Causes of Poverty in India: Traditions of Discrimination & Exclusion

November 30, 2012
The causes of poverty in India are nothing short of complex but a lot of progress has been made to tackle them. So, here we'll focus more specifically what’s been done to alleviate poverty so far and what is still holding things back.

The economic reforms of 1991, despite spurring a huge growth of the economy, have left the country with terrible inequalities, within cities as well as between urban and rural areas. They were the best opportunity to seriously tackle the causes of poverty in India and more specifically rural poverty. With two thirds of the population living in rural areas and some 500 million poor (or more), even urban poverty stems from the rural migrations to the city.

Agriculture is the key

This means that the government should have in priority overhauled the agricultural sector. By improving agricultural productivity it would have directly alleviated poverty by the hundreds of millions (just like in China did in the 1990s).

But what happened it totally different. Governments gave a disproportionate priority to the cities and the services sector (notably banking, insurance, finance, real estate and IT services), thus trying to leapfrog the usual pattern of economic development: from agriculture to manufacture to services (in terms of importance in the economy).

Economic reforms in India

Impact of economic reforms on poverty in India
Impact of economic reforms on poverty in India

Manufacturing, when well-handled, can literally provide hundreds of millions of jobs to workers coming from the rural exodus. After what you would usually invest in education and bring the emergence of the services sector. Right now, at this stage of development the services and especially IT and finance sector typically don’t employ a lot of people. Although the tertiary sector (services) represents 50% of India’s GDP, it employs only... 2 million people! So many Indians are quite right to complain that globalization and modernization benefit only the rich.

Neglecting the poor, once more

However the manufacturing sector is finally growing, so there are good prospects to reduce the mass unemployment. But… that leaves the problem of rural poverty. To compare once more with China, the Chinese government has the merit to have very gradually opened its country and markets to the outside world rather than a “shock therapy”. This means that it kept for more than a decade its rural safety nets, giving time to people to adapt to the transition and changes.

On the other hand India just left its rural poor on their own, and their opposition to globalization is in fact very typical: every developing country where social safety nets were quasi-absent has in general a defiant population to the global process.

Lack of decent housing

On the bright side, as manufacturing develops, so does the tertiary sector which now provides services supporting the former such as better infrastructure, transports, and personal services. Plus, the services sector has a much greater impact on poverty than manufacturing, so its growth and expansion is but good news for tackling poverty in India (unemployment, quality job and income in this case).

Despite that and the development of real estate sector, hundreds of millions still lack a decent home so there should be incentives for the market to cater to the needs of the poor with social housing so that the country gets a chance to solve the problem of its gigantic slums.

Market liberalization and globalization

If you were to believe what international organizations have professed for years in the context of the "Washington Consensus" , then you’d say (among other things) that pure economic growth systematically leads to less poverty.

However plenty of examples now prove that (partly) wrong, including in this case where growth and liberalization have contributed to the causes of poverty in India. They have exacerbated inequalities within the population and reduced the role of the state while it was direly needed to develop the country. In this sense growth itself risks stirring some tensions within a country between those who got rich and those who were left out.

There’s nothing wrong with market liberalization in itself but in a developing country it can be disastrous because market forces will only invest in profitable areas which leaves plenty excluded in the country. The role of the state here is thus one of empowering citizens and making sure they can participate in the economy and growth of the country.

Resisting globalization & its impact on poverty

Another dilemma with the globalization-liberalization duo is that typically it wipes out the least competitive companies in a given market. While this is a necessary evil if India is to adapt to globalization, the country should have nevertheless focused on protecting its laid-off workers who didn’t ask for anything and certainly didn’t vote for that. Nurturing their capability to adapt and better absorb shocks should have been a priority of anti-poverty policies.

One way to do so would have been to invest in education, as the country’s share of GDP in education is far from enough and below that of other developing countries and regions such as China and Latin America. Education and training are by essence empowering tools that assist people for life, they develop their skills and ability to better respond to change.

Land ownership and rural poverty

Landlessness & rural poverty in India
‍Landlessness & rural poverty in India

Faith in GDP vs. reality

The example of India has shown many that if growth does give opportunities to some to get out of poverty, it’s also true that it doesn’t prevent people from falling into poverty. The two trends – getting out and into poverty – seem completely unrelated, or at least becoming poor is not connected to growth. Thus many experts have argued that to make the most out of economic growth, the government at all levels should have invested in protecting the people, that is to say invest in public services, for instance in health care.

Diseases are one of the main causes of poverty, creating a major public safety disaster in India that contributes to keep and make millions fall into poverty. It’s estimated that each year, “the cost of health care pushes some 39 million people back into poverty”, according to a recent CBS News report.

Land inequality and social justice

What the government needs is precisely to make sure that the people can also ripe the benefits of the economic growth. So even if the growth in the third sector is impressive, there’s still a huge surplus of jobless or underemployed workers at the countryside. And over there, the issue of land inequality is an important bone of contention that if resolved could substantially alleviate poverty.

The fact is that for each village, a few land owners have most of the land which they rent to other people to work on, at ridiculously high prices. It’s a bit like the rent seekers in feudal societies: they prevent any real growth from happening and just suck up all the money - that they don’t reinvest since they don’t care all that much about the land itself. Not only is the situation stuck because of this, but land inequalities also reflect the huge imbalance of power carved in the rural society.

