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New concerns over rising poverty

Nov 14, 2008

The latest international benchmarks suggest that between 456 and 622 million people in India are living below the poverty line. The solution lies in shifting the surplus labour force from agricultural to non-agricultural activities, says Usha Tuteja, head of the Agricultural Economics Research Centre, Delhi School of Economics.

The estimates of poverty in India have been an important but debatable issue among academia and policy makers. So far, there is no consensus on the rate and proportion of decline in poverty.

The latest numbers indicate that the level of poverty was 27.5% in 2004-05 and it has dropped to 25.9% in 2005-06. This means there were 260 million people in the country whose income was less than Rs 356.30 a month in the villages and Rs 538.60 a month in the cities. These numbers reflect the poor trickle down effect of six decades of development in the country.

New estimates

If the poverty level is redefined on the basis of access to education, health, infrastructure, clean environment and empowerment of women and children, the existing numbers of poor will add up to a staggering quantum.

Recently, two reports by the World Bank and the ADB have been released on poverty estimates. The World Bank revised its benchmark of extreme poverty up by 25 cents from $1 per person a day to $1.25 per person per day. The ADB has estimated an even higher benchmark of $1.35 per person per day.

The revised benchmark by the World Bank is the average of the national poverty lines of the worlds’ 15 poorest countries. The ADB’s benchmark is Asia-specific based on surveys from 16 Asian countries.

When these benchmarks are used for estimating poverty levels in India, the situation becomes grave and uncomfortable. By using the first poverty line, the estimated number of poor in India during 2004-05 was 456 million or 41.6% of the total population.

According to the second poverty line, the number of poor in India was 622 million, which is 54.8% of the population. Evidently, these estimates are significantly above the official estimates of 27.5% indicated by the Planning Commission. Among the states, Bihar, Chhattisgarh, Jharkhand, MP, Orissa indicate that around 40% of the population is below the poverty line.

Inclusive growth?

A deeper probe into the poverty statistics measured by the World Bank, the ADB and the Planning Commission reflects poor achievements on inclusive growth despite attaining a growth momentum of as high as 8-10% by the country over the last few years.

In the past quarter century, the poverty rate has slowly declined by somewhat less than one percentage point a year. But the number of poor have remained stubbornly large.

Moreover, the decline in poverty was faster during the ’80s than during the ’90s and in recent years. Clearly, India has not experienced the spectacular declines in poverty, expected in an emerging economy with high growth.

There are a large number of factors that have affected the plight of the poor.

Dismal rural scenario

The vast majority of the poor is in India’s villages. The small and marginal farmers, who own less than one hectare of land, constitute a major proportion of the poor.

The tiny pieces of land owned by them have been unviable and therefore unable to provide income for the sustenance of the family. The rising input costs and stagnating yield rates of important crops have compounded their woes.

Moreover, rising prices of commodities during the last two years have only helped the farmers marginally in raising incomes because traders have cornered a large proportion of the additional income.

The second segment on the bottom of the pyramid in rural India comprises farm labourers, women and children. These are most vulnerable and greatly affected by the seasonal nature of employment in agriculture, which does not provide round-the-year employment.

Although policymakers have focused on supporting rural incomes through the National Rural Employment Guarantee Scheme in most of districts, the situation has not improved significantly. The goal of providing sufficient income to the rural poor through development to achieve inclusive growth and reduction in poverty has been an unfulfilled dream.

The solution to alleviating poverty in rural India is to shift the surplus labour force from agricultural to non-agricultural activities since agriculture is unable to provide significant opportunities to the vast majority.

The rural poor have been migrating to cities in search of employment opportunities due to pull factors. They often live in urban slums and work at low productivity jobs in the absence of education and skills.


These groups lag in education, health, income and consumption levels. Lacking the appropriate capabilities, they are at a disadvantage in competing in a market oriented, open economy and hence unable to reap the benefits of the new opportunities that have arisen for India’s urban, educated middle class.

Strong economic growth, rising incomes and social welfare programmes have pulled millions of urbans out of poverty in recent years but the rural poor are trapped in extreme poverty in an economy with an inflation rate above 10%.

Poor education a factor

Education and skill building are the catalytic factors to pull rural poor out of poverty.

Around 57% of male workers and 77% of female workers in the unorganised sector in rural India have less than primary level education. The Tenth Plan, with its focus on elementary education, achieved some improvement in enrolment levels but the drop-out rate at the primary stage is still above 30%.

A historic neglect of education in rural India is a major roadblock in the quest to reduce poverty. Experts say that rural areas would continue to straggle far behind urban areas until rural schooling improves and more rural labour is properly educated.

As per NSSO data in 60th round during 2004, rural literacy rate at 72% of the male and 50% of the female population lags behind urban India by 88% and 75% respectively.

Also, the rural education system has a laundry list of problems including underpaid teachers, schools without basic facilities and many poor students living in dire social and economic conditions. Government aid for schools has recently improved attendance but many children still work to help feed the family.

Even those poor children who attend school learn less than their peers in private schools in urban India. Over the last decade, the government has invested heavily in increasing school attendance in rural areas but less on skill building and quality education. Education and skill building of rural poor are big challenges. In the absence of these attributes the rural poor will not be able to compete in the skill-based market economy and would remain at the bottom of the pyramid.

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