Poverty and Inequality Reduction in India - Term Paper Example

Poverty-Inequality Reduction in India Contents Contents 2 Introduction 3 Theoretical al Aspects 3 Poverty Reduction 3 Income Inequality and Poverty in India 4 Estimation of Poverty Rates 7 Unresolved Issues until Today 8 Human Poverty in India 8 Factors behind Poverty Trend 9 The Working Population 10 Conclusion 11 Work cited 13 Introduction : The topic of Poverty-inequality in India was the best topic when it comes to relating the relationship between the economic growth and poverty. India becomes the countries of choice because it has been experiencing major growth of its economy and has a large population which has also been on the rise. In India, the reform in economic was experienced since 1991. Despite the experienced spurring economic growth, the country still experiences a terrible inequality within its cities and between the rural and urban areas. These were the best opportunity for the eradication of poverty in the nation and more majorly the rural poverty. With about two third of the population living in the rural area, even urban poverty stems from the rural migration to the city. This paper is to take as through the various ways taken by the government in trying to reduce poverty. Besides, a person should be in a position to understand the poverty and inequality experienced in India. In addition, it is vital to understand the human poverty in India for the proper understanding of the topic of poverty inequality reduction in India. Theoretical/Institutional Aspects Poverty Reduction India has been experiencing a less impressive growth when compared to China; however, compared with other developing countries the economic growth in India has been more impressing. The GPD of India has been on the rise for the last two decades. One of the major attributes to this growth in GDP, is based on the fact that India has experienced a reduction in population growth. In increase in the per Capita and the GDP has been linked to the amount of structural change (Ghosh, Madhusudan, pg 3). The rate of investment has increased over time. This situation has made India to have an increase in per capita growth, and this stands to about 36% increase, from the periods of 1990s. At the same time, the GDP level of Agriculture has decreased and is now found on the predictable line. However, not all sectors have experienced some economic growth or development. For instance, since 1990s, the secondary sector has not experienced some growth. On the sector of the tertiary sector, really increased and now accounts for almost half of the income of the nation. The change experienced in the output shares did not go hand in hand with an equal change in the workforce distribution. This has been continuing despite of the reduction on the agricultural share and the collapse of employment generated from agricultural in the current decades. For the last two decades, the investment high rate has not contributed to a grater industrial expansion. However, they have been associated with the explosion in the services sector that combines both the both the low and productive activities. The pattern of the countries employment has greatly affected the incident of poverty. Income Inequality and Poverty in India In the past reform period; the evidence suggests that there has been an increase in inequality in India. The use of statistics and surveys in analyzing the economy of India is a common technique. Most of this information emanates from the statistics on the NSS consumer expenditure. This survey statistics was used to calculate Gine coefficient and per capita incomes. When referring to inequality, the survey of NSS does do not adequately capture the upper-income group consumption. When approximating the consumption, there is no existing method that can compare the consumption of the 1999 -2000 with that experienced earlier. This lowered the Indian measured poverty in the rural area by almost 50,000,000 and also affected the measure of inequality (Sen and Himanshu, pg 53). The general observation for the studies shows that though the date that was unadjusted show that inequality was reduced by around 55 to 50 million (Sen and Himanshu, pg 53). If a person uses the comparable data that is adjusted, rural inequality will escalate in India between 1993 and 1994 and also between 1999 and 2000. During this period, Sundaram and Tendulkar (26) explains that a large percentage of the population in India have suffered. They place this percentage at 80% (Deaton and Dreze, 5; Sen and Humanshu, 59). Gosh (2013), in his analysis of the Indian economy, they explain that Indian has a high level of inequality in terms of per capita expenditure. This is between the rural areas, and the urban areas. The per capita consumption ratio or the national survey data based on urban to rural has been in the rise. This has been from 1987 to 2005 respectively from 1.55, 1.63, 1.75, to 1.9(Deaton and Dreze, pg 6). The differences in the regional income have intensified with Gini per capital income coefficient across the Indian states increasing. Furthermore, between 1993, to the year 1994, there has been an increase in the Gine coefficient of the majority of states. In the entire India, the rural Gine increase from 25.8 percent to 26.3 percent while the urban Gine increased from 31.9 percent to 34.8 percent (Sen and Himanshu, pg 7). However, this is under dispute, mainly because the data is able to cover expenditures in consumption, as opposed to income. Furthermore, the survey provides a lower assessment of the distribution tail. The lowest predicted consumption of the population is about 3.6 percent while