Poverty And Inequality In India_ M.phil Thesis

A Study on Poverty and Inequality in India A REVIEW OF THE STUDIES ON POVERTY AND INEQUALITY IN INDIA

M. Phil dissertation, Calcutta University, 1980 By Sukumar Nandi Department of Economics Ashutosh College Calcutta. 1979.

CONTENTS

1

A Study on Poverty and Inequality in India Introduction

Page

Chapter 1:

1

Concept of Poverty and Inequality Concept 2:

4

Poverty in India Chapter 3:

20

Studies on Inequality Chapter 4:

63

Causes of Poverty and Inequality in India Chapter 5:

75

Conclusion: The Anti-Poverty Programmes Notes

82

Bibliography

99

INTRODUCTION Poverty and inequality are complex phenomena and their major discussions and consequent policy implications deserve the attention of all concerned. A critical review of the academic research on these phenomena reveals a variety of perspectives. Major differences in this respect have characterized the discussions of 2

A Study on Poverty and Inequality in India the definition of poverty and its measurement on the one hand, and of the elaboration of the concept of inequality in the context of a developing economy on the other. Policy implications also differ in different studies, which is a natural outcome of the differences in approach.

One of these approaches starts from the concept of

subsistence level for defined with some standard norm of nutrition.

A second

approach has been to use income and expenditure data for constructing a poverty line below which poverty will be said to exist. In this approach data relating to per capita income or expenditure are utilized to establish the concept of a poverty level. Broadly speaking, these two approaches distinguish the major studies on poverty so far undertaken in India. Measurement of economic inequality can be regarded as one aspect of the wider problem of securing social equity and justice. In a sense it is perhaps the most important aspect of the broader concept.

Economic inequality prevents the

realization of the goals of social equity and justice. Economic justice becomes an important issue in the context of widespread poverty; the contrast becomes sharper when there exist small islands of affluence in an ocean of poverty. The studies on inequality in India generally use such standard measures as the Lorenz ratio though other more refined measure have also been used. Poverty and economic inequality can be regarded as the twin aspects of the same problem. In India again the problem of poverty and inequality is further aggravated by caste stratification which is a prominent feature of her social and community life over and above the economic stratification as commonly found in capitalist economies. The objective of this dissertation is very modest. It attempts to make a brief survey of the major studies on the measurement of poverty and inequality in India. At the outset the theoretical position in respect of the concepts of poverty and inequality has been explained, and subsequently the various Indian studies on the two topics have been analyzed. Thus the dissertation has been divided into five Chapters. In the first chapter, we review economic theory relevant to the concepts of poverty and inequality. In the second chapter we deal with different measures that have been evolved for the study of poverty in India. In the third Chapter we take a critical look at the studies made about economic inequality in India. The fourth chapter is devoted to an attempt to piece together the factors which the different studies on poverty and

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A Study on Poverty and Inequality in India inequality have shown to be the underlying causes of these disturbing phenomena. In the last chapter we have made a brief survey of the programmes adopted in India to launch a direct attack on poverty in the rural areas.

4

A Study on Poverty and Inequality in India CHAPTER-1 CONCEPT OF POVERTY AND INEQUALITY An analysis of the Indian economic situation reveals two features: First, while the economy has attained a modest trend rate of growth, the problem of poverty perpetuates. Secondly, in our plan documents the problem of distribution has not been completely left out of discussions relating to production, and the possibility of conflict between growth and distribution has not been explicitly recognized.1

The

essence of this argument in favour of this is as follows: A very slow rate of growth along with inequality in income distribution has perpetuated poverty in India. A large proportion of population has to live without even the most essential needs of daily life because total national income is too small relative to the size of population; and secondly, the distribution of this income is very uneven. This problem cannot be overcome if emphasis is not put simultaneously on economic growth and reduction of inequality. Even the highest attainable rate of growth cannot make a major impact on the problem of poverty in the foreseeable future if inequality is not reduced. There has been a clear recognition, from the First Five Year Plan onwards, of the need for special policies for the benefit of the poor. In fact, the justification of policies like land reforms, subsidies to the village industries, economic assistance to the backward communities and so on is to be partly found in the recognition of their problem, while the problem is explicitly stated in the plan documents, there always appears to exist a gap between the formulation and execution of policies which could be regarded as intended primarily for the benefit of the poor. Indeed, the attempt to identify the poor in operational terms has started only in recent years. At present the problem of poverty is being dealt with both unprofessional writing and in government policy documents and programmes with increasing frequency. Poverty is a complex phenomenon and at least its major dimensions require considerable attention if the problem is to be properly comprehended. We should, therefore, start with the basic question: What is poverty? A review of the academic research in the field and of government programmes dealing with this subject shows several perspectives which have characterized 5

