Poverty in India: An Empirical Analysis

Bobby Ghosh

I have personally visited Calcutta, India, wondering exactly why so many

people line the streets in absolute destitution. Seeing homeless and poverty

stricken people is sad anywhere in the world; I have seen it in much of the

United States and in other countries as well. But nowhere is it as vast and grave

a problem as it is in India. Every time someone asks for a few rupees on the

street, it is an eye-opening experience that makes you realize how many people

in this world are living below the poverty line – with not enough to eat, nowhere

to live, no quality of life to speak of. India holds about one sixth of the world’s

population, yet is responsible for thirty-five percent of the world’s poverty. If

one wants to begin fighting the world’s poverty problems, India is probably the

place to start.

In the year 2000, twenty-six percent of the people of India were living

under the poverty level. This is a fairly shocking statistic, especially when one

considers the World Bank definition of poverty – income of less than one dollar a

day, per capita. As surprising as this statistic may be, the situation has in fact

improved drastically in the last quarter century. In fact, from 1951 to 1974,

during India’s first quarter of independence, the poverty rate increased from 47

percent to 56 percent, but the last 25 years have seen this figure drop to 26

percent. (Nathan) With this paper, I seek to understand the determinants of this

decreasing yet alarmingly high rate of poverty in India. I will focus on the state-

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by-state effects, especially as relating to factors such as religion, caste

breakdown, proportion of agrarian workers, literacy rate and other demographic

factors. In addition, I will examine what has been done in India with regard to

hunger and poverty elimination efforts, take a look at what has been successful

and what might need to be changed in the future.

The problem of poverty in India arises in the rural population. (Dahiwale)

Urban slums are growing in number because of the movement of poor people

from the villages to the cities. As mentioned earlier, poverty levels have

decreased across India. They have not, however, done so equally in all regions.

For example, in examining the data given in Rural Poverty and Slums by

Dahiwale, India’s decline in poverty from 1970 to 1988 was 12.35 percent. But

it was just 3.72 in the state of Maharashtra and 15.02 percent in the state of

Gujarat. It is interesting to note that both these states have a similar level of

urbanization. The place where the difference arises is in the rural setting. Both

states saw a drop in poverty of almost the same percentage in urban centers. But

Gujarat saw a drop in poverty in rural areas that was 7 times as much as that of

Maharashtra.

Breaking down the issue of differential poverty, let us move beyond the

states to the actual demographics of the poor in India. There is a very evident

caste breakdown. Although the caste system is not formally used anymore, many

of the associations continue to this day, especially in rural areas. The “scheduled

castes” are a designation given to the lowest caste, consisting of those formerly

associated with the designation of “untouchables” amongst others. A second

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lower caste is the “scheduled tribes.” This group of aboriginal people generally

rejects the caste system and chooses to reside in jungles, forests and mountains.

(Daniel) These two castes make up a disproportionate fraction of the poor in

India. In fact, in 1988, 54.2 percent of the scheduled castes and 62.2 percent of

the scheduled tribes were living below the poverty line. One of the reasons that

we saw a higher percentage in Maharashtra as compared to Gujarat was that there

is a higher population percentage of scheduled castes in that state as compared to

Gujarat.

If religious groups are considered, India has 6 significant religious groups:

Hinduism, Islam, Christianity, Sikhism, Buddhism, and Jainism. The majority of

the country identifies with the Hindu faith, about 82 percent. Islam represents

about 12 percent of all Indians, while Christianity, Sikhism, Buddhism, and

Jainism represent much smaller percentages of people – 2.5 percent, 2 percent, .7

percent, and .5 percent, respectively. (Daniel) In examining the data, there

appears to be a correlation with higher percentage of poverty with the Islam

religion. According to a 1987-1988 consensus survey, 35 million of the nations

76 million Muslims, or 46 percent, were living below the poverty line. Muslims

also exceeded Hindus in urban poverty levels by more than 17 percent.

