) Seasonal unemployment (b) Disguised
unemployment (c) Chronic unemployment. We have discussed the characteristics
of unemployment in the previous section. We discuss below certain characteristics
of unemployment in India.
a) Seasonal Unemployment: Agriculture is the main source of employment
in villages. As you know, agriculture is a seasonal occupation. Agricultural
labourer and farmers remain relatively free during certain months when
cultivation is not going on. During this time there are no supplementary
employment opportunities.
b) Disguised Unemployment: Disguised unemployment is widely prevalent in
rural India. Disguised unemployment takes place as there is no training of the
rural labour for non-agricultural occupations. The growing rural population
keeps on depending upon the same land area, as frequently witnessed in
agricultural joint families. It has been estimated that the extent of disguised
unemployment in Indian agriculture is to the extent of 22 per cent.
c) Chronic Unemployment: The workforce keeps on growing but employment
opportunities in rural areas remain limited. Consequently,, the number of
unemployed keeps in increasing. There is chronic unemployment, especially
among the landless agricultural workers.
Urban Unemployment Scenario
In addition to the residents of urban areas, many people migrate to urban areas in
search of jobs. Thus, the unemployment situation in urban areas is severe. Urban
unemployment has three prominent features: (i) There are thousands of educated
youth who are unemployed. This could be because of the flaws in our education
system. In many cases, the current education system does not impart requisite
skill required by industrial and services sectors. (ii) There is under-employment
in society in the sense that people do not get work for all days. Available jobs in
the industrial and services sector are not regular. (iii) Further, jobs available are
not according to the merit or qualification of job seekers. Many persons therefore
are under-paid.
Measurement of Unemployment in India
You may have come across two concepts: labour force and work force. ‘Labour
force’ includes all persons in the age group of 15 years and above who are willing
to work. Thus it includes both employed and unemployed persons. The persons
not included in the labour force are those who are retired, too ill to work, keeping
the house, or simply not looking for work. ‘Work force’ is somewhat narrower
– it includes the employed persons only. Thus the difference between the labour
force and the work force gives us the number of unemployed.
By employed persons we mean those who perform any paid work (thus
homemakers are not included) and those who have jobs. On the other hand, the
unemployed as a category includes people who are not employed but are actively
looking for work. While considering unemployment we do not take into account
those who are not in the labour force. We define unemployment rate as the number
of unemployed divided by the total labour force.
Measurement of unemployment has been a complex issue. All workers do not
have a regular salaried job; many workers search for jobs on a day to day basis.
Suppose, for example, someone worked for one day only in the last week. Should
we count him as employed? 135
Issues in Indian Economy In India, the National Statistical Office (NSO) (earlier known as National
Sample Survey Organisation - NSSO) has been conducting employment and
unemployment survey (EUS) every five years since 1972-73. The EUS measures
unemployment on the basis of four status: (i) the Usual Status (US); (ii) the
Usual Principal and Subsidiary Status (UPSS); (iii) the Current Weekly Status
(CWS); and (iv) the Current Daily Status (CDS). For the Usual Status (US) and
the Usual Principal and Subsidiary Status (UPSS), the reference period is one
year. The UPSS refers to the usual principal activity and the subsidiary activity
status of a person. The objective of UPSS is to assess the long term employment
status of a person. On the other hand, the objective of the CWS and is to assess
employment from a short term perspective. In the CWS approach, a person is
considered unemployed if (s)he did not get work even for one hour on any day
in the past one week.
The National Statistical office (NSO) of India started the Periodic Labour Force
Survey (PLFS) on a quarterly basis since April 2017. It considers current weekly
status (CWS) for estimation of unemployment rate. The PLFS gives data on
Labour Force Participation Rate, Worker Population Ratio, and Unemployment
Rate for different age groups. As of date, data is available for the period up to
January-March 2021.
Extent of Unemployment in India
There is a rise in the number of unemployed persons in India over the years,
despite rapid economic growth achieved by the country. It indicates a situation
of jobless growth, where production technology is becoming more and more
capital-intensive.
We present the number of unemployed persons and the number of jobs created
during various five year plans in Table 8.1. We observe from the table that during
the first five year plan the number of unemployed was 3.3 millions. The number of
new job seekers was 9 million, taking the total to 12.3 millions. During the Plan,
7 million new jobs were created. As a result, the number of unemployed increased
by the end of the first five year plan to 5.3 million. The number of unemployed
continued increasing in the subsequent five year plans. It was estimated that
9.2 million persons were unemployed at the beginning of Seventh Plan. It was
expected that this number would decline to 8.22 million by the end of the seventh
plan, but it did not decline. A similar feature continued in the subsequent five
year plans also.
Another set of data available from employment exchange records also point
out a similar trend – the number of unemployed in India has increased over the
years. Estimated number of unemployed persons as available from employment
exchange records is presented in Table 8.2. We observe that 17.84 million persons
were registered as unemployed in 1981, which increased to near 43.50 million
in 2016-17. The number is rising very quickly due to jobless growth of Indian
economy. Its projection for 2017-18 was 17.80 million.
136
Table 8.1: Estimates /Extent of Employment and Unemployment in the Unemployment in India
Five Year Plans (in Millions)
Plan/ Particulars First Second Third Fourth Fifth Sixth Seventh Eighth Ninth Tenth Eleventh
(1951- (1956-61) (1961- (1969- (1974- (1980- (1985-90) (1992- (1997- (2002- (2007-
56) 66) 74) 79) 85) 97) 02) 07) 12)
1. No. of 3.3 5.3 7.1 12.6 14.0 12 9.2 23 18.0 34.85 21.5
unemployed at
the beginning of
Plan
2. New job seekers 9.0 11.8 17.0 20.2 22.0 34 39.38 35 405.4 378.65 432.02
during the plan
period
3. The total number 12.3 17.1 24.1 33.0 36.0 46 48.58 58 423.4 413.50 453.52
of unemployed
(1+2)
4. Additional job 7.0 10.0 14.51 19.0 15.4 36.8 40.36 40 416.4 392.20 451.53
created during the
Plan
5. No. of 5.3 7.1 9.6 14.0 20.6 9.2 8.22 18 7.0 21.5 1.99
unemployed at
the end of the
Plan
Source: Economic Survey 2015-16 and Five Year Plan Documents

Table 8.2: Number of Unemployed as per Employment Exchange Records
Year Registered Unemployed
April 1981 17.84
April 1982 19.75
April 1983 14.83
April 1984 23.55
April 1985 26.27
April 1986 30.13
April 1987 30.36
Nov 1992 36.77
Aug 1993 36.49
Aug 1994 36.78
April 1997 30.00
April 1998 40.00
2016-17 43.50
Source: Tenth Five Year Plan document and various issues of Economic Survey.
Another source of data on unemployment among educated youth is the

employment exchange records. According these records also, there is an increase
in the number of unemployed in India over the years. We observe from Table
8.2 that 17.84 million persons were registered as unemployed in 1981, which
increased to about 43.50 million in 2016-17. The number of unemployed in India
has increased very fast over the years. Table 8.2 shows the unemployment and
unemployment figures for different years.
Table 8.3: Employment and Unemployment Scenario in India
Variable Unit/ Year 1999-2000 2001-02 2006-07 2016-17 (P)
Labour Force Million 363.33 378.21 413.50 524.10
Employment Million 336.75 343.36 392.35 518.20
Unemployment per cent 7.32 9.21 5.11 5.6
No. of Unemployed Million 26.58 34.85 21.5 5.8
Source: Tenth and Eleventh Five Year Plan Documents, and Economic Survey 2016-17 137
Issues in Indian Economy As mentioned earlier, the PLFS started in 2017-18 and quarterly data on
unemployment rate is available since then on a regular basis. As per the PLFS
data, unemployment rate in India in the age group 15 years and above was 8.8
per cent in 2019-20 according to current weekly status (CWS) and 4.8 per cent
according to usual status.
Table 8.4: Unemployment Rates in Recent Years according to PLFS
(in per cent)
Status 2019-20 2018-19 2017-18
male female person male female person male female person
Rural
Usual status 4.5 2.6 4.0 5.6 3.5 5.0 5.8 3.8 5.3
CWS 8.7 5.5 7.9 8.7 7.3 8.4 8.8 7.7 8.5
Urban
Usual status 6.4 8.9 7.0 7.1 9.9 7.7 7.7 10.8 7.8
CWS 10.6 12.4 11.0 8.9 12.1 9.5 8.8 12.8 9.6
All-India
Usual status 5.1 4.2 4.8 6.0 5.2 5.8 6.2 5.7 6.1
CWS 9.3 7.3 8.8 8.8 8.7 8.8 8.8 9.1 8.9
Source: Periodic Labour Force Survey (Annual Report, July 2021), NSO
1) Define the concept of unemployment.
........................................................................................................................
........................................................................................................................
........................................................................................................................
2) Distinguish between the concepts of seasonal unemployment and disguised
unemployment.
........................................................................................................................
........................................................................................................................
........................................................................................................................
3) Distinguish between labor force and work force.
........................................................................................................................
........................................................................................................................
........................................................................................................................
4) Describe in brief the extent of unemployment in India.
........................................................................................................................
........................................................................................................................
........................................................................................................................
8.4 CAUSES OF UNEMPLOYMENT

Now let us discuss the important causes of persisting unemployment in India.
138 (i) Rapid Growth of Population: Population of India has been growing rapidly
since 1951. Death rate declined due to availability of medicines and healthcare Unemployment in India
but birth rate did not decline. Thus, population growth rate accelerated after
1950. During the 1960-1990 population growth was more than 2 per cent
per annum. While population growth rate has somewhat declined in recent
years, it continues to be very high some states of India. Accordingly, size
of the labour force is increasing while employment opportunities are not
increasing at the same pace. So unemployment is increasing over the years.
(ii) Low Economic Growth: Up to the fourth Five Year Plan (1951-74), growth
rate of the Indian economy was very low. Low economic growth (see table
8.4) rate is mainly responsible for unemployment in India as job opportunities
did not expand adequately. In recent years, since 2015-16, economic growth
rate has slowed down.
Table 8.4: Economic Growth Rate in Various Plan Periods
Five Year Plan/Year Average Annual Rate of Growth at
2004-05 Prices
April 1981 17.84
April 1982 19.75
April 1983 14.83
April 1984 23.55
April 1985 26.27
April 1986 30.13
April 1987 30.36
Nov 1992 36.77
Aug 1993 36.49
Aug 1994 36.78
April 1997 30.00
April 1998 40.00
2016-17 43.50
Source: Economic Survey 2015-16 and 2018-19.

