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India: Achievements and Challenges in Reducing Poverty

India FY97 PA

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Poverty Profile

Poverty imposes an oppressive weight on India, especially in the rural areas where almost three out of four Indians and 77 percent of the Indian poor live. Although poverty has been reduced during the past four decades, it remains painfully high.

Because of India's rapid population growth rate, even that advance, however, has not been sufficient to reduce the absolute number of poor, which increased from around 200 million in the 1950s to 312 million in 1993-94 (most recent Five Year Survey). This leaves India with the largest concentration of poor people in the world, particularly in the villages — fewer than 5,000 people — where 60 percent of all Indians live. Staggering as the overall numbers remain — 240 million rural poor and 72 million urban poor — they do not tell the full story of change. Social indicators of well-being, for instance, record a history of progress that has, like the decline of poverty itself, been steady but slow.

Among those indicators, three illustrate this point. Infant mortality rates, as one example, fell from 146 deaths per thousand births in the 1950s to 80 at the start of this decade. Nevertheless, the Indian rate is still high and two Indian states, Orissa (124 per thousand in 1991) and Madhya Pradesh (117 per thousand in 1991), even recorded proportionally more infant deaths than the sub-Saharan average (104 per thousand in 1991). Life expectancy at birth, now twice the 30 years that was the Indian average in 1947, remains well below that of China (69 years.) Adult literacy rates for Indian males (64 percent) and for females (39 percent) in 1991 were almost identical to those for sub-Saharan Africa and far behind those in China — 96 percent for men, 85 percent for women — ten years earlier.

What is poverty? In India, poverty is officially linked to a nutritional baseline measured in calories (food-energy method). The Planning Commission defines poverty lines as a per capita monthly expenditure of Rs. 49 for the rural areas and Rs. 57 in urban areas at 1973-74 all-India prices. These poverty lines correspond to a total household per capita expenditure sufficient to provide, in addition to basic non-food items — clothing, transport — a daily intake of 2400 calories per person in rural areas and 2100 in urban areas. Individuals who do not meet these calorie norms fall below the poverty line.

Evolution of Poverty in India. A recent World Bank research project assembled and analyzed 35 rounds of the National Sample Survey Organization household survey, covering a period from 1951 to 1993-94. These national household surveys are suitable for tracking the poor's living conditions since the consumption data that have been collected in these surveys are reasonably comparable.

The most recent (1993-94) household survey conducted by the National Sample Survey Organization and based on the poverty lines calculated by the World Bank, reveals that 36.7 percent of India's rural population and 30.5 percent of its city-dwellers lived in poverty–a national average of 35.0 percent. What is important is that as average Indian living standards rose during the 40 years since 1951 and particularly after the mid-1970s, the poor did not get poorer.

The magnitude of decline in poverty of the last two decades is significant but not dramatic. While the decline of poverty since the early 1970s has been sizable (from an incidence of 56 percent to 35 percent in 1993-94), India's progress in fighting poverty has been modest when compared with some of its Asian neighbors. Between 1970 and 1993, for example, the proportion of Indonesia's population living in poverty dropped from 58 to 8 percent, an annual decline of nearly 10 percent.

As of 1993-94, India's poverty continues to be predominantly rural although rural poverty declined faster than urban poverty over 1951-88. Moreover, the decline in national poverty seems to have been driven mostly by the decline in rural poverty — not surprising given that 74 percent of India's population lives in rural areas. Many studies suggest that the poor perceive themselves to be better off now than in previous decades. However, these studies also point to pockets of increasing impoverishment.

Who are the poor? Factors such as population density, ecological conditions and the availability of irrigation and transport account for some of these differences among India's states and even within them. Other conditions affecting the rural poor —gender, literacy, land ownership, employment status, and caste — create a more consistent pattern. Thus, an illiterate rural woman, a member of a scheduled tribe or caste, a person living in a landless household or dependent on wage earnings, all face a significantly higher than average risk of poverty.

The incidence of poverty was highest of all among the landless wage-earners who provide largely unskilled labor in markets where the prevalence of long-term contracts has been declining and wages remain too low to lift casual laborers from the bottom rungs of the ladder. Again, rural female laborers are more likely than men to depend on daily wages from manual employment. For every hundred women thus employed, there are only 85 males earning their living in the same, marginal way, even though men outnumber women in India by a ratio of 1000 to 929. In terms of earning power, men are more than twice as likely as women to hold salaried jobs in the large and medium-sized towns that are increasingly important centers of economic life in the Indian countryside.

While economic inequality as measured by the Gini coefficient — within regions varies little from the poorest regions to the more fortunate, the Gini coefficient does not capture the gender and social inequalities that persist in India. These inequalities severely constrain the extent to which certain groups in the population are able to participate in and benefit from the process of economic growth.

