Thursday, May 28, 2009

Poverty in India

“60+ years of Independence.” We are still a developing country; we are looked down as place of hungry people. We have enough swanky cars on street; we also have equal number of homeless people on streets of our city. We are posting impressive year on year growth in our GDP, boast about having foreign reserves which runs into billions of dollars. Still, poverty in India is still rampant despite an impressive economic growth. So, why are we not able to eliminate poverty?

In general, Poverty can be defined as a situation when people are unable to satisfy the basic needs of life. According to the definition by Planning Commission of India, poverty line is drawn with an intake of 2400 calories in rural areas and 2100 calories in urban areas. If a person is unable to get that much minimum level of calories, then he/she is considered as being below poverty line. The World Bank uses an income cut off of Rs 21.6 per day in urban areas and Rs 14.3 per day in rural areas (at 2005 prices) to define who is poor.
According to the official estimates, in 2007 there were nearly 220.1 million people living below the poverty line. Nearly 21.1% of the entire rural population and 15% of the urban population of India exists in this difficult physical and financial predicament.

Government has introduced a number of antipoverty programs since Independence to alleviate poverty. One of the major problems with poverty alleviation programs is their implementation. Late Rajiv Gandhi, ex-PM of India once said that out of 100 paisa allocated for poor only 14 paisa reaches them. Even after knowing this, why hasn’t Govt of India taken any measures to plug the loopholes in our system? No political party has come out with figures stating the cost of eliminating poverty and hunger from India?

The reasons could be many and there are many stakeholders to blame. I would concentrate on one of the viewpoints amongst the many existing. The viewpoints which have been repeatedly said “The rich are getting richer” still holds true in our country. This is also the cause for the existence of the poverty.

“The rich are getting richer” not just applies to individuals or wealthy families in India. It is true also in the context of the states and its economic situation prevalent. Competition between the states, especially since the 1991 reforms, has widened the already huge disparities between them. The richer, better-run and more literate states have proved more attractive to investors than the poorer, more chaotic ones. Between 1999 and 2008, the Indian economy grew at an average annual rate of 7.3%. At the same period, let’s have a look at the growth rate of few states in India.

Many richer states grew faster: The top three states clocked an average of 8% growth. From the table below, we can see that the last 3 states in the list grew at an average of around 4.5% These parts of the country are a huge drag on India’s performance.
State Growth Rate (%)
Gujarat 8.8
Haryana 8.7
Delhi 7.4
… …
Bihar 5.1
Uttar Pradesh 4.4
Madhya Pradesh 3.5
Source: The Economist Dec , 2008
Of 260 SEZs that have so far been fully approved, a big majority are in India’s richest states, including 42 in Tamil Nadu, 38 in Maharashtra and 23 in Gujarat.As we read the statistics above, we see that there are 2 trends which lead to reduction in poverty in a state.

One is presence of physical infrastructure which leads to good industrial growth, another is the presence of a highly mobile skilled/semi-skilled work force which would attract the Industries. If a state lacks on both accounts, we see that the poverty is prevalent in larger number. Inspite of having this data,

The Govt of India is yet to realize the effect of Physical infrastructure and Human Resource development in reducing poverty.
This explains, for example, why the World Bank rates India, which is home to many excellent companies, as only the world’s 122nd-best place to do business—45 places behind Pakistan. Inspite of all the tall claims made by the corporate world and the Govt of India about the success in IT and other industries; the reality doesn’t fade away.

“Food Water Shelter”, we are still lagging behind in providing the basic needs of a human being. Without looking at this problem, the Govt is keen on announcing economic packages for Housing, subsidies for the different sectors which do not show a direct impact on the lives and social living of the common man.

Two main approaches to reducing poverty can be identified from India’s experience itself. One is through economic growth which when combined with good initial conditions in physical infrastructure, produced significant reductions in poverty in states such as Punjab and Haryana. The second approach relied on human resource development. This has allowed for instance Kerala to reduce its poverty incidence- through increased exports of relatively skilled labor and the resulting inflow of remittance despite modest economic performance. However, Bihar, failed on both counts; there was too little growth and human resources were underdeveloped. The workforce of Bihar which migrated to other states in India is in news for wrong reasons. The infrastructure in Bihar needs no further comments as the condition is known to all.

Till date, there is no single state which has been able to show equal strides in physical infrastructure and human resource development which has resulted in reduction of poverty. This would be the need of the hour for the future governments to concentrate upon.

Thus, India should reduce poverty in the future, faster and in more effective way than it has done in the past. Higher inclusive growth should be there that increases growth of all sectors and which further leads to faster reduction in poverty. Thus human development and infrastructure development should be followed simultaneously to reduce poverty alleviation. So, the lessons for the future are clear; promote growth and invest in human capital and infrastructure which would lead to reduction in poverty.

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