Land distribution - a marker of development

Nearly all the developed countries have shown at some point a pattern of very well-distributed land ownership (at least within the rural population), where up to 70 to 80% of the population would own the land (rather than 5% for example). From then on, economic development happened on the basis of more equal societies. But owning land also has a huge impact on agricultural productivity as people are generally willing to invest only in land they own and exploit for themselves. This increase in agricultural productivity then means more growth and less poverty at the same time.

After that, people start nurturing their physical and human capital, their kids can afford school, and the household gains higher social status, thus reducing social inequalities and problems of access to resources. So as you can see, land distribution is closely tied to economic power, social power and social status. The only little snag is that it takes a decade or two for the effects of land reforms to be felt in the economy, and long term prospect is usually a poor incentive in modern politics.

Landowners and powerful pressure groups

In fact there’s another great hurdle: landowners. Ever since India’s independence, land reforms have been on and off the political agenda and every time successfully thwarted by the efforts of landowners, although sometimes rightfully as the state had plans to strip them of their land without any compensation.

Then again local officials, working hand in hand with property developers, have often achieved to expel countless poor farmers of their house without compensation, or pay, or notice. It just happened overnight. But doing that to richer farmers would of course upset the power structure in the society, which remains one the causes of poverty in India by creating systemic discrimination.

Land grabs, another reason for poverty in India

In any case, big land owner or small poor one, you just don’t go and take people’s land without paying compensation for what you’re doing. And it’s not about paying a few symbolic rupees as it happens so often. It should be something more significant, up to an annual compensation - a real and fair incentive.

In the end you’re taking the land to generate a great deal of wealth, so you could at least play it fair. In a so-called democracy, if private property is not respected, if there’s no law, then people have very limited incentives to invest in their land and make it more profitable. They distrust their government and politicians and make it even more difficult to implement any policy at the end of the day. Today India still lacks the basic administrative and legal frameworks to make property transfers possible, or easier, in order to keep on implementing decades old land reforms.

Lack of sound institutions

Corruption and lack of sound institutions
Corruption and lack of sound institutions

The state is one more time responsible for contributing to poverty in India. It has failed to look beyond growth by leaving the rural exodus happen on its own, without planning whatsoever. That is to say, that even while Indians came to the city by tens of millions, there was hardly any institution present to help them make the transition and find a job in this whole new world. Or a house rather than some makeshift accommodation in the slums (but that would have implied planning housing for everyone, which requires a lot of work, so...).

Overall those who have been doing better than others are overwhelmingly Indians who received help from personal connections from the city. Having a friend or a parent, someone who knows his way around the city is invaluable help for any newcomer and a life-changing advantage.

As for the rest of the people… that’s just too bad for them.

Discrimination & cultural bias

Discrimination & (some) traditions: other reasons for poverty in India
‍Discrimination & (some) traditions: other reasons for poverty in India

Caste-based segregation

The Constitution of India has officially abolished the system of caste in the country a while ago (1950), and yet it’s hard to get rid of an age-old system that organizes society.

It’s particularly for the dalits (150 million people) – aka the Untouchables or Harijans – that things prove difficult. Being the out-caste “caste” (i.e. so low in the social hierarchy that technically they don't belong to any caste), they’ve never even got a chance to work in agriculture. Everyone from landowners to local farmers look down on them and refuse them jobs on the ground of stereotypes such as “they don’t work, they steal”.

Segregation can become quite intense when the whole society puts its mind to it. Indians are obviously not evil, but as in any society that struggles with huge poverty, social classes vie for resources. And the existence of very specific classes in India helps this process. Of course, the picture is not all black & white. Ever since the Constitution was introduced, huge efforts have been made to provide the dalits with jobs and education, while certain groups lobby for their civic rights. But once again, given the size of India, it would really take the help of the whole population for things to change for good.

Social, institutional discrimination ?

In a way, the causes of poverty in India partly rely on social structures and relations. This creates a discrimination that generates an “artificial” poverty: between castes and genders, between religions and tribes. And it makes it very hard to accurately measure the level of poverty in India.

Some are even more artificial considering for instance the knives-out hostility with Indian Muslims, whereas a century ago there were prejudices but certainly not as fierce as they are since the independence of Pakistan.

Likewise, in many cases the situation of women and their bottom-low participation in the economy among Asian countries adds one more issue to worsen the situation. Their restricted access to education in rural areas also makes any kind of family planning and educative campaign on child diseases or education quasi ineffective.


  • Header photo courtesy of Akshay Mahajan
  • Land Reform, Poverty Reduction, and Growth: Evidence from India, Timothy Besley and Robin Burgess, The Quarterly Journal of Economics 2000
  • Land Reforms, Poverty Reduction, and Economic Growth: Evidence from India, K. Deiniger et al., Journal of Development Studies 2009
  • Poverty in Rural India: Caste and Tribe, Ira N. Gang et al., Review of Income and Wealth 2008
  • Participation and Development Outcomes: Evidences from the Poor Districts of India, Amar K J R Nayak, Journal of Management & Public Policy 2010
  • Globalization, Growth, and Poverty in India, N. R. Bhanumurthy, Arup Mitra, The Poor under Globalization in Asia, Latin America, and Africa 2010
  • The Violence of Forgetting, Leela Fernandes, Critical Asian Studies 2010
  • Why have Some Indian States Done Better than Others at Reducing Rural Poverty?, Gaurav Datt and Martin Ravallion, Economica 1998
  • India's Divide: Economic Growth and Marginalized Groups, Partha Chatterjee, Brown Journal of World Affairs 2008

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Dario Berrebi

Digital strategist, researcher & filmmaker. 

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