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Poverty,

Unemployment and
Income Inequalities in
India

Poverty

In human society too much wealth or too


much poverty is a great impediment to
the higher development of the soul. It is
from the middle classes that the great
ones of the world come. Here the forces
are very equally adjusted and balanced.
--- Vivekananda

A country of dazzling prosperity is also a

country of dehumanizing poverty

--

Sonia Gandhi
We cant live happily as islands in a sea of poverty

--- M.S. Swaminathan


Poverty

it

can

be

defined

as

social

phenomenon on which a section of the society is


unable to fulfill even its basic necessities of life.
Mass Poverty: if a substantial segment of the
society deprived of minimum level of living and
continued at bare subsistence level

Third world countries exhibit mass poverty


and developed countries to suffer with
poverty
World Bank Country Indicators:
GNI per capita, Atlas method (current
US$)
$1,560(2013)$1,610(2014)
GDP growth (annual %)
6.9%(2013)7.4%(2014)
Population, total
1,236.7(2012)1,252.1(2013)
Poverty headcount ratio at $1.25 a day
(PPP) (% of population)
32.7%(2009)23.6%(2011)

Human Poverty: On the basis of human

factor, poverty cannot be measured only on


economic terms. It should also measured
terms of human deprivation based on the
elements

like

longevity,

knowledge

and

decent standard of living.


Human poverty is the denial of tolerable life
Incidence of Poverty: is the proportion of

population whose annual per-capita income


falls bellow the per annual per capita poverty
threshold to the total number of population

Poverty

Line:

the

estimated

level

of

income needed to secure the necessities of


life.

Year

Rural
Poverty
Line in Rs

Urban Poverty
line in Rs

1973-74

49.63/day

56.64/day

2004-05 (adjusted
prices)

35.63/day

53.80/day

2011-12(estimates
by Planning
Commission)

27.20/day 33.33/day
(816/mont (1000/month)
h)

Differences in defining poverty in various


countries

Developed countries definition centers to


reasonable
developing

level

of

living

countries

where

as

definition

concentrates on minimum level of living.


Political considerations also moves around
minimum level of living than better level
of living

Types of Poverty
Absolute Poverty
It

defines
converting

poverty
minimum

line

as

physical

quantities of cereals, pulses,


milk, butter etc., in to monetary
terms and aggregating them
and estimating consumer percapita expenditure.

Relative Poverty
Income distribution of the population in
different fractile groups is estimated and a
comparison of the levels of living of the
top 5 to 10% with the bottom 5 to 10% of
the population reflects relative standards
of poverty.

Studies on Poverty
Estimates during 1960s: done by B.S.
Minhas, M.S. Ahluwalia, P.K. Bardhan and V.M.
Dandekar (1967-68) and N.K Rath(1968-69)
Estimates
Planning

for

1973-74

Commission

to

1998:

estimates

the

(early

1970s), World Bank estimates of Incidence of


Poverty(1951

to

1994),

Guarav

Dutt

Estimates on Poverty (1995-97), Dutt and


Rvallian Study on Poverty in India(1990)

Poverty Estimates based on 55th Round of


the NSSO (July 1999 to June 2000)
Poverty estimates based on 55th NSSO
Round year 1999-2000 (in %)
Reference
Period

All India

Rural

Urban

30 day recall 26.10

27.09

23.62

7day recall

24.02

21.59

23.33

Source: GOI, Economic Survey,2000-01, table


10.5, p.194

Uniform Recall Period


URP, in which the consumer expenditure
data for all the items are collected from
a 30-day recall period

Mixed Recall Period


MRP,
in
which
the
consumer
expenditure data for five non-food
items, namely, clothing, footwear,
durable
goods,
education
and
institutional medical expenses, are
collected from a 365-day recall
period, and the consumption data for

Poverty estimates based on 61st Round of


the NSSO:
The poverty ratio for the country as a whole in
2004-05 were 27.5% based on Uniform Recall
Period and 21.8 based on Mixed Recall period
Tendulkar Committee estimates: submitted
report

in

December

2009

(pls

refer

Indian

Economy by Mishra and Puri) new all India


estimates for the year 2004-05: Rs 446.68/month
for rural areas and Rs 578.80/month in urban
areas.

