Poverty in India: Causes, Effects,

Injustice & Exclusion

October 15, 2013

POVERTY

Despite the country's meteoric GDP growth rate (about 9%), poverty in India is still pervasive;
especially in rural areas where 70% of India’s 1.2 billion population live. It is one of the fastest
growing economies in the world and yet its wealth is hardly redistributed across the population.

It spends only 1% of its GDP on health, which is half that of China, who is already planning on
increasing that by… a substantial amount (ok, 3 to 4% if you must know). While we’re comparing
public expenditure, contrast this with Russia and Brazil, whose spending on health is around 3.5% of
their respective GDPs.

60 years of fighting Indian poverty

India’s government is well aware that poverty is a giant barrier to overcome if it is to fully develop
the nation. A wide range of anti-poverty policies have been introduced since the 1950s, which
nonetheless took effect after 20 years of implementation.

If the decline in poverty went from 60% to 35% between the 1970s and the early 1990s,
globalization and liberalization policies have made this trend go backwards in the 90s.

How? And why? Weren’t the effects of joining the global market place supposed to create growth?
Why has India lagged behind China for so long? What went wrong?

… Let’s see what India did differently and why extreme poverty is still ubiquitous in so many regions.

A "corrupt" poverty line

The number of poor in India is measured by a poverty line that is probably one of the most disputed
and incessantly attacked tool in the world of development economics. What’s more, the World
Bank’s controversial poverty line has its origins in the Indian model! It is simply what some call a
“starvation line”, a line that accounts for the feeling of satiety: measured in calories.

You may be eating bread all year (or all your life) and use up your body in a few years, you may be
living in a flimsy house that flies away at the first storm, and you may not have access to clean water
or education: all this doesn’t matter, does it?

The statistics

 50% of Indians don’t have proper shelter;

 70% don’t have access to decent toilets (which inspires a multitude of bacteria to host their
own disease party);
  35% of households don’t have a nearby water source;

 85% of villages don’t have a secondary school (how can this be the same
government claiming 9% annual growth?);
 Over 40% of these same villages don’t have proper roads connecting them.

The forgotten poor

There’s also the problem of huge segments of the population that are not included in
the official poverty count, namely the Dalits (the untouchables), women and minority
ethnic tribes. They’re groups that are marginalized in the society and it’s more
convenient for politicians to announce massive reductions in poverty by simply not
including them in a census. It is easier to pretend they do not exist at all. However, it
is obviously difficult to change the way an entire country and its society functions...

Right now, rather than trying to radically alter local customs and disrupt wider social
dynamics in India, policies should find a way to take them into account. Otherwise,
by allowing these groups to be systematically excluded, authorities risk massive
social disorder and further tensions.

Political variations

Current estimations of the number of people below the poverty line vary from 20 to 50% of the
population - from conservatives' to liberals' estimations – precisely because of the debate around
the Indian poverty line. The idea is that recognizing either 240 million or 600 million poor means
radically different policies for a government, so clearly the stakes are high for the parties
representing richer segments of the population.

As you can see in the table here, official figures are around 35%, even while you should keep in mind
that there is a wealth of research pointing at a massive underestimation due to the current poverty
line.

A simple first step to improve the excessively low poverty line would be for India to base it on a
“nutritious” food security line, and then include education, sanitation, permanent homes and so
forth as part of the criteria. Prosperity sometimes begins with something small, but if a small
business owner can’t even protect his goods from going bad, shelter his stock from the elements or
ensure their security, then how is he ever to generate a secure income or have long-term investment
plans

Considering the size of India, poverty differs greatly from one state to another, so poverty lines
should be adapted to each state as well as be updated regularly, considering the pace of economic
growth in the country. The same goes of another tragedy that the country is infamous for: child
labor in India. Solving this issue requires completely different approaches whether you're tackling it
in towns (factories) or in rural areas (agriculture).

Jobs and housing shortage

As with many developing countries, urban poverty in India is a direct effect of rural migrations
fleeing poverty. This creates a massive unemployment and underemployment issue but also a
disproportionate housing problem.

One of the few things that has helped with the housing shortage has been micro-finance; at any rate
it has reduced uncertainties, though it's far from enough to solve the problem of poverty and inter-
class (or caste) marginalization and discrimination.

Slums & cities - a source of instability?

The spectacular growth of cities has made poverty incomparably more visible and palpable through
its famous slums. If, proportionally speaking there are less urban poor nowadays, their sheer
number has been increasing. They spend 80% of their income on food and the waning of public
services creates new unbearable costs that in the end lead to extreme situations where Indians are
denied basic services they once were able to access easily.

