India Development Coalition of America-IDCA-Poverty Alleviation

How Unequal a Country India is?

2009-09-08T23:39:00.000-07:00

In economic writings on India it is commonplace to describe Indian economic inequality to be relatively low.

In support, the inequality measure of Gini coefficient (with values of zero for no inequality, and one for extreme inequality) on the basis of NSS consumption data is usually cited.
This Gini coefficient in 2004-5 was 0.325, and is indeed lower than in many developing countries, including China, and by constant repetition, both in national and international documents and the financial press, this has become part of the folklore about Indian inequality.
But there are reasons to believe that the NSS data under-represent the rich, and in any case while for other developing countries the Gini coefficient often refers to income distribution, India's refers to distribution of consumption expenditure (as NSS does not collect income data), which is usually less than that of income (partly because the rich tend to save more than the poor).
The NCAER occasionally collects income data, and according to their data collected in a 2004-5 household survey, the Gini coefficient of income inequality comes to 0.535.
Contrast this with the corresponding figure for China, 0.387 -- see the comprehensive estimate by Lin, Zhuang, Yarcia and Lin in Asian Development Review, 2008. (Both the Indian and the Chinese estimates here correct for spatial price variation between rural and urban areas, which is not done in the usually cited estimates of Gini coefficients.)
Not merely the Indian estimate of income inequality far exceeds that of China, it is in the Latin American range.
But ethically and socially one is more interested in inequality of opportunity rather than that of outcome (like income).
After all, with the same opportunity two people can end up with different incomes, simply because one is more ambitious and hard-working than the other, and many of us may not be too worried about that as long as the opportunities are equalised. For Latin America some attempts have now been made to measure inequality of opportunity, but very little as yet in India.
But in a country like India inequality of opportunity will surely depend on distribution of land, of education, and social identity -- a child born in a rural landless adivasi family with very little scope for education will be severely handicapped in her life chances for no fault of her own.
Land distribution in India is much more unequal than, say, in China. The Gini coefficient of inequality of land distribution in rural India was 0.62 in 2002; the corresponding figure in China was 0.49 the same year. (This is partly because India has a much larger landless population.) One can say that this does not correct for land quality variation (say, from Rajasthan to the coastal deltas).
Land quality is partly taken into account in its valuation when land is included in the NSS Assets and Liabilities Survey. By these data, the Gini coefficient of ownership of asset distribution was 0.63 in 2002 in rural India, while the corresponding figure for China was 0.39 in the same year.
Most people don't know that India's educational inequality is one of the worst in the world: according to World Bank estimates, the Gini coefficient of the distribution of adult schooling years in the population, a crude measure of educational inequality, was 0.56 in India in 1998/2000, which is not just higher than 0.37 in China in 2000, but even higher than almost all Latin American countries (Brazil [ Images ]: 0.39) -- again, this is partly because of India's large illiterate population.
Taking a long view, what is more important than static inequality is inter-generational mobility. On this, quantitative empirical work is rather scanty.
Some preliminary estimates suggest that such social mobility is much more in China than in India, partly no doubt because of the deadening legacy of the system of caste oppression and discrimination in India.
Whenever I have raised the issue of India's high inequality, some economist friends object. Preoccupation with inequality, they point out, is harmful even for the poor, because more equity is achieved only at the expense of efficiency and economic growth.
My response is that although most of us are taught in our elementary economics courses about the equity-efficiency trade-off, we need to understand that this trade-off, though valid in some cases, is often false or highly exaggerated.
Barriers faced by the poor in land and capital markets and in skill acquisition and in coping with risks sharply reduce a society's potential for productive investment, innovation and human resource development.
They often block the creation of socially more efficient property rights (for example, some land reforms improve both equity and productivity).
Inequality that keeps the workforce largely uneducated and unhealthy cannot be beneficial for private business, apart from the crime and law-and-order problems that inequality-generated conflicts bring about. Moreover, institutions and opportunities for cooperative problem-solving are often foregone by societies that are highly polarised.
Of course, politicians sometimes use the excuse of equity to put all kinds of regulatory restrictions that stifle economic growth, but this is because we let them get away with it.
A Cato Institute piece by Swaminathan Aiyar states that the global slump has wiped out billions from the wealth of India's richest, and if the poor really cared about reduction of inequality, they'd have celebrated this event.
But he surely knows that this reduction in the net worth of India's corporate oligarchy has not at all reduced its corrupt grip in the political life, or lowered the power of local landlords or the political elite that capture local governance and misappropriate funds and services meant for the poor.
And the poor care about inequality because it blocks their progress and market participation in ways indicated in the previous paragraph. There is substantial evidence that the same 1 per cent increase in the growth rate is associated with less poverty reduction in more unequal areas. India's high inequality is a serious social blight.
Pranab Bardhan

Moving Out of Poverty in India--World Bank Report

2009-09-08T22:09:00.000-07:00

Drawing a Line Under Poverty in India
By PAUL BECKETT
It's tempting to ask the World Bank for a few hundred copies of their new study, "Moving Out of Poverty: The Promise of Empowerment and Democracy in India," and mail them to the Prime Minister and every Cabinet minister, minister of state and state chief minister in the nation. Unveiled last week, the study tracks the fate of 30,000 rural Indians in 300 villages in four states from 1995-2005.

