Chronic Poverty in India: Concepts, Incidence and

Relevance

Amita ShahGujarat Institute of Development Research

May 22, 2009

IGIDR

Structure of the Discussion

* Poverty during Pre and Post Reforms Period: Trends, Evidence, Debates

• Chronic Poverty: Concepts & Measurement

• Policy Options

Poverty in India: Recapitulations of Trends

HCR (URP – 30 Days)

1983 1993-94 2004-05

Rural

Poor 45.76 37.26 29.18

Very Poor 25.52 15.38 9.64

Urban

Poor 42.27 32.56 26.02

Very Poor 22.45 16.00 12.00

All

Poor 44.93 36.02 28.27

Very Poor 24.79 15.54 10.32

Changes in Poverty (URP)

% Points Per Annum

Adjusted for Base Year

83-94 93-05 83-94 93-05

Rural -0.61 -0.73 -1.77 -1.97

Urban -0.92 -0.59 -2.18 -1.81

All -0.85 -0.70 -1.89 -1.94

Reduction of Urban Poor is Slower During the Post Reform Period

Estimates Based on Mixed Reference Period

1993-94 to 1999-2000 0.69

1999-2000 to 2004-05 1.02

Nineties was a Lost Decade for Poverty Reduction Due to:

* High Rate of Inflation

* Jobless Growth

Comparison of 1987-88 to 1993-94 and 1993-94 to1999-2000

• Rate of Decline was higher in the Post-reform period (low base)

• Elasticity of Poverty Reduction with respect to Income had declined

• Increased Inequality, associated with Growth had dampening impact on poverty reduction

• Role of FDI is perceptible despite limited flow; the trickle down effect however, is slow.

Decomposition of Poverty Reduction

Total Change

Due to Growth

Due to Inequality

Rural -8.08 -10.88 2.80

Urban -8.08 -12.40 4.32

Calorie Intake at Official Poverty Line

Poverty Line 2004-05 356.3

Poverty Ratio 2004-05 28.3

Calorie at OPL 1820

Direct (Calorie Based Estimates)

Calorie 1993-94 2004-05

<2400 74.5 87.0

< 2200 58.5 69.5

<1800 20.0 25.0

Debates

• Non-Comparability of Data

• Post Nineties Performed Better

• Why have a Poverty Line

• Whether to Raise Poverty Line

• Line Vs. Identification

Emerging Issues

• Low Poverty with High Levels of Mal-Nutrition

• Chronic Poverty is Hard to Hit• Entry of New Poor due to Structural

Adjustment• Spatial and Social Dimensions of

Concentration of the Poor• Poverty Vs. Multi-Dimensional Deprivation

Chronic Poverty Concepts-1

Extreme Poverty that Persists Over Long Period –years, life, generations

Multidimensional-economic, human capital related, socio-political

Poverty That Causes Preventable Deaths

Important as Analytical Categories

What Causes CP?

• Insecurity Traps

• Limited Citizenship and Voice

• Spatial disadvantages

• Social Discrimination

• Poor Work Environment

Analysis of Poverty Dynamics

• Entry- drivers and maintainers

• Exit

Ideally Need longitudinal-Panel Data Sets

Alternative Approaches-Cohorts based, Recall and Stages Growth

Why CP is Important?

• If not addressed immediately, it becomes more intractable and costlier

• Increased Period under CP reduces chances of exit• Worsens vicious cycle bet. Material Deprivation

and Investment in Human Capital• Political Resistance may take a shape that may

result into negative impact• Environmental degradation and CC• Demographic Window having Short Span

Global Magnitude: Countries and Consistent Improvers

Indicators Full CDCs

Full Cls

Number of countries 32 11

Population (% of total) 10 33

Child mortality (% of total) 36 6

Infant mortality (% of total) 30 11

US$ 1/day poverty (% of total) 17 22

US$ 2/day poverty (% of total) 13 28

Undernourishment (% of total) 23 23

Aid in 2002 (% of total) 29 14

CP in India-(Panel Data)