(iii) Failure of Planning: Planning started in 1951. There is no doubt that India
has made progress during the plan period, yet all sections of society could
not gain from it. The rich became richer while the poor became poorer. Thus
economic growth was accompanied by increasing inequality in the country.
This was a major weakness of our planning. In addition, not much attention
was paid towards the problem of unemployment in the beginning. Planning
could not create as many jobs as the number of job seekers.
(iv) Neglect of Agriculture: Majority of population in India depend on
agriculture. However, agriculture was not paid much attention during various
five year plans. Comparatively less expenditure was made on this sector (see
Table 8.5), as a result of which agriculture could not develop fully. Neglect
of agriculture too is a cause of rural unemployment in India.
Table 8.5 shows that the share of agriculture in plan outlay has varied between
18 per cent and 25 per cent (except the First Plan). This share is much smaller
than the share of the agricultural sector in national income and employment.
139
Issues in Indian Economy Table 8.5: Share of Agriculture in Total Expenditure
Five Year Plan Percentage Share in Total
Expenditure
First (1951-56) 37.00
Second (1956-61) 20.90
Third (1961-66) 20.60
Fourth (1969-74) 23.30
Fifth (1974-79) 20.50
Sixth (1980-85) 25.40
Seventh (1985-90) 21.00
Eighth (1992-97) 22.15
Ninth (2002-07) 20.10
Tenth (2007-12) 19.80
Eleventh (2007-12) 18.50
Source: Five Year Plan & Economic Survey, 2013-14.

(v) Neglect of Small and Cottage Industries: Small scale and cottage
industries are labour intensive. But these industries could not develop in
India appreciably. Technological upgradation and marketing became a major
problem for these industries. The five year plans laid more stress on capital-
intensive industries. Neglect of small scale industries is therefore another
cause of unemployment in India.
(vi) Slow Industrial Growth: Industrial growth rate has been very slow in India
due to many problems such as industrial disputes, strikes, lockouts, industrial
sickness, etc. These problems have increased urban unemployment.
(vii) Shortage of Capital: Till recent time period, there has been a shortage of
capital in India. We know that the rate of capital formation depends on the
rate of saving. If saving rate is high, capital formation rate will also be high.
Without adequate capital formation, overall expansion of the economy cannot
take place. Thus capital inadequacy leads to slower growth of jobs.
(viii)Defective Education System: Education system in India is not based on
employment. Every year millions of boys and girls come out of colleges and
universities but they are not absorbed in any suitable job. Emphasis is laid
on ‘general’ education rather than ‘vocational’ one. Our education system
has led to rapid increase in white collar unemployment.
(ix) Lack of Mobility: Even these days, many Indians are superstitious. Marginal
farmers and laborers are so much attached to their land and birth place
that they do not want to leave it even if they do not have any work to do.
Similarly, many skilled labour and educated youth do not want to migrate
to other regions. There are of course differences in language and culture
across states, which discourage mobility. As a result, in some regions there
is shortage of labour while in other regions there is surplus. Shortage of
farm labour in Punjab is a valid example. Thus, lacks of mobility, cultural
differences, customs and tradition are also responsible for unemployment.
(x) Under-Utilization of Installed Capacity: Our productive capacity is
not utilized fully in many industries so there exists limited employment
opportunities. Various causes like lack of working capital, skilled labour,
raw material and infrastructural facilities inhibit full utilization of capacity.
140
(xi) Modernization: In the modern time, many industries have adopted capital Unemployment in India
intensive modern techniques. Consequently, unemployment has increased
as machines have replaced the labourers.
(xii) Other Factors: Apart from the factors mentioned above, there are several
others which worsens unemployment situation in India. Non-availability of
good quality infrastructure; shortage of essential inputs such as electricity,
raw materials, and credit; non-availability of skilled labour and modern
technology; etc.
8.5 CONSEQUENCES OF UNEMPLOYMENT

Unemployment has many adverse consequences.
(i) Poverty: Unemployment leads to loss income for a household, which in
turn leads the household to poverty. The number of unemployed in India is
very large. Problem of poverty due to unemployment has become a serious
problem.
(ii) Under-utilization of Human Resources: Due to lack of employment
opportunities, it has not been possible to fully use the available human
resources. Human beings are not in a position to contribute to the national
income. When human resources are not utilized properly, it results in loss
of national output.
(iii) Political Instability: The problem of unemployment has the potential of
creating political instability in the country. Unemployed youth may indulge
in activities that are detrimental to the development of a country.
(iv) Social Evil: Unemployment can lead to anti-social activities. It may lead
to social evils such as drugs, theft, gambling, etc. Government needs to be
very alert to check these social evils.
(v) Economic Exploitation: Due to large scale unemployment, the employers
try to exploit people by giving lower wages. Workers have to work for longer
hours; they are not paid according to their ability and the quantity of work
done.
Taking into account the adverse effects of unemployment, the government must
take steps towards employment generation.
8.6 POLICY INITIATIVES FOR EMPLOYMENT

GENERATION IN INDIA
Various policy measures have been taken by the government to reduce the problem
of unemployment. Some of the efforts made by the government in this regard
are given below.
1. Emphasis on Small Scale and Cottage Industries: To reduce the problem
of unemployment, emphasis has been laid on development of small scale and
village industries. Cottage and small scale industries are labour intensive,
which means that these employ large number of workers. Government has
given various incentives to set up these industries during five year plans
2. Check on Population Growth: Government has made efforts to check
the population growth. To achieve this objective, the government has
emphasized education of girl child, provision of health facilities, and creation
of awareness among people.
141
Issues in Indian Economy 3. Establishment of Employment Exchanges: The government has established
employment exchanges for registration of people seeking employment and
dissemination of information regarding available vacancies. These days,
the Internet has played an important role in recruitment process. Every
employment exchange these has its online portal. Besides, in order to give
information about the vacancies to the general public, ‘Employment News.’,
a weekly paper, is published in different languages.
4. National Education Policy-2020: To tackle the problem of unemployment,
the National Education Policy-2020 has been formulated. Apart from other
issues, it emphasizes on vocational education.
5. Rapid Economic Development: Economic development in different sectors
creates new opportunities of employment. The government is trying to
accelerate the pace of growth by developing the different sectors so that
new employment opportunities can be created.
e) Rural Employment Guarantee Act: The Mahatma Gandhi National Rural
Employment Guarantee Act (MGNREGA) was launched in 2005. The Act
aims at providing at least 100 days of guaranteed wage employment in
a financial year to every rural household, with a stipulation of one-third
participation of women. In the process, the MGNREGA creates community
assets so that problems like chronic poverty, drought, deforestation, soil
erosion, etc. can be addressed. In budget 2019-20, Rs. 6000 crore were
allocated for MGNREGA. The number of beneficiaries under this programme
was 7.8 crores in 2019.
f) National Rural Livelihood Mission (NRLM): The NRLM is also called
Ajeevika. It was started in 2013-14 with an objective of organizing all
rural poor households and nurturing them till they emerge out of poverty.
Now, NRLM is renamed as Deendayal Antayodaya Yojana. It provides
opportunities to poor households to have gainful self-employment and skilled
wage employment. Self-Help Groups (SHG) formed by women has been
successful in many cases to provide livelihood to households and raise their
income.
g) Micro Unit Development Refinance Agency Bank (MUDRA Bank): The
Government has set up the MUDRA Bank in April 2015. It meets credit
requirements of micro-enterprises and self-employed persons. In order to
increase output and employment, entrepreneurs can avail loan up to Rs.10
lakh at lower rate of interest.
1) What are the main causes of unemployment in India?
........................................................................................................................
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2) Write a brief note on the consequences of unemployment in India.
........................................................................................................................
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142
3) Mention at least four initiatives taken by the government to reduce the Unemployment in India
problem of unemployment in India.
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8.7 LET US SUM UP

Unemployment is a serious problem for an economy. Unemployment could be
seasonal, chronic, disguised or structural. Unemployment is observed in both
rural and urban areas. As per the PLFS data, unemployment rate in India in the
age group 15 years and above was 8.8 per cent in 2019-20 according to current
weekly status (CWS) and 4.8 per cent according to usual status.
Unemployment has serious consequences for the households and for the
economy. Apart from poverty and psychological stress to the person concerned,
unemployment results in wastage of valuable resources for the country. The
government has initiated various policy measures to reduce unemployment in
India. Many developmental schemes are being implemented with this objective.
8.8 KEY WORDS

Unemployment: The situation in which a person is ready to work at prevailing
market wage rate but he does not get work. In simple words, when the number
of job seekers is more than number of jobs, it is termed as unemployment.
Full Employment: The situation when the number of job seekers is less than
the number of available jobs.
Under-employment: It refers to the situation when the person gets employment
not for full time or (s)he works at a job that is below her/his educational
qualification and ability.
Disguised Unemployment: It refers to a situation when the marginal productivity
of labour is zero.
Automation/Mechanization: It refers to the use of capital-intensive technology,
computers and machinery.
Dependency Ratio: It is the ratio of dependent population to the working
population. A high dependency ratio means less number of workers in the society.
Rural Unemployment: It refers to the unemployment found in rural areas in the
form of disguised, seasonal or chronic unemployment.
Cyclical Unemployment: It refers to the unemployment caused by business
cycle during the phases of recession and depression.
Frictional Unemployment: It refers to a temporary phase of unemployment when
where workers shift between jobs. Job opportunities are enough but workers are
unemployed due to certain imperfections or frictions in the economy.