A Study on Poverty and Inequality in India approaches to the definition of poverty. Three such perspectives can be clearly discerned from the literature. One such perspective to the definition of poverty uses income and expenditure data in order to establish a bench mark income figure below which poverty may be said to exist.2 Thus a size distribution of incomes is constructed and per capita income data are widely used as a means of establishing the bench mark income figure. We can distinguish two aspects of the so-called size distribution of incomes. The first focuses attention on one end of the distribution, those with the lowest income or the ‘poor’, choosing a more or less arbitrary bench-mark income figure. Here one can study the magnitude of poverty either in terms of the absolute number of the poor, or one can look at the different degrees of poverty within the group designated as the poor.3 The second aspect comprises the degrees of inequality in the distribution of income and is concerned with the whole of the distribution. The degree of inequality is generally measured by the Lorenz Curve or Gini Coefficient. While the first aspect deals with the absolute poverty level, the second deals with poverty in its relative sense.4 The first approach has its limitations- incomprehensive coverage, inaccuracy of measurement, inconsistency of definition and a failure to include all the sources other than income which support the consumption of people in the lower rung of the economic ladder. In the Indian context, measures of supporting resources such as ownership of land and other assets, income in kind and private gifts should be included and these are very difficult to compile on the part of the statistician. Thus, income figures are not accurate especially for the two extreme economic classes- the poor and the rich. While the poor are ill-equipped to provide correct information required for proper income and expenditure studies, the rich are least inclined to reveal their true economic power. As a result, income and expenditure data tend to have a downward bias for both the groups: for the poor, lack of literacy and consciousness and the subsistence production system largely play their parts; for the rich, the reasons are completely different-lack of organization in the economy and steep progression in the direct tax laws include the rich to record their income on the lower side.

6

A Study on Poverty and Inequality in India The second perspective can be specified as a subsistence approach to the concept of poverty. People who cannot afford the minimum necessities for bare subsistence are defined as ‘poor’. But how are we to define the required minimum level?

The minimum need is defined in terms of food consumption or more

specifically, in terms of nutritional requirements. This is then converted into an income level for a particular base year.5 But in a country of India’s size, with wide differences in geography, climate, habits and customs, nutritional requirements are found to vary across levels and patterns of living and diet. In such a situation, to develop an index of minimum needs it is necessary to take account of customary behavior. Therefore, such a subsistence definition of nutritional requirements; it also depends on subjective consideration like preferences and prejudices. A third perspective to the definition of poverty is concerned with the degrees of differences of welfare among different group of people who can be designated as ‘poor’ by the first two approaches mentioned in earlier paragraphs. This approach seeks to establish a measure of poverty by attaching appropriate weights, which vary inversely with the difference of income levels of the poor from the chosen ‘poverty line’.6 Thus from the first approach, we have an ‘income threshold’ definition of poverty, while the second gives a multinational definition of the same. But these approaches divide the population into poor and non-poor and cannot take into account the differences in the degree of intensity of poverty in the different income layers below the ‘poverty line’.

This weakness is sought to be removed in the third

approach. What lessons can be draw from the three approaches to the definition of poverty? One point which emerges is that these approaches try to define poverty in the context of economic factors only and, again, these definitions are concerned with the people in the lower strata of the income scale. But the concept of poverty should be seen in the context of society as a whole. As society is better seen as a series of stratified income layers, poverty should be conceived in the light of how the lower strata fare as compared to the people in the upper layers of distribution. Moreover,

7

A Study on Poverty and Inequality in India poverty means helplessness of the persons designated as ‘poor’ as these people are at the lower end of a two-fold hierarchy of stratification along economic and social dimensions. In short, the poor are part of a set of stratification system within the society and they are ranked at the bottom of each hierarchy. The economic factors are significant in the sense that these constitute the most important dimensions of poverty; but these alone cannot fully describe the condition of the poor. Therefore, the definition of poverty should be broad-based, for it is only a proper identification of the poor that can determination of policies to solve the problem in a proper way.