(Dahiwale) The reason for this is possibly due to the different backgrounds from

which the Muslims arrived in India. In the 8 th century, Arabs and other Muslims

began invading India. Since then, those Indians that converted to Islam were

from two main groups: the lower classes of Indian society and the ruling classes

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from various Indian kingdoms. The former of these two classes is a likely

contributor to the large proportions of poor Muslims in present day India.

Next let us examine the proportion of agricultural laborers, since most

people in the rural communities take part in agriculture. According to the World

Bank, 45.6 percent of people in rural households are in poverty. The highest

level of poverty, on state lines, was in Maharashtra, where there were 56.6

percent of rural labor households under the poverty line. Maharashtra also has a

higher ratio of agricultural workers to all other workers. (Dahiwale) All of this

evidence points to the conclusion that agricultural laborers are, on the average,

more likely to be living under the poverty line than the average laborer. Census

data, interestingly, also suggest that a reduction in the proportion of agricultural

workers causes unemployment to decrease. From all of this information on

agricultural labor, we might conclude that reduction in agricultural labor, relative

to all other labor, and therefore a reduction in rural labor unemployment, could

help decrease the incidence of poverty.

If we take a look at education, we find another correlation. Slum and

rural poor areas can be identified with low literacy rates as well as educational

levels. For example, in a slum in the city of Kanpur, a literacy rate of 36.2

percent was found, as compared to a literacy rate of 50.8 percent in the rest of

the city. Some cities found literacy rates as low as 20 percent in slums. There is

also a correlation between literacy rates and caste. As found in Kohalpur city in

the study done by Dahiwale, the backward castes, in which the scheduled castes

are included, showed a literacy rate of 18.1 percent, while the upper castes had a

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literacy rate of 88.2 percent – a tremendous differential. While all of this data on

literacy rates is interesting to note, we cannot make any decisive conclusions

based on this because there is no evident causation. In fact the correlation likely

runs in the opposite way: being born into a destitute family, you have little or no

money. Children are forced to find work to make money just so they can eat, and

in the process are unable to attend school. The correlation can be extrapolated to

a state level – Kerala’s poverty rate is a bit lower than other countries and we see

a very high literacy rate in Kerala, the highest in the nation.

Going beyond the numbers of people that are in poverty, let us take a lok

at the conditions in which they are living. The most important of their living

conditions to take a look at, with regards to poverty, is their food situation. It is

important to see what sort of nourishment the poor have, and what sort of food

security measures are in place because it gets at the core of the problem: those

under the poverty level are undernourished. Before we go into the programs that

have been tried, or should be tried, let us examine the current situation with

regards to nutrition. India has actually made rapid progress over the years when

it comes to food production, having nearly achieved self-sufficiency in the

1970’s with regard to availability of foodgrains. (Chelliah and Sudarshan) The

1980’s saw an increase in food production per capita of 1.6 percent per year.

Interestingly, however, foodgrain and cereal consumption has been decreasing

since the early 1970’s. Especially in the more well-off states such as Punjab and

Haryana, people are consuming less cereals and more milk and milk products,

eggs, meat, fish, vegetables, fruits and so on. This changing diet, on the whole

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implies a less efficient means of getting calories. While this is fine for those that

can afford it, it falls hard upon those that cannot. With an overall decrease in the

consumption of cereals, we find that the poor become very succeptible to a

sudden change of price of cereals. Furthermore, as non-cereal consumption is

proportionately increased, the cereal prices are destabilized by lesser

consumption. Thus this overall trend is hurtful to the nations poor both by

creating unstable prices, and making the poor more vulnerable to these volatile

prices. (Chelliah and Sudharshan)

These trends of changing diets have also not necessarily improved

nourishment. In fact, according to surveys taken in 1994, the lowest 30 percent

of rural populations were only taking in about 1680 calories per day, when a

minimum of 2000 is needed for a healthy diet. (Chelliah and Sudarshan) In

addition, many experience a lack of protein and certain essential micro-nutrients.