the reduction at the top is responsible for 31.1 percent. (Jomo, and Chowdhury pg 133). The differentials of rural-urban income are large. The consumption of urban per capita is twice that of rural areas (Jomo, and Chowdhury pg 133) and the GDP per capita gaps are even larger. Furthermore, the urban per capita in the year 2004, was more than three times, when compared to the rural per capita income (Sen and Himanshu, pg 40). Regional differences have recently increased and are of significance the state domestic product per capita ratio of the major states. The difference between the richest states to the poorest state in 2004 increased from 2.2 to 4.8 percent (Jomo, And Chowdhury pg 133). The official estimate for poverty extent, for example, the headcount ratio below the level of the poverty line has been the main a gender for the debate. The current problem relates to the comparability of the expenditure in consumption approximated over time mainly given the 1999-2000 survey problem. The current line of poverty is based on the line that was first determined in the 1970s. This was based on the level of the consumption expenditure at which food procurement was being carried out by the household to meet the required calories of 2400kcal per day. This was majorly in the rural areas and in the urban areas was 2100kcal per day. The 1973 line of determinant has been changed for consecutive years based on base on the index of consumer pricing for rural area agriculture laborers and the urban area industrial workers. This method has faced several criticisms. Some of these criticisms are that the method did not take into consideration the changing consumption trend of implicit and explicit necessity. Furthermore, the method did not do not bear any relation the new line was mainly set using the calories intake. The technique consider the possibility of the households below or above the set line of poverty attaining the required calories by purchasing food that is sufficient at an existing price. The current estimation of the World Bank (Chen and Ravallion, pg 30) anticipated the population of the poor people in India to be about 456 million in the year 25005. Moreover, the population of the poor was anticipated by the government of India to be 301 million in the year 2004-2005. Referring to the figure given, the ratio of poverty in India experienced a reduction in the year 1981 which was 59.8 percent and 53.3 percent in the year 1990 and was the list in the year 2005 which was 41.6 percent. In general according to the World Bank, the poverty reduction rate slowed down from 0.94 percent points during the periods of 1981, to the year 1990. This was a reduction of 0.65 percent per year from the year 1990 to 2005. At this pace, India will not be in a position to reducer the level of poverty experienced in the nation by have when it reaches the year 2005. Estimation of Poverty Rates In carrying out an estimation of the poverty rates of India, the Asian Development Bank (ADB) gave an estimation of about 622 million people. This is a very high number, and it is an indication that the Indian economy comprises of a lot of inequality. However, these figures are disputed, mainly because of the poverty index that the ADB was able to use. The ADB used the 1.35 dollar per person, as opposed to the set standard of 1.25 dollar per person. This is the standard developed by World Bank, and it is used by the entire world, for purposes of measuring their poverty rates (Jomo, and Anis Chowdhury, pg 138). Furthermore, the ADB did not use the ICP comparison that relates to the consumption of bundles. Instead, the ADB relied upon the prices of the services and goods that were purchased by poor people in India (Himanshu, pg 5). Because of this unfair rating system, India had a very high rate of poverty, which was 54.8% (Reddy and Pogge, pg 24, Reddy, pg 110). This system of rating was heavily criticized. The critique of these approaches to measuring poverty in India was developed on the basis that they did not factor the specific needs of human life, and whether they were met. Furthermore, the conversion factor of PPP is very problematic. This is majorly based on the fact of the unchanging need of consumption perception over time and data inadequacy. These conclusions indicate that the rate of poverty reduction in India is very slow. This is surprising, because India has experienced a high rank in terms of development in economy in the current years. Unresolved Issues until Today Human Poverty in India Gosh (44) believes that the measure of human poverty in India indicates a very worrying results. This is because people are living in a very poor condition. For instance the education and health system of India is very poor, and bad, lagging behind when compared to countries with similar economic level. The main concern has been on food poverty. Studies also indicate that certain parts of India are experiencing a high level of hunger. Other indicators of both health and nutrition are also extreme. The year 2005 current Survey for the Health of National family shows that the children who were categorized as underweight in the rural are were about 45.6percent.those considered underweight in the urban area were 32.7percent the age considered for survey were of five years and below (Banerjee, par 12). This result was of no difference from the one undertaken in the last eight years. More than one-third of the population of the rural was also underweight. The wide spread of anemia which is mainly due to deprivation of nutrients was also experienced. Anemia is always related to malnutrition, and the survey carried out in India was very astonishing. The