Causes of Rural Poverty: Rural poverty is a multi-dimensional social problem. Its causes are varied. They are as follows: 1. Climatic factors:
Page 53
Climatic conditions constitute an important cause of poverty. The hot climate of India reduces the capacity of people especially the ruralites to work for which production severely suffers. Frequent flood, famine, earthquake and cyclone cause heavy damage to agriculture. Moreover, absence of timely rain, excessive or deficient rain affect severely country’s agricultural production. 2. Demographic factors: The following demographic factors are accountable for poverty in India. (i) Rapid growth of population: Rapid growth of population aggravates the poverty of the people. The growth of population exceeds the rate of growth in national income. Population growth not only creates difficulties in the removal of poverty but also lowers the per capita income which tends to increase poverty. The burden of this reduction in per capita income is borne heavily by the poor people. Population growth at a faster rate increases labour supply which tends to lower the wage rate. (ii) Size of family: Size of the family has significant bearing on rural poverty. The larger the size of family, the lower is the per capita income, and the lower is the standard of living. The persistence of the joint family system has contributed to the health and earning capacity of the ruralites. 3. Personal causes: (i) Lack of motivation: Lack of motivation is an important cause of rural poverty. Some ruralites do not have a motive to work hard or even to earn something. This accounts for the poverty of the ruralites.
Page 54
4. Economic causes: (i) Low agricultural productivity: Poverty and real income are very much interrelated. Increase in real income leads to reduction of the magnitude of poverty. So far as agricultural sector is concerned, the farmers even today are following the traditional method of cultivation. Hence there is low agricultural productivity resulting in rural poverty.
(ii) Over-reliance on Agriculture:
In India there is high level of dependence on primitive methods of agriculture. There is a surplus of labour in agriculture. Farmers are a large vote bank and use their votes to resist reallocation of land for higher-income industrial projects. While services and industry have grown at double digit figures, the agriculture growth rate has dropped from 4.8 per cent to below 2 per cent. About 60 per cent of the population depends on agriculture, whereas the contribution of agriculture to the GDP is below 18 per cent. The agricultural sector has remained very unproductive. There is no modernization of agriculture despite some mechanization in some regions of India. (iii) Unequal distribution of land and other assets: Land and other forms of assets constitute sources of income for the ruralites. But, unfortunately, there has been unequal distribution of land and other assets in our economy. The size-wise distribution of operational holdings indicates a very high degree
Page 55
of concentration in the hands of a few farmers leading to poverty of many in the rural sector. (iv) Decline of village industries: At present consequent upon industrialization new factories and industries are being set up in rural areas. Village industries fail to compete with them in terms of quality and price. As a result they are closed down. The workers are thrown out of employment and lead a life of poverty. (v) Immobility of labour: Immobility of labour also accounts, for rural poverty. Even if higher wages are offered, labourers are not willing to leave their homes. The joint family system makes people lethargic and stay-at-home. The ruralites are mostly illiterate, ignorant, conservative, superstitious and fatalistic. Poverty is considered as god-given, something preordained. All these factors lead to abysmal poverty in rural India. (vi) Lack of employment opportunities: Unemployment is the reflection of poverty. Because of lack of employment opportunities, people remain either unemployed or underemployed. Most of these unemployed and underemployed workers are the small and marginal farmers and the landless agricultural labourers. 5. Social causes: (i) Education: Education is an agent of social change and egalitarianism. Poverty is also said to be closely related to the levels of schooling and these two have a circular relationship. The earning power is endowed in the individual by investment in education and training. But this investment in people takes away money and lack of human investment contributes to the low earning capacity of individuals. In this way people are poor because they have little investment in themselves and poor people do not have the funds for human capital investment. (iii) Caste system: Caste system in India has always been responsible for rural poverty. The subordination of the low caste people by the high caste people caused the poverty of the former. Due to rigid caste system, the low caste people could not participate in the game of economic progress. A Shudra was not allowed to become a trader and a Vaisya could earn his bread only by trade. Birth would decide their occupation and their economic fate. K. V. Verghese rightly observes, “Caste system acted as a springboard for class exploitation with the result that
Page 56
the counterpart of the poverty of the many is the opulence of the few. The second is the cause of the first.” (iv) Joint family system: The joint family system provides social security to its members. Some people take undue advantage of it. They live upon the income of others. They become idlers. Their normal routine of life consists in eating, sleeping and begetting children. In this way poverty gets aggravated through joint family system. (v) Social customs: The ruralites spend a large percentage of annual earnings on social ceremonies like marriage, death feast etc. As a result, they remain in debt and poverty. (vi) Growing indebtedness: In the rural sector most of the ruralites depend on borrowings from the money-lenders and land-lords to meet even their consumption expenses. Moneylenders, however, exploit the poor by charging exorbitant rates of interest and by acquiring the mortgaged land in the event of non-payment of loans. Indebted poor farmers cannot make themselves free from the clutches of moneylenders. Their poverty is further accentuated because of indebtedness. Such indebted families continue to remain under the poverty line for generations because of this debt-trap. Geographical reason:
Page 57
1. Regional imbalances
2. Heterogeneous availability of resources
3. Poor exploitation of minerals
4. Poor fertility of land
5. Lack of irrigation facilities
6. Poor agricultural growth
7. Poor technological intervention in agriculture
8. Natural calamities like cyclone, hailstorm, flood and drought.
9. Poor credit and insurance facilities for agriculture
10. Monoculture
11. Poor area specific planning of agriculture
12. Lack of allied agricultural activities
13. Environmental degradation
14. Climate change
Socio-economic reasons:
1. Unemployment and under – employment
2. High inflation
3. Poor capital formation
4. Lack of infrastructure
5. Lack of demand
6. High population growth
7. Lack of social/ welfare nets – poor implementation of existing welfare schemes
8. Poorly targeted poverty alleviation programs and high leakages
9. High corruption
10. White elephant approach
11. Politicisation of policies
12. Poor PDS system
13. Malnutrition and hunger
14. Poor public health care facilities – increasing out of pocket expenditure
15. Poor education
16. Lack of skills and vocational education
17. Lack of basic services to poor
18. Lack of community participation of poor
19. Poor bargaining power
20. Indebtedness/ debt trap
21. Caste, religious and other discrimination
Page 58
22. Poor social mobility
23. Social, economic and political inequality
Lack of Investment for the Poor: There is lack of investment for the development of poorer section of the society. Over the past 70 years, India decided to focus on creating world class educational institutions for the elite, whilst neglecting basic literacy for the majority. This has denied the illiterate population – 33 per cent of India – of even the possibility of escaping poverty. Thus, there is no focus on creating permanent income generating assets for the poor people. Social System in India: The social system is another cause of poverty in India. The social subsystems are so strongly interlocked that the poor are incapable of overcoming the obstacles. High Unemployment: There is high degree of underutilization of resources. The whole country suffers from a high degree of unemployment. India is marching with jobless economic growth. Employment is not growing, neither in the private sector, nor in the public sector. The IT sector has become elitist, which does not improve the poverty situation in the country. Disguised unemployment and seasonal unemployment is very high in the agricultural sector of India. It is the main cause of rural poverty in India. Lack of Entrepreneurship: The industrial base of India has remained very slender. The industrial sickness is very widespread. The whole industrial sector suffers from capital deficiency and lack of entrepreneurial spirit. Causes for Urban Poverty The causes of urban poverty in India are:
1. Migration of Rural Youth towards Cities
2. Lack of Vocational Education / Training
3. Limited Job Opportunities of Employment in the Cities
4. Rapid increase in Population
5. Lack of Housing Facilities
6. No proper Implementation of Public Distribution System
Page 59
Consequences of Poverty: Poverty has far reaching consequences on the society. People suffering from poverty will generally have a low standard of living. They are not able to afford education and lack access to health care and education. This will lead to a low quality of human capital and thus compromise economic growth. Poverty takes a toll on poor children’s development. For example, poverty causes malnutrition which would affect the development of a child’s mental thinking and healthy body. Poverty may also lead to political instability and lead to increased risk of war, mass emigration of population and terrorism.
Page 60
Incidence of Poverty Incidence of poverty varies widely across social groups.
High incidence of poverty prevails among the scheduled tribe and scheduled caste population, which have suffered from social and/or economic exclusion for centuries in India.
More than 45% of households among the ST group are poor while the corresponding number is only 15% among the non-backward households classified under the ‘others’ category.
Data suggests that the ¾th of the rural poor belong to the category of landless labourers and marginal farmers. The incidence of poverty is highest among agricultural labour households (59%), labour households (38.5%) and among Marginal Farmers (30%).
Factors responsible for poverty are Unemployment or underemployment among rural labourers.
It has been established that incidence of unemployment is highest among the casual labourers.
Even when they are employed, their weak bargaining power results in low wages being paid to them.
