(IGP) GS Paper 1 - Economic & Social Development - "Poverty & Inequality Concepts"

Subject - Economic and Social Development
Chapter - Poverty & Inequality Concepts

Poverty

Poverty is deprivation of basic needs that determine the quality of life-food clothing, shelter, safe drinking water etc. It also includes the deprivation of opportunities to health, education, skills, employment etc.

Many different factors have been cited to explain why poverty occurs. No single explanation has gained universal acceptance. The factors responsible for poverty include:

• Historical factors, for example imperialism and colonialism.
• Overpopulation.
• Growth is not fast enough to eradicate poverty.
• Models of growth may be unsuitable for poverty alleviation. For example, capital-intense growth in a labour surplus country.
• Poverty itself, preventing investment and development etc.

Governments Initiative to Eradicate Poverty

The strategy of the Government includes the following elements:

• The main plank to anti-poverty strategy is reducing poverty through the promotion of economic growth In India, after reforms began in 1991 when growth rates increased Poverty levels fell quite steeply (NSSO 2005).
• Socioeconomic Planning
• Food security through the nation wide PDS- largest in the world.
• Progressive taxation to gamer fiscal Resources for Spending on poor.
• Social safety net like the, National Social Assistance Programme (NSAP).
• Open Society in Which Poverty is recognize as a nation1 challenge and earnest efforts are made to tackle it (Amartya Sen).
• Anti-poverty programmes - NREGA 2005.
• Massive social sector expenditure for skill building
• Decentralization through PRJ5 and Nagarapalikas for better delivery models.

Poverty Line

• It is the level of income below which one cannot afford to purchase all the resources one requires to live. People who have an income below the Poverty line have no disposable income.
• When comparing Poverty across Countries the Purchasing power parity exchange rates are used. These are used because poverty levels otherwise would change with the normal exchange rates. Thus, ‘living for under $1 a day’ should be understood as having a daily total consumption of goods and services comparable to the amount of goods and services that can be bought in the U.S. for $1.

Headcount Ratio

The most common standard indicator is the incidence of poverty (also called Poverty rate or headcount rate). This describes the percentage of the population whose per capita incomes are below the poverty line, that is, the population that cannot afford to buy a basic basket of items. In many instances, a different poverty line—a much more austere one that generally only includes food items—is applied to derive the extreme poverty rate.

Poverty Gap

PG is a measure of the intensity of poverty among the poor: the difference between the mean income among the poor and the poverty line. This indicator measures the magnitude of poverty as well as its intensity number of poor and how poor they are..

Misery Index

The misery index was initiated by Chicago Economist Robert Barro in the 1970’s. It is the unemployment rate added to the inflation rate. It is assumed that both a higher rate of unemployment and a Worsening of inflation cause and intensify the misery.

Planning Commission and Poverty

The Planning Commission as the Nodal agency in the Government of India for estimation of poverty has been estimating the number and Percentage of poor at - national and state levels. Estimates of poverty are made from the large sample survey data on household Consumer expenditure conducted by the National Sample (NSSO) of the Ministry of Statistics and Programme Implementation.

NSSO and Poverty Estimates

• National Sample Survey Organisation (NSSO) collects household consumer expenditure data every five years. Household consumer expenditure surveys are also Conducted annually but the sample size is much smaller Every five years full surveys on 1,20,000 households are carried out. In the intervening period “thin” samples of around 20,000 households are surveyed. The “thin” samples do not indicate trends fully.

• The poverty line in India is defined as the monthly expenditure incurred in getting a daily calorie intake of 2,400 calories in rural and 2,100 calories in urban areas.

• The 6lst round of the National Sample Survey (NSSO) used the criterion of monthly per capita consumption expenditure below Rs. 356.35 for rural areas and Rs. 538.60 for urban areas.

Recommendation of NC Saxena Committee

• The rural development ministry in 2008 appointed a committee headed by M Shankar to ascertain the number of the poor people in order to effectively identify beneficiaries for the Centre’s programmes aimed at Poverty alleviation. NC Saxena headed the committee after Mr. Shankar resigned.
• The committee chaired by NC Saxena recommended that 50% of India’s population be given cards. Thus, it suggests expansion of the social security net which means fiscal and administrative challenges.
• While advocating exclusion of large number of families from the BPL lists, the committee has recommended that those families having double the land of the district average of the agricultural land or two wheeler or one running bore well or income tax payers would be deleted from the BPL lists.

Inequality

• When discussing poverty, inequality often refers to the income gap between the rich and poor of society. The greater the gap, the greater the inequality. It essentially refers to disparities in the distribution of economic assets and income- among individuals and groups within a nation and among nations.

• It may result from the operation of the economic system, access to assets, nature of laws, education and skills, social factors like caste and gender etc.

Lorenz Curve

The Lorenz curve was developed by Max O. Lorenz as a graphical representation of income inequality. It can also be used to measure inequality of income or assets or any other facility.

The Lorenz curve is used to calculate the Gini coefficient which is the numerical indicator of inequality in a country. Gini coefficient is derived by taking the following two.