Short Answer Type Questions
1) What is meant by unemployment? Briefly explain any four types of
unemployment in India.
143
Issues in Indian Economy 2) Describe four main reasons of unemployment in India.
3) Distinguish between seasonal unemployment disguised unemployment.
4) Give five suggestions to solve the unemployment problem in India.
5) Explain the nature of unemployment problem in developing countries.
6) Describe four consequences of unemployment in India.
7) What is meant by disguised unemployment? In what respects it affect
developing countries?
8) Briefly mention the estimates of employment and unemployment in India.
Long Answer Type Questions
1) Discuss nature, extent and types of unemployment in India.
2) What is unemployment? Discuss its causes and solutions in developing
countries.
3) What are main causes of unemployment in India? What measures do you
suggest to solve this problem?
4) Explain government policy measures to reduce unemployment problem in
India. Also critically evaluate these measures.
5) Discuss main types of unemployment in developing countries. Also give
suggestions to solve these types of unemployment.
6) State the present position of unemployment in India. Also explain main steps
taken by the government to solve this problem.
7) Describe the main features of MGNREGA. Also highlight such other
government schemes to reduce unemployment.
FURTHER READINGS
The following text books may be used for further in-depth study on the topics
dealt with in this unit.
Brown C.V, Unemployment and Inflation, Disha Publication, Delhi
Edwards, E.O. (Ed.). Employment in Developing Countries, Columbia University
Press, New York.
Hawkins K., Unemployment, Penguin Books, Second Edition.
Johnson Peter and Thomas Barry, Economic Perspective on Key Issues.
Sen Amartya, Employment, Technology and Development, Oxford University
press, London.
144
Inequalities in Income
UNIT 9 INEQUALITIES IN INCOME Distribution
DISTRIBUTION
Structure
9.0 Objectives
9.1 Introduction
9.2 Basic Concepts
9.3 Causes of Inequality
9.4 Measurement of Inequality
9.5 Policy Measures to Reduce Inequality
9.6 Let Us Sum Up
9.7 Key Words
9.0 OBJECTIVES
● Explain the concept of inequality in income distribution;
● Describe the causes of income inequality;
● Measure income inequalities by using different methods; and
● Appreciate policy measures taken by the government to reduce income
inequality.
9.1 INTRODUCTION
The word inequality refers to some sort of injustice or unfairness. Inequality in
income distribution implies that some people are poorer compared to others.
Equality in income distribution is an ideal situation which is not seen anywhere.
Moderate inequality is not a problem for a country. Inequality turns out to be
problem, when it is too steep and it has many adverse consequences. In view
of this, it has been an objective of the government to reduce inequality in the
economy. The objective of Indian planning has always been to raise the standard
of living of the masses. This objective was given priority in all the five year plans
but somehow all these plans failed to reduce inequality.
The concept of income inequality is deeply connected with that of poverty and
social justice. Poverty and inequalities go hand-in-hand. Poverty is defined as
a condition in which an individual or household lacks the financial resources to
afford certain basic minimum standard of living. The poor households are not in
a position to meet the necessities of life. These necessities include food, clothing,
shelter, medical facilities, etc. Poverty is a curse and it brings misery to human
life. A poor man loses confidence and surrenders to the prevailing conditions and
problems. Due to poverty, a man cannot fulfill his basic needs and therefore mass
poverty disrupts social harmony and generates dissatisfaction. In this Unit, you
will learn the basic concept, causes and meaburement of inequality. The policy
meabures to reduce inequality has been further elaborated.
145
9.2 BASIC CONCEPTS
Some important fundamentals concepts related with poverty and income
inequality are briefed below:-
Distribution of Income
Distribution of income refers to the sharing of wealth produced by a community
among the agents of production. Distribution can be personal and functional.
Personal Distribution refers to the distribution of national income among different
persons or individuals in the society. It shows the size and not the source of
income among different persons. Inequality in personal income indicates personal
distribution of income. If a majority of population is getting very low income
and a few are getting very high income, it is termed as inequality in income.
Functional Distribution, on the other hand, refers to distribution of national income
among different factors of production according to their services or functions. It
is concerned with the source of income rather than the size of income. Income
distribution can be explained by both micro and macro theories of distribution.
Inequality
Inequality indicates the unequal distribution of resources in a country or region
and it can be regarded to income, wealth, region, rural, urban, social inequality.
The problem of inequality is concerned with the inequality of distribution of
individual income. In other words it means that income of a few individuals is
very high, while that of large numbers of a person is very low. This inequality
has been increasing over time.
All of us know that poverty is a curse but worse curse is poverty amidst plenty.
A large part of population cannot manage even two square meals while a small
part has so much that it is thrown away into garbage cans and drains. While
the majority of population does not have clothes to cover their bodies, a small
segment of population has their cupboards overflowing with colorful dresses.
Some do not have any shelter while others live in palatial buildings. Such is the
condition in India and this is called the problem of economic inequality. In the
interest of peace and rapid development, this inequality should be minimized as
early as possible.
Inequality of Income
Inequality of the distribution of income refers to that situation of an economy in
which the average income of small section of the country is much larger than the
average national income while the average income of large section is much smaller
than the average national income. It implies that income of some individuals is
very high while that of a large number of persons is very low. In order to examine
the distribution of income in India, various studies have been conducted, e.g.,
study by a committee under the chairmanship of Prof P.C Mahalnobis, National
Council of Applied Economics Research, Reserve Bank of India, and World Bank.
Many other economists have also conducted inquiries in respect of distribution of
income. The World Bank also provides information on distribution of household
disposable income. According to the Human Development Report 2007-08, the
percentage share of national income held by different income groups is as follows.
146
Table 9.1: Percentage Share in National Income of India Inequalities in Income
Distribution
Peoples\ Year 1975-76 2004-05
Lowest 20% 7.0 8.1
highest 20% 49.4 45.3
Source: Human Development Report, 2007-08.
Table 9.1 shows the income distribution among different groups of households.
The lowest 20 per cent had 8.1 per cent of national income and the highest 20
per cent had 45.3 per cent national income as per Human Development Report
2009. Another estimate about income inequality shows top 10 per cent population
of India holds 31.1 per cent of national income while the bottom 10 per cent
population has only 3.6 per cent of total national income. This is clear indication
of prevailing inequalities in India.
In India along with inequality in the distribution of income, there also exists
inequality in the distribution of wealth. Inequality in the distribution of wealth can
be estimated on the basis of ownership of land holding and real estate. According
to National Sample Survey report in the year 2001, 70 per cent Indian farmers
are marginal farmers, i.e., they own less than 2 hectare of land. According to
National Council of Applied Economic Research (NCAER) in the year 2001
upper most 10 per cent urban people own 57 per cent value of residential real
estate, while lower 10 per cent urban people own less than one per cent value of
residential real estate. Thus it shows the gross inequalities in the distribution of
income and wealth in India.
Different institutions and economists have tried to measure the inequality in
the distribution of personal income. Among them the efforts made by RBI and
the NCEAR are praise-worthy. Though these measures were taken at different
points of time using different methods, yet they all make it clear that there exists
considerable inequality in the distribution of personal income (see Table 9.2).
Table 9.2: Personal Income Distribution in India
Estimates Estimate by RBI Estimate by Iyenger and NCAER estimates
(1953-54 to 1956-57) Mukharji (1952-56) (1966)
Area/People Rural Urban Rural Urban Rural Urban
Highest 5% 17.0% 26.0% 14.0% 17.5% --- 31.0%
Highest 10% 25.0% 37.0% 24.0% 25.0% 33.6% 42.4%
Highest 50% 69.0% 75.0% --- --- 79.3% 83.4%
Lowest 20% 9.0% 7.0% 7.5% 8.5% 4.0% 4.0%
Though the data differ, the general inference we can draw is that distribution of
personal income is highly skewed in India. It also shows that inequality is more
pronounced in urban area than in the rural one.
Source. Ojha NCAER World World World NCAER
Period / Bhatacharya (1964-65) Bank Bank Development (2009-10)
People (1961-62 to (1975-76) (1992-93) Report (2006)
1993-94)
Share of Top 35.0 33.5 33.6 28.4 28.5 53.2
10% (Top 20%)
Share of 7.0 7.5 7.0 8.5 8.9 15.3
Bottom 20% (Bottom 40%)
Table 9.3 shows the extent of income inequality in India during 1961-62 to 1993-
94, top 10 per cent of people in India got 35 per cent of the national income and
147
Issues in Indian Economy bottom 20 per cent got only 7 per cent. In the same way in 1975-76, top 10 per
cent people used to get 33.6 per cent of the income whereas bottom 20 per cent
got only 7 per cent. According to the World Development Report, in 1992-93 top
ten per cent population got 28.4 per cent of the national income whereas bottom
20 per cent got only 8.5 per cent. According to the World Development Report,
in 2006, top 10 per cent got 28.5 per cent of the national income while bottom
20 per cent received only 8.9 per cent of the national income.
The distribution of consumption expenditure given in Table 9.4 also shows that
there was very steep income inequality in India.
Table 9.4: Distribution of Family Consumption Expenditure
(Percentage Share in Total Consumption Expenditure)
Area Rural Urban
People/Year 1958-59 1977-78 1958-59 1977-78
Lowest 30% 13.1 15.0 13.2 13.6
Middle 40% 34.3 33.1 31.7 32.4
Highest 30% 52.6 51.9 55.1 54.0
Source: Sixth Five Year Plan (1980-85)
From Table 9.4 we observe that during the period 1958-59 to 1977-78 the share
in total consumption expenditure of the lowest 30 per cent families has increased
a little, especially in rural areas. However, the basic structure remains the same
and inequality in family expenditure persists, almost as strongly as before.
Table 9.5: Rural-Urban Gap in Monthly Per Capital Expenditure
(MPCE at Constant Prices)
Area/Year Round Rural Urban
2011-12 68th 703.42 1353.82
2009-10 66th 599.06 1200.00
2004-05 61st 558.78 1052.36
Source: Various Survey Rounds of National Sample Surveys (NSS)
Table 9.6: Monthly Per Capita Expenditure at Current Prices
(MPCE at Constant Prices)
Area/Year Round Rural Urban
2011-12 68th 1278.94 2399.24
2009-10 66th 927.70 1785.21
2004-05 61st 558.78 1052.36
Source: Various Survey Rounds of NSS
We observe from the above tables that monthly per capita expenditures of rural
and urban areas are quite different, both in constant prices and current prices.
The per capita expenditure per month in urban areas is more as compared to that
of rural areas.
Multidimensional Poverty Index (MPI) 2010: This index indicates the share
of multi-dimensionally poor adjusted by the intensity of deprivation in terms of
living standard, health and education. The MPI shows huge income inequalities
and poverty in India. On the basis of data from 2000 to 2008, it indicates that
148 poverty ratio was 41.6 per cent and poverty index was 0.296 in India, calculated
as per purchasing power parity of $1.25 per day.
Global Hunger Index (GHI) 2020 also reveals high extent of poverty and Inequalities in Income
Distribution
income inequalities in India. India ranked 94th out of 107 countries with a score
of 27.2 in the GHI index.
9.3 CAUSES OF INEQUALITY