Many poor households suffer from a lack of Vitamin A, Riboflavin, and Niacin,

for instance. (National Nutrition Monitoring Bureau) Thus, this change in

consumer preferences shows that even though there has been a decline in

income-poverty between 1972 and 1992, there has not been much of a decline in

food-poverty. In fact, overall the problem of food-poverty is much worse than

the issue of income poverty. As of 1994, over one half of all children under the

age of 15 were either severely or moderately malnourished. Similarly 46 percent

of all rural adults suffered from chronic energy deficiency. (Chelliah and

Sudharshan) It is quite evident that dietary nourishment is a major problem in

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India, even beyond those who are living under the poverty level, and the problem

is augmented the less money you have.

During the 1960’s there was a foodgrain shortage which caused the birth

of a program called the Public Distribution System, or PDS. It focused mostly

upon stabilization of prices in urban areas until the 1980’s when it began

expanding to rural areas as well. Since then, it has tried to maintain a supply of

foodgrains especially to protect the poor who might be affected by sudden price

hikes either due to natural fluctuations in the economy, or from the effects of

economic reforms. If we take a look at some of the data provided for who has

benefited from the PDS over the years, we see that those states with high

incidence of poverty have not necessarily been the states that have received a lot

of aid from PDS. Kerala, for instance has a low incidence of poverty, yet a high

share in PDS. Meanwhile, Uttar Pradesh has an incidence of poverty that is more

than six times as high as Kerala, yet its share in PDS is lower than that of Kerala.

There appears, therefore, to be some sort of an inter-regional bias in how the

PDS operates. There also seems to be an urban bias with the PDS. The States of

Jammu and Kashmir as well as West Bengal show a large urban bias. On the

whole, it is evident that the Public Distribution System is not providing the

safety net it intends to for the rural poor in India. (Chelliah and Sudarshan)

Given the vast nature of the problem of poverty in India, many programs

beyond the Public Distribution System have been tried out in an attempt to

alleviate the situation. Many of these programs have focused on eliminating

rural poverty, since, as mentioned earlier, rural poverty is largely where all

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poverty in India stems from. The following is a listing of programs enacted

since 1971:

Program Launching year Objectives

1 Small Farmers 1971 Controlling soil conservation and
Development Agency promoting agricultural
productivity

2 Tribal Area 1972 Improving Economy of the tribal

Development Program

3 Minimum Needs 1972 Providing construction assistance

Program and controlling drop-out rate of
children in school and improving
health

4 Drought Prone Area 1973 Promoting dryland agriculture

5 Twenty-Point Program 1975, 1982, 1986 Eradicating poverty under various

schemes

6 Food for Work Program 1977 Improving the consumption level

of the poor

7 Training Rural Youth for 1979 Upgrading the technical skills of

Self Employment rural youth for taking up self-
employment ventures

8 Integrated Rural 1979 Providing assistance for

Development Program acquisition of productive assets for
self-employment

9 National Rural 1980 Providing wage employment for

Employment Program assets creation
(NREP)

10 Rural Landless 1983 Providing wage employment to

Employment Guarantee landless agricultural laborers for
Program (RLEGP) creating a social forestry and for
construction activities

11 Jawahar Rojgar Yojana 1989 NREP and RLEGP merged into

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 (JRY) JRY for generating additional
employment on productive works.
It is to be implemented in all
villages in the country

12 Urban Basic Services 1986 Aiming at child survival

Scheme, Urban Basic development. Assistance to
Services for the poor handicapped and street children
(revised)

13 Nehru Rojgar Yojana 1986 Encouraging unemployed youth to

take up self-employment ventures
and providing/upgrading shelter to
pavements/slum dwellers

14 National Poverty Line 1995 Paying Rs.300 to a pregnant

Benefit Schemes woman, a pension of Rs. 75 per
month to an old aged and a sum of
Rs. 5,000 in the event of a death of
the bread earner and Rs. 10,000 in
the case of an accident

15 Prime Minister’s 1995 Uplifting the urban poor by

Integrated Urban Poverty mobilizing the women power and
Eradication Program encouraging for self-employment
(PMIUPEP) in 345 Class and training
II cities
Table 1. Anti-Poverty Programs
(Taken from Table 1.4 of Rural Poverty and Slums)

Basically all of these programs are of four basic types.