• area between the line of perfect equality and the Lorenz curve (a)
• area between the line of perfect equality and the line of perfect inequality (b).

Adverse Impact of Inequality

• Growing inequalities can dampen growth due to potential instability; weaken social cohesion.
• Urban-dominated growth in India has caused Social friction as a result of the high levels of migration to cities and a shortage of foreign investment in more isolated areas.
• In societies where wealth is concentrated in the hands of a few, there is danger of policy levers being captured by the rich for their own benefit and a weakening of the institutional foundations of the growth process.

Social Security in India

Certain social conditions need protection to prevent further distress- old age, poverty, unemployment, disability etc. Government provides social protection by way of wage employment, food grain either free or at affordable prices, old age pension etc. In some cases there is social insurance- disability etc.

For many decades now, there have been laws in India that provided social security:

• Workmen’s compensation Act 1923: A beginning was made in social security with the passing of the Workmen’s Compensation Act in 1923. The Act provides for payment of compensation to workmen and their dependents in case of injury and accident (including certain occupational disease) arising out of and in the course of employment and resulting in disablement or death.
• Maternity benefit scheme: The Maternity Benefit Act, 1961 regulates employment of women in certain establishments for a certain period before and after childbirth and provides for maternity and other benefits.
• Gratuity scheme :The Payment of Gratuity Act, 1972 provides for payment of gratuity at the rate of 15 days’ wages for each completed year of service subject to certain maximum.

Employees provident fund:

Retirement benefits in the form of provident fund, family pension and deposit-linked insurance are available to employees.

• Employees Pension scheme –
• Aam Admi Bima Yojana
• Rashtriya Swasthya Bima Yojana
• Unorganised Workers Social Security Act 2008.

Pradhan Mantri Gram Sadak Yojana (PMGSY)

• The PMGSY was launched in 2000 as a 100 per cent Centrally Sponsored Scheme with the primary objective of providing all weather connectivity to the eligible unconnected habitations in the rural areas.
• The programme is funded mainly from the accruals of diesel cess in the Central Road Fund.
• In addition, support of the multilateral funding agencies and the domestic financial institutions is being obtained to meet the financial requirements of the programme.

Indira Awaas Yojana (IAY)

This scheme aims at providing dwelling units, free of cost, to the poor families of the Scheduled Castes, Scheduled Tribes, freed bonded labourers and also the non- SC/ST persons below the poverty line in rural areas. The scheme is funded on a cost sharing basis of 75:25 between the Centre and the States.

i-HDI

The 2011 UNDP Global Human Development Report The Real Wealth of Nations: Pathways to Human Development introduced a new index, the inequality-adjusted HD1 aimed at capturing the distributional dimensions of human development. Three dimensions of HDI i.e. income, education and health are adjusted for inequalities in attainments across people. Globally, India is ranked 134 out of 187 countries but loses 32 percent of its value when adjusted for inequalities.

i-HDI and India

• Wide inequalities among states affect human development outcomes in India which is ranked 134 out of 187 countries India, ranked 134 on the human development index (HDI) loses 30 percent of its value when adjusted for inequality.
• Indian states suffer a higher loss when adjusted for inequality in health compared to the global average of 21 percent.

Multidimensional Poverty Index

• The MPI was created for the 20th Anniversary edition of the UNDP Human Development Report and uses different factors to determine poverty beyond income- based estimation. It uses a range of deprivations from which people suffer.
• The measure assesses the nature and intensity of poverty at the individual level in education, health outcomes, and standard of living.
• The MPI has three dimensions: health, education, and standard of living

Pranob Sen Committee on Slum Statistics/Census

A Committee under the Chairmanship of Dr. Pranob Sen was set up by Ministry of HUPA to study the slum definition and to estimate urban slum population for the whole country on the basis of available data.

The summary of recommendations of the Committee is as follows:

• The Committee estimated the slum population in all 5161 urban areas of the country including the 3799 statutory towns (Read ahead for a definition) to be 93.06 million by 2011.
• For the Slum Census 2011, the Committee has recommended that for policy formulation purposes it is absolutely essential to count the slum population even in cities having less than 20000 population. For the purpose of planning for Rajiv Awas Yojana and Slum-free India it would be necessary to count the population of slums in all statutory towns in the country in the 2011.

Rajiv Awas Yojana

• With an aim of crating a slum-free India, government approved the launch of the phase-I of Rajiv Awas Yojana (RAY) to facilitate affordable housing for slum dwellers.
• The Centre would provide financial assistance to States willing to assign property rights to slum dwellers; for provision of shelter and basic civic and social services for slum re-development and; for creation of affordable housing stock under the RAY scheme.
• The scheme is expected to cover about 250 cities, mostly with population of more than one lakh across the country by the end of 12th Plan (2017).

Mortgage Risk Guarantee Fund

Affordable housing is still a distant dream for the poor because of the banks’ reluctance to give credit to this section of society for various reasons. Centre set up a mortgage guarantee fund which would cover the risk of home loans given to the poor by banks and housing finance companies (HFCs).With a hedge fund to cover risk in title instruments, more financial institutions would come forward and foster the goal of inclusive growth of the downtrodden sections of the society.

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