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India: Reducing Poverty in India: Options for More Effective Public Services

India FY98 PA

Full Report (7.5Mb PDF)

Poverty Profile

The 1998 Poverty Assessment builds on the 1997 Poverty Report and focuses on using public expenditure to expand the poor's access to quality education and health care. Based on the poverty profile presented in the 1997 Poverty Assessment, poverty in India is declining, but slowly, and remains widespread35 percent of the population (37 percent rural and 31 urban) lived below the poverty line in 1993-94 (latest year for which household survey data are available). India has the largest concentration of poor people in the world particularly in rural areas where almost three out of four Indians and 77 percent of the Indian poor live. The report also found that staggering as the overall numbers remain--240 million rural poor and 72 million urban poor--they do not tell the full story. Social indicators of well being--health, education, nutrition describe a country which has made substantial gains against widespread deprivation over the 50 years of its independence but has not achieved the momentum needed to bring the great majority of its poor into the economic mainstream. While India has succeeded over the last four decades in doubling life expectancy and reducing infant mortality, its death rate for infants under five remains one of the highest in the world. Communicable diseases and prenatal and maternal mortality, which account for 12.5 percent of the annual deaths of rural women aged 15 to 45, cause about 470 deaths per 100,000 population in India'a rate four times that of China and 2.5 times that of the world as a whole. Tuberculosis alone kills 500,000 people a year. Half of all children under five are malnourished and, because their mothers often are as well, one-third of all newborn babies are underweight. India's rates of malnutrition among children and women are among the highest in the world. And fewer than half the children from poor households are in school, reducing their prospects of escaping poverty. Two-thirds of all women and two fifths of all men remain illiterate. Half of all girls aged 5-14 years do not attend school. Among the most disadvantaged social groups, the ratios are even worse: literacy rates of just 19 percent among scheduled-caste women and 46 percent for men.

The report found that in general gender, literacy, landownership, employment status, and caste are closely associated with poverty.Thus, an illiterate rural woman, a member of a scheduled tribe or caste, a person who lives in a landless household or is dependent on wage earnings, all face a significantly higher than average risk of poverty. A 1994 survey of rural households indicates that the incidence of poverty was 68 percent among landless wage-earners, 51 percent for members of scheduled castes and scheduled tribes, and 45 percent for members of household in which no-one was literate. And where poverty is deepest, female literacy is exceptionally low. In general, where social indicators reflect little progress, poverty has also been very slow to decline. The incidence of poverty and the poor's access to social services varies considerably from state to state and even within states in India.

Public Expenditures

Given that the government is pursuing many strategies to reduce poverty, this report focused on the use of public expenditure to help the poor gain better access to public goods and services. In general, public subsidies will benefit the poor most when the items subsidized are used disproportionately by the poor relative to the non-poor. Benefit incidence analysis was used to examine the extent to which the poor have benefited from public spending on education, certain health services, and some of the most important safety net programs (food, public works and credit scheme programs). Findings indicate that public spending for education and health are not effectively reaching the poor. In education, the poor who do not send their children to school as well as those who do not keep them there are not benefiting from public spending on equal footing as compared with those who are better-off, as reflected in the enormous difference in the enrollment and attainment levels of the two groups. Fewer than half the children from poor households enroll, and when they do, only one in five of them completes the eight-year cycle of basic education. In contrast, wealthier households in all areas do send their children (both sexes) to school, and over 80 percent of them complete grade 8. Poor girls are only one-eighth as likely to complete grade 8 as their female counterparts among the well-to-do. In health, the poor face a disproportionately higher risk than the rich of falling sick, particularly from infectious diseases. They are more likely to lose their children before they reach the age of two. Poor members of scheduled castes run even higher risks of premature death. And because the poor are less likely to be educated and must often use shared sources of water and surface water (lakes, streams, and ponds) without adequate sanitation facilities, they are more frequently exposed to illness and premature death. The study further finds that India's primary health centers failed to deliver the care needed to reduce infant mortality, but did not find any significant correlation between child survival and the availability of public health facilities.

Safety Nets

Traditional anti-poverty programs are funneling many of their benefits to the non-poor. According to data from the 1993-94 National Sample Survey (NSS), 76 percent of the wealthiest rural households, for instance, are likely to take advantage of the subsidized prices for food under the Public Distribution System while, at the opposite end of the scale, fewer than 70 percent of the poorest households benefit from food subsidies. The poor do participate in rural public works and to a lesser extent in credit programs (IRDP), but all three schemes (PDS, IRDP, and public works) remain loosely targeted.

Poverty Strategy

Since the bulk of the required investments to build human capital comes from public rather than private sources in India, and yields many externalities, it is important that poverty-reduction strategies focus increased public spending on expanding the poor's access to qualityeducation and health care. The report suggests that targeting government spending to primary education, reducing communicable diseases, improving water and sanitation, and reducing household insecurity through public works programs are priority actions to reduce poverty. To avoid increasing the already large fiscal deficit, increased funding for these activities would come from the reduction in costly and untargeted subsidies that are currently the source of large fiscal imbalances and microeconomic distortions.