1) Programs that promote economic growth and overall development,

2) Programs that promote human development with emphasis on health,

education and minimum needs,

3) Programs that directly target poverty eradication through creation of

employment, training and creating asset endowments of the poor

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 4) Lastly, the targeted Public Distribution System (PDS) mentioned

earlier, which provides protection from inflationary pressures by

providing food at affordable prices.

The Integrated Rural Development Program (IRDP), started in 1979, works to

help poor families in rural areas by providing them with government subsidies

for food. The program brought about an incremental income of more than Rs

2000 for 57 percent of households affected and less for all other families.

(Chelliah and Sudharshan) While the IRDP did in fact bring extra income to

families, it has generally not been enough extra income to allow these families to

cross the poverty line. Other similar programs for self-employment, such as the

Development of Women and Children in Rural Areas (DWCRA) and the Training

of Rural Youth for Self-Employment have met with similar weak results. Studies

have pointed out two major reasons for this: there has been very little interaction

with the actual people being affected after the program has been enacted, and

there has been a lack of concern for responding to actual markets. In other words

the programs have received little feedback, have not adapted to meet changing

demands of its beneficiaries, and have not created opportunities that have been

viable in existing markets.

In addition to self-employment programs, there have been different wage-

employment programs intended for poverty alleviation. One major example is

the Jawahar Rozgar Yojana (JRY). The JRY was actually created as a merger of

two earlier plans known as the National Rural Employment Program (NREP) and

the Rural Landless Employment Guarantee (RLEGP). The main objective for the

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JRY is to create rural economic infrastructure and community and social assets,

providing employment as a by-product. The employment offered through the

program is a minimum wage for unskilled labor. The wage is generally below

the market rate for such work, but the opportunities are created at many rural

areas and for anyone who is willing to work. Specifically, the JRY projects are

two-fold. One area, called the Indira Awas Yojana (IAY) works on creating

housing, and the Million Wells Scheme (MWS) aims to create open irrigation

wells free of cost to the needy in rural agricultural areas.

Generally the JRY program has been moderately successful. It has created

millions of jobs, while contributing to the development of projects such as

medium irrigation, soil conservation, land development, drinking water wells,

rural roads, construction of school buildings, Panchyat offices (Panchyats are

those responsible for project direction at the local levels), women’s club

buildings, housing and sanitation and social forestry. (Chelliah and Sudarshan)

Despite this, however, there has been much criticism of the program’s inefficacy.

According to evaluations of the program, more than half of the Panchyat heads

had no training for the projects they were undertaking. Shortage of funds and

organization led to about half the projects not being completed on time. There

were very few women’s jobs created, and differential rates were paid to women

and men. Local resources were not properly utilized, driving up production

costs. The overall organization was not impressive either, as annual action plans

were rarely discussed.

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 Many of the programs created in the 1970’s, as shown in Table 1 were

poverty alleviation programs that worked through assistance to the poor. The

programs introduced in the 1980’s, however, were more focused on creation of

employment. Thus far, many of these programs have worked and are very good

programs in theory. Beyond the aforementioned Integrated Rural Development

Program, Public Distribution System, Training of Rural Youth for Self-

Employment, Development of Women and Children in Rural Areas, and Jawahar

Rozgar Yojana, many of the other programs in practice many have also fallen

through due to issues with corruption. (Dahiwale) Often, people who should not

have been classified as poor benefited from the programs, then misused or sold

the assets, such as animals, that they received. The IRDP was reported upon by

the National Commission on Rural Labor as not having sustainable potential.