Incentives and Regulatory Framework

The reforms India started in 1991 hold the promise of considerable improvements in the living standards of the country's 300 million poor. During the last few decades, India's inward-looking and public sector driven industrialization strategy led to rates of growth and poverty reduction far more modestly than those witnessed elsewhere in the world, particularly in South East Asia. The economy has responded well to the reforms, and the government has made it an explicit objective to accelerate the development of the country's human resources. The last five years have shown the rates of growth that India could achieve with market oriented development policies and a better integration with the world economy. There is much that remains to be done to sustain this growth. Reforms are particularly needed to reduce the country's persistently high fiscal deficits, overcome its tremendous infrastructure problems, improve the efficiency of its financial system, and liberalize parts of the economy that remain heavily regulated — such as agriculture, small scale industry and urban land markets. By maintaining its commitment to economic liberalization, and redirecting towards infrastructure, health, and education the large resources now absorbed by subsidies inter-alia for power, irrigation, and fertilizers, India can give its long battle to reduce poverty a new impetus.

Safety Nets

There is little evidence that anti-poverty programs have yielded gains in the living standards of the poor commensurate with the significant resources that the country allocates to such programs. Many recipients of their benefits are widely recognized as amongst the poor. At the same time, many of the poorest people do not use these programs while many of the non-poor benefit from them. There is a consensus that public works programs have been among the most successful attempts at reaching the poor.

India therefore urgently needs to formulate an anti-poverty strategy that is fiscally sustainable and more finely targeted to those who truly cannot benefit from the opportunities offered by growth. To increase their cost effectiveness and extend their outreach to the very poor, safety nets need to be targeted to those who either cannot participate in the growth process or face continuing exposure to risks, which are outside of their control. Rural households are largely uninsured against agricultural yield shocks, for example. Effective safety nets that insure the rural poor against income fluctuations — such as public works programs — are essential in overcoming an important market failure.

Poverty Strategy

In the half century since its independence, India has accomplished many notable social and economic achievements. Among these are the eradication of widespread famine, a reduction in population growth, some lowering of caste barriers to economic opportunity and the creation of a large pool of technical and scientific talent. While it has also managed to reduce poverty in that period, only since 1975, when growth accelerated, has the decline been fairly steady. The pace, moreover, remains both slow and uneven — faster in the southern states than the northern ones, and more likely to empower men than women. Government efforts to reduce poverty through direct anti-interventions have yielded mixed results. Many of those programs, in fact, have missed their supposed target — the poor — and delivered their benefits to the economically more advantaged. As India moves ahead with the economic liberalization that has yielded a higher platform for growth and therefore the potential for a higher level of welfare, it has an opportunity to reexamine its approach to reduce poverty.

The centrality of growth. The last five years have shown the rates of growth that India could achieve with market oriented development policies and a better integration into the world economy. This is a promising development because the last few decades have shown the extent to which the poor stand to gain from an acceleration in growth. The latter widens opportunity, provides the resources needed to invest in human development, and creates the very foundation that will increase returns to human capital — and thus families' willingness to send their children, including girls, to school, have fewer of them, or in multiple other ways, invest in their future.

Priority for human capital. Neighboring countries in Asia that have made a point of combining pro-growth development policies with investments in the health and education of their people have seen economic growth and poverty reduction follow. India, however, has not accorded sufficiently high priority to the education of the poor and 33 million of its 105 million 6-to-10-years-olds are not in school. These youngsters are not offered the opportunity to develop the skills needed for upward mobility. Along with the neglect of primary education goes that of gender discrimination, which condemns a much greater proportion of girls and women to illiteracy and to ill-health. Reducing the gender inequality among the poor requires a determined effort to focus on improved health care for women, maternal health care in particular, combined with basic education. India's health system needs to put a new emphasis on basic care. Doing so will improve not only the life span and well-being of poor women and their ability to determine what family size they want, but it will also contribute to the economic health of their families, and consequently of India's society. And since poverty is not the only source of India's gender disparities, a determined government effort to eradicate such disparities is urgently needed.

Statistical System

The reduction of poverty has been a major concern of the Government of India since independence in 1947. As such the analysis of poverty enjoys a long-standing tradition with an extremely rich literature and data base. India has one of the longest series of national household surveys — spanning over 40 years — suitable for tracking living conditions of the poor over time. In many respects, India therefore stands out from other countries in terms of its tradition of data collection and its pioneering of many of the techniques of data analysis, which have now become common currency throughout the world. However, access to household survey data remains highly restricted. There are an enormous number of urgent questions such as those relating to the incidence analysis of public expenditure that could better inform policy in the future if such data were accessible.

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