Page 61
The market forces are so strong that the minimum wage legislation is observed more in breach than in compliance.
Another cause of rural poverty is low asset base of the poor. According to data – worst 10 percent of rural population owns virtually nothing and bottom 30 percent just own 2 percent of total assets.
It may also be noted that large number of rural poor remain in poverty not only because they have very few assets, but also because most of these assets are in the form of durable consumer goods, rather than assets such as land, implements, livestock etc. which can increase their productive capacity.
Another major cause is low educational attainment of the poor. These educational differentials are one of the main factors for relatively lower level of income among poor. Another popular myth for poverty is rapid increase in population.
Population growth puts pressure on the land base and as a consequence the real per capita income falls.
Semifeudal agrarian relation is another important cause of poverty. Land reforms initiated after independence has not brought about substantial changes in agrarian relations.
Trend of Poverty in India The proportion of India's population below the poverty line has fluctuated widely in the past, but the overall trend has been downward. However, there have been roughly three periods of trends in income poverty.
1950 to mid-1970s: income poverty reduction showed no discernible trend. In 1951, 47 per cent of India's rural population was below the poverty line. The proportion went up to 64 per cent in 1954-55; it came down to 45 per cent in 1960-61, but in 1977-78, it went up again to 51 per cent.
Mid-1970s to 1990: Income poverty declined significantly between the mid-1970s and the end of the 1980s. The decline was more pronounced between 1977-78 and 1986-87, with rural income poverty declining from 51 per cent to 39 per cent. It went down further to 34 per cent by 1989-90. Urban income poverty went down from 41 per cent in 1977-78 to 34 per cent in 1986-87, and further to 33 per cent in 1989-90.
After 1991: This post-economic reform period evidenced both setbacks and progress. Rural income poverty increased from 34 per cent in 1989-90 to 43 per cent in 1992 and then fell to 37 per cent in 1993-94. Urban income poverty went up from 33.4 per cent in 1989-90 to
Page 62
33.7 per cent in 1992 and declined to 32 per cent in 1993-94. Also, NSS data for 1994-95 to 1998 show little or no poverty reduction. The evidence till 1999-2000 was that rural poverty had increased during post-reforms period. However, the official estimate of poverty for 1999-2000 was 26.1 per cent, a dramatic decline that led to much debate and analysis.
The NSS survey (2004-05) shows poverty at 28.3 per cent in rural areas, 25.7 per cent in urban areas and 27.5 per cent for the country as a whole, using uniform recall period consumption. These suggest that the decline in rural poverty over the period during 1993-94 to 2004-05 actually occurred after 1999-2000.
VICIOUS CYCLE OF POVERTY
The vicious circle of poverty refers to the interconnectedness of different factors that reinforce each other for generating poverty. According to Nurkse and Kindleberger the reasons for this vicious circle of poverty can be classified into three groups.
Supply side factors
Demand side factors
Market imperfection
Supply Side Factors The supply side of the vicious circle indicates that in underdeveloped countries, productivity is so low that it is not enough for capital formation.
According to Samuelson, "The backward nations cannot get their heads above water because their production is so low that they can spare nothing for capital formation by which their standard of living could be raised."
According to Nurkse on the supply side there is small capacity to save, resulting from low level of national income. The low real income is the result of low productivity, which in turn, is largely due to the lack of capital.
The lack of capital is a result of the small capacity to save, and so, the circle is vicious.
Thus, it becomes clear from the above diagram that the main reason of poverty is the low level of saving. Consequently, investment is not possible in production channels. A huge chunk of GDP is used for consumption purposes.
Page 63
People cannot save. So, there is lack of investment and capital formation. Although rich people can save, they spend their surplus in some on luxurious goods instead of saving. They gave preference to high priced items and foreign products. Thus, their demand does not enlarge the size of the market. The developing countries, therefore, lack investment facilities. Demand Side Factors According to Nurkse, poverty is caused by several factors in the demand side. In underdeveloped countries the inducement to invest is low because of the low purchasing power of the people, which is due to their small real income. The main reason for poverty in these countries is the low level of demand. Consequently, the sizes of markets remain low. The small size of the market becomes a hurdle in the path of inducement to invest. Market Imperfections According to Meier and Baldwin, the existence of market imperfections prevents optimum allocation and utilization of natural resources, and the result is underdevelopment, and this, in turn, leads to poverty. The development of natural resources depends upon the character of human resources. But due to lack of skill and low level of knowledge, natural resources remain unutilized, underutilised and misused.
