POVERTY IN INDIA

South Asia is home to the largest number of poor in the world, and India accounts for the largest percentage of the region’s share. The long-term performance of the Indian economy with respect to poverty reduction has been mixed, with poverty actually increasing in the first two decades after India became independent in 1947. However, there has been a sustained reduction in poverty since the 1970s. Figure 1 below shows trends in poverty incidence over four decades, measured by the Head Count Ratio of people under the national poverty line.

Rural poverty declined from 55.7 percent in 1974 to 37.4 percent in 1991, while urban poverty fell from almost 48 percent to 33.2 percent during the same period, with the major proportion of this decline occurring between 1978 and 1987 (Appendix 1). Estimated poverty rates increased after the macroeconomic crisis in 1991, though these estimates were based on a relatively smaller sample.

The latest estimates for poverty in India, for 1999-2000, are deliberately not included in figure 1 since they are at the center of considerable controversy. According to these estimates, poverty in India had declined to 27.1 percent in rural areas with a national figure of 26 percent. However, the most recent household expenditure survey used a different methodology, resulting in a lack of comparability between the latest estimates and all earlier ones. The debate surrounding the latest poverty estimates in India is quite intense and wide-ranging, though largely arid at this stage given the fundamental lack of comparability between the latest estimates and those before. In a widely cited analysis, using official poverty lines of the Planning Commission, Deaton (2001) finds poverty in India declined from 36.2 percent in 1993-94 to 28.8 percent in 1999-2000. Unfortunately, though, the actual status on poverty in India as of date is ambiguous, with considerable skepticism attached to official figures.

Even with the latest questionable estimates, India remains the epicenter of poverty, both within South Asia and in the world, with as many as 259 million people below the national poverty line. In terms of the international poverty line of USD 1 per day (measured at 1993 purchasing power parity exchange rates), there are 358 million poor in India. If instead we use the norm of USD 2 per day, almost 80 percent of India’s vast population is below poverty line, (World Bank (2003)).

In terms of the non-income dimensions of poverty too, India continues to display intense poverty with relatively poor indicators of social and human development relevant to the MDGs such as infant and maternal mortality, literacy levels, and gender inequalities, (Table 1). To the extent Poverty Targeted Programs (PTPs) can ameliorate these non-income dimensions of poverty, as is often their stated objective, these data only serve to highlight the importance and necessity of well functioning PTPs in the country.