Several factors are responsible for income inequality and poverty in India. Some
important causes are explained below.
(1) Rapid Growth of Population: Rapid growth of population is one of the major
causes of poverty and inequality in India. High population growth is the root
cause of all other problems. Population grew rapidly after independence.
Population in India which was 36 crores during the year 1951 increased to
68.4 crores in 1981 and further to 84.39 crores according to 1991 census.
According to 2011 census, the population of India was 121.08 crores. Demand
for consumption goods increases with the rapid growth of population. In
large families, per capita share of consumption becomes pitiably low. What
to say of comfort and luxuries, big families find it difficult to manage two
square meals. For the country as a whole, extremely large part of resources is
absorbed by production of consumer goods. Only a limited amount of money
is left for development works, capital formation and future investment. This
leads to slower economic growth, which perpetuates poverty. So it will not
be wrong to say that the problem of poverty has become a major cause of
the growth of population. Ironically, the poor tend to have more children
than the higher income groups. That is why they have to suffer on this count
also.
(2) Inadequate Employment Opportunities: There is a dearth of employment
opportunities in India. Even after 70 years of planning, unemployment
problem continues to be one of the major problems in India. The rate of
growth of population is more than the rate of growth of employment. So it
is evident that unemployment and hence poverty will increase.
(3) Inadequate Growth Rate: Another cause of income inequality and poverty
in India is inadequate growth rate of the economy. During the First Five Year
Plan, growth rate of GDP was 3.5 per cent, while during the Sixth Plan it was
5.4 per cent. It was estimated to be 5.0 during the Seventh Plan. During 1951-
91, the average growth rate has been just 3.9 per cent per year. Population
growth on the other hand has taken place at average annual rate of about
2.5 per cent. Low growth of the economy vis-à-vis high population growth
naturally leads to very slow increase in per capita income and obstructs
reduction in poverty.
(4) Rising Prices: Price rise is always beneficial to the rich and harmful to the
poor. In fact, inflation is often called a ‘burden’ on the poor. During the Plan
Period the prices have increased rapidly. The main cause of price rise is the
adoption of deficit financing by the government. Besides it, other causes like
wrong policies of the government, increases in the oil prices, black money
and hoarding etc. are responsible for price rise. When prices rise (and, as is
customary), wages do not rise or rise less, the real purchasing power of the
already poor falls. Many more join the ranks of those below poverty line
and it results into more income inequalities. Inflation based on Consumer
Price Index in India in 2017-18 was 3.7 per cent which increased to 7.0 per
cent in December 2019.
149
Issues in Indian Economy (5) Neglect of Agriculture: Even in 2011-12, 48.9 per cent of the total population
was dependent on agriculture and allied activities. Economic planning did
not have a good effect on rural areas because of the neglect of agriculture.
It widened the gap between the rural and the urban areas. Out of total
expenditure of all plans only 12 to 15 per cent was spent on agriculture,
while it was 22 to 25 per cent on industries.
(6) Neglect of Small Scale and Cottage Industries: It was said that small scale
and cottage industries would be developed fast during the Plan period but
actually not much attention was paid to them. Under the 1956 Industrial
Policy, the government laid emphasis on big industries. As a result, small
scale and cottage industries could not develop. Most of the population lives
in villages where only such industries can be set up. So the neglect of small
scale and cottage industries has caused poverty and income inequality in
India.
(7) Inequitable Distribution of Income and Wealth: The main objective of
planning in India is growth with social justice. It is essential that all small
businesses/ industries share the benefits of development equally. But it has
not happened. According to a survey, 20 per cent rich enjoy 53 per cent of
the total national income while 50 per cent bottom poor people get only 19
per cent of the total national income. This inequality has increased during the
plan period instead of being reduced. In fact, inability to minimize economic
inequalities has worsened the poverty situation.
(8) Shortage of Capital: The development of country depends on the capital.
Shortage of capital is the main hindrance in the way of economic development.
India faces severe shortage of capital. Industry does not develop properly
due to shortage of capital. Overall economic expansion remained limited
due to capital deficiency. Hence, output could not expand considerably. This
not only causes poverty but also prices-rise and further bigger gap between
the rich and the poor.
(9) Failure to Implement Land Reforms Effectively: Different State
governments have passed laws to remove poverty and inequality in
agriculture. But the pity is that these could not be implemented fully. Many
social and political factors are responsible for it. As a result, poverty in rural
areas could not be removed.
(10) Under Utilization of Natural Resources: Nature has been very kind to
India. In other words, India is full of natural resources but we have been
unable to make the best use of these resources because of the lack of capital
and technical knowledge etc. Sh. K T. Shah’s comment that ‘India is a rich
country but the Indians are poor’, proves it.
(11) Failure of Programmes designed to Remove Poverty and Inequality:
Government launched many programmes to remove poverty and inequality.
Some of the main programmes are:
a. Minimum Needs Programmes (MNP)
b. Integrated Rural Development Program (IRDP)
c. National Rural Employment Program (NREP)
d. 20 Points Economic Program etc.
But all these programmes could not succeed fully. Rather these programmes
150 benefited vested interests and officials.
(12) Conservative Social Structure: Our social structure is responsible for the Inequalities in Income
Distribution
problem of poverty and inequality in India. Indian farmer is orthodox by nature,
he is not ready to change his methods and remove the hindrances in his way.
Fatalism has crippled us, especially the villages. Most of us leave everything to
fate and God. They also lack mobility spirit of enterprises and scientific attributes.
Hence unprogressive way of thing and backward social setup also cause poverty
and perpetuate it. Social institutions like joint family system and inferior states
to women are also responsible for this.
There are a number of other factors including more than hundred years of
foreign rule of British domain and exploitation, low labour productivity,
weak infrastructure, backward and primitive technology, over dependence on
agricultural sector, inefficient use of capital and other productive resources,
unbalanced regional growth, defective planning strategy, widespread illiteracy
and defective education system. Lack of sincerity on the part of the leaders and
corruption are also reason behind the problems of poverty and income inequality.
Check Your Progress A
1 What is Inequality ?
2 What is Multidimensional Poverty Index.
3 What is adequate Growth Rate.
4 What is Conservative Social Structure.
9.4 MEASUREMENT OF INEQUALITY

There are various indicators measuring inequality. All these indicators have
some mathematical or intuitive appeal. Inequality measures can be calculated for
variables such as income, consumption, land holding, and other form of assets.
We describe below the important indicators of inequality.
(i) Lorenz Curve: An American economist, Dr. Lorenz used graphic measure
for studying inequality in the distribution of income and wealth. It is also
called Cumulative Percentage Curve. Closer the Lorenz Curve to the line
of equal distribution or line of perfect equality, smaller is the size of income
inequality. Similarly farther the Lorenz Curve from the line of equals
distribution, larger is the income inequality (see Fig. 9.1).
Fig. 9.1: Lorenz Curve 151

Issues in Indian Economy In Fig. 9.1 we depict two Lorenz curves A and B. The degree is inequality
is higher in the case of B compared to A.
(ii) Gini Coefficient of Inequality: Gini coefficient is the most commonly used
measure of inequality. It varies from 0 to 1. Zero (0) refers to perfect equality
and one (1) implies complete inequality. When there is perfect equality in
income distribution, everyone has equal amount of income. On the other
hand, in the case of complete inequality, one person has all the income while
others have no income. A higher value of the Gini coefficient implies higher
degree of inequality in the country.
The Gini coefficient is measured on the basis of the Lorenz curve (See
Fig. 9.2). The Lorenz curve shows the deviation from perfect equality. The
greater the curvature, greater is the inequality. The Gini coefficient expresses
inequality in terms of a single number.
Fig. 9.2: Gini Coefficient

Gini coefficient is defined as follows:
Gini coefficient =
9.5 POLICY MEASURES TO REDUCE INEQUALITY