66th Round of the NSSO


68th Round of the NSSO
68th round estimates done for 2011-12 year
and Poverty lines are as follows: Rs
27.20/day

for

rural

areas

and

Rs

33.33/day for urban areas (Rs816/month


for rural and Rs 1000/month for urban)

Comparison between
Tendulkar and Rangarajan
Committees
Committees

Tendulkar

C Rangrajana

Set Up By

Planning Commission

Planning Commission

Set Up In

2005

2012

Submitted Report

2009

2014

Poverty Estimation
Method

Per capita Expenditure


Monthly

Monthly Expenditure of
family of five.

Urban Poverty Line Per


Day per Person

33

47

Urban Poverty Line Per


Month per Person

1000

1407

Urban Poverty Line Per


Month, Family of Five
Members

5000

7035

Rural poverty line Per


Day Per Person

27

32

Rural poverty line (Rs)


per Month Per Person

816

972

Rural poverty line (Rs)


Per month Family Of
Five Members

4080

4860

BPL ( Below Poverty


Line ) In crore

27 crore

37 crore

Calorie Expenditure

only calorific value in


Expenditure

Calorie +Protein + fat

Calories In Rural Areas

2400

2155

Calories In Urban areas

2100

2090

Only counts Expenditure on


food, health, education,
clothing.

1-food
2- nonfood items such as
education,
3-healthcare,
4-clothing,
5-transport
6-rent.
7- non-food items that
meet nutritional
requirements.

Main Focus Areas

Causes of Poverty in India


Social Issues
Economic Issues
Political Issues
Religious Causes
Natural causes
Physical causes
Illiteracy
Population Explosion

Poverty alleviation
Measures
Small Formers Development Agency (SFDA)

Marginal Farmers and Agricultural Laborers


Development Agency (MFALDA)
Pilot Intensive Rural Employment Project (PIREP)
IRDP
NREP
RLEGP
Training of Youth for Self Employment (TRYSEM)

SGSY
EAS
SGRY (in 2001 SGSY,EAS and TRYSEM
included)
(For more details pls refer Indian Economy
and Rural Development text books)

Employment and
Unemployment in India

The size of employment in any country depends to a

great extent on the level of development. Therefore,


when a country makes progress and its production
expands the employment opportunities grow.
Past 3decades expansion in

production caused

increase in absolute level of employment (measure


of population that is employed).
Conflict between growth and employment: Prabhat

Patnaik: a higher arithmetical figure of growth rate


is neither a necessary condition nor a sufficient
condition for alleviation of UE

Trends in Employment in
India
In the recent past, there
has been deceleration in
the growth of employment in India in spite of the
accelerated growth. This can be explained in
terms of steady decline in employment elasticity
in all the major sectors of the economic activity
except in construction.

Overall elasticity of employment is as follows

(percentage point change in employment within a


given sector/percentage change in valued added
in the sector)

Year

Employment Elasticity

1983 to 1993-94

0.52

1993-94 to 1999-2000

0.16

1999-2000 to 2009-2010

0.19

Year

Employment Elasticity in
Agriculture

1983 to 1993-94

0.70

1993-94 to 1999-2000

0.01

1999-2000 to 2009-2010

0.04

T.S Papola mentions that this is due to


sharply declining and even negative
elasticities In a few regions- Punjab, Haryana
and UP- where the Green Revolution has
resulted in insignificant yield and output
growth

Nature and Concepts of


Unemployment in India

According

to

International

Labour

Organisation (ILO)
Unemployment is when people are without
jobs and they have actively looked for jobs
Unemployment in developing countries is
both open and disguised and in developed
countries by cyclical
India suffers from structural unemployment

Unemployment Rate in
India
Year
In Percentage
1983

8.30

1994

5.99

2007

2008

2009-10

9.8

2010

3.8

2011

9.4

1983 to 2011

Unemployment Rate in India=


individuals employed/individuals
unemployed

Labour force, Work force and


Unemployed (Usual Principal and
Subsidiary Status(UPSS)
1993
-94

1999200

200405

200910

199394 to
19992000

In millions

19992000
to
200405

200405 to
200910

CAGR %

Labor
force

381.
94

406.84 470.10 469.87 1.03

2.93

-0.01

Work
force

374.
45

397.98 458.99 460.17 0.98

2.90

0.05

Unempl
oyed

7.49

8.96

11.15

9.70

2.2

2.37

2.06

As a
1.96
proporti
on of
labor
force in
%
unemplo

Nature of Unemployment
Most of the unemployment in India is definitely

structural. During the 1961-2001 period in this


country had grown at an alarming rate of
2.15%/annum and with the number of people
coming to labour market in search of new jobs
had also increased rapidly, where as employment
opportunities did not increase most of the tome
correspondingly due to slow economic growth.
Hence there has been an increase in in the
volume of UE from one plan period to another.