The Jawahar Rojgar Yojana program, was reported upon by a parliamentary

standing committee in The Times of India, as having a “misappropriation of

funds.” Similarly a committee on urban and rural development publicly

criticized the Nehru Rojgar Yojana for poor implementation. Former Prime

Minister Rajiv Gandhi also openly admitted to a large corruption, stating that just

15 percent of development funds actually reached the intended beneficiaries.

(Dahiwale)

Amidst all of this corruption and misappropriation of funds, much has

been accomplished in the last quarter century; as mentioned earlier the poverty

rate has been almost cut in half. What this implies is that although India has

seen improvements in poverty alleviation, elimination of the corruption at the

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government level could ensure a much greater outcome. Perhaps the way to

achieve this is to create government bodies at a local level that can monitor and

enforce the policies. Given that these programs are spread across such vast areas

and therefore go through many levels of management, there is lots of room for

corruption. Creating some greater accountability at the local leve will be very

helpful in eliminating such corruption.

With regards to the future, and what steps should be taken in an effort to

reduce poverty in India, different groups have differing opinions. For one thing,

Chelliah and Sudarshan suggest structural reformation of the Public Distribution

System. They suggest removing government controls on the grain markets.

They also suggest for the very poor states with weak administrative structures,

creation of schemes which connect the food distribution to programs that create

wage employment, improve nutrition, and are tied to welfare programs for the

old and disabled to employment of the poor.

The Asian Development Bank provides some ideas for the future of Asian

economies, and I will focus on some of their suggestions for improvement of

agrarian economies, while eliminating poverty. According to the ADB, the main

goal of India should be what they call “inclusive growth.” This implies creating

opportunities for the poor as part of plans for development. By providing them

with greater access to markets, increasing their productivity, and creating more

opportunities for their employment, you can directly involve the poor in the

development process. (ADB) This will be better for the economy in general,

while aiding the poor simultaneously.

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 One of the most important challenges for India, given its large percentage

of rural poor, will be the development of infrastructure. In the age of

globalization and fast moving technology, India must keep pace and be able to

utilize all of its resources, which include the labor of the poor. A strong

infrastructure will aid in bringing private investment, both domestic and foreign;

integration of new technologies in the production process; as well as increasing

productivity. This improved infrastructure will help lead to market expansion

which will decrease regional disparities within India, easier integration of

changing technologies in Asia, and will create employment opportunities within

itself.

It will be important for the nation to capture and capitalize upon all

opportunities created by globalization. Foreign and domestic private investment

must be facilitated by the creation of solid infrastructure, as well as

implementation of appropriate incentives and institutions. It has actually been

estimated by the World Bank that if all of India’s states were to improve their

investment climate to equal that of the most successful ones, the potential rate of

growth of the nation would increase by 2 percentage points (World Bank 2002).

From a policy standpoint, India should seek to implement policies that reduce

constraint on competition and entrepreneurship, and help to bolster legal

systems, perhaps by finding ways to reduce corruption in these systems. This

will give foreign investors more confidence, especially given the large volume of

resources and labor available.

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 Improvement of infrastructure and infrastructure services will improve

investment climate directly. According to the ADB, the current inadequate

infrastructure in place in many parts of rural India makes the price of business

increase tremendously. In fact, a survey found that most small and medium size

enterprises in India have their own power generators because of the unreliable

power grids. Improvement of these parts of the infrastructure will reduce the

risk of small business start-ups. Such an infrastructure would also be increased

incentive for large multinational firms to invest in India as well. This would in

turn provide further economic stability for the local small and medium size

enterprises (SME’s). Since SME’s are the majority of businesses in Asian

developing economies, the end result would be employment of much of the

available labor force from the poor in rural communities.