Removal of poverty and reduction of income inequalities are major problems
of India. Unless we are in a position to provide the necessities of life to all, our
political freedom is useless and any development is meaningless. As we have
seen, a multitude of factors – economic, social and political – are responsible
for it. The government has taken several policy measures to reduce inequality
in the country.
(i) Direct taxation: The government imposes income tax on individuals and
corporate sector. Taxes as you know are one-way transfer from the tax payer
to the government; there is no quid-pro-quo. The government in its budget
presentation every year announces the exemption limit, tax rates, and income
slabs on which income tax is imposed. As you would have noticed, the
income tax rate is progressive such that an individual with higher income
152 pays taxes at a higher rate. There is an exemption limit so that persons with
income below that limit do not have to pay income tax. Similarly, income Inequalities in Income
Distribution
tax is imposed on retained profits of the corporate houses.
(ii) Restrictions on monopoly practices: Monopoly power has a tendency
to restrict competition in the economy. Existence of monopoly power can
also restrict entry of new firms and set the prices at a higher level. Thus the
Competition Commission of India has set guidelines for fair trade practices
and investigates into cases where unfairness is suspected.
(iii) Land reforms: The government has taken several measures to regulate the
ownership, operation, leasing, sales and inheritance of landed property. Land
is not just an input for production, it is held as an asset which appreciates in
value over time. The objective of land reforms has been to reduce inequality
in land ownership and associated problems.
(iv) Social security measures: The government has taken several steps to provide
a safety net to the poor. For the poor households there are pension schemes,
insurance benefits, bank account, etc. Also subsidized food, housing,
electricity, cooking gas, drinking water, etc. are provided to persons below
the poverty line.
(v) Employment generation: Provision of productive employment to a person
is the surest way of increasing his/her income. The government has taken
several measures to generate employment, transfer the workforce from
agricultural to non-agricultural sector, and provide a secondary source of
income to poor households. The government has launched the MGNREGS
(see Unit 7) to provide wage employment in rural India. There are policy
measures to impart skill to educated youth and workers so that they can be
employed. There is emphasis on MSME sector, which is labour-intensive
in production process.
Although these measures have provided some benefits to the poor, there is an
increase in inequality over time. In order to improve the living condition of the
poor, there is a need to increase the income and the standard of living of the
poor in India. The following suggestions can be made to reduce inequality and
remove poverty:
(1) Population Control: Some states in India still have a very high population
growth rate. Growing population is a major cause of poverty in India. So it
is necessary to reduce population growth rate in these states. It is observed
that education of girl child, age of marriage, and adequate healthcare are
important for reduction in birth rate.
(2) Creation of Employment Opportunities: Gainful employment is essential
for income generation for households. Thus it is essential for policy makers to
carry out projects that generate employment for the poor income households.
If the major chunk of the incremental income of the country goes to the
lower strata, inequality will decrease. Micro, Small and Medium Enterprises
(MSME) have huge potential for generation of employment. Thus emphasis
should be given on the MSME sector.
(3) Increase in Production: Industrial and agricultural production should be
increased to remove poverty. Existing production capacity should be utilized
fully and new investments should be made. Proper coordination should
be there between large scale and small scale industries. Superior seeds,
manures, fertilized and modern methods of production should be adopted
for agricultural development. Necessary irrigation facilities should be made 153
Issues in Indian Economy available and social structure in rural areas should be modified. All these
measures can be helpful increasing agricultural and industrial production.
(4) Check on Price Rise: Inflation affects the poor segment of the population
adversely. So price rise must be checked through proper fiscal and monetary
policies.
(5) Stepping up Capital Formation: Low rate of capital formation is a major
hindrance in the way of fast economic development. Capital formation rate,
therefore, must be increased it basically depends on the saving rate; every
possible efforts should be made to increase savings and their mobilization.
A few other suggestions can also be made including major reforms in education
system, greater opportunities and facilities for self-employment, reduction in
regional imbalances, strengthening of industrial and agricultural infrastructure
and development of a new strategy of growth leading to reduction in poverty
and income inequalities.
Check Your Progress B
1 What is Lorenz Curve?
2 What do mean by Gini Coefficient of Inequality?
3 Write three suggestions to reduce inequality and remove poverty.
9.6 LET US SUM UP

Inequality in income distribution is a major problem in India. The main cause
of poverty and income inequality are rapid growth of population, unequal
distribution of income and wealth, slow growth of industries and agriculture,
lack of development of the MSME sector.
The measures to reduce income inequality include check on population growth,
control of inflation, faster economic growth, and effective implementation of
special poverty alleviation schemes. Government has adopted many programmes
to remove poverty and reduce inequality including incentives for efficiency,
skill development, emphasis on small scale and cottage industries, and specific
programmes for rural development. Effective implementation of such programmes
is very important.
9.7 KEY WORDS

Inequality: Inequality refers to unequal distribution of income, wealth, assets
or resources in a country.
Income Inequality: It refers to the unequal distribution of income across sections
of society. It indicates that income of some individuals is very high, while that
of the majority of persons is very low.
Socially Disadvantaged Groups: Also called socially deprived sections of society
such as Scheduled Castes, Scheduled Tribes, and Other Backward Classes. The
socially disadvantaged group remain deprived of health, education and other
facilities.
Regional Inequality: It means the differences in the economic development of
different regions.
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Inequalities in Income
9.8 TERMINAL QUESTIONS Distribution
Short Answer Type Questions

1) Discuss the extent of income inequality in India.
2) Discuss the extent of poverty and income inequality in India.
3) Describe the main causes of income inequality in India.
4) Discuss the important remedial measures for the problem of income inequality
in India.
5) Briefly explain extent and nature of income inequality in India.
Essay Type Questions
1) What is income inequality? Explain its extent and causes in India.
2) Explain the factors responsible for income inequality in India. Also state
main steps taken by government in this regard.
3) What is Poverty? Explain its causes and solutions.
4) Discuss measurers adopted by government to eradicate poverty and reduce
income inequality in India.
5) What is poverty line in India? State extent and nature of poverty. Also
highlight anti-poverty programmes for alleviating poverty in India.
6) Critically evaluate income inequality reduction and poverty alleviation
programmes in India.
FURTHER READINGS
The following text books may be used for further in-depth study on the topics
dealt with in this unit:
Atkinson, A.B., The Economy of Inequality, 2nd Edition, Clarndon Press, Oxford.
Cheney H., et al., Redistribution with Growth, Oxford University Press, London.
Fields G.S., Poverty, Inequality and Development, Cambridge University Press,
Cambridge.
Jain T.L., Poverty in India: An Economic Analysis, ESS Publication, New Delhi.
Jan Pen, Income Distribution, Harmonds-Worth, England.
Sen Amaratya, On Economic Inequality, Oxford University Press, London.
Singer H. and Ansari J., Rich and Poor Countries, George Allen & Urwin Limited,
London.
Thail H., The Measurement of Inequality by Components of Income, Economic
Letters, 2:197-9.
155
UNIT 10 BALANCED REGIONAL GROWTH
Structure
10.0 Objectives
10.1 Introduction
10.2 Nature of Regional Imbalance in India
10.3 Measurement of Regional Imbalance
10.4 Need for Balanced Regional Development in India
10.5 Factors Responsible for Regional Imbalance
10.6 Impact of Regional Imbalance
10.7 Policy Initiatives by the Government to Reduce Regional Imbalance
10.8 Issues in Balanced Regional Development
10.9 Let Us Sum Up
10.10 Key Words
10.0 OBJECTIVES
● Highlight the nature of regional imbalance in India;
● Measure regional imbalance;
● Find out the need for regional balance;
● Identify the factors responsible for regional imbalance;
● Describe the impact of regional imbalance;
● Describe the policy initiatives by the government to reduce regional
imbalance; and
● Identify the issues involved in achieving balanced regional growth.
10.1 INTRODUCTION
Regional disparity is a ubiquitous phenomenon of the developing countries like
India. Balanced regional development is an ongoing challenge for the government.
Reducing regional inequalities remains a daunting politico-administrative
challenge. The inter-state and intra-state disparities are a major source of concern
for faster and more inclusive development at national level.
Development is not only area specific but also time specific. Development varies
from area to area. You should note that in every country some regions are more
developed than others. Further, growth rate in all the regions are not equal – some
region are growing at faster rate than others.
Since the 1950s, central government has paid attention to those regions which
are lagging behind in economic growth and development. Despite this, one of
the features of development experience in India is the accentuation in regional
disparity in India. Disparities have strengthened over the years, instead of
weakening over time. Scholars have identified various factors that have
156
contributed to such disparities. The issue of regional imbalance came into a
sharper focus after the economic reforms of the 1990s. The less developed states Balanced Regional Growth
are falling behind the richer ones instead of catching up. In this unit, we look at
various aspects of regional imbalance in terms of its concept, nature, need, causes
and policy initiatives taken by the government. In this Unit, you will learn the
nature and measurement of regional embalaces. The meal factors and import of
regional imbalance have been further discussed Policy initiatives and issues in
balamed regional development are further elaborated.
10.2 NATURE OF REGIONAL IMBALANCE IN

INDIA
Balanced growth means equitable development in various sectors of the economy.
It means achieving a balance between economic and human development where
economic growth compliments human development. Balanced Growth has two
dimensions spatial (intra-state) and inter-regional imbalance.
Developed regions provide number of attractions in terms of location, climate,
soil, hydrology, natural resource endowment, accessibility, etc. Besides these
natural advantages, such regions include the development of infrastructure, the
establishment of industries, transportation and communication network, nearness
to market, etc. Establishment of one industry paves the way for the development
of other industries by providing them with common facilities such as power,
transport, labour, etc. thus, showing agglomerative effect. Developed regions
also have number of social amenities.
Along with regional imbalance several terms have emerged such as, ‘backwash
effect’, ‘gap-widening’, ‘bridging the gap’, ‘disadvantaged regions’, ‘backward
area’, etc. Regional imbalance refers to the disequilibrium in economic
development and uneven economic achievement of various geographical regions.
It is reflected by the indicators such as per capita income, population living below
poverty line, population engaged in agriculture vis-à-vis engaged in industries,
literacy rate, educational attainment of people, availability of health facilities,
sanitation, housing, the ratio of urban-rural population, infrastructure development
of different states. Regional imbalance in development between different States/
Areas/ Districts is common and exists in India. According to Planning Commission
(2013), “regional inequalities, both between States and within States, present a
serious development challenge to the Indian economy”.
An important aspect of regional disparities in India is the significant level of
disparities, which exists within different states, e.g., Vidarbha and Marathwada in
Maharashtra, Saurashtra in Gujarat, Northern Karnataka, etc. Specific reasons are
responsible for backwardness of regions within states. Backwardness of certain
regions in Gujarat, Madhya Pradesh, Bihar and Odisha can be associated with
the distinct style of living of the inhabitants who are mostly tribal and the neglect
of such regions by the policy makers.
The following aspects of regional imbalance must be kept in mind:
(i) Spatial: (a) Intra-regional disparities such as Eastern and Western Uttar
Pradesh. (b) Inter-regional imbalance: Co-existence of relatively developed
states (such as Gujarat, Maharashtra, Punjab and Tamil Nadu) and
economically backward states (such as Bihar, Chhattisgarh, Madhya Pradesh,
and Uttar Pradesh).
(ii) Social: There is class differentiation in dwellings according to castes in a
village. The dwellings of the people from lower caste may be less developed 157
Issues in Indian Economy than that of the higher caste.
(iii) Disequilibrium in resource endowment: Two regions may be endowed
differently with respect to factors of production. This may culminate into
development gaps.
(iv) Regional consciousness which generate a pattern of flow of resources towards
the developed region.
(v) The rural-urban imbalance is very common in India. Rural areas are
not developed in terms of availability of the basic, economic and social
infrastructure like transport, roads, electricity, water, sanitation, education
and health facilities, etc. It is because of the absence of such facilities
that rural areas lag behind urban areas in terms of the basic indicators of
development.
(vi) Regional disparities may be classified on the basis of natural resources, man-
made, inter-state or intra-state, whole or sectoral.
Planning Commission (2013) has observed that “with its wide diversities in
physiography, history, demography and sociology, India has been characterized
by regional disparities in socio-economic development not only between states
but also between districts of a state and between areas and social groups within
districts.”
10.3 MEASUREMENT OF REGIONAL IMBALANCE

