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POVERTY AND DEVELOPMENT ISSUES Definition of Poverty The definition of poverty matters because how it is defined determines how much poverty there is believed to be. The definition can also influence the explanations of poverty and the possible solutions that are put forward. Poverty can be defined as a social phenomenon in which a section of society is unable to fulfill even its basic necessities of life. When a substantial section is deprived of minimum level of living and continues with a bare subsistence level, that society is said to be plagued with mass poverty. Poverty implies a condition in which a person is unable to maintain living standard adequate for his physical and mental efficiency. Poverty erodes self-esteem and opportunities to live life to the fullest. The cumulative effect is the wide gap between haves and have not’s. According to World Bank, Poverty is deprivation in well-being and is multi-dimensional. It includes low incomes and inability to acquire the basic goods and services necessary for survival with dignity. The dynamic nature of Poverty: The concept of poverty today, is different from what it was thirty years ago. The left and right of politics is not necessarily always in conformity with the lived experiences of ordinary Indians
Page 47
Left: They want to expand social welfare programmes for the poor by highlighting the growing inequalities between rich and poor. Right: they want to alleviate the growing burden of welfare policies and introduce economic growth to improve the lives of poor. Thus, it is needed that poverty be understood and tackled with tailor made approaches to align with the transition happening in society. Dimensions of Poverty: Poverty may be defined as either absolute or relative. Absolute poverty or destitution refers to the lack of means necessary to meet basic needs such as food, clothing and shelter.
Absolute poverty is a condition characterised by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information. It depends not only on income, but also on access to services.
Relative poverty views poverty as dependent on social context, hence relative poverty is a measure of income inequality. Usually, relative poverty is measured as the percentage of population with income less than some fixed proportion of median income.
Types of poverty: 1. Absolute poverty: The state in which people do not have the minimum level of income deemed necessary for living in a civilized way. 2. Relative poverty: Relative poverty is when some people?s way of life and income is so much worse than the general standard of living in the country or region in which they live that they struggle to live a normal life and to participate in ordinary economic, social and cultural activities. 3. Always poor: These people are never have income above poverty line in their lifetime. 4. Usually poor: Those people who are generally poor but who may sometimes have a little more money. ex: casual workers 5. Chronic poor: Always poor and usually poor together are categorised under chronic poor.
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6. Churning poor: Those people who regularly move in and out of poverty. ex: small farmers and seasonal workers 7. Occasionally poor: Those who are rich most of the time but may sometimes have a patch of bad luck. 8. Transient poor: Churning poor and occasionally poor are categorised under this. 9. Non – Poor: Those who are never poor in their lifetime. Poverty estimation: The estimation of the poverty is done by the planning commission on the basis of large sample survey of the consumer expenditure carried out by the National Sample Survey office(NSSO) carried out after an interval of 5 years. The Ministry of Rural development conducts the Below Poverty Line(BPL) Census with the objective of identifying the BPL households in rural areas, who could be assisted under various programmes of the ministry. Committees for poverty estimation:
Dadabhai Naoroji -- pioneer in the pre-independent India to work on the concept of Poverty Line.
In 1962, the Planning Commission constituted a working group to estimate poverty nationally, and it formulated separate poverty lines for rural and urban areas – of Rs 20 and Rs 25 per capita per year respectively.
VM Dandekar and N Rath made the first systematic assessment of poverty in India in 1971, based on National Sample Survey (NSS) data from 1960-61. They argued that the poverty line must be derived from the expenditure that was adequate to provide 2250 calories per day in both rural and urban areas. This generated debate on minimum calorie consumption norms while estimating poverty and variations in these norms based on age and sex.
