This takes place due to a variety of factors. The basic premises followed in the study of the link between economic growth and income inequality in developing countries are as follows:
One of the basic problems in adhering to these premises is the problem of over population in developing countries. Over population has led to a state where any amount of resources is considered scarce. When the domestic demand is not met, there is little scope to export any produce. The lack of exports leads to a deficit in direct foreign investments which is the key towards the achieving the following:
As it may be seen above, the problem of over population brings the problem of lack of employment opportunities. There are too many people to fill a job vacancy. The ratio of human resource availability to actual vacancies is disproportionate. Thus, there is a disparity in incomes which has a direct effect on resources. Resources become scarce when there are too many people demanding it. With too much of demand, any resource becomes over priced. This leads to a situation where people end up spending most of their income on the procurement of basic necessities and finally, frequent cases of inflation. This has a direct bearing on the progression of economic growth. (Bardhan, 1996)
In the case of India, one may find that over population as led to such problems. Agriculture is the predominant economic sector in the country, yet it has to import wheat to feed its domestic demand; let alone having enough to export. This has led to an imbalance in the import export scenario which has led to a slow rate of economic growth. (Bardhan, 1996)
2. a) How else can poverty levels be reduced
Poverty refers to deprivation in spheres like food, education, shelter, health care systems, basic human rights and many more. Under developed and developing countries face this problem. The ways in which poverty can be reduced are as follows:
Faster rate of Economic growth: accelerated economic growth through better use of fiscal mechanisms and the overall production process is the basic key.
Increase in propensity to save: the propensity to save must be encouraged through incentives and other mechanisms that will give faster and bigger benefits.
Optimum Utilization of resources: putting resources to use for production of those goods that most beneficial revenue wise will help reduce poverty.
Creating of more employment opportunities: The employment pool needs to be expanded through more opportunities to earn a living will reduce poverty.
Increased rate of direct foreign investment: increased exports and reduced imports will create a better balance of payment for more equitable income distribution.
Avoiding the chronic poverty trap: the poverty trap is a chronic problem with those who have no inclination to save.
More welfare programs and incentives: better welfare programs and drives must be organized especially through privately owned NGOs.
Avoiding Inflation through better fiscal and