The measurement of regional disparities in the level of development is not an easy
task. The basic issues in this context are those of criteria, scale and techniques
of measurement. Janardhan and Rajendra (2017) have observed that “there may
be a model approach wherein some developed region is visualized as a model
of development and other region are assessed in terms of development of this
model. Indicators for this model are production, consumption, per capita income,
energy consumption, agricultural development, industrial development, transport,
social development, environmental degradation, etc.”
A number of efforts have been made to measure the extent of regional inequality.
In this context, several indicators can be used to measure regional disparities
across states. These are as follows:
(i) Gini coefficient of regional GDP per capita,
(ii) The share of the population living in low-income regions
(iii) Urban/rural divide and rural poverty
(iv) Differences for non-income factors like education, health and living standards
(which covers various aspects of living condition such as electricity and
sanitation)
(v) Differences in labour productivity
(vi) Multidimensional Poverty Index (MPI)
The Organization for Economic Cooperation and Development (OECD)
commonly uses the Gini coefficient of regional GDP per capita with equal weights
for each region/ state regardless of its population size. The coefficient focuses
on output rather than income and this does not include government transfers
and remittances from richer to poorer areas. Joumard, et al. (2017) point out
that “India’s regional disparities are large compared with the OECD average. In
158 2013, output per capita in the poorest state (Bihar) was just 13 per cent the level
of Delhi, one of the richest territories. The share of the population living in low- Balanced Regional Growth
income regions in India is much higher, making poverty a more pressing issue.”
The urban/rural divide accounts for a large share of India’s spatial income
inequality. In the early 2010s, the fastest growing states tend to be those with
a large urban population and the richest states are the most urbanised. Rural
poverty is both widespread and severe, largely reflecting the very low agricultural
productivity. Poverty in rural areas often results in forced migration to cities,
distress sales of land and, in extreme cases, suicides. Overall, the absolute poverty
rate in rural areas, at 26 per cent in 2011/12, was almost twice the poverty rate
in urban areas, despite a faster decline since the mid-2000s.Differences for non-
income dimensions are even larger between rural and urban areas (Joumard, et
al., 2017).
The Government of India (2013) has developed methodologies, including human
development criteria, to measure states’ development level needs and allocate
central government transfers. The Oxford Multidimensional Poverty Index
(OMPI) suggests that deprivation in education, health and living standards (which
covers various aspects of living condition such as electricity and sanitation) is
even higher than in income (OPHI, 2015). Access to core public services is also
highly concentrated, with 69 per cent of the rural population multi-dimensionally
poor compared to 31 per cent in urban areas. The rural/urban divide is particularly
marked for electricity and sanitation. Access to health care also varies significantly
across states and between rural and urban areas (Joumard et al., 2017).
Differences in labour productivity are by far the most important factor driving
differences in per capita output across states. Productivity in the three poorest
states (Bihar, Uttar Pradesh and Assam) was less than one third the level of
Haryana (Joumard et al., 2017).
Omkar Goswami (2022) suggests two categories of variables to measure regional
disparities: (i) Economic Indicators, and (ii) Social Indicators.
Economic indicators include GDP and per capita state domestic product (for
the year 2019-20, at current prices in rupees), households with electricity,
households with improved drinking water at source, households with improved
sanitation facility, and households using clean fuel for cooking. All these have
been expressed in percentage terms.
Social Indicators include the following variables:
(i) infant mortality rate per 1,000 live births,
(ii) sex ratio at birth, last five years,
(iii) females per 1,000 males, women aged 20-24 married before age 18 (in per
cent),
(iv) women of 15-19 years who were mothers or pregnant (in per cent),
(v) female population (above 6) who ever attended school (in per cent),
(vi) women with 10 or more years of schooling (in per cent).
For each variable, comparison in value between the concerned state and the all-
India average. As such, for these variables, those that got high points were the
worse-off states. Lower the points, the better-off the state. Omkar Goswami (2022)
has highlighted that “the comparison among the states bring some interesting
facts. The worst state is Bihar, which secured 9 points out of 11 which means,
in 2019-21, for nine out of the 11 variables chosen, Bihar fared worse than the 159
Issues in Indian Economy corresponding all-India average. Jharkhand and Odisha with 8 of the 11 variables
being worse than all India average. After that comes Assam with 7 followed by a
cluster of four states, for each of which six of the 11 variables were poorer than
those of all India's: Uttar Pradesh, Madhya Pradesh, Chhattisgarh and Tripura. If
we look at “Rajasthan, West Bengal and Meghalaya, five of the 11 indicators are
worse than India's. For Jammu and Kashmir, Andhra Pradesh, Arunachal Pradesh
and Manipur, the score is 4 out of 11. For Maharashtra and Telangana, it is 3,
and for Nagaland, 2. And for Punjab, Chandigarh, Himachal Pradesh, Haryana
and Uttarakhand in the north, it is just 1 out of 11, as it is for Gujarat and Goa
in the west, for Karnataka, Kerala and Tamil Nadu in the south, and for Sikkim
and Mizoram in the northeast.”
It is important to note that “West Bengal may be economically poor, it is superior
in social and health indicators.” However, Goswami (2022) highlights that “Bihar
fails in all six social indicators vis-a-vis India. Jharkhand and Odisha fail in five;
Tripura, Andhra Pradesh and Rajasthan fail in four; and UP, Madhya Pradesh,
Chhattisgarh, West Bengal, Assam and Telangana do not make it on three out of
six social counts.”
It is disheartening to find that not much improvement is visible between 2001
and 2019-20. Most districts in Bihar, Jharkhand, Odisha, Chhattisgarh, Madhya
Pradesh and Assam, and some in West Bengal and Tripura, were among the worst
in terms of household-level assets and access to amenities. So is the case with
social indicators in these states. Even in 2022, there are eight states which are
very bad in terms of assets, amenities and social indicators.
Goswami (2022) comes to the conclusion that “most states of the east are among
the worst in India on both economic and social indicators. In contrast, those in
the north (excluding Rajasthan), the west, much of the south and some of the
north-east are far better off. It is interesting to find that development has driven
the northern, western and southern states and has left the centre, the east and the
north-east far behind over the two decades of present century.”
In this context, while discussing the grant of special category to states for transfer
of funds, the Rajan Committee (2013) has opined that “need of states should be
based on a simple index of under-development.” The index proposed by Rajan
Committee (2013) is an average of the following ten sub-components:
(i) monthly per capita consumption expenditure,
(ii) education,
(iii) health,
(iv) house-hold amenities,
(v) poverty rate,
(vi) female literacy,
(vii) percent of SC-ST population,
(viii) urbanization rate,
(ix) financial inclusion, and
(x) connectivity.
The Committee has emphasised that “less developed states rank higher on the
index, and would get larger allocations based on the need criteria” (Rajan, 2013).
160
1) What is meant by regional inequality? Balanced Regional Growth
........................................................................................................................
........................................................................................................................
........................................................................................................................
2) Describe the nature of regional imbalance in India.
........................................................................................................................
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........................................................................................................................
3) Explain how regional imbalance can be measured.
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4) Describe the criteria suggested by the Rajan Committee for grant of funds
to states.
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10.4 NEED FOR BALANCED REGIONAL

DEVELOPMENT IN INDIA
It is important to note that balanced regional development does not mean equal
development of the regions in the state. It simply implies the fullest realization
of a region’s potential so that the benefits of overall economic growth are shared
by the inhabitants of the region. Given the economic condition, the objective of
the government should be to move towards a more egalitarian society, coupled
with balanced development of different regions. Despite taking a number of steps
to reduce the regional disparities, sizeable differences in development still exist
between states and between districts within a state.
It is well to remember that there have been demands for separate States in India
since independence. Creation of some of the States in the past in the wake of
popular agitation was based on perceived neglect of certain backward regions
in some of the bigger states. Examples could be creation of Andhra Pradesh and
Gujarat in the 1950s, and creation of Punjab, Haryana and Himachal Pradesh in the
1960s. Similarly, there is a demand for a separate Vidharbha State in Maharashtra.
Recently, in 2014, a separate state of Telangana was created from Andhra
Pradesh. Earlier, Chhattisgarh from Madhya Pradesh, Jharkhand from Bihar and
Uttaranchal from Uttar Pradesh were created. These demands for separate states
were mainly due to the lack of economic development in the regions.
Planning Commission (2008) is also of the opinion that “the gains of the growth
witnessed have not reached all parts of the country and all sections of the people in
an equitable manner. Widening income differentials between more developed and
relatively poorer states is a matter of serious concern.” Growth and development
must exhibit regional balance. India is a union of 28 states and 8 union territories
161
Issues in Indian Economy which differ in terms of their productive potential and the type of industry they
can support. The realization of their potential holds the key to increasing the
competitiveness of the nation as a whole.
The sustainability of the growth rate and the goal to achieve its development
target will be difficult to meet unless India develops as an integrated whole of
regional competency. Some regions are lacking in natural resources even then
they are ensuring their development through technological development. So there
is a need for stability in the development process of the country by adopting the
process of balanced regional development of the country.
A balanced regional development is necessary for the following reasons:
a. Inequality breeds economic inefficiencies and limits productivity. Thus
regional balance is required to accelerate the overall growth rate of GDP.
b. It will minimise backwash effects. Backwash effect refers to movement of
wealth from poorer region to richer region.
c. It will lead to development of regions which are below national average.
d. It will provide certain minimum standard of living to inhabitants of the
backward states.
e. It will help in maintaining political stability and tackling the problem of left
wing extremists and insurgency to have a strong India. Thus it will lead to
social harmony.
Keeping in view the importance of balanced regional development, we now look
into the factors that should be emphasised. Majumder (2005) has highlighted the
following variables for balanced regional development:
(i) Agricultural development,
(ii) Industrial development,
(iii) Human development related to social indicators of literacy, mortality, etc.
(iv) Infrastructure which is composed of physical, financial and social
infrastructure. Physical infrastructure consists of Agro-specific infrastructure
(irrigation and agricultural credit), transport & communication infrastructure
(road, railways, and communication networks), and power infrastructure.
Financial infrastructure consists mainly of banking services while social
infrastructure consists of availability of educational and health facilities.
Each of these components of development and infrastructure themselves
consists of several variables / indications.
10.5 FACTORS RESPONSIBLE FOR REGIONAL