Before you holler "this was just as the last government was starting, we have a new government now," one of the things that is most telling about the report is how up-to-date it remains on the issues of rural poverty in India – and how it provides the ballast for simple, targeted priorities that the new government would do well to heed as it prepares to throw megabucks at the poor in the name of inclusion.

Paul Beckett
The study, conducted in Uttar Pradesh, Andhra Pradesh, West Bengal and Assam, found that poverty was, not surprisingly, cyclical. People don't get above the line and automatically stay there nor do they necessarily fall into poverty permanently. And they move in each direction for very different reasons. The trick, then, is to neutralize the pressures that drive people into poverty while fostering the stimulants that lift people out.

The biggest thing that sinks people is a health shock, the study found. To change that, "health systems that are affordable and function well must be available to poor people." Death of a family member and the financial burden of dowry payments also were high on the list.

To expand upward mobility requires creating meaningful jobs. That means the government needs to link poor people to markets, improve their market know-how and provide credit that goes beyond meeting their immediate needs, the study finds. Hard work alone is not enough to promote economic mobility. Organized companies, now almost exclusively present in cities, need to find ways to create employment and teach skills in rural areas.

“I doubt the babu rubbing his grubby palms at the prospect of more government lucre coming his way sees any of that as much of a deterrent.”

On the issue of governance, the study concludes that "local democracy, with all its imperfections, is already beginning to play positive roles in at least some poor people's lives," especially in areas where self-empowerment groups are giving collective power where an individual would have none.

Finally, creating assets for the poor, specifically housing, is vital for moving out of poverty: "Having decent shelter, while clearly important to raising living standards, is also a bottom-line requirement for earning 'citizenship in the village,' living with dignity, and accessing all other benefits."

I compared these findings with the government's agenda for the next five years as spelled out by President Pratibha Devisingh Patil in her speech to Parliament June 4. For the most part, it measured up reasonably well, at least on paper.

Expansion of rural healthcare. A new education bill to make quality education a right. Increase literacy, especially among women. Improve rural infrastructure, including giving every panchayat (village council) a broadband connection within three years. New targets for rural electrification, irrigation and road connectivity. Revamping banks and post offices to increase financial inclusion. A national skill development initiative. Doubling the target for rural housing construction.

But here's where the government's plan veers off course. In the president's speech and other government communications, there is an outsized emphasis on programs that may offer some temporary relief for the chronically poor but do little to actually move people out of poverty.
Exhibit A: The National Rural Employment Guarantee Act. Government officials give it so much credit in winning the election for Congress that they are now talking about a big expansion in the type of work it covers and, some reports suggest, coming up with a version to cover the urban unemployed.

The NREGA's "transformational potential is unfolding before our eyes," the president boasted. A few paragraphs later comes a new budget-buster called the National Food Security Act that would give every family below the poverty line heavily subsidized rice or wheat.

As a result, the NREGA and other massive welfare programs -- already viewed as "flagship" even though the NREGA, for one, largely involves meaningless busy-work -- will take on even more prominence and suck up even more money in the new government.

I'm not disputing that India needs these safety nets for those who truly require them. But the government would do far better to focus on making more lasting improvements in rural lives so that the NREGA and its kin become less prominent in the next five years, not more. Ideally, these welfare programs should be sought by fewer and fewer people as investments in infrastructure, training and services kick in.

Instead, five years from now, despite all the other promises about rural investment, I suspect the NREGA and other similar welfare programs will be held up as the government's major achievement in "improving" lives in the countryside.

The NREGA didn't exist during the period studied by the World Bank. But the study's editor, Deepa Narayan, is an expert in poverty reduction and this was her conclusion: "The NREGA and many of the government programs that people talk about seem to help people in surviving and coping but it's not clear they really help them escape poverty."

Then there is the related and inexorable issue of corruption. Whether it is the NREGA or valuable programs like improving roads in the countryside, it is a given that vast sums dedicated by the government to reducing rural poverty in the next five years will be diverted to enriching middle men, local and national politicians and bureaucrats. Simply by clamping down on the orgy of corruption that accompanies its programs, the government could greatly enhance the aid and investment it provides at no additional cost.