• CP reduced from 28.4% to 24.3% during 1970/1-1980/1 to 1980/1-1998/9

• Over the entire period CP was 38%; TP 40%; NP 21%

• CP as % to Poor Declined from 43% to 38.6% during the two sub-periods

• CP was 38.6 % among SC; 27.9% in ST; and 22.2 among Others during 1980/1-1998/9

CP in India (Panel Data 1981-98)

Always Poor (CP)

Transient Poor

(Poor at one Point)

Non-Poor All

S.C 38.6 40.0 20.9 100

S.T 27.9 44.4 27.6 100

O.C 22.2 37.8 39.9 100

Total 24.3 38.6 37.1 100

Explanatory Factors

• Caste alone has Marginal Impact• Composition vs. Size of the HHs is Important• Local level Infrastructure and Urban-linked

Employment was the Most Significant Factor• CP Declined Initially and then Increased-Due to

Declining Land Holding Size (?)• The Factors thus, vary Over Time

Stages of Growth (Rural)

• Food• Clothing• House Repairing• Education• Debt Payment• Buying a Small Piece of Land

Health Missing in all ALTERNATIVE trajectories

Distribution of Households Across Four Categories by States (% of hhs)

HHS Categories Rajasthan (35 Vill-

ages)

Gujarat (20

Villages)

Andhra Pradesh

A. Remained Poor 17.8 49.8 NA

B. Escaping Poverty 11.1 9.2 14

C. Descended into

Poverty

8.0 7.3 12

D. Remained Non-poor 63.2 `33.6 NA

Reasons for Escaping Poverty

Reasons % of HHs

Rajasthan Gujarat Andhra Pradesh

Health related 60 88 74

Social expenses 31 68 69

Funeral expenses 34 49 28

Interest payment 72 52 60

Drought/ Crop failure 18 - 44

Land exhaustion - - -

Vulnerability: 2004-05 Sengupta et. al)

Categories of Poor % of Pop. AV. DPCE (US$)

Current Price

Extremely Poor & Poor 21.8 1.1

Marginal &Vulnerable 55.0 1.8

Middle Income 19.3 3.7

High Income 4.0 9.3

All 100 2.3

1983 2004-05

States HCR Rank % share HCR Rank % Share

Orissa 65.31 1 5.70 47.07 1 6.03

Bihar 62.71 2 14.64 41.53 2 16.53

Madhya Pradesh 49.23 5 8.61 37.21 3 10.79

Maharashtra 43.13 7 9.04 29.95 5 10.36

Uttar Pradesh 46.94 5 17.42 33.25 4 20.93

Tamil Nadu 53.48 4 8.47 28.31 6 6.10

West Bengal 53.60 4 9.77 25.67 7 7.23

All India 44.93   100 28.27   100

Table 1: Concentration of Poverty among Major States in India

Sr. No.

Regions in Descending Order Category of Region

1 Orissa-Southern Forest-based

2 Madhya Pradesh-South Central Forest-based

3 Madhya Pradesh-Chhatisgadh Forest-based

4 Orissa-Northern Forest-based

5 Madhya Pradesh-South western Forest-based

6 Maharashtra-Eastern Forest-based

7 Bihar-Southern Forest-based

8 Madhya Pradesh-Central Other

9 Bihar-Central Dry land

10 Uttar Pradesh-Central Other

11 Tamilnadu-Coastal Northern Forest-based

12 Bihar-Northern Other

13 Madhya Pradesh-Vindhya Forest-based

14 Madhya Pradesh-Malwa Platau Other

15 Uttar Pradesh-Eastern Dry land

Table 3: List of 15 Regions Appearing in the Three NSSO-Rounds

III. Way Forward

• Inclusive Growth: XI Plan: More of the Same? (Fiscal, Financial, Trade Policies; Institutions; Broad-based Growth)

• Focus on Agriculture Growth: Neglect of Dry Land Areas

• NREGS and Universal PDS• Social Protection & Transfer of Minimum Income• Right to Decent Life

THANKS