Alagh Committee (1979)
Lakdawala Committee (1993)
Tendulkar Committee (2009)
Recommendations of N.C. Saxena Committee
Page 49
Dr. Arjun sengupta committee for poverty related to unorganised sector (Rs. 20 per day criteria)
Rangarajan Committee
World Bank's “money metric” approach
Some of the Committees in detail: Alagh Committee (1979): In 1979, a task force constituted by the Planning Commission for the purpose of poverty estimation, chaired by YK Alagh, constructed a poverty line for rural and urban areas on the basis of nutritional requirements. As per the recommendations poverty line was devised to be as given below: Area Calories Rural 2400 Urban 2100 Lakdawala Committee (1993): In 1993, an expert group constituted to review methodology for poverty estimation, chaired by DT Lakdawala, made the following suggestions: consumption expenditure should be calculated based on calorie consumption as earlier; state specific poverty lines should be constructed and these should be updated using the Consumer Price Index of Industrial Workers (CPI-IW) in urban areas and Consumer Price Index of Agricultural Labour (CPI-AL) in rural areas;
Page 50
Discontinuation of ‘scaling’ of poverty estimates based on National Accounts Statistics. This assumes that the basket of goods and services used to calculate CPI-IW and CPI-AL reflect the consumption patterns of the poor. Tendulkar Committee (2009): In 2005, another expert group to review methodology for poverty estimation, chaired by Suresh Tendulkar, was constituted by the Planning Commission to address the following three shortcomings of the previous methods: consumption patterns were linked to the 1973-74 poverty line baskets (PLBs) of goods and services, whereas there were significant changes in the consumption patterns of the poor since that time, which were not reflected in the poverty estimates; There were issues with the adjustment of prices for inflation, both spatially (across regions) and temporally (across time); Earlier poverty lines assumed that health and education would be provided by the State and formulated poverty lines accordingly. It recommended four major changes: (i) a shift away from calorie consumption based poverty estimation; (ii) a uniform poverty line basket (PLB) across rural and urban India; (iii) a change in the price adjustment procedure to correct spatial and temporal issues with price adjustment; and (iv) incorporation of private expenditure on health and education while estimating poverty. The Committee recommended using Mixed Reference Period (MRP) based estimates, as opposed to Uniform Reference Period (URP) based estimates that were used in earlier methods for estimating poverty. As per Tendulkar committee: Monthly percapita expenditure for Rural is 816 and for Urban is 1000 rs. Rangarajan Committee: In 2012, the Planning Commission constituted a new expert panel on poverty estimation, chaired by C Rangarajan with the following key objectives: (i) to provide an alternate method to estimate poverty levels and examine whether poverty lines should be fixed solely in terms of a consumption basket or if other criteria are also relevant; (ii) to examine divergence between the consumption estimates based on the NSSO methodology and those emerging from the National Accounts aggregates; (iii) to review international poverty estimation methods and indicate whether based on these, a particular method for empirical poverty estimation can be developed in India, and (iv) to recommend how these estimates of poverty can be linked to eligibility and entitlements under the various schemes of the Government of India.
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As per Rangarajan Committee: Monthly expenditure of Family of Five: 4860(RURAL); 7035(URBAN) Recent Update: A recent World Bank (WB) report brought out poverty ratios across countries. According to these estimates, poverty in India in 2011-12 could be as low as 12.4 per cent if we use “modified mixed reference period” (MMRP), in which there are three recall periods depending on the nature of items. This contrasts with the Rangarajan committee estimates of 29.5 per cent. The poverty line (PL) used by the Rangarajan committee for India was around Rs 1,105 per capita per month. That translates to $2.44 per capita per day, in terms of purchasing power parity. As such, the WB’s PL of $1.90 per capita per day is only about 78 per cent of the PL used by the Rangarajan committee. The lower PL is the reason for the lower poverty ratio estimated by the WB. Concept of Socio-Economic Caste Census (SECC) Recently, the government released data from the Socio-Economic Caste Census (SECC) 2011. There has been comment that hereafter, we need not have consumption-based poverty estimates using NSS (National Sample Surveys) data. It is thought that SECC data will alone be enough to estimate poverty and deprivation. What is the difference between NSS and SECC? NSS consumption-based poverty estimates are still relevant. SECC-based estimates are important, but no substitutes for NSS-based poverty ratios. Estimates based on SECC and NSS data have different purposes. What is the present basis for poverty line? Based on the analysis presented in the expert group report, monthly per capita consumption expenditure of Rs 972 in rural areas and Rs 1,407 in urban areas is treated as the poverty line at the all-India level. Assuming five members for a family, this will imply a monthly per household expenditure of Rs 4,860 in rural areas and Rs 7,035 in urban areas. The expert group estimates that 30.9 per cent of the rural population and 26.4 per cent of the urban population were below the poverty line in 2011-12. The all-India ratio was 29.5 per cent.
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IAS BABA’s View Poverty estimates provide the proportion and size of the poor population and their spread across states and broad regions. But they cannot be used for identification of the individual poor, which is necessary to ensure that the benefits of programmes and schemes reach only the deserving and targeted group. CAUSES OF POVERTY Historical reason: Pre-independence: Colonial Exploitation: Colonial rule in India is the main reason of poverty and backwardness in India. The Indian economy was purposely and severely de-industrialized through colonial privatizations. British rule replaced the wasteful warlord aristocracy by a bureaucratic-military establishment. However, colonial exploitation caused backwardness in India.