Another important component for the Asian Development Bank’s

inclusive growth strategy is to modernize agriculture and augment the

development of rural economies. In countries such as India, technological

centers have sprung up in cities like Bangalore, one of the tech capitals of the

world. While much of the countries GDP is shifting towards these new

technological industries, the agricultural industry remains in its archaic state.

This causes agriculture to be very inefficient, relative to the rest of the economy.

As an example, China employs fifty percent of its labor force in agriculture, a

sector that provides just 15 percent of the nation’s GDP. (ADB) Agricultural

growth will be sped up through investment in technological change. Increased

technology will then provide a boost in the agriculture industry which will then

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create a larger need for skilled and trained labor which can be provided by the

labor surplus that exists in rural India. This will continue on in a cycle of

increased employment, increased technology, and increased efficiency which will

allow the agriculture industries in India to catch up in efficiency to the high-

technology industries at urban industrial centers. Development of these rural

economies will also involve increases in the quality of infrastructure. Most

technology will rely on electricity reaching all rural lands, proper roads and

vehicles to decrease the time of transport, better communication through

telephone and internet services, and improvements in irrigation and water supply

for crops. (ADB)

Finally, inclusive growth will involve market expansion in rural

economies. This again relies heavily on infrastructure. Many regions of India

have isolated markets due to poor infrastructure such as roads. Poor

transportation causes people to be unable to access different marketplaces and

prevents sellers from selling outside of their small communities, thus reducing

competition both on the buyer and seller sides. This barrier to trade and

reduction of competition inhibits the potential for growth and productivity, such

as commercial production of goods. Overall, development of larger markets will

encourage better products, more competitive prices, increased technology and

thus increased employment of the available labor force by reducing transaction

costs and facilitating exchange.

All of the aforementioned factors are contingent upon improvement of the

current infrastructure in place, especially in rural India, the site of the

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agricultural industry. This will require that the Indian government put forth

funding towards these improvements if reduction of poverty is high on their list

of priorities.

I have found throughout this study a number of things that have surprised

me. First, it was no shock to see the vast amount of poverty that exists in India.

Since I have visited firsthand, the numbers only confirmed my fears of the extent

of the problem. But it was interesting to learn that there is a significant state by

state difference in the poverty problem. These state differences arose due to

differential inhabitants of different religions, and varying amounts of people

from the “Scheduled Castes” and “Scheduled Tribes,” and the amount of

agriculture in that area. I was also surprise to find the large number of social

programs that have been put into place already in an attempt to alleviate the

situation. But, in conclusion, it was apparent that even with such a large number

of programs in existence, many have not been efficiently implemented. Due to

disorganization, lack of funds, and most importantly, corruption, these programs

have not helped out their beneficiaries in the way they have the potential to do.

Furthermore, as suggested by the World Bank, if India can adopt an attitude of

“inclusive growth” where they include the country’s poor in the grand scheme of

wanting to achieve economic growth in a globalizing economy, they will be most

benefited. India can grow economically, while its people deep in the villages can

become financially able and independent beings. It is my hope that during my

life time I see the number of poverty-stricken individuals decrease drastically.

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We have the resources to accomplish it, now we just need the organization and

cooperation of all people in India to get that country to achieve its potential.

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Works Cited
Caste System in Modern India. http://adaniel.tripod.com/modernindia.htm
Aharon Daniel.

India at a Glance. http://www.censusindia.net/scst.html

Know India http://www.incadoindia.com/knowindia.htm

Raja J. Chelliah and R. Sudarshan. Income-Poverty and Beyond. Anthem Press, London,
UK 1999

Ratnakar Gedam. Poverty in India. Deep & Deep Publications, New Delhi. 1995

Rohini Nayyar. Rural Poverty in India. Oxford Unviersity Press, Bombay 1991

S.M Dahiwale. Rural Poverty and Slums. Rawat Publications, Jaipur and New Delhi.
1997

Poverty in India Since 1974. Nathan Associates, Inc. 2002

Asian Development Bank. www.adb.org

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