Protracted poverty pulling us back

Since the income distribution gulf is widening in India instead of converging, poverty is declining but very slowly.

By Author Dr K Srinivasa Rao   |   Published: 30th Sep 2017   12:05 am Updated: 30th Sep 2017   12:11 am

The track record of macroeconomic trends witnessed during the post-reform period affirms noticeable development. International think-tanks have hailed calibration of economic reforms, which have provided a fillip to economic growth. The forward journey of economic reforms has further deepened with the recent implementation of socially beneficial policies.

The policy measures stepping up liberalisation, privatisation and globalisation (LPG) could accelerate economic transformation. According to the International Monetary Fund, the nominal gross domestic product (GDP) consistently rose from $274.84 billion in 1991 to $2,250.98 billion 2016.

India contributes 2.99% to the world’s GDP but it shares 17.5% of the world population and 2.4% of the world surface area. It is now the 7th largest economy in the world and expects to cruise to the third position by 2050. During this period, the economy could move towards low-end of single-digit inflation from the high-end of double-digit.

Forex reserves are breezing past the $400-billion mark rising from its nadir in 1991. The degree of improvement in the wellbeing of people should also move in tandem. Among many, improvement in the life of the masses can be measured by gauging the trickle-down process in the economy.

Poverty and Hunger Levels

Data suggests that 38% or 332 million people in India were living below poverty line (BPL) in 1991. Though this came down to 23.6% by 2012, still 276 million people were BPL, based on a per day income of $1.25. The World Bank (WB) has set the new benchmark of poverty line at $2 per day. According to a WB study, poverty levels in India have declined by 1.36 percentage points per annum after 1991, compared with that of 0.44 percentage points per annum prior to 1991.

Urban growth has outpaced rural and helped accelerate reduction of poverty. According to UN data, the number of people BPL has gone down from 234.9 million in 2004-06 to 190.7 million in 2014-16 based on three-year averages. Though the number has decreased, this happened slowly than many comparable countries.

Similarly, the Global Hunger Index (GHI) that measures and tracks hunger globally shows that it is down from 46.1% in 1992 but still stood at a high of 28.5% in 2016.

The deprived sections in the grip of poverty, however, are still acute. It only affirms that the poverty alleviation policies are not fully effective. High mortality rate, inadequate public health facilities, lack of sufficient primary and secondary education, rising unemployment, infant mortality, gender bias, low literacy levels and low per capita caloric consumption are some of the interdependent factors causing endemic poverty.

The efficiency of the social sector schemes and the end use of public distribution system need to be substantially improved to reduce poverty. The reasons could be rising income inequality and retarded flow of economic benefits to the grassroots level of the economy.

Income Distribution Pattern

The Gini Coefficient (GCe) is a globally recognised tool to capture the degree of economic inequality and measure income distribution pattern in society. The GCe ranges from 0 representing perfect equality and 1 representing perfect inequality.

In the rural sector, the GCe increased marginally from 0.29 in 1993-94 to 0.31 in 2011-12. It went up for urban areas from 0.34 to 0.39 in the same period.

According to the National Council of Applied Economic Research, the aggregate GCe in income (rural+urban) was 0.52 in 2004-05, which increased to 0.55 in 2011-12. According to the Global Wealth Report-2016 of Credit Suisse Group AG, the top 1% of India’s adults held 58% of the wealth in 2016, up from 36% in 2000. The income distribution gulf is widening in India instead of converging. As a result, poverty is declining but very slowly.

Global Human Capital Index

Poverty is known to be a function of literacy levels. Thus augmentation of human capital is essential to reduce income inequality on a sustainable basis. According to GHCI 2017 of World Economic Forum (WEF), India ranks at 103 in the league of 130 countries.

The GHCI quantifies education, skills, know-how and depth of specialised skills to be used at work. India is yet to reach the 60% threshold with regard to developing its human capital that can lead to equitable growth.

In the top of the GHCI index are Norway (1), Finland (2), Switzerland (3), United States (4) and Germany (6). At the bottom are Bangladesh ((111), Tunisia (115), Morocco (118), Pakistan (125) and Yemen (130). The lack of education and awareness of rights and duties hinder exploration of income generation at the grassroots level.

The Remedy

If India is to move towards sustainable development to end poverty by 2030 according to United Nations charter, enforcement of socially beneficial projects has to be fast-tracked.

More so, the 2,50,000 village panchayats have to take up ownership. They should work in coordination with villages to create an eco-system where people in its geography realise the benefits of formal/informal/adult education and share information on rights and duties. Every citizen can become moral sleuths to guard the interest of community so that rightful income flows to them.

The various policies of the government, if properly implemented at the grassroots level can enable equanimity. The synergy of all these policies can be fused together and can be better harmonised into ‘Sankalp Se Sidhi’ commitment to create a new India by 2022 and end poverty by 2030.

(The author is Director, National Institute of Banking Studies and Corporate Management)