1. Zamindari system
2. Sharp increase on rural taxes
3. Export of food grains
4. Famine
5. De-industrialization in India – closing of Indian handloom and cottage industries
6. India turning into raw material exporter and importer of finished goods
Post – independence:
1. Poor planning
2. Failure of trickle down theory
3. Emphasis on economic growth and not on development
4. Slow economic growth
5. Unequal distribution of wealth
6. Poor land reforms – fragmentation of land
7. Green revolution - helping large land owners and not small farmers.
POVERTY AND DEVELOPMENT ISSUES Definition of Poverty The definition of poverty matters because how it is defined determines how much poverty there is believed to be. The definition can also influence the explanations of poverty and the possible solutions that are put forward. Poverty can be defined as a social phenomenon in which a section of society is unable to fulfill even its basic necessities of life. When a substantial section is deprived of minimum level of living and continues with a bare subsistence level, that society is said to be plagued with mass poverty. Poverty implies a condition in which a person is unable to maintain living standard adequate for his physical and mental efficiency. Poverty erodes self-esteem and opportunities to live life to the fullest. The cumulative effect is the wide gap between haves and have not’s. According to World Bank, Poverty is deprivation in well-being and is multi-dimensional. It includes low incomes and inability to acquire the basic goods and services necessary for survival with dignity. The dynamic nature of Poverty: The concept of poverty today, is different from what it was thirty years ago. The left and right of politics is not necessarily always in conformity with the lived experiences of ordinary Indians
Page 47
Left: They want to expand social welfare programmes for the poor by highlighting the growing inequalities between rich and poor. Right: they want to alleviate the growing burden of welfare policies and introduce economic growth to improve the lives of poor. Thus, it is needed that poverty be understood and tackled with tailor made approaches to align with the transition happening in society. Dimensions of Poverty: Poverty may be defined as either absolute or relative. Absolute poverty or destitution refers to the lack of means necessary to meet basic needs such as food, clothing and shelter.
Absolute poverty is a condition characterised by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information. It depends not only on income, but also on access to services.
Relative poverty views poverty as dependent on social context, hence relative poverty is a measure of income inequality. Usually, relative poverty is measured as the percentage of population with income less than some fixed proportion of median income.
Types of poverty: 1. Absolute poverty: The state in which people do not have the minimum level of income deemed necessary for living in a civilized way. 2. Relative poverty: Relative poverty is when some people?s way of life and income is so much worse than the general standard of living in the country or region in which they live that they struggle to live a normal life and to participate in ordinary economic, social and cultural activities. 3. Always poor: These people are never have income above poverty line in their lifetime. 4. Usually poor: Those people who are generally poor but who may sometimes have a little more money. ex: casual workers 5. Chronic poor: Always poor and usually poor together are categorised under chronic poor.
Page 48
6. Churning poor: Those people who regularly move in and out of poverty. ex: small farmers and seasonal workers 7. Occasionally poor: Those who are rich most of the time but may sometimes have a patch of bad luck. 8. Transient poor: Churning poor and occasionally poor are categorised under this. 9. Non – Poor: Those who are never poor in their lifetime. Poverty estimation: The estimation of the poverty is done by the planning commission on the basis of large sample survey of the consumer expenditure carried out by the National Sample Survey office(NSSO) carried out after an interval of 5 years. The Ministry of Rural development conducts the Below Poverty Line(BPL) Census with the objective of identifying the BPL households in rural areas, who could be assisted under various programmes of the ministry. Committees for poverty estimation:
Dadabhai Naoroji -- pioneer in the pre-independent India to work on the concept of Poverty Line.
In 1962, the Planning Commission constituted a working group to estimate poverty nationally, and it formulated separate poverty lines for rural and urban areas – of Rs 20 and Rs 25 per capita per year respectively.
VM Dandekar and N Rath made the first systematic assessment of poverty in India in 1971, based on National Sample Survey (NSS) data from 1960-61. They argued that the poverty line must be derived from the expenditure that was adequate to provide 2250 calories per day in both rural and urban areas. This generated debate on minimum calorie consumption norms while estimating poverty and variations in these norms based on age and sex.