We can classify Unemployment in the


country as
1.Urban Unemployment
2.Rural Unemployment
Urban Unemployment:
It exists in urban areas and sub-classified as
industrial

unemployment

unemployment

and

educated

Rural Unemployment:
Exists in rural areas and sub-classified as
underemployment

and

disguised

unemployment
Concepts of Unemployment: keeping in view
the recommendations of the Committee of
Experts on Unemployment, the NSSO has
developed and standardized concepts and
definitions of labour force, employment and
unemployment suitable to Indian conditions.

These concepts have not only been adopted


by the NSSO (1972-73) but also by the
Planning

Commission

for

analyzing

the

dimension of the unemployment problem


1.Usual Status Unemployment
2.Current weekly Status Unemployment
3.Current Daily Status Unemployment
Types of Unemployment: structural, cyclical,
voluntary

and

seasonal etc.

involuntary,

frictional

and

Causes of Unemployment
Jobless growth
Increase in labour force
Inappropriate Technology
Inappropriate Educational System

Jobless Growth: first 3 decades of economic


palnning GDP growth is 3.5% and the employment
rate

is

2%

per

annum.

Latter

GDP

grown

considerably but the employment rate fall sharply.


1972-73 to 1977-78 -2.82% to 1.02 1993-94 to
1999-00
It is due to large weightage given to the agriculture
(t.s.papola) while the growth of employment in
agriculture was as high as 2.32%/annum(1972-78),
in 1993-94 to 1999-00 it was only 0.06%
Slowdown in the employment elasticity

Thus the country witnessed a jobless growth


The rate of employment growth picked up by
2.90% during 1999-00 to 2004-05 and fell to
zero percent during 2004-05 to 2009-10.
(refer previous table)
Only one million new jobs were created
despite of GDP growth at the rate of 9percent
per annum.

Increase in the labour force: India in the

second stage of demographic transition and


population

growth

rate

was

2.2%(1960s)

increase in labor force is 1.90% (1983 to


1993-94)
Decline in mortality rate without decline in

the birth rate


Change in women education and job markets
The economy was unable to respond to these

changes

Inappropriate

Technology:labour

intensive

markets and changing market forces


Substitution of labor with capital in all sectors
Inappropriate educational system: defective
and old which is introduced by Lord Macualy.
Does not aims at development of human
resource in the country
Myrdal

says

that

these

are

not

only

inadequately educated but also wrongly


educated

Major Employment
Schemes
TRYSEM (1979)

National Rural Employment Programme (1989)


Swarnajayathi Shahari Rojgar Yojana (1997)
Swarna

Jayanthi

Gram

Swarojgar

Yojana

(1999)
Sampoorna Grameen Rojgar Yojana (2001)
Prime Ministers Rojgar Yojana

Income Distribution
and Inequalities in
India

In

order

to

understand

the

impact

of

development exercise on the economic welfare of


the people in a proper perspective, economists
generally investigate how the gains of economic
growth in a developing country are distributed,
which economic groups benefit from the increase
in income and if over the years distribution of
income fails to improve, then what are the
causes for desexualizing the growth.

The Pattern of Income


Distribution
in
India
In India there is no official organization to compile
data on income distribution in India.

The

Committee on Distribution of Income level and


Level of living under the Chairmanship of P. C.
Mahalanobis was appointed to look in to the
question of Income distribution.
However,

the

Research(NCAER)

National

Council

and

some

of

Applied
individual

researchers have examined the pattern of income


distribution in India at different point of time.

Moreover, India lacks data which may be


used

for

estimating

income

distribution

directly. This is perhaps the reason why in


almost all studies the data on consumption
expenditure obtained from the house-hold
surveys have been used along with the
income tax data

The patterns can be studied in the following time


periods.
The First Three Decades of Planning period
1.Income distribution during the 1950s
2.During 1960s
3.During 1970s
4.Size distribution of Consumption Expenditure (1951-56
to 1980-84)
5.Distribution of House hold expenditure during the 1980s
Disequalising growth during the Economic growth
Period

Income Inequalities during 1950s

Income distribution in different years/periods during


the

1950s

was

estimated

by

F.H.

Lydall,

N.S.