Measures of Inequality A variety of indices for the measurement of the degree of inequality are found in the literature on income distribution. These indices emphasis different aspects of the inequality phenomenon.

Theoretically, these indices are not completely

satisfactory; sometimes, they exhibit contradictory tendencies in the distribution of income unless the latter adapts itself to a well defined family of distributions whose properties are completely known. Because of the limitation inherent in all measures of inequality, one may adopt a more general approach to the problem by laying down that any measure of inequality should be concerned with the distribution of a size variable (x) relative to the mean (M) or any other typical value of x. This principle is recognized in all the known measures of inequality. These well-known empirical measures of inequality are Lorenz Curve, the Gini Co-efficient, the Co-efficient of variation, the S.D. of logarithm etc. Before going into details about these measures, we discuss the methodology regarding the measurement of inequality of income. Conceptually, we can draw a distinction between the objective and the normative approaches to the measurement of inequality of income. As objective measurement, in itself, is not of interest and presupposes appraisal; the difference between the two approaches, in fact, emerges at the level at which normative considerations come up. Therefore, use of the word ‘equality’ in the context of distribution of income necessarily involves normative judgment. This is so in both the situations. We may be interested in inequality in the distribution of income of a

8

A Study on Poverty and Inequality in India country at different points of time or, we may compare the inequality in the distribution of income of different countries at the same point of time. In the literature, we find two broad categories of the measures of inequality. On set of measures try to quantify the size of inequality in some objective sense by using some statistical measures of relative variation of income.

Such measures

include the variance, the co-efficient of variation, the Lorenz Curve, the Gini Coefficient etc. On the other hand, there are indices that try to measure inequality in terms of some normative notion of social welfare- that is , when the level of income is given, a higher degree of inequality corresponds to a lower level of social welfare.7 We now discuss the measures of inequality. It would not be wrong if we discuss some measures briefly while concentrating on others which have been used widely in the literature on inequality in income distribution in India.8 Long ago Pigou maintained that any transfer of income from the poor to the rich, ceteris paribus, should increase inequality and diminish welfare.9 The common statistical measure of dispersion-variance-does satisfy the Pigou condition. But the dependence of variance on the mean income level makes its position weaker; since one distribution with lower mean income level but greater relative variation around the mean registers smaller variance than another distribution with higher mean but smaller relative variation around the mean. To remove this weakness we take the square root of the variance and divide it by the mean to make it mean-independent. This is the co-efficient of variation. The Co-efficient of variation is sensitive to income transfer for all income levels. But sometimes it is desirable that we should attach lower importance to income transfers at the higher levels of income and greater importance to income transfer at the lower end of the income scale. This objective is fulfilled in another measure- the standard deviation of logarithm. Since standard deviation is derived from the logarithm of the actual income levels, the staggering effect of logarithm highlights the income transfers at the lower end of income distribution and minimizes the effect of the transfer at the higher levels. This feature makes this measure attractive, but this creates difficulty for other reasons. The severe contraction the income levels suffer-as they get higher and higher-denies this welfare measure its

9

A Study on Poverty and Inequality in India concavity to be a concave function of individual incomes, this measure can create difficulties.10 When we get interested about the share of different deciles of population from the lower end in the national income, we take recourse to the Lorenz Curve. This curve depicts the percentages of the population arranged in ascending order according to their positions of the income scale on the horizontal axis and the percentages of total income enjoyed by each of these groups are shown on the vertical axis. If everyone has the same income, the Lorenz Curve will by the diagonal, which is called ‘equality line’. The deviation of the Lorenz Curve from the line of absolute equality is an index of inequality.

