Poverty

Facts:
  • India’s richest 1% now hold a huge 58% of the country’s total wealth, indicating rise income inequality. It is higher than the global figure of about 50%.
  • WB has revised the global  poverty  line from $1.25 a day to $1.90 a day. Based on an average of the national poverty lines of 15 poorest economies of the world. The poverty lines were converted from local currency into US dollars using the new 2011 PPP data
  • India is still home to largest number of poor.
 
 
World Bank Report:
  • Proportion of people living in extreme poverty has fallen to single digit (9.6 in 2015 down from 12.8 in 2012)
  • Claimed that India has been overestimating her poverty estimates (WB used different methodology)
    • India uses Mixed Reference period (MRP)- five less frequently used items are collected over one-year period while sticking to 30 day recall for rest of the items. Low frequency item include education, health, clothing, durables etc
    • Tendulkar & Rangarajan based on this
      • WB used Modified MRP – Under this 3 categories
      • 7 day recall period for some food items
      • 1 year recall period for low frequency items
      • 30 days recall for rest
      • In this method consumption expenditure of both rural & urban people increased more than 10 %
 
 
Angus Deaton – Noble Prize for Economics
  • Best known for work on health, well-being & economic development
  • Suggested entitlement programmes in India should be delinked from the poverty line and urged giving up of the BPL targeting
  • Note: His name can be used in answers of poverty
 
 
Direct link between Growth and reforms:
  • After 1992-93, economy has grown by an average rate of 6.8%
  • From 1952-1980, average growth rate –> 3.5%
  • Thus, reforms leads to higher growth
 
Link between growth and poverty:
  • Per capita income GR from 1992 – 2004 was 4.3% –> annual decline in poverty was 0.74%
  • GR for 2004 – 2011 was 6.7% –> annual decline in poverty was 2.18%
 
Social and community service expenditures of centre and state governments, taken together, increased from 5.3% of GDP in 1990-91 to 7% of GDP in 2013-14
 
 
In your opinion, what causes poverty- mindset or rising inequality and unemployment? Critically discuss. (200 Words)
 
Poverty is the inability of people to live their lives as per their wishes and potential. Poverty is construed mainly in an economic dimension. But that is a limited approach. A broader approach is needed which considers poverty from economic, social and political dimensions to effectively tackle it. Behavioral economics has added another dimension to poverty which is mindset. Before we analyse what causes poverty, it is essential to understand that the reason for finding the cause is to tackle and resolve it to alleviate poverty. Hence, a cause which is broad is a better tool than a narrow approach.
Mindset is a cause because it is assumed that rational choices by people accompanied by their skills and hard work can make them overcome poverty. Accordingly, people are in poverty because they make irrational choices. They spend more instead of saving. They consume unwarranted and unnecessary goods instead of essential ones. They do not plan Long term but reap short term gains. They do not invest in productive and sustainable assets but temporary goods. This approach recommends government to focus on changing people’s mindset and aid them in making right decisions. Such an approach is not appropriate because it has an inherent assumption that poor have low mental capacity. It is an indirect way of telling that rich are rich because they are smart and intelligent but poor are poor because of their low IQ. Moreover, such approach makes us concentrate entirely on the poor leaving the capitalists and rich out if the poverty debate.

A CSR initiative wouldn’t have been if such approach is followed.

Additionally, it moves us away from the other causes such as persisting inequality, the high risk environment of the poor where unexpected changes in weather or market put them in a poverty trap, the structural issues of poor education, health facilities etc. The structural approach is broader, it can be easily monitored and evaluated and it puts the responsibility on all stakeholders. Such a broad approach is needed, hence it’s not mindset but the market which is the main cause.
 
 
 
Do you think that the estimation of poverty lines in India has been a futile exercise? In your opinion how should governments make use of poverty line figures? Critically examine. (200 Words)
 
Estimation of poverty line is very contentious issue in india. Various committees like Lakadwala committee, Alagh committee, Tendulkar committee, Rangarajan committee Etc. have been established since independence. Each has given different methodology of poverty estimation.
 
Estimation of poverty line is not futile process because:
  1. In india where large number of people are not getting even two square meal a day and where resources with government are scarce, universalisation of each scheme is not viable. Therefore it becomes necessary to put a cap to uplift the lower 20-30% poor strata of population.
  2. Provides an estimate of progress of social sector schemes.
 
There are certain issues with poverty line such as:
  1. It is great probability of being politicised. A reduction in poverty numbers by changing the criteria can be politically leveraged.
  2. Poverty line exclusively concentrated on food and leaves out other parameters for “happiness” such as social capital, political empowerment, risk in life, education, physical disabilities, social status, gender discrimination, awareness etc.
 
It is necessary that the use of poverty line be minimised. Certainly, it gives a broad picture about India’s development process but its use must be for analytical purposes. All major schemes should be designed using specific parameters for better targeting, easier implementation and effective evaluation. The social and caste census can serve as another tool. That should be the way forward.
 
 
Do you think more investment, both public and private, would help in poverty reduction? In the context of India, critically examine. (200 Words)
 
At a juncture, where investment rates and savings rates have remained muted over the years post-recession, indeed, picking up of investment is what India needs urgently. However, mere investment is not enough to tackle poverty as war against it has to be fought on multiple fronts.
Growth of public investment will give a push to infrastructure sector that will result in efficient supply chains, lowering prices and ultimately helping poor against inflation. Added to this, private investment which is being supplemented by FDI in a big way, will help create jobs and provide both forward and backward linkages with diverse sectors of economy.
Such emphasis on investment by govt. may spruce up IIP and GDP numbers, but equity and redistributive power of govt. needs to be basis of such investment. Govt.’s focus on investment has to also include social sector (allocations for which have been pruned significantly recently) apart from physical infrastructure. Well-meaning legislations like NFSA, RTE, MNREGA are being stifled due to lack of timely payment of wages or non-implementation in other cases.
Private sector has also a role to play in poverty remediation by going beyond minimum CSR spending. Govt. has rightly widened the type of projects (included toilets for schools, slum rehabilitation recently) that can be taken up under CSR. Trickle-down effects having been long discarded in India as early as 1970s, it would be better to learn from the past and focus more on directed poverty alleviation programmes aided by efficient and timely delivery of services.
 
Related Questions:
  1. “An essential condition to eradicate poverty is to liberate the poor from the process of deprivation.” Substantiate this statement with suitable examples. (UPSC Mains 2016)