Poverty in India
Though the middle class has gained from recent positive economic
developments, India suffers from substantial poverty. According to
the new World Bank's estimates on poverty based on 2005 data, India
has 456 million people, 41.6% of its population, living below the
new international poverty line of $1.25 (PPP) per day. The World
Bank further estimates that 33% of the global poor now reside in
India. Moreover, India also has 828 million people, or 75.6% of the
population living below $2 a day, compared to 72.2% for Sub-Saharan
On the other hand, the Planning Commission of India uses its own
criteria and has estimated that 27.5% of the population was living
below the poverty line in 2004–2005, down from 51.3% in 1977–1978,
and 36% in 1993-1994. The source for this was the 61st round of the
National Sample Survey (NSS) and the criterion used was monthly per
capita consumption expenditure below Rs. 356.35 for rural areas and
Rs. 538.60 for urban areas. 75% of the poor are in rural areas, most
of them are daily wagers, self-employed householders and landless
labourers. Although Indian economy has grown steadily over the last
two decades, its growth has been uneven when comparing different
social groups, economic groups, geographic regions, and rural and
Wealth distribution in India is fairly uneven, with the top 10% of
income groups earning 33% of the income. Despite significant
economic progress, 1/4 of the nation's population earns less than
the government-specified poverty threshold of $0.40/day. Official
figures estimate that 27.5% of Indians lived below the national
poverty line in 2004-2005. A 2007 report found that 77% of Indians,
or 836 million people, lived on less than 20 rupees per day, with
most working in informal labour sector with no job or social
security, living in abject poverty. Income inequality in India is
increasing. In addition, India has a higher rate of malnutrition
among children under the age of three (46% in year 2007) than any
other country in the world.
Causes of poverty in India
There are at least two main schools of thought regarding the causes
of poverty in India.
The Developmental View
Colonial Economic Restructuring
Jawaharlal Nehru noted, "A significant fact which stands out is that
those parts of India which have been longest under British rule are
the poorest today." The Indian economy was purposely and severely
deindustrialized (especially in the areas of textiles and
metal-working) through colonial privatizations, regulations, tariffs
on manufactured or refined Indian goods, taxes, and direct seizures.
In 1830, India accounted for 17.6% of global industrial production
against Britain's 9.5%, but by 1900 India's share was down to 1.7%
against Britain's 18.5%. (The change in industrial production per
capita is even more extreme due to Indian population growth).
Not only was Indian industry losing out, but consumers were forced
to rely on expensive (open monopoly produced) British manufactured
goods, especially as barter, local crafts and subsistence
agriculture was discouraged by law. The agricultural raw materials
exported by Indians were subject to massive price swings and
declining terms of trade.
British policies in India exacerbated weather conditions to lead to
mass famines which, when taken together, led to between 30 to 60
million deaths from starvation in the Indian colonies. Community
grain banks were forcibly disabled, land was converted from food
crops for local consumption to cotton, opium, tea, and grain for
export, largely for animal feed. In summary, deindustrialization,
declining terms of trade, and the periodic mass misery of man-made
famines are the major ways in which colonial government destroyed
development in India and held it back for centuries.
The Neo-Liberal View
Unemployment and underemployment, arising in part from protectionist
policies pursued till 1991 that prevented high foreign investment.
Poverty also decreased from the early 80s to 1990 significantly
Lack of property rights. The right to property is not a fundamental
right in India.
Over-reliance on agriculture. There is a surplus of labour in
agriculture. Farmers are a large vote bank and use their votes to
resist reallocation of land for higher-income industrial projects.
While services and industry have grown at double digit figures,
agriculture growth rate has dropped from 4.8% to 2%. Neo-liberals
tend to view food security as an unnecessary goal compared to purely
financial economic growth.
There are also a variety of more direct technical factors:
About 60% of the population depends on agriculture whereas the
contribution of agriculture to the GDP is about 18%.
High population growth rate, although demographers generally agree
that this is a symptom rather than cause of poverty.
And a few cultural ones have been proposed:
The caste system, under which hundreds of millions of Indians were
kept away from educational, ownership, and employment opportunities,
and subjected to violence for "getting out of line." British rulers
encouraged caste privileges and customs, at least before the 20th
Despite this, India currently adds 40 million people to its middle
class every year. An estimated 300 million Indians now belong to the
middle class; one-third of them have emerged from poverty in the
last ten years. At the current rate of growth, a majority of Indians
will be middle-class by 2025. Literacy rates have risen from 52
percent to 65 percent in the same period.
trends in poverty statistics
The proportion of India's population below the poverty line has
fluctuated widely in the past, but the overall trend has been
downward. However, there have been roughly three periods of trends
in income poverty.