children who were of the age between 12 to 23 months recorded 79.2 percent of anemic disease. Further survey also showed that 56.2 percent of married women of the age of 15years to 59 years also suffered from anemia (Banerjee, par 12). In India, the health sector has also been contributing greatly on the rise of poverty and inequality. Health service sector has a character of the rich going to hospitals with high facilities. The low earning has only the choice of going to the health facilities that are very overcrowded and with poor facilities. The government inadequate contribution in the health sector has made the Indian population to service their health care from their pocket accounting for a total expenditure in the health sector which is to 85. This is a very high ratio, when it involves the health sector. The 1999-200 NSS data accounting for health cost increased the incident of poverty by 12 percent (Van Doorslaer, et al., pg 1358). Factors behind Poverty Trend It is very clear that the increasing inequality in a factor that is very important. It is because the benefits of the growth are been concentrated and have not been distributed down sufficiently to ensure the improvement in the consumption among the low-income groups. This pattern also emphasizes the vital importance of the growth nature. The period of 1973-74 to 1987-88 experienced a faster reduction of poverty in the rural. This is mainly because the growth pattern in the 1980s was able to involve a shift a shift in public expenditure, to rural areas. Furthermore, this generated multiplier effects and more jobs that were of benefits to some extent to the rural poor (Sen and Ghosh pg 20). In India, the terms of trade played a very important role in changing the poverty level. The existence of the great number of laborers who were landless meant the rise of the price of which intern increased the level of poverty even in rural India. The earlier studies have related poverty incidence to food prices in relating to the 1960s. In faster rate of increase of agricultural prices, two contradicting effects of poverty can be experienced. First, to the degree that agricultural growth is stimulated by the change in terms of trade in favor agriculture. Furthermore, assuming the inequality dies net increase, the rise in agricultural product will reduce the rural poverty to a given extent. Secondly, since the rural population largely consists of agricultural laborers, non-farm workers who are the net purchasers of food will contribute to an increment in the food prices and worsen poverty. In the recent years, the relation between poverty and food has become very complicated due to other factors effects. These effects are mainly wages and employment. In short, productive employment generation is an important link between poverty and growth. The recent India economic growth process has shown a problem which is experienced in all the developing worlds. These include the inability of high rates of output growth to generate opportunities that are sufficient to meet the growing force needs of labor. Dak (38) explains that the high rate of growth that is witnessed in India has not led to an increase in employment. In addition, the growth of employment has been accompanied by significant increase in the rate of open unemployment. Furthermore, the aggregate and age-specific labor force rate of participation has increased mainly for women. In addition, more detailed data shows that the employment quality has significantly deteriorated. There has been a reduction in the proportion of all forms of employment wages. Ghosh (22) explains that the shares in employment wages are on an increase mainly because of an increase in employment contracts. However, in a survey released recently, there is a drop in casual jobs (Ghosh, 27). This signifies an increase in unemployment in India. The Working Population The official data also shows that in spite of the rapid growth of the economy, there have been some difficulties that have been increasing in the working population. This has majorly been main finding jobs whether in the form of casual or regular contract. The sharpest deceleration of all was experienced in the agricultural employment, with the total decline of the number of employed in the agriculture over the 1990s. The reason for the decline was due to the cropping pattern and technological change that reduced the Agriculture sector labor demand. In India in the period of 1990, the decline in organized sector employment and growth declaration were some of the features that were more disturbing. This was especially given that the output of industries increased manifold, and the sector of service was an element that was more dynamic in the growth of national income. This was due to the decline in the employment in the public sector. An increase in the organization of the private sector, in regards to its employment capability did not compensate these facts. In addition, economic reforms measures which includes trade liberalization, the credit allocation reduction to the sector of priority and removal of various support forms. These economic reforms worked against the interest of most small producers. The small producers played a role in accounting for most form of the labor intensity of urban production. They also played a dominant role in the employment in urban manufacturing. The fallout of all this has led to a significant increase in self-employment among all the Indians workers. The increase has been very sharp among women. In India self- employment accounts for about two- third of all jobs. Furthermore, these people who are self-employed have managed to employ approximately 48% of the urban work force. Currently in India, around half of the workforce does not work for a direct employer (Kumar & Ramanuj, pg 198). This is not only true the sector of agriculture but also the not- agricultural sector. In addition, two third of women and more than half of men among such employed workers reported a low monthly remuneration. This remuneration was very low as compared to other states. Conclusion In comparison, India has a system that is demand constraints and market driven which has not only failed to deliver equality in success but has also not reduced poverty significantly. It is very clear that the flexibility in macroeconomics in an environment that is market driven is not the best solution for sustainability and growth or reduction in poverty. India experiences an economic growth that is much higher than most of the developing countries. This change, however, did not deliver the structural change that is desired in terms of output composition and employment that would have ensured a reduction in poverty. It is also true that the experience by India allowed for greater macroeconomic and financial stability than experienced with many other markets that are emerging over this period. This experience was major because the limited liberalization of the capital account. Furthermore, India was not an attractive destination for financial capital until the year 2004. In the past four years, changes were experienced in both these fronts. A surge was experienced in the India economy in the inflow of capital that exerted an upward pressure. This pressure was mainly on the rate of exchange and reduced the flexibility in the macroeconomics. It is in this context of the integration of a much greater global economic than even a decade earlier that India is facing a collateral damage of economic slowdown and global financial crisis. These have substantially affected the employment and the output. Since the Indian development project is still far from completion and is of less advanced than that of China. It is vital important for the Indian government to utilize this opportunity to use the expansionary fiscal policy. This will assist in the redirecting of both private and public investment towards the provision of basic needs and the creation of infrastructure.These has substantially affected the employment and the output. Since the Indian development project is still far from completion and is of less advanced than that of China. There is a need for the government of Indian to utilize this opportunity to use the expansionary fiscal policy. This will assist in the redirecting of both private and public investment towards the provision of basic needs and the creation of infrastructure. It is only with such determination by the Indian government that any future growth will contribute to the reduction of poverty. Work cited Banerjee, Arindam. Hunger and its causes: A broad Indian view, 2008. http://www.networkideas.org/featart/nov2008/Hunger.pdf Chen, Shaohua, And Martin Ravallion. The developing world is poorer than we thought but no less successful in the fight against poverty. World Bank, August, 2008. http://siteresources.worldbank.org/JAPANINJAPANESEEXT/Resources/515497-1201490097949/080827_The_Developing_World_is_Poorer_than_we_Thought.pdf Dak, T M. Rural Industrialisation: Challenges and Perspectives. New Delhi: Northern Book Centre, 1989. Print. Deaton, Angus, And Jean Dreze. Poverty and inequality in India: A re-examination. Economic and Political, 2002, Weekly, September 7. Ghosh, Madhusudan. Liberalization, Growth and Regional Disparities in India. New Delhi: Springer India, 2013. Internet resource. Himanshu. What do the new global poverty estimates mean? 2008, http://www.networkideas.org/featart/jan2009/Himanshu_EPW.pdf Jomo, K S, And Anis Chowdhury. Poor Poverty: The Impoverishment of Analysis, Measurement and Policies. London: Bloomsbury Academic, published in association with the United Nations, 2011. Print. Kumar, Swapan, And Ramanuj Ganguly. Globalization in India: New Frontiers and Emerging Challenges. New Delhi: PHI Learning Private Limited, 2010. Print. Patnaik, Utsa. The costs of free trade: The WTO regime and the Indian economy. Social Scientist, 1999, 27 (11–12). 3. Patnaik, Utsa. Neoliberalism And Rural Poverty In India. Economic and Political Weekly, 2007, 42 (30): pp. 3132–3150 Reddy, Sanjay. The World Bank’s new poverty estimates: Digging deeper into a hole. Challenge, 2008, Nov-Dec 2008: 105–112. Reddy, Sanjay, And Thomas Pogge. How not to count the poor. SSRN Working Paper Series, 2002. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=893159 Sen, Abhijit, And Himanshu. Poverty and inequality in India: Getting closer to the truth. Economic and Political Weekly, 2005, January. www.macroscan.org Sundaram, K, And Suresh D Tendulkar. Poverty Has Declined in the 1990s: A Resolution of Comparability Problems in NSS Consumer Expenditure Data. Economic and Political Weekly, 2003a, January 25–31. Sundaram, K, And Suresh D Tendulkar. Poverty in India in the 1990s: Revised Results for All-India and 15 Major States for 1993–94. Economic and Political Weekly, 2003b, November 15–22. Van Doorslaer, Eddy, Owen O’donnell, Ravi P Rannan-Eliya, Aparnaa Somanathan, Shiva Raj Adhikari, Charu C Garg, Deni Harbianto, Alejandro N Herrin, Mohammed Nazmul Huq, Shamsia Ibragimova, Anup Karan, Chiu Wan Ng, Badri Raj Pande, Rachel Racelis, Sihai Tao,Keith Tin, Kanjana Tisayaticom, Laksono Trisnantoro, Chitpranee Vasavid, Yuxin Zhao. Effect of payments for health care on poverty estimates in 11 countries in Asia: an analysis of household survey data. The Lancet, 2006, 368: 1357–1364 Read More