Page 53
Climatic conditions constitute an important cause of poverty. The hot climate of India reduces the capacity of people especially the ruralites to work for which production severely suffers. Frequent flood, famine, earthquake and cyclone cause heavy damage to agriculture. Moreover, absence of timely rain, excessive or deficient rain affect severely country’s agricultural production. 2. Demographic factors: The following demographic factors are accountable for poverty in India. (i) Rapid growth of population: Rapid growth of population aggravates the poverty of the people. The growth of population exceeds the rate of growth in national income. Population growth not only creates difficulties in the removal of poverty but also lowers the per capita income which tends to increase poverty. The burden of this reduction in per capita income is borne heavily by the poor people. Population growth at a faster rate increases labour supply which tends to lower the wage rate. (ii) Size of family: Size of the family has significant bearing on rural poverty. The larger the size of family, the lower is the per capita income, and the lower is the standard of living. The persistence of the joint family system has contributed to the health and earning capacity of the ruralites. 3. Personal causes: (i) Lack of motivation: Lack of motivation is an important cause of rural poverty. Some ruralites do not have a motive to work hard or even to earn something. This accounts for the poverty of the ruralites.
Page 54
4. Economic causes: (i) Low agricultural productivity: Poverty and real income are very much interrelated. Increase in real income leads to reduction of the magnitude of poverty. So far as agricultural sector is concerned, the farmers even today are following the traditional method of cultivation. Hence there is low agricultural productivity resulting in rural poverty.
(ii) Over-reliance on Agriculture:
In India there is high level of dependence on primitive methods of agriculture. There is a surplus of labour in agriculture. Farmers are a large vote bank and use their votes to resist reallocation of land for higher-income industrial projects. While services and industry have grown at double digit figures, the agriculture growth rate has dropped from 4.8 per cent to below 2 per cent. About 60 per cent of the population depends on agriculture, whereas the contribution of agriculture to the GDP is below 18 per cent. The agricultural sector has remained very unproductive. There is no modernization of agriculture despite some mechanization in some regions of India. (iii) Unequal distribution of land and other assets: Land and other forms of assets constitute sources of income for the ruralites. But, unfortunately, there has been unequal distribution of land and other assets in our economy. The size-wise distribution of operational holdings indicates a very high degree
Page 55
of concentration in the hands of a few farmers leading to poverty of many in the rural sector. (iv) Decline of village industries: At present consequent upon industrialization new factories and industries are being set up in rural areas. Village industries fail to compete with them in terms of quality and price. As a result they are closed down. The workers are thrown out of employment and lead a life of poverty. (v) Immobility of labour: Immobility of labour also accounts, for rural poverty. Even if higher wages are offered, labourers are not willing to leave their homes. The joint family system makes people lethargic and stay-at-home. The ruralites are mostly illiterate, ignorant, conservative, superstitious and fatalistic. Poverty is considered as god-given, something preordained. All these factors lead to abysmal poverty in rural India. (vi) Lack of employment opportunities: Unemployment is the reflection of poverty. Because of lack of employment opportunities, people remain either unemployed or underemployed. Most of these unemployed and underemployed workers are the small and marginal farmers and the landless agricultural labourers. 5. Social causes: (i) Education: Education is an agent of social change and egalitarianism. Poverty is also said to be closely related to the levels of schooling and these two have a circular relationship. The earning power is endowed in the individual by investment in education and training. But this investment in people takes away money and lack of human investment contributes to the low earning capacity of individuals. In this way people are poor because they have little investment in themselves and poor people do not have the funds for human capital investment. (iii) Caste system: Caste system in India has always been responsible for rural poverty. The subordination of the low caste people by the high caste people caused the poverty of the former. Due to rigid caste system, the low caste people could not participate in the game of economic progress. A Shudra was not allowed to become a trader and a Vaisya could earn his bread only by trade. Birth would decide their occupation and their economic fate. K. V. Verghese rightly observes, “Caste system acted as a springboard for class exploitation with the result that
Page 56
the counterpart of the poverty of the many is the opulence of the few. The second is the cause of the first.” (iv) Joint family system: The joint family system provides social security to its members. Some people take undue advantage of it. They live upon the income of others. They become idlers. Their normal routine of life consists in eating, sleeping and begetting children. In this way poverty gets aggravated through joint family system. (v) Social customs: The ruralites spend a large percentage of annual earnings on social ceremonies like marriage, death feast etc. As a result, they remain in debt and poverty. (vi) Growing indebtedness: In the rural sector most of the ruralites depend on borrowings from the money-lenders and land-lords to meet even their consumption expenses. Moneylenders, however, exploit the poor by charging exorbitant rates of interest and by acquiring the mortgaged land in the event of non-payment of loans. Indebted poor farmers cannot make themselves free from the clutches of moneylenders. Their poverty is further accentuated because of indebtedness. Such indebted families continue to remain under the poverty line for generations because of this debt-trap. Geographical reason:
