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On poverty, reforms & disparities - Views on News from Equitymaster
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  • Mar 30, 2007

    On poverty, reforms & disparities

    In all the brouhaha about the comparability of data collected by the National Sample Survey organization (NSSO) in its 61st round in 2004-05 regarding consumption patterns in the country, there are chances that we might overlook its significance.

    More Indians are having more than just two square meals a day than five years ago - in FY00, 26% of people did not have enough money to spend more than Rs 13.4 per day while their share in FY05 population was 22%. That is the definition of poverty - expenditure of less than Rs 13.4 per day. It translates into an annual income of less than Rs 4,903. Though we have miles to go in eliminating poverty and hunger, one can actually see not only a reduction in terms of percentage of poor population, but also in their actual numbers.

    Poverty has reduced in actual numbers
    (Population in million) FY00 FY05
    Urban 286 314
    Below poverty line 68 68
    % to urban population 23.6 21.8
    Rural 742 781
    Below poverty line 201 170
    % to rural population 27.1 21.8
    All India 1,029 1,096
    Below poverty line 268 239
    % to total population 26.1 21.8
    Source: Planning Commission, Census 2001

    Urban areas are fast becoming cesspools

    A majority of the population -71%- yet lives in rural areas. And as the incidence of poverty in the villages reduced dramatically from 27% to 22% in just five years, the all India average also perked up.

    However, urban areas have not seen much prosperity. Poverty levels reduced from 24% to just 22% of population. In fact, the slowdown is very dramatic when we see the reduction of people below poverty line from the FY94 levels of 32% to the FY00 level of 24%. In CAGR terms, real consumption in urban areas is 4.2% in the last five years (FY00 to FY05) as compared to 10.7% CAGR between FY94 and FY00.

    Some of the rural poor must have migrated to the cities, bogging down the urban poverty rate. But this cannot yet explain away the actual upgrade of 31 m people among the rural poor to above poverty line status.

    The poor in the cities earning barely subsistence has remained static at 68 m despite the consumption growing faster in urban areas than in rural India. The answer probably lies in the almost non-existent expenditure on urban development over the last five years. The poor are unskilled and are likely to find work in manual labour involved in infrastructure building. In states like Maharashtra, Andhra and Madhya Pradesh, the incidence of urban poverty is much more than rural.

    Reforms are trickling prosperity down

    But there is hope. In the years economic reforms were blazing ahead of all opposition, urban areas benefited the most with consumption adjusted for inflation growing at 10.7% annually and rural areas keeping pace at 9.2%.

    But since the pace of reforms slackened after the turn of this century, growth petered out. In urban areas consumption growth has reduced to 4.2% while rural areas posted a lower 2.8% growth in real terms in the same interlude. (see graph)

    This is the acid test for verifying the efficacy of the reform process. The trickle down is happening, and a faster pace of reforms can bring us nearer to a hunger and poverty-free India. To borrow Mr. Chidambaram's catch phrase, growth can get more inclusive only if the mandarins in Delhi worry more about the hungry and the poor and less about the votes they represent.



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