Iyyangar, and M. Mukherjee, the RBI and the NCAER


and the observations are as follows:
The top 10% households received about 35% of the
income(NCAER)and bottom 20% received only 8 to
9% of incomes and its half as compared to other
studies
25 to 28%(RBI) , NCAER and RBI found that
distribution of personal income is unequal in urban
rather than rural

Income Distribution during 1960s


Estimates done for the various time periods by the

NCAER and P.D. Ojha and V.V. Bhatt


1964-65- NCAER studied consumption expenditure
1963-64 and 1964-65: Ojha and Bhatt studied

income distribution in the country (used CSO data


on national income, estimates of direct taxes paid
by unincorporated business, and house hold savings
data for estimating the consumption expenditure
which

they

distributed

among

the

expenditure groups of population on the basis

decile

of relevant NSS percentage distribution. For rich


communities savings were considered and for low
income

groups

consumption

expenditure

is

considered
The

estimates

were

also

suffered

with

data

problems. Bottom 20% were sharing 7.5% and top


20% were sharing 47% of total personal income.
And the Lorenz ratio was between 0.35 to 0.39.
In the Urban areas top, holding 18times of urban
poor and in Rural areas 10times of bottom poor

Disequilibrium in Post Reform Period


1991 economic crisis, reforms and immediate
recovery up to 6 percent per annum and percapita income accelerated at 4% taking india
into one of the fastest growing economies.
The economists agreed for Growth is good
for the Poor and the policy makers in the
government

were

optimistic

distributional effect of growth.

about

the

Over the liberalizational period, GDP growth


rate has been slightly higher as compared to
the 1980s. In this period percapita GDP has
also risen but it is wrong to infer from these
facts that poverty has declined and the gap
between the rich and poor has been reduced.

Percentage distribution of
Household expenditure by percentile
groups of households
Percentile group of
house hold

198090

1994

1997

2005

2010

Lowest 20%(BPL people)

8.8

9.2

8.1

8.6

Second quintile (BPL) low


savings

12.5

13.0

11.0

12.2

12

Third quintile

16.2

16.8

15.0

15.8

16

Fourth quintile

21.3

21.7

19.3

21.0

21

Highest 20% (high


savings)

41.3

39.3

46.1

42.4

43

Highest 10%

27.1

25.0

33.5

28.5

29

In 2011-12, the top 10percent of the consumers


in the rural areas, on an average, consumed
7times more than bottom 10percent and while
in the urban areas the top 10 consumed almost
11times more than the poorest 10percent.
OECD report on income inequality in December
2011 pointed out that, inequalities in earnings
in India have doubled over the past two
decades
reforms)

(which

is

th

period

of

economic

The top 10percent of the wage earners make


12 times more than the bottom 10perncent,
compared to six time 20years ago.
Indias richest 100 had a combined net worth
of as high as Rs 12, 06,375 crore in 2011
which was almost 17% of Indias GDP Rs 71,
57,412 crore in 2010-11 (one sixth of the
GDP)

Causes of Income Inequalities


in India

Inequalities in land ownership and concentration

of tangible wealth in the rural sector


Concentration of assets in the Private corporate

sector
Inequalities in Professional training
Inflation and the price rise
Inequality in credit rise
Urban bias in private investment
The role of government

Inequalities in land ownership and


concentration of tangible wealth in
the rural sector

British rule and Zamindar system and its


abolition in post independence period, yet
concentration of land ownership
Total operational land holdings 67% (2010-11)
were

marginal

i.e.,

<1hectare

and

area

operated was 22.2m.hectare(0.38 hectares as


average land holding)
Small and marginal together 84.9% (2010-11)
and operated only 44.3% area.

Large land holdings 0.7 and operated 10.9% of


total cultivated area with average holdings of
17.37 hectares
Inflation and the price rise: price rise since
mid 1950s eroding real incomes of the working
class, while the industrialists, traders and farmers
with large marketable surplus benefitted a great
deal from this process. In India, very little hase
been done to offset this redistributive effect of
inflation,

and

as

result

accentuated income inequalities

it

has

greatly

Government Policy and Measures


Land reforms and redistribution of agricultural
land
Control over monopolies and restrictive trade
practices
Employment and wage policies
Social security measures
Minimum need programmes
Programmes for the uplift of the rural poor
taxation

To

sum

up,

supposedly

the

various

undertaken

measures
by

the

government have made little impact on


poverty, and thus income inequalities
perpetuate in their ugliest form.