Ms. Patil made some lackluster efforts on that front. She dedicated her government to "increasing transparency and public accountability of NREGA by enforcing social audit and ensuring grievance redressal by setting up district level ombudsman" and "establishing mechanisms for performance monitoring and performance evaluation in government on a regular basis." I doubt the babu rubbing his grubby palms at the prospect of more government lucre coming his way sees any of that as much of a deterrent.

It would have been much more heartening to hear Ms. Patil utter something along the following lines: "Any employee of the government of India or of her states caught with their hand in the public kitty or diverting funds destined for her citizens will be prosecuted speedily and punished severely with the full force of the law." But she didn't, did she? And rural India will be all the poorer for it.

—Paul Beckett is the Wall Street Journal's bureau chief in New Delhi
Write to Paul Beckett at paul.beckett@wsj.com http://online.wsj.com/article/SB124503612621114523.html#printMode

38 per cent Indians are poor: Report

2009-08-30T21:56:00.000-07:00

Published on August 20 2009 , Page 13

http://epaper.hindustantimes.com/ArticleText.aspx?article=20_08_2009_013_006&kword=&mode=1

38 per cent of Indians are poor: report

The figure is 10 per cent higher than the present poverty estimate of 28.5
by Chetan Chauhan … chetan@hindustantimes.com

About 38 per cent of the country's population are poor, a government committee constituted to estimate poverty has said.

The figure is 10 per cent higher than the present poverty estimate of 28.5 per cent.

The committee, based on new methodology, has taken into consideration indicators for health, education, sanitation, nutrition and income, as per the National Sample Survey Organisation (NSSO) survey of 2004-05, to reach at new poverty estimation for India. The survey had said India's population was 1.1 billion that year.

A committee headed by S.D. Tendulkar, former chairperson of the PM Economic Advisory Committee (PMEAC), has used a different methodology, in its preliminary findings, to reach at the 38 per cent figure.

Since 1972, poverty has been defined on basis of the money required to buy food worth 2,100 calories in urban and 2,400 calories in rural areas.

Of late the experts have disputed the criteria.

In June this year, a government committee headed by N.C. Saxena estimated 50 per cent Indians were poor, as against the Planning Commission's 2006 figure of 28.5 per cent.

In 2007, the Arjun Sengupta of the National Commission for Enterprises in Unorganised Sector had said that 77 per cent of Indians were poor. The government had, however, rejected both the claims.

"The new methodology is a complex scientific basis aimed at addressing the concerns raised over the present way of poverty estimation," said Mihir Shah, member in-charge of rural development in the Planning Commission. He refused to endorse the 38 per cent figure, but admitted new poverty estimation would be higher than the existing one.
Correctly identifying the poor is crucial for exact targeting of scores of government schemes meant for the below poverty line (BPL) people. The Union government has spent Rs 1,51,460 crore (Rs 1,510 billion) in the past four years for poor under just three major anti-poverty schemes.

"The expenditure will further increase with the government envisaging providing basic entitlement of food to all under National Food Security Act," said a senior government functionary, who was not willing to be quoted.

On the basis of the Tendulkar Committee estimation of 8.32 crore BPL households, the government has estimated that additional annual food subsidy of Rs 9,500 crore (Rs 90.5 billion) will be required, over Rs 37,010 crore for financial year 2009-10.

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38% Indians are Poor--A Report

2009-08-30T21:24:00.000-07:00

--- On Fri, 21/8/09, HARIHARAN PV wrote:

Date: Friday, 21 August, 2009, 9:07 AM

Dear Dr Mohan Jain and Friends

I have personally made certain studies during the last twenty years. Until about last year (before the sudden increase of the costs of all household food items in India by as much as 100% this year) the average minimum livelihood NEED for an individual was estimated @ Rs.3500 to Rs.4000 per month (about Rs.45, 000 per person per annum), for a decent living level. (contrast this with the paltry amount of about Rs.6000 to Rs.7500 per annum being promised under NREGS)... My estimates were based on personal (discussions) visits to various villages from Dhule and Nashik in Mahrashtra to Kanyakumari District in the southern most part of India. It was shocking that as much as 74% of the village population DOES NOT have this "decent level" of living quality ... in most cases their estimated earnings would be @ less than Rs.7500 per annum (about Rs.600 per month) per person, average!

These are presented (along with some idea of our New Venture to solve Village level Poverty problems) at the blog: Poverty Alleviation in Villages

If you feel these are to be shared with all others, kindly do so, as deemed fit

Best wishes
Hariharan PV
http://www.linkedin.com/in/hariharanpv
(NOTE: I personally DO NOT believe in any data on poverty presented by the Government, for obvious reasons!)

pvh
Developing a New Business
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