Getting used to selling your dignity for a rupee's work is one thing, and living on the edge of
precariousness another. But witnessing the rest of the population reap the benefits of formidable
growth is a most dangerous and unstable aspect of urbanisation that has been witnessed across the
world.

Since there are so many people working in agriculture and living in rural areas, the
agricultural sector has (and should have) an unrivaled priority in policies aimed at
reducing poverty.

And because there is a simple and straightforward link between rural poverty and
agricultural productivity, the end goal is to raise the productivity per person in order
to alleviate poverty. As a consequence policies should focus on spurring investment
and technological progress.

Obstacles to reforming agriculture

Okay, that’s the conventional wisdom in approaching rural poverty and in theory
there was really no problem viewing it in this way. But India faced new complications
with this strategy. Firstly, this kind of reasoning implies many things: to increase
productivity, India needed re-distributive land reforms from its traditional system (and
the reform was incomplete), then subsidies were needed to cater to poor farmers’
needs for new inputs (better seeds, fertilizers, pesticides, machinery…) and here
again the results of the policy were limited.

Worst of all, after the 1991 economic reforms, subsidies actually went down because
of the government’s fiscal deficit. And rural poverty subsequently went up, also due
to other social safety nets disappearing concurrently. Secondly, the reforms were
thwarted by the persistence of the social structure in rural India. Marginalization and
exploitation for instance have become part of the system, which resisted land reform
and logic of entrepreneurship.

Alleviating poverty: a few successes

On the bright side, when anti-poverty programs did work, they’ve had a great
influence on the social structure and helped people move up the social ladder. The
problem is mostly that reforms have been conservative and incomplete while
something more direct and “beefy” was needed (no offense to vegetarians).

Consistent poverty reduction in India has failed, especially in largely agricultural

states such as Madhya Pradesh and Uttar Pradesh, because investments in rural
literacy, education, technology and infrastructure were insubstantial. This explains
the structure of the Indian economy: as agriculture evolves, it frees labor for
manufacturing and commercial industries, but since this hasn’t happened the country
has focused on the services sector instead, which employs far fewer people. And
thus rural poverty in India has subsisted up until today while at the same time the
services sector accounts for most of the country's GDP.

Limited reforms: what a waste

Of the post-independence reforms that has achieved the most in terms of reducing poverty, land
reforms get the winning prize. By suppressing intermediaries, simplifying and standardizing the
system of tenancy, production relations were made more efficient and rural wages went up.

But if they had actually redistributed the land - as opposed to preserving the nearly- feudal system
plus incentives and subsidies for big land owners - they really could have eradicated one of the main
causes of poverty in India. On the other hand, you could argue that at least limited land reforms
have served as a second-best solution...

The impact of globalization

1991 is the year that India embraced globalization and started, like many countries, its market
liberalization coupled with privatization and deregulation while ensuring macroeconomic stability.
Where China has been one of the few countries that has successfully managed their transition to the
global market, the picture is more mixed with India, with lots of ups and downs...

Weak democracy and economic opening

The Indian society is so diverse that the rapid and unequal growth has brought overwhelming
inequalities which in a democratic country are rather dangerous. Truth be told: it’s dangerous
anywhere. But people have more opportunities to voice their concerns in a democracy, and reaching
a consensus on a long-term goal can prove an impossible mission.

Tensions between social groups make it impossible to negotiate, make concessions and solve
problems. That’s why in most cases reforms in rural areas have been mostly half-measures and
limited short-term solutions that have hardly made a dent in poverty reduction in India. On the
other hand, reforms at the macro level encouraging the development of new sectors and exchanges
with the world have been successful and benefited mostly urban populations and the corporate
sector. Many surveys confirm that the population is convinced that the reforms have benefited
mostly the rich while the rest still lack access to basic services.

Resistance to globalization ?
As a consequence, people are commonly opposed to privatization and liberalization even though
these processes are not necessarily to blame for economic inequality. However, it might have been
better to adopt more a progressive and thorough approach to reform.

It is a cliché but the blame can clearly be assigned to successive governments; although inherent
problems in reforms can also be attributed to Indian society and its great complexities (which also
account for its richness). It’s always been the case: no one in the past – from Romans to the British –
has ever truly managed to conquer and/or change the country to a homogenous entity. You just
handle things at the macroscopic scale, but what happens inside the country occurs far more
organically.

 Read more about the causes of poverty in India

 Read about corruption in India