Alagh Committee (1979)
Lakdawala Committee (1993)
Tendulkar Committee (2009)
Recommendations of N.C. Saxena Committee
Page 49
Dr. Arjun sengupta committee for poverty related to unorganised sector (Rs. 20 per day criteria)
Rangarajan Committee
World Bank's “money metric” approach
Some of the Committees in detail: Alagh Committee (1979): In 1979, a task force constituted by the Planning Commission for the purpose of poverty estimation, chaired by YK Alagh, constructed a poverty line for rural and urban areas on the basis of nutritional requirements. As per the recommendations poverty line was devised to be as given below: Area Calories Rural 2400 Urban 2100 Lakdawala Committee (1993): In 1993, an expert group constituted to review methodology for poverty estimation, chaired by DT Lakdawala, made the following suggestions: consumption expenditure should be calculated based on calorie consumption as earlier; state specific poverty lines should be constructed and these should be updated using the Consumer Price Index of Industrial Workers (CPI-IW) in urban areas and Consumer Price Index of Agricultural Labour (CPI-AL) in rural areas;
Page 50
Discontinuation of ‘scaling’ of poverty estimates based on National Accounts Statistics. This assumes that the basket of goods and services used to calculate CPI-IW and CPI-AL reflect the consumption patterns of the poor. Tendulkar Committee (2009): In 2005, another expert group to review methodology for poverty estimation, chaired by Suresh Tendulkar, was constituted by the Planning Commission to address the following three shortcomings of the previous methods: consumption patterns were linked to the 1973-74 poverty line baskets (PLBs) of goods and services, whereas there were significant changes in the consumption patterns of the poor since that time, which were not reflected in the poverty estimates; There were issues with the adjustment of prices for inflation, both spatially (across regions) and temporally (across time); Earlier poverty lines assumed that health and education would be provided by the State and formulated poverty lines accordingly. It recommended four major changes: (i) a shift away from calorie consumption based poverty estimation; (ii) a uniform poverty line basket (PLB) across rural and urban India; (iii) a change in the price adjustment procedure to correct spatial and temporal issues with price adjustment; and (iv) incorporation of private expenditure on health and education while estimating poverty. The Committee recommended using Mixed Reference Period (MRP) based estimates, as opposed to Uniform Reference Period (URP) based estimates that were used in earlier methods for estimating poverty. As per Tendulkar committee: Monthly percapita expenditure for Rural is 816 and for Urban is 1000 rs. Rangarajan Committee: In 2012, the Planning Commission constituted a new expert panel on poverty estimation, chaired by C Rangarajan with the following key objectives: (i) to provide an alternate method to estimate poverty levels and examine whether poverty lines should be fixed solely in terms of a consumption basket or if other criteria are also relevant; (ii) to examine divergence between the consumption estimates based on the NSSO methodology and those emerging from the National Accounts aggregates; (iii) to review international poverty estimation methods and indicate whether based on these, a particular method for empirical poverty estimation can be developed in India, and (iv) to recommend how these estimates of poverty can be linked to eligibility and entitlements under the various schemes of the Government of India.
Page 51
As per Rangarajan Committee: Monthly expenditure of Family of Five: 4860(RURAL); 7035(URBAN) Recent Update: A recent World Bank (WB) report brought out poverty ratios across countries. According to these estimates, poverty in India in 2011-12 could be as low as 12.4 per cent if we use “modified mixed reference period” (MMRP), in which there are three recall periods depending on the nature of items. This contrasts with the Rangarajan committee estimates of 29.5 per cent. The poverty line (PL) used by the Rangarajan committee for India was around Rs 1,105 per capita per month. That translates to $2.44 per capita per day, in terms of purchasing power parity. As such, the WB’s PL of $1.90 per capita per day is only about 78 per cent of the PL used by the Rangarajan committee. The lower PL is the reason for the lower poverty ratio estimated by the WB. Concept of Socio-Economic Caste Census (SECC) Recently, the government released data from the Socio-Economic Caste Census (SECC) 2011. There has been comment that hereafter, we need not have consumption-based poverty estimates using NSS (National Sample Surveys) data. It is thought that SECC data will alone be enough to estimate poverty and deprivation. What is the difference between NSS and SECC? NSS consumption-based poverty estimates are still relevant. SECC-based estimates are important, but no substitutes for NSS-based poverty ratios. Estimates based on SECC and NSS data have different purposes. What is the present basis for poverty line? Based on the analysis presented in the expert group report, monthly per capita consumption expenditure of Rs 972 in rural areas and Rs 1,407 in urban areas is treated as the poverty line at the all-India level. Assuming five members for a family, this will imply a monthly per household expenditure of Rs 4,860 in rural areas and Rs 7,035 in urban areas. The expert group estimates that 30.9 per cent of the rural population and 26.4 per cent of the urban population were below the poverty line in 2011-12. The all-India ratio was 29.5 per cent.
Page 52
IAS BABA’s View Poverty estimates provide the proportion and size of the poor population and their spread across states and broad regions. But they cannot be used for identification of the individual poor, which is necessary to ensure that the benefits of programmes and schemes reach only the deserving and targeted group. CAUSES OF POVERTY Historical reason: Pre-independence: Colonial Exploitation: Colonial rule in India is the main reason of poverty and backwardness in India. The Indian economy was purposely and severely de-industrialized through colonial privatizations. British rule replaced the wasteful warlord aristocracy by a bureaucratic-military establishment. However, colonial exploitation caused backwardness in India.
1. Zamindari system
2. Sharp increase on rural taxes
3. Export of food grains
4. Famine
5. De-industrialization in India – closing of Indian handloom and cottage industries
6. India turning into raw material exporter and importer of finished goods
Post – independence:
1. Poor planning
2. Failure of trickle down theory
3. Emphasis on economic growth and not on development
4. Slow economic growth
5. Unequal distribution of wealth
6. Poor land reforms – fragmentation of land
7. Green revolution - helping large land owners and not small farmers.
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