Unit 5: Poverty and Inequality

1. Incidence of Poverty in India

Poverty is the inability to fulfill the minimum requirements of life, including food, clothing, shelter, education, and health.

Types of Poverty:

• Absolute Poverty: A person is considered absolutely poor if their income or consumption falls *below* a minimum level (the "poverty line") required to meet basic needs. This is the definition used for most official measurements in India.
• Relative Poverty: A person is considered relatively poor if their income is significantly lower than the *average* income of society. This is a measure of inequality.

Incidence of Poverty: This is measured by the Headcount Ratio (HCR), which is the percentage of the total population that lives below the poverty line.

Trend: The HCR in India has declined significantly, from over 55% in the 1970s to around 22% (Tendulkar Committee) or 29.5% (Rangarajan Committee) in 2011-12. However, due to the large population, the *absolute number* of poor people remains very high.

2. Estimates of Poverty and poverty line

Definition: The Poverty Line is a cut-off point, typically based on a minimum level of monthly consumption expenditure, that separates the "poor" from the "non-poor".

The estimation of this line has been a highly debated topic in India.

History of Poverty Line Estimation:

• Pre-Independence: Dadabhai Naoroji's "Jail Cost of Living" was an early attempt.
• Alagh Committee (1979): This was the first official line based on nutrition. It was set at a daily calorie intake of 2400 kcal (rural) and 2100 kcal (urban). The line was a monetary value (rupees) that was just enough to buy this calorie basket.
• Lakdawala Committee (1993): Continued the calorie-based approach but used state-specific price indices to create different poverty lines for each state.
• Tendulkar Committee (2009):
  • Major Shift: This committee moved *away* from a purely calorie-based model.
  • It created a new poverty line basket that included spending on health, education, and clothing, in addition to food.
  • Its poverty line was higher than the previous one, and it resulted in an HCR of 21.9% for 2011-12. This was the official line used by the previous government.
• Rangarajan Committee (2014):
  • It raised the poverty line even further, arguing that the Tendulkar line was too low.
  • This committee's estimates resulted in a higher HCR of 29.5% for 2011-12.

3. Strategy of Poverty Alleviation

India's strategy to combat poverty has evolved over the decades and is often described as a "three-pronged" approach.

1. Prong 1: Growth-Based Strategy ("Trickle-Down")
   • Idea: Focus on achieving high GDP growth. The benefits of this growth (jobs, incomes, government tax revenue) will eventually "trickle down" to the poorest sections of society.
   • Result: This was the primary strategy in the 1950s-70s. It was found to be too slow, and the benefits did not "trickle down" effectively.
2. Prong 2: Targeted Anti-Poverty Programmes
   • Idea: Since growth alone is not enough, the government must create specific programmes that directly target the poor.
   • Examples:
     • Wage Employment: MGNREGA (provides a direct income floor).
     • Self-Employment: Programmes providing subsidized loans (like MUDRA) for the poor to start small businesses.
3. Prong 3: Providing Minimum Basic Amenities
   • Idea: Focus on improving the *quality of life* and *human capital* of the poor, even if their income doesn't rise immediately.
   • Examples:
     • Food: Public Distribution System (PDS) / National Food Security Act.
     • Health & Education: Public spending (e.g., NHM, Sarva Shiksha Abhiyan).
     • Other Amenities: Swachh Bharat (sanitation), PM Awas Yojana (housing), Ujjwala (cooking gas).

4. Inequality-Income inequality in India: Magnitude and Nature

Inequality refers to the uneven distribution of income and/or wealth in a society. While poverty in India has declined, inequality has been *rising*.

Measuring Inequality:

• Gini Coefficient: The most common measure. It is a value between 0 (perfect equality) and 1 (perfect inequality). India's Gini coefficient for income has been rising, indicating growing inequality.
• Income/Wealth Shares: Reports (like from Oxfam or the World Inequality Report) often show the share of national income or wealth held by the top 1% or top 10% of the population.

Magnitude and Nature:

• Rising Post-1991: The LPG reforms of 1991, while boosting economic growth, have also been a primary driver of rising inequality.
• "Top 1%" Capture Growth: A significant portion of the benefits of India's high GDP growth has been "captured" by the richest 1% and 10% of the population.
• Wealth vs. Income: **Wealth inequality** (unequal ownership of assets like land, stocks, property) is even more extreme than **income inequality** (unequal share of annual earnings).

5. Growth and Inequality

The relationship between economic growth and inequality is famously described by the Kuznets Curve hypothesis.

The Kuznets Curve (Inverted 'U' Hypothesis)

• The Idea: Simon Kuznets hypothesized that as a country begins to develop (moves from agriculture to industry), inequality first *increases*.
• As the economy matures and becomes fully industrialized, inequality then *decreases*, forming an inverted 'U' shape.
• Why? In the early stages, a few people who move to high-paying industrial jobs get rich, while the majority stay in low-paying agriculture, widening the gap. In later stages, widespread education and social security systems help to reduce the gap.

India's Context: India appears to be on the *rising* part of the Kuznets Curve. The post-1991 growth has been "skill-biased," favoring high-skilled workers (e.g., in IT, finance) over low-skilled workers, thereby increasing inequality.

6. Causes of income inequality

Inequality in India stems from several deep-rooted causes:

1. Unequal Asset Distribution: Highly unequal ownership of physical assets (like land, property) and financial assets (like stocks, bonds). This is the primary cause.
2. Inequality of Opportunity: Unequal access to quality education and healthcare. A child from a poor family and a child from a rich family do not start at the same point, perpetuating the cycle.
3. Inheritance: Large-scale wealth is passed down from one generation to the next.
4. Skill-Biased Growth: The new, high-growth service sector demands high skills, leaving behind the low-skilled majority.
5. Informal Sector Dominance: The majority of workers in the informal sector have no bargaining power, low wages, and no job security, while wages in the formal sector grow.

7. Government policies and measures

These are policies aimed at *reducing* the inequality gap (redistribution).

8. Poverty and unemployment

This topic links the entire unit together. Poverty and unemployment are deeply interconnected in a vicious circle.

The Link:

• Unemployment as a Cause of Poverty: The most direct cause of poverty is the lack of a productive, well-paying, and regular job. Unemployment (or under-employment, like disguised unemployment) means low or no income, which leads directly to poverty (inability to afford basic needs).
• Poverty as a Cause of Unemployment: Poverty traps individuals. A poor person cannot afford good education or healthcare. This leads to poor human capital (low skills, poor health), making them unable to get high-paying jobs, thus trapping them in unemployment or low-wage informal work.
• Policy Implication: This is why policies like **MGNREGA** are so important. They tackle *both* problems at once by providing employment (addressing unemployment) which generates income (addressing poverty).