Page 57
1. Regional imbalances
2. Heterogeneous availability of resources
3. Poor exploitation of minerals
4. Poor fertility of land
5. Lack of irrigation facilities
6. Poor agricultural growth
7. Poor technological intervention in agriculture
8. Natural calamities like cyclone, hailstorm, flood and drought.
9. Poor credit and insurance facilities for agriculture
10. Monoculture
11. Poor area specific planning of agriculture
12. Lack of allied agricultural activities
13. Environmental degradation
14. Climate change
Socio-economic reasons:
1. Unemployment and under – employment
2. High inflation
3. Poor capital formation
4. Lack of infrastructure
5. Lack of demand
6. High population growth
7. Lack of social/ welfare nets – poor implementation of existing welfare schemes
8. Poorly targeted poverty alleviation programs and high leakages
9. High corruption
10. White elephant approach
11. Politicisation of policies
12. Poor PDS system
13. Malnutrition and hunger
14. Poor public health care facilities – increasing out of pocket expenditure
15. Poor education
16. Lack of skills and vocational education
17. Lack of basic services to poor
18. Lack of community participation of poor
19. Poor bargaining power
20. Indebtedness/ debt trap
21. Caste, religious and other discrimination
Page 58
22. Poor social mobility
23. Social, economic and political inequality
Lack of Investment for the Poor: There is lack of investment for the development of poorer section of the society. Over the past 70 years, India decided to focus on creating world class educational institutions for the elite, whilst neglecting basic literacy for the majority. This has denied the illiterate population – 33 per cent of India – of even the possibility of escaping poverty. Thus, there is no focus on creating permanent income generating assets for the poor people. Social System in India: The social system is another cause of poverty in India. The social subsystems are so strongly interlocked that the poor are incapable of overcoming the obstacles. High Unemployment: There is high degree of underutilization of resources. The whole country suffers from a high degree of unemployment. India is marching with jobless economic growth. Employment is not growing, neither in the private sector, nor in the public sector. The IT sector has become elitist, which does not improve the poverty situation in the country. Disguised unemployment and seasonal unemployment is very high in the agricultural sector of India. It is the main cause of rural poverty in India. Lack of Entrepreneurship: The industrial base of India has remained very slender. The industrial sickness is very widespread. The whole industrial sector suffers from capital deficiency and lack of entrepreneurial spirit. Causes for Urban Poverty The causes of urban poverty in India are:
1. Migration of Rural Youth towards Cities
2. Lack of Vocational Education / Training
3. Limited Job Opportunities of Employment in the Cities
4. Rapid increase in Population
5. Lack of Housing Facilities
6. No proper Implementation of Public Distribution System
Page 59
Consequences of Poverty: Poverty has far reaching consequences on the society. People suffering from poverty will generally have a low standard of living. They are not able to afford education and lack access to health care and education. This will lead to a low quality of human capital and thus compromise economic growth. Poverty takes a toll on poor children’s development. For example, poverty causes malnutrition which would affect the development of a child’s mental thinking and healthy body. Poverty may also lead to political instability and lead to increased risk of war, mass emigration of population and terrorism.
Page 60
Incidence of Poverty Incidence of poverty varies widely across social groups.
High incidence of poverty prevails among the scheduled tribe and scheduled caste population, which have suffered from social and/or economic exclusion for centuries in India.
More than 45% of households among the ST group are poor while the corresponding number is only 15% among the non-backward households classified under the ‘others’ category.
Data suggests that the ¾th of the rural poor belong to the category of landless labourers and marginal farmers. The incidence of poverty is highest among agricultural labour households (59%), labour households (38.5%) and among Marginal Farmers (30%).
Factors responsible for poverty are Unemployment or underemployment among rural labourers.
It has been established that incidence of unemployment is highest among the casual labourers.
Even when they are employed, their weak bargaining power results in low wages being paid to them.