IMBALANCE
The level of development of a state largely depends on a complex set of cultural,
historical, natural and sociological factors. Regional inequalities in the levels
of development are the result of the disparities in the distribution of physical
resources, diverse culture, and technological achievements. Technology is a vital
input of development strategies as there is a positive correlation between the level
of technological improvement and the level of economic development. Regional
disparities in the level of development are the product of collective effect of all
these factors. Further, factors like distance to the nearest urban agglomeration,
differences in urbanization, availability of electricity and certain state-specific
characteristics play a crucial role in explaining divergence across regions.
162
In India, regional inequality is the product of the following factors: Balanced Regional Growth
1. Geographical Factors
a. Some regions are endowed with natural resources such as minerals,
water, fertile land, proximity to the ocean, and accessibility to
waterways. Such regions are more developed than geographically
disadvantaged regions of hilly terrain, desert, infertile land, etc. As for
example, North-Eastern states have remained mostly backward due to
their inaccessibility and other inherent difficulties.
b. Coastal states have geographical advantage as they have a port to do
business abroad. These are more developed compared to many non-
coastal states.
2. Manmade / Historical Factors
a. Historical factors also play an important role in regional disparity.
Development during colonial rule has contributed to regional inequities.
The British rulers preferred to develop those regions of the country
which had potential for manufacturing and trading activities. At
that time, they did not had any industrial policy focusing on overall
development.
3. Social Factors
a. Illiteracy and lack of education in the less developed regions has high
fertility rate and thus growing population.
b. Non-availability of required social services.
c. Social peace and harmony are conducive for development. That is why
the region having a peaceful society is more developed.
4. Economic Factors
a. Inadequate infrastructure like transport system in poorer states.
b. Incapacity of the states to harness rich demographic dividend due to
less developed job market.
c. There is disparity in availability of power supply among states.
5. Political Factors
a. Faulty development strategies in the post-independence era.
b. Inter-state disparities in development have increased post economic
reforms period.
c. Some regional governments implemented development policy more
effectively as compared to other regions, hence they are more developed.
d. Red-tapism, corruption and administrative inefficiency. Added to this
is the lack of political will to fulfil regional needs.
e. Neglect of some regions and preference of other regions in terms of
new investments and infrastructure facilities. It is apparent that new
investment in the private sector has a tendency to prefer those regions
having basic infrastructural facilities.
f. Unhealthy business environment because of extremist activities, law
and order problem, etc. have obstructed the flow of investments into
backward regions besides making flight of capital from backward states.
163
10.6 IMPACT OF REGIONAL IMBALANCE
Regional disparity in development has the following consequences:
(i) Violent conflicts occur because of uneven regional development which leads
to several agitations intra-state or inter-states.
(ii) Insurgency in the north-east and the left wing extremism in large parts of
the central and eastern states of India.
(iii) Unplanned and haphazard migration from backward areas to the developed
areas in search of livelihood. For example, migration from rural to urban
areas, as the latter provides better quality of life and job opportunities.
(iv) Economic deprivation and inequality in access to resources.
(v) Concentration of industrial development at one place leads to air and sound
pollution, shortage of housing and water, problem of congestion, etc.
(vi) Pressure on existing infrastructure in metropolitan cities.
The states with low level of socio-economic development have become more
vulnerable to the adverse effect of liberalisation. Bihar, Madhya Pradesh,
Rajasthan and Uttar Pradesh are still lagging behind in terms of per capita income
and social indicators.
Poverty and under-employment are especially acute in areas with heavy pressure
of population and in those with scanty development of natural resources. Thus,
regional imbalance is a threat to the goal of inclusive growth and reduction of
poverty. Such imbalances have dampened the speed of further economic reforms,
and pose an obstacle to India’s future economic growth. They affect character
of social life, the nature of the political process, and the priorities of the state.
1) Mention four factors responsible for regional imbalance in India.
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2) Describe the nature of regional imbalance in India.
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3) Explain how regional imbalance can be measured.
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4) Explain why regional balance is important for a country and states.
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164 ........................................................................................................................
Balanced Regional Growth
10.7 POLICY INITIATIVES BY THE GOVERNMENT
TO REDUCE REGIONAL IMBALANCE
A number of questions arise at this point. What criteria a government should
consider to evaluate regional imbalance? What type of policy a government
should adopt to bring in balanced regional development? It is not easy to answer
these questions. Active state intervention however has been envisaged to reduce
the disparities. During the past 70 years of planned development in India, many
efforts have been made to bring backward regions at par with the advanced
regions. Some of these steps are given below.
(i) Priority has been given to programmes in areas such as agriculture,
community development and irrigation, local development works, etc. These
sectors have a strong linkage with the locality and helps in development of
the area.
(ii) Ensuring provision of economic infrastructure such as power, water supply,
transport and communications, training institutions, etc. in backward areas.
Availability of infrastructure in the area would provide incentives for
establishment of industries and provide employment opportunities to the
local people.
(iii) Launching of programmes for the expansion of micro, small and medium
enterprises (MSMEs). Industrial estates have been set up in all states and
increasingly they are to be located in the smaller towns and rural areas.
(iv) In the case of location of new enterprises, particularly public enterprises,
consideration has been given to the need for developing all the regions of
the country. Many higher education institutions have also been established
in backward regions.
(v) According to the erstwhile Planning Commission (2013) the regional aspects
of development were dealt with in the following manner:
(a) In the plans of the states emphasis was given to programmes which had
a direct bearing on the welfare of the people in different parts of the
country.
(b) Special programmes were undertaken in specific regions areas where
development had either received a temporary setback, or was being
held back by certain basic deficiencies.
(c) Steps were taken to secure more dispersed development of industry
which, in turn, created conditions for development in several related
fields.
(d) In general, efforts were made to enlarge the possibilities of development
in areas which have in the past been relatively backward.
The mechanism employed to achieve regional balance in development was
the transfer of resources from the Centre to the states. These transfers, which
are more heavily directed to populous and poorer states, have been channelled
through the Finance Commission and the Planning Commission. Some of these
transfers are as follows:
a) The Gadgil Formula was evolved in 1969 for determining the allocation
of central assistance for state plans. The formula took due cognizance
of the need for balanced regional development. Special weightage has
165
been given to backward states in allocation of resources.
Issues in Indian Economy b) The concept of Special Category States was introduced by the Fifth
Finance Commission (1969) for providing special assistance to
disadvantaged states with a low resource base, difficult terrain, low
population density, inadequate infrastructure and non-viable state
finances.
c) The Planning Commission adopted an area-specific approach in
its planning strategy and introduced multiple centrally sponsored
programmes.
d) The Tribal Development Programme, the Hill Area Development
Programme, and the Western Ghats Development Programme were
initiated, catering to geographically homogeneous and backward regions.
However, such area-specific approaches for growing divergences in
development patterns have not been successful.
The Rajan Committee (2013) proposed a general method for allocating funds
from the Centre to the states based both on a state’s development needs as well
as its development performance. The Committee proposed allocations based
on the index, but with allocations increasing more than linearly to the most
underdeveloped states. The scheme of allocation accommodates differences
in needs, even while recognizing that the truly needy states should be given
disproportionately more funds. Over the years there has been an improvement
in some areas in reducing regional disparities. However, because of the fact that
several states are not able to access the fruits of development equitably, the overall
stress in the national polity has been increasing (Planning Commission, 2013).
10.8 ISSUES IN BALANCED REGIONAL