1950 to mid-1970s: Income poverty reduction shows no discernible
trend. In 1951, 47% of India's rural population was below the
poverty line. The proportion went up to 64% in 1954-55; it came down
to 45% in 1960-61 but in 1977-78, it went up again to 51%.
Mid-1970s to 1990: Income poverty declined significantly between the
mid-1970s and the end of the 1980s. The decline was more pronounced
between 1977-78 and 1986-87, with rural income poverty declining
from 51% to 39%. It went down further to 34% by 1989-90. Urban
income poverty went down from 41% in 1977-78 to 34% in 1986-87, and
further to 33% in 1989-90.
After 1991: This post-economic reform period evidenced both setbacks
and progress. Rural income poverty increased from 34% in 1989-90 to
43% in 1992 and then fell to 37% in 1993-94. Urban income poverty
went up from 33.4% in 1989-90 to 33.7% in 1992 and declined to 32%
in 1993-94 Also, NSS data for 1994-95 to 1998 show little or no
poverty reduction, so that the evidence till 1999-2000 was that
poverty, particularly rural poverty, had increased post-reform.
However, the official estimate of poverty for 1999-2000 was 26.1%, a
dramatic decline that led to much debate and analysis. This was
because for this year the NSS had adopted a new survey methodology
that led to both higher estimated mean consumption and also an
estimated distribution that was more equal than in past NSS surveys.
The latest NSS survey for 2004-05 is fully comparable to the surveys
before 1999-2000 and shows poverty at 28.3% in rural areas, 25.7% in
urban areas and 27.5% for the country as a whole, using Uniform
Recall Period Consumption. The corresponding figures using the Mixed
Recall Period Consumption method was 21.8%, 21.7% and 21.8%
respectively. Thus, poverty has declined after 1998, although it is
still being debated whether there was any significant poverty
reduction between 1989-90 and 1999-00. The latest NSS survey was so
designed as to also give estimates roughly, but not fully,
comparable to the 1999-2000 survey. These suggest that most of the
decline in rural poverty over the period during 1993-94 to 2004-05
actually occurred after 1999-2000.
Outlook for Poverty Alleviation
Since the early 1950s, government has initiated, sustained, and
refined various planning schemes to help the poor attain self
sufficiency in food production. Probably the most important
initiative has been the supply of basic commodities, particularly
food at controlled prices, available throughout the country as poor
spend about 80 percent of their income on food.
Eradication of poverty in India can only be a long-term goal.
Poverty alleviation is expected to make better progress in the next
50 years than in the past, as a trickle-down effect of the growing
middle class. Increasing stress on education, reservation of seats
in government jobs and the increasing empowerment of women and the
economically weaker sections of society, are also expected to
contribute to the alleviation of poverty. It is incorrect to say
that all poverty reduction programmes have failed. The growth of the
middle class (which was virtually non-existent when India became a
free nation in August 1947) indicates that economic prosperity has
indeed been very impressive in India, but the distribution of wealth
is not at all even.
After the liberalization process and moving away from the socialist
model, India is adding 60-70 million people to its middle class
every year. Analysts write that an estimated 390 million Indians now
belong to the middle class; one-third of them have emerged from
poverty in the last ten years. At the current rate of growth, a
majority of Indians will be middle-class by 2025. Literacy rates
have risen from 52 percent to 65 percent during the initial decade
of liberalization (1991-2001).
While total overall poverty in India has declined, the extent of
poverty reduction is often debated. While there is a consensus that
there has not been increase in poverty between 1993-94 and 2004-05,
the picture is not so clear if one considers other non-pecuniary
dimensions (such as health, education, crime and access to
infrastructure). With the rapid economic growth that India is
experiencing, it is likely that a significant fraction of the rural
population will continue to migrate toward cities, making the issue
of urban poverty more significant in the long run. More than 103
million people have moved out of desperate poverty in the course of
one generation in urban and rural areas as well. If India can
achieve 7.3% annual growth over the next 20 years, 465 million more
people will be spared a life of extreme deprivation. Contrary to
popular perceptions, rural India has benefited from this growth:
extreme rural poverty has declined from 94% in 1985 to 61% in 2005,
and they project that it will drop to 26% by 2025. India's economic
reforms and the increased growth that has resulted have been the
most successful anti-poverty programmes in the country.