Page 61
The market forces are so strong that the minimum wage legislation is observed more in breach than in compliance.
Another cause of rural poverty is low asset base of the poor. According to data – worst 10 percent of rural population owns virtually nothing and bottom 30 percent just own 2 percent of total assets.
It may also be noted that large number of rural poor remain in poverty not only because they have very few assets, but also because most of these assets are in the form of durable consumer goods, rather than assets such as land, implements, livestock etc. which can increase their productive capacity.
Another major cause is low educational attainment of the poor. These educational differentials are one of the main factors for relatively lower level of income among poor. Another popular myth for poverty is rapid increase in population.
Population growth puts pressure on the land base and as a consequence the real per capita income falls.
Semifeudal agrarian relation is another important cause of poverty. Land reforms initiated after independence has not brought about substantial changes in agrarian relations.
Trend of Poverty in India The proportion of India's population below the poverty line has fluctuated widely in the past, but the overall trend has been downward. However, there have been roughly three periods of trends in income poverty.
1950 to mid-1970s: income poverty reduction showed no discernible trend. In 1951, 47 per cent of India's rural population was below the poverty line. The proportion went up to 64 per cent in 1954-55; it came down to 45 per cent in 1960-61, but in 1977-78, it went up again to 51 per cent.
Mid-1970s to 1990: Income poverty declined significantly between the mid-1970s and the end of the 1980s. The decline was more pronounced between 1977-78 and 1986-87, with rural income poverty declining from 51 per cent to 39 per cent. It went down further to 34 per cent by 1989-90. Urban income poverty went down from 41 per cent in 1977-78 to 34 per cent in 1986-87, and further to 33 per cent in 1989-90.
After 1991: This post-economic reform period evidenced both setbacks and progress. Rural income poverty increased from 34 per cent in 1989-90 to 43 per cent in 1992 and then fell to 37 per cent in 1993-94. Urban income poverty went up from 33.4 per cent in 1989-90 to
Page 62
33.7 per cent in 1992 and declined to 32 per cent in 1993-94. Also, NSS data for 1994-95 to 1998 show little or no poverty reduction. The evidence till 1999-2000 was that rural poverty had increased during post-reforms period. However, the official estimate of poverty for 1999-2000 was 26.1 per cent, a dramatic decline that led to much debate and analysis.
The NSS survey (2004-05) shows poverty at 28.3 per cent in rural areas, 25.7 per cent in urban areas and 27.5 per cent for the country as a whole, using uniform recall period consumption. These suggest that the decline in rural poverty over the period during 1993-94 to 2004-05 actually occurred after 1999-2000.
VICIOUS CYCLE OF POVERTY
The vicious circle of poverty refers to the interconnectedness of different factors that reinforce each other for generating poverty. According to Nurkse and Kindleberger the reasons for this vicious circle of poverty can be classified into three groups.
Supply side factors
Demand side factors
Market imperfection
Supply Side Factors The supply side of the vicious circle indicates that in underdeveloped countries, productivity is so low that it is not enough for capital formation.
According to Samuelson, "The backward nations cannot get their heads above water because their production is so low that they can spare nothing for capital formation by which their standard of living could be raised."
According to Nurkse on the supply side there is small capacity to save, resulting from low level of national income. The low real income is the result of low productivity, which in turn, is largely due to the lack of capital.
The lack of capital is a result of the small capacity to save, and so, the circle is vicious.
Thus, it becomes clear from the above diagram that the main reason of poverty is the low level of saving. Consequently, investment is not possible in production channels. A huge chunk of GDP is used for consumption purposes.
Page 63
People cannot save. So, there is lack of investment and capital formation. Although rich people can save, they spend their surplus in some on luxurious goods instead of saving. They gave preference to high priced items and foreign products. Thus, their demand does not enlarge the size of the market. The developing countries, therefore, lack investment facilities. Demand Side Factors According to Nurkse, poverty is caused by several factors in the demand side. In underdeveloped countries the inducement to invest is low because of the low purchasing power of the people, which is due to their small real income. The main reason for poverty in these countries is the low level of demand. Consequently, the sizes of markets remain low. The small size of the market becomes a hurdle in the path of inducement to invest. Market Imperfections According to Meier and Baldwin, the existence of market imperfections prevents optimum allocation and utilization of natural resources, and the result is underdevelopment, and this, in turn, leads to poverty. The development of natural resources depends upon the character of human resources. But due to lack of skill and low level of knowledge, natural resources remain unutilized, underutilised and misused.
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