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Poverty in India
Tuesday, 08 May 2012 09:10

Over the past two decades, India has become one of the stars of the world economy thanks to its rapid growth.  At the same time, India will not manage to realize the Millennium Development Goal of reducing by half between 1990 and 2015 the proportion of its population living on less than $1.25 a day.  

In fact, India is not making sufficient developmental progress to meet a long list of MDGs by 2015, namely, proportion of underweight children, under 5 mortality, infant mortality, maternal mortality, skilled birth attendance, ante-natal care, TB prevalence, and basic sanitation.

Let's have a closer look at poverty in this country.

For much of the post-war era, India's period of independence, the country was condemned to the "Hindu rate of growth" of about 3 1/2%, or little more than 1% a year in per capita terms.  In reality, the main cause of its poor performance was its inward-looking, socialist policies.

About twenty years ago, a financial crisis provided a trigger for launching reforms, which boosted growth.  Then the US dot.com crisis about a decade ago enticed many Indian IT workers based in the US to return home, providing a boost for the country's IT outsourcing industry.  Thus, despite the country's massive corruption, appalling infrastructure, and nightmare of a bureaucracy, the country has managed to grow very strongly.  It was also able to benefit from the period of strong global growth leading up to the global financial crisis, with China becoming a major trading partner.

But economic growth is of limited consequence if it does not improve a country's poverty.  And according to the Asian Development Bank, India's poverty is widespread and rampant, and the country's vulnerable population seems to have grown ever more vulnerable, especially to food insecurity.

Despite poverty's multiple dimensions, most estimates of poverty are based on "poverty lines" which are defined by the minimum expenditure that an individual requires to meet his or her needs.

Based on an international poverty line of consumption of $1 a day, 34% of Indians live in poverty.  This number shoots up to the alarming 80% if one uses $2 a day as a poverty line, giving it a similar level of poverty to Bangladesh and Pakistan.  The ADB recently came up with an Asian poverty line of $1.35, on which basis two-thirds of India's population or 740 million people live in poverty.

The UNDP's multidimensional poverty line places about 645 million Indians below the poverty line, or 55% of the nation's population.  In this context, alarming disparities exist across the population in terms of health and nutritional status, education and skills, as well as access to clean water and sanitation.

India's poverty problem is simple.  The country's growth has not been "inclusive", meaning that it has not created opportunities for a broad cross section of the nation.  In fact, income inequality has risen and poverty reduction trends have not improved in the reform era, a period when improved growth has been concentrated in the services and manufacturing sectors.    

The first group substantially excluded from the benefits of growth are the three-quarters of Indians who live in rural areas, the majority of which work in the agricultural sector.

India also has an appalling record when it comes to gender development and indigenous tribes, who suffer relatively greater levels of poverty.  Literacy levels among women are 54% compared with 76% for men.  And labor force participation rates for women are only 23%, less than half the 52% for men.   

And most disturbing is the enormous regional variation within this vast country.  The ADB estimates that states like Orissa, Bihar, Chhattisgarh and Jharkhand have poverty rates about double the national average, and rates so high that they rival the worst of sub-Saharan Africa. By contrast, Chandigarh, Punjab, Himachal Pradesh, and Damon and Diu have poverty rates less than half the national average.  Only 6 of India's 35 states account for 67% of the rural poor, and 72% of the urban poor reside in 7 states.     

So if you visit one of the latter states on your next trip to India, you will not be able to observe the dire state of Indian poverty.

The case of India is a powerful reminder that, while economic growth can be a powerful tool for poverty reduction, the ultimate effect of growth on poverty depends significantly on the pattern and equality of growth.  India's economic success has thus been a case of a few islands of prosperity in a vast sea of poverty

India stands at a crucial juncture with market sentiment now turning against the country.  The government needs to improve the country's overall prospects for growth.  It also needs to make it more inclusive by promoting human development and providing much greater opportunities for groups suffering the most from deprivations.  And targeted decentralized action at the community level is necessary for rural development and improving access to health, education, clean water, and sanitation.

Overall, India needs to concentrate on the three pillars of poverty reduction: promoting opportunity (access to resources, services and productive employment), enhancing security (reducing vulnerabilities to shocks), and facilitating empowerment (increasing participation of poor people in decision-making).  A key to improving things in India is seriously tackling bureaucratic red tape and bribery.  But the evidence to date from India's fractious democracy is that these challenges are too much for the country's political and bureaucratic elite.

If the Indian government doesn't get its act together soon, the past two decades of relative success may end up seeming like a mirage.

Asian Development Bank.  Understanding Poverty in India.  2011.  www.adb.org


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