DEVELOPMENT
Not only are regional disparities pronounced, they have even increased since the
1990s (Ahluwalia 2000). Economic growth since economic liberalisation has
enhanced divergence rather than fostering convergence.
The objective of balanced regional development has consistently featured as
an important agenda of development plans. India’s geographical diversity and
different levels of development across regions imply that targeted action would
be required in less prosperous regions to ensure a minimum acceptable level
of prosperity. This requires a common set of national policies which must be
complemented by policies and programmes targeted at specific regions.
The NITI Aayog (2017) in its agenda proposed policy changes and programmes
for action during 2017-18 to 2019-20. This document highlighted regional
disparity as a critical development issue and offered ambitious proposals for
policy changes within a short period. The geographical characteristics of the
country require region-specific policies and programmes. With these factors in
view, the NITI Aayog (2017) focused on targeted actions in the following four
regions in India:
a. North Eastern Region (NER)
b. Coastal Areas and Islands
c. North Himalayan States
d. Desert & Drought Prone Areas
166
Development policies should enable backward regions to overcome the Balanced Regional Growth
disadvantages they face and make available at least some minimum standard
of services for their citizens (Planning Commission, 2008). Kurian (2005) has
stressed that “reduction of regional disparities should be looked upon as a national
objective. The strength of a building depends on the strength of its weakest pillar.
In a similar way the strength of the Indian economy depends on the strength of
the economy of Bihar. Similarly, the bottom line of India’s human development
will depend on the incomes and socio-demographic indicators of development
in northern and eastern India”.
Kurien (2005) is of the view that “the solution mainly rests with the local
leadership. Unless the local leadership – political, bureaucratic and intellectual
–resolve to usher in development based on sharing the gains on egalitarian basis
with the masses, results will be hard to come by. Resources are not the real
constraint. It is the way resources are spent. Unless the work culture in public
services changes, funds alone will not solve the problems. It is imperative that
Centre and the leadership of the backward States should evolve institutional
arrangements to ensure that funds transferred result in the best use in terms of
development”.
Fostering competition amongst states through the business reforms action plan
is expected to improve regional balance. Inter-state competition in improving
governance and the ease of doing business will be of help towards balanced
regional growth. But enticing private investment will need further action on
simplifying regulatory architecture, reducing the litigation and alternative dispute
settlement mechanisms, and easing factors of production, where action rests with
the state. This could also catalyse private investment and innovative public-private
partnerships (Shankar, 2017).
These backward regions should make efforts themselves to improve their
economic and social condition. However, these can be achieved only by taking
concrete action on the ground. If India has to do well, the States as a whole must
do well. Many State Governments are also taking action to redress the problem
of regional imbalances. The role of the Centre in promoting equity among States
and regions has assumed added importance in the post liberalization era.
The main issues of achieving regional balance relate to
(i) Reducing divergence and fostering convergence across regions.
(ii) Keeping in view the geographical diversity of the country, there is a need to
have targeted action plan for less developed regions to ensure that a minimum
acceptable level of prosperity is brought to these regions.
(iii) To make action plan effective, there is a need to have a common set of
national policies which would complement policies and programmes targeted
at specific regions.
(iv) There is a case for having region-specific programmes to provide a given
minimum level of amenities to less developed regions at the earliest because
growth and prosperity must exhibit regional balance.
(v) Need for investments in backward areas.
(vi) Ensuring good governance in backward states.
167
Issues in Indian Economy Check your progress
Q1. Is policy needed to reduce regional imbalance? Give two arguments.
........................................................................................................................
........................................................................................................................
........................................................................................................................
Q2. What important policy measures have been taken by the government to
achieve regional balance? Mention four measures.
........................................................................................................................
........................................................................................................................
........................................................................................................................
Q3. Which kind of policy measures are important? Write five sentences.
........................................................................................................................
........................................................................................................................
........................................................................................................................
Q4. Point out reasons for policies not being very effective. Indicate important
ones.
........................................................................................................................
........................................................................................................................
........................................................................................................................
Q5. What suggestions will you give for achieving regional balance? Write four
of them.
........................................................................................................................
........................................................................................................................
........................................................................................................................
10.9 LET US SUM UP

Regional imbalance is a common phenomenon in India. The co-existence of
relatively developed and economically depressed states and even regions within
each state is known as regional imbalance. Regional Imbalances implies that there
are differences in the level of economic development across regions. Regional
imbalances may be inter-state or intra-state. Some parts of the country are highly
developed and some parts are severely affected by lack of resources and facilities.
Some regions are quite rich in natural resources but they are poor because they
are unable to utilize the resources. A group of factors are responsible for regional
disparity such as historical, geographical, political, location-specific, social, etc.
Income Inequalities is another important problem.
Regional imbalance is a threat to the goal of inclusive growth and reduction of
poverty. Impact of regional disparities may be discerned in the form of unplanned
migration, social tension, conflict with local people, unutilized vs. over-utilized
resources, left wing extremism, political uncertainty, etc.
168
The issue of achieving regional balance has been an integral component of Balanced Regional Growth
development policy. Various steps have been taken to address the issue of
regional imbalance through the mechanism of Finance Commission and Planning
Commission.
Despite having pro-backward areas policy and programmes, considerable
economic and social inequalities exist across states. After economic liberalisation,
the disparity across states has increased. Intra-state disparity has also increased over
time. There is a strong need for strengthening good governance in the backward
areas. Towards this end, it is necessary that the local bodies in the backward
areas are empowered and strengthened to reduce the regional imbalances in the
country. Investing in education, connecting areas and regions (through roads, rail,
air and information technology), improving urban management, empowering the
poor, and introducing social safety nets are some of main areas where concerted
action is needed.
10.10 KEY WORDS

Gini Coefficient: The Gini coefficient is a measure of inequality. It is often
used as a measure of inequality across households or individuals, which can be
extended to measure inequality across regions or states or countries. The Gini
coefficient takes on values between 0 and 1, with zero interpreted as perfect
equality. The Gini coefficient assigns an equal weight to each region regardless
of its size. Differences in the values of the coefficient across countries may partly
reflect the differences in the size of regions in each country.
OMPI: the Oxford Multidimensional Poverty Index is an international measure
of acute poverty covering over 100 developing countries. Recently India has
started measuring poverty across states by using MPI (see Unit 7). The OMPI
complements traditional income-based poverty measures by capturing the
deprivations that each person faces at the same time with respect to education,
health and living standards.
Inter-State Council: This is not a permanent constitutional body, which can be
created at any time. It was set up in 1990 through a presidential ordinance for
the first time as per the recommendations of the Sarkaria Commission under
the Ministry of Home affairs. The secretarial functions of the Zonal Councils
have been reassigned to the Inter-State Council Secretariat from 1st April 2011.
Inter-State Council works as an instrument for cooperation, coordination and the
evolution of common policies. The interstate council is proposed to meet thrice a
year. But in 26 years, it has met only 11 times. The latest meeting was held after
a gap of 10 years in Delhi in July 2016.
NITI Aayog: The National Institution for Transforming India, better known
as NITI Aayog, is constituted to replace the Planning Commission, which had
been instituted in 1950., NITI Aayog, was formed via a resolution of the Union
Cabinet on January 1, 2015.
This is the premier policy think tank of the Government of India, providing
directional and policy inputs, apart from designing strategic and long-term policies
and programmes for the Government of India. It also serves relevant technical
advice to the Centre, States, and Union Territories. The Governing Council of
NITI Aayog is chaired by the Prime Minister and comprises Chief Ministers of
all the States and Union Territories with legislatures and Lt. Governors of the
Union Territories.
169
1. What do you mean by balanced regional growth? Is regional inequality in
India actually a problem of economic geography? Discuss.
2. Analyse the causes of regional imbalance in India? Which cause(s) you
consider to be of importance in the present condition?
3. Describe the impact of regional imbalance in the economy. Classify the
impact into social, economic and political.
4. Explain the policy steps taken by the government since 1960 and with what
effect?
5. How do you suggest the policy makers for an effective plan for achieving
balanced regional growth in the country? Narrate your plan in some detail.
SOME USEFUL BOOKS / REFERENCES

Ahluwalia, M. (2000), “State Level Performance under Economic Reforms in
India” (Paper presented at the Centre for Research on Economic Development
and Policy Reform Conference on Indian Economic Prospects: Advancing Policy
Reform, May 2000; Stanford University) http://planningcommission.nic.in/
aboutus/speech/spemsa/msa007.pdf
Goswami, Omkar (2022, January 26). A Tale of two Indias: The regional skew in
Government of India (2013), Report of the Committee for evolving a composite
development index of states.
Janardhan, Gadekar Deepak & Rajendra, Sonawane Vijay (2017, May).
Regional Disparities of Socio- Economic Development in Ahmednagar District,
Maharashtra (India). International Journal of Recent Research and Applied Studies
Volume 4, Issue 5(5).
Majumder, Rajarshi (2005) Infrastructure and regional development: Interlinkages
in India. Indian Economic Review, Vol. XXXX, No. 2, pp. 167-184
Niti Aayog: India (2017): Three Year Action Agenda (2017-18 and 2019-20)
Planning Commission (2013). Twelfth five year plan (2012 - 2017) Vol. I. Sage
Publications India Pvt Ltd, New Delhi.
170

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Poverty and Inequality

7.6.2 Gender Equality and Economic Growth

7.7 Poverty Alleviation Strategy in India

7.2 CONCEPT OF POVERTY

7.3 MEASUREMENT OF POVERTY IN INDIA

7.4 CAUSES OF POVERTY

Table 7.1: Poverty Ratio among Social Groups (2011-12)

7.5 POVERTY AND INEQUALITY

7.6 GENDER EQUALITY, POVERTY AND

7.7 POVERTY ALLEVIATION STRATEGY IN INDIA

7.8 LET US SUM UP

7.9 KEY WORDS

7.10 TERMINAL QUESTIONS

Fig. 8.1: Disguised Unemployment

8.3 NATURE AND EXTENT OF UNEMPLOYMENT

Fig. 8.2: Types of Unemployment in Rural and Urban India

Source: Economic Survey 2015-16 and Five Year Plan Documents

Another source of data on unemployment among educated youth is the

8.4 CAUSES OF UNEMPLOYMENT

Source: Economic Survey 2015-16 and 2018-19.

Source: Five Year Plan & Economic Survey, 2013-14.

8.5 CONSEQUENCES OF UNEMPLOYMENT

8.6 POLICY INITIATIVES FOR EMPLOYMENT

8.7 LET US SUM UP

8.8 KEY WORDS

8.9 TERMINAL QUESTIONS

9.3 CAUSES OF INEQUALITY

9.4 MEASUREMENT OF INEQUALITY

Fig. 9.1: Lorenz Curve 151

Fig. 9.2: Gini Coefficient

9.5 POLICY MEASURES TO REDUCE INEQUALITY

9.6 LET US SUM UP

9.7 KEY WORDS

Short Answer Type Questions

10.2 NATURE OF REGIONAL IMBALANCE IN

10.3 MEASUREMENT OF REGIONAL IMBALANCE

10.4 NEED FOR BALANCED REGIONAL

10.5 FACTORS RESPONSIBLE FOR REGIONAL

10.8 ISSUES IN BALANCED REGIONAL

10.9 LET US SUM UP

10.10 KEY WORDS

SOME USEFUL BOOKS / REFERENCES

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