Education. A strong political commitment on the part of the government is needed if the educational status of poor children are to improve. Increased spending on education inputs (teachers, classrooms, textbooks, and instructional material) alone will not be enough to improve enrollment and educational attainment of the poor. Improvements in the quality of schooling is also important. This requires fundamental reforms to change the incentive framework within which teachers, school officials, bureaucrats, and politicians have been operating. The accumulated experience under the District Primary Education Project, the Lok Jumbish, and the experiences of states such as Kerala and Himachal Pradesh should help provide the information necessary to underpin such deeper educational reforms, particularly in the seven states with the highest incidence of school dropouts or non-enrollment. Relevant findings from other theoretical and empirical research provide guidance on reforms that are likely to improve outcomes, of which some are already underway in many states in India. These include decentralization of control over the provision of schooling to local authorities, direct parental involvement, competition through school choice, and community involvement. Madhya Pradesh, for example, is by far the most advanced in decentralizing school management to local institutions such as the Panchayati Raj Institutions, with a resulting increase in school enrollment and retention among children of underprivileged groups.

The process and the potential for bringing education closer to its users and beneficiaries through decentralization has generated significant optimism but also considerable caution. The chief fears reflect concern that decentralization could perpetuate, and quite possibly increase, regional disparities in school quality, and social and economic inequities in access to good schooling. Lowered funding levels for education also might be a problem if local control serves as a pretext for diminishing central responsibility.

Health. Effective health programs must complement education in raising the potential productivity of labor. Public expenditure on health as currently constituted is likely to have only a limited redistributive impact. This report identifies four priority areas of public spending that will have the greatest impact in improving the health of the poor. First, combating communicable disease and expanding public health interventions (see below) would deliver substantial gains from public health spending, particularly for the poor. Second, improving access to safe water sources and sanitation facilities and vaccinations would help reduce infant and child mortality and thus reduce fertility and improve maternal health. Because these are activities in which the poor are vastly underserved relative to the non-poor, public interventions in these areas will achieve their biggest impact on the poor. The net cost to the government of extending water and sanitation facilities to poor areas may not be very large, since willingness to pay for these goods is usually quite high and could cover the extension of the system. Third, analyses have shown that health education concerning basic hygiene, the value of better nutrition, and preventive care such as public campaigns against tobacco use and for the use of appropriate measures to avoid contracting HIV-AIDS and other sexually transmitted diseases, is an important part of encouraging behavioral changes needed for long-term improvements in health outcomes. Fourth, public subsidies to hospital care can play an important redistributive role as long as referral systems are reformed to ensure that access is based on need rather than income and social status. Because the rural poor must often meet the financial burden of medical emergencies through debt, distress sale of real assets, or reductions in food or other important consumption items, subsidizing hospital treatment will help alleviate the burden on the poor. In addition to assistance through publicly managed hospitals, the poor could also be served by public financing of private provision of services in rural areas (with an appropriate system of incentives and monitoring); by a major effort to increase the quality of care through training, changes in incentives, and regulations; or by community-based insurance schemes. India's policy makers will need to evaluate the option of subsidizing hospital treatment against other alternatives in order to support appropriate services that will help reduce poverty. Further research is needed, here again, to underpin the necessary reforms to both public and private health systems in India.

Reforming anti-poverty programs.The marginal incidence analysis suggests that expanding access of the poor to the public works programs (preferably through reallocation of spending away from less effective poverty programs), would benefit them most. Priority would be to improve the effectiveness of public works by better targeting the genuinely needy and making these programs fiscally sustainable. Effective targeting need not be exclusive targeting, as some level of spill-over to the non-poor is unavoidable if political support for such programs is to be maintained. Such targeting could be done by setting the wage rate at a level which is no higher than the prevailing market wage, with willingness to work at this wage rate being the only eligibility criterion. The scheme could also be geographically targeted to poor areas. In addition, early results from the implementation of the Targeted Public Distribution System (TPDS) in UP and Bihar indicate that the poor seem to be benefiting more than the non-poor from the retargeted subsidies on foodgrains. If this finding is generalized across India, then targeted foodgrain subsidies could supplement public works programs to reduce household food insecurity.

Statistical System

There is a clear need to improve the quality and timeliness of the statistical data base necessary for poverty measurement, monitoring, and analysis in India. This includes not only the data necessary for direct poverty measurement (national sample surveys, annual consumer expenditure surveys) but also related data bases and statistical information available at the sectoral level (e.g. education and health statistics). The World Bank has set up a program of technical assistance with the Department of Statistics, that has laid the groundwork for a series of lending activities designed to modernize and strengthen overall statistical capacity in the country. For example, work is currently ongoing in India to identify ways to improve the timeliness and quality of information collected under the National Sample Surveys. In addition, plans are being developed to introduce a quarterly labor force surveys, which is crucial in tracking changes in employment patterns in poor regions and in key sectors in which the poor are employed. There are also plans to improve the current system of monitoring consumer prices and wage rate levels. Many of these initiatives are likely to be supported under the Statistical Systems Modernization Project, which is scheduled to go to the Board in 2000.

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