Effects of Poverty in India:
Between Injustice and Exclusion

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 riches are 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 70s and the early 90s, 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 poverty in India is still ubiquitous.

Below the Indian poverty line

A "corrupt" poverty line

The poverty in India is measured by a poverty line that is probably one of the most disputed and incessantly attacked measure in the world. 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? If you agree it doesn't, you now have some homework to do: read this page on the definition of poverty again!

Poverty in India - 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% growth?);

- Over 40% of these same villages don’t have proper roads connecting them.

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 These groups are marginalized in 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...

Face the problem... with tact

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.

At the very least, recognizing the issue will help to address it by create a debate and gathering solutions from across the board. How else would you tackle an issue if it doesn’t officially exist?

Indian population: how many in poverty?

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.

How to improve the poverty line?

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).

Urban poverty in India

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.

The slums: a more blatant poverty

The spectacular growth of cities has made poverty in India 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.

Cities - source of instability ?

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 reaping the benefits of formidable growth is probably the most dangerous and unstable feature of poverty in India.

Click here to read more about urban poverty in India

Agriculture, hunger, and rural poverty in India

Developing agriculture - A priority

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 poverty in India.

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.

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 in India: 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.

Economic reforms and causes of poverty

Limited reforms: what a waste

Of the post-independence reforms that has achieved the most in terms of reducing poverty in India, 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 could have really eradicated one of the 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...

Globalization's effects on poverty in India

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.

Click here to read more about the causes of poverty in India

Click here to read about corruption in India

So... what to do?

Access to markets and education for everyone

Overall, the opening of Indian markets to the world did over the years contribute to reducing poverty in India by raising the income of a large number of people, and opening access to education to many.

Liberalizing the system of exports, imports and trade, along with the development of higher education in larger cities has been the major factor leading to the rise of the middle class and reduction of urban poverty in India. However, considering the scale of the country, it means that trade reforms and education should penetrate all layers of society if poverty is to be tackled substantially.

Investing in India's infrastructures and nascent sectors

As over 2/3rd of the population lives in rural areas, public investment should focus on developing agriculture and basic infrastructures, but "for real" this time. While drought has become the plight of so many places on earth, a lot of Indian regions have plenty of water and plenty of people to exploit the land, rather than being excluded.

On top of that, the manufacturing sector is starting to boom so now is the best time to improve agricultural productivity and employ the jobless or underemployed migrating to the cities.

The private sector will be more than happy to invest and trade with new regions, but not as long as they’re unprofitable or inaccessible. And that is the role of the state: to provide at least the most basic infrastructure and roads to connect villages.

Finding these funds won’t even be that hard if the government considers the ineffective subsidies given elsewhere for fertilizers and such. Plans to reintroduce or reinforce social safety nets have yet to be implemented.

Neo-liberalism, the state and poverty in India

In many ways the situation at the local level has been very liberal for millennia, exempt of any form of government intervention. The result has been all but prosperity. A better understanding of markets as institutions which best develop under certain conditions is crucial to the liberal approach.

If a government is really serious about promoting grassroots growth for everyone, then market forces must be spurred; a legal framework is necessary to protect citizens and entrepreneurs and more support at the local level is needed (through technology investment and education).

Can one change an entire country?

India also needs a more effective tax system as its private sector grows. This will give it enough to finance the right pro-poor policies and review their efficiency. Recently, the decentralization of the administration was an attempt to improve such efficiency.

However, as local governments were left with more power of oversight, the anti-poverty programs had in fact worse results than before. And that’s because these officials simply didn’t have much incentive to actually help the poor (“doing your job” doesn’t count as enough of an incentive it seems), and the poor not enough power to denounce them to any higher ranked official.

In the end it’s all a learning process. And even in the most developed countries, mistakes happen. In the end it’s about not making too many of them.

But truth be told, new jobs, new challenges and changing a whole system is quite an undertaking. In a country undergoing a profound transition such as India, the politicians run a big part of the show. They set the bar and show how much can be done.

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