One distribution is unequivocally more unequal than

another only if the Lorenz Curve for the former lies below the Lorenz Curve for the latter throughout its range. The advantage of the Lorenz Curve lies in its use of the arithmetic scale. It is, again, independent of any assumption about the form of the distribution to which the observed data must conform. However, when the form of the distribution is known with certainty, the corresponding Lorenz Curve is uniquely determined by the values of the distributional parameters. For different values of these parameters Lorenz Curves are obtained which are completely non-overlapping.11 The use of Lorenz Curve as a means of measuring income inequality within the utilitarian framework has been justified in the literature.12 It has been shown that if social welfare is additively separable and if it is the sum of individuals-then the partial ordering of income distribution according to Lorenz Criterion is identical with the ordering implied by social welfare. This result holds irrespective of the form of the individual utility functions as long as they are concave.13 Intuitively, one might expect that the equivalence of partial orderings would hole for any symmetric social welfare function which is quasi-concave and increasing in individual utilities.14 When the Lorenz Curves of two distributions intersect, there is ambiguity in comparison; that is, for comparative purposes, it is difficult to say which Lorenz Curve represents greater inequality. Gini introduced an analytical measure called the ‘concentration ration’ or the ‘Gini Coefficient’, which is the ratio of the area between the equality line and the Lorenz Curve to the triangular region below the diagonal. It 10

A Study on Poverty and Inequality in India is defined as exactly one half of the relative mean difference-this is the arithmetic average of the absolute values of differences between all parts of incomes. G=

1 2q 2 m

q

q

i =1

j =1

∑ ∑ |y

i

− yj |

Where m is the mean income of the poor, and q is the number of persons. After a bit of manipulation the formula reduces to 15 1 2 G =1 + − 2 q q m

q

∑ yi( q + 1 − i ) i =1

for y1 ≥ y2 ≥ y3 ≥ ……. ≥ yn Since the Gini Co-efficient takes note of differences between every pair of incomes, it is a direct measure of income inequality; it is also sensitive to transfer from the rich to the poor at every level. Gini Co-efficient is ‘mean-independent’, that is, it is invariant with respect to equi-proportionate change of incomes of all individuals. If the mean income of the distribution changes, while there is no change in the inequality measure, the effect on the measure of absolute poverty is certain. It moves inversely with the changes in the mean income. But measure of inequality being mean-independent, changes in mean income introduce complex difficulties in measuring of poverty in a relative sense. In a society with higher mean income inequality causes greater injustice compared to a society with lower mean income. This fact introduces ambiguity in the measurement of poverty in a relative sense.16 Since the Gini Co-efficient is an index of inequality, the negative of it can be treated as a welfare function. But this function, being a linear function of income levels, is not a strictly concave group welfare function. As strict concavity is a desirable criterion for a welfare function. Gini co-efficient is thought to be weak on this point.17

But this measure takes into account any transfer of income from the

poor to the rich in appropriate direction, and it is, though not strictly concave, is concave alright.18 Atkinson proposed a new measure of inequality19 by an index:

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A Study on Poverty and Inequality in India I * =1 −

Y* m

Where Y* is the level of income per head and m is the mean of the income distribution. If the level of income is equally distributed, Y* would give the same level of social welfare as the present distribution. Moreover, in a separate measure,20 Atkinson introduced distributional objective through an explicit parameter, say E, which represents the weight attached by the society to inequality in the distribution. When the society is indifferent regarding the income distribution, the value of ‘E’ becomes zero, and when the society is concerned only with the position of the lowest income group, the parameter becomes infinity. The index is: 1

 n  Yi 1− E  1− E I = 1 − ∑   fi   i =1  Y   Where Y1 is the income of those in the 1-th income range, f1 is the proportion of the population with incomes in the 1-th range and Y—the mean income. This index indicates the proportion of the present total income that would be required to achieve this same level of social welfare as at present if income were equally distributed. The measure is an index of the potential gains from redistribution. The inadequacy of the index of income distribution as an index of the distribution of welfare has been pointed out by Bentozel.21 In this view, it is the distribution of consumption which has a direct bearing on the distribution of welfare. From the welfare point of view the welfare-creating properties of the distribution of income or consumption are important; these properties should be represented in the analysis of income inequality. Bentzel’s new measure seems to fulfill this condition. The construction of this index is as follows: Assuming that a group of individuals have the same welfare function u(c), where c denotes the level of consumption and f(c) is the frequency function of the level of individual consumption, the aggregate welfare (w) can be written as α

W = n ∫ u (c) f (c ) dc 0

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A Study on Poverty and Inequality in India Where ‘n’ is the number of individuals. Suppose W* is the maximum aggregate welfare that could be obtained by a redistribution of consumption between the individuals. The difference between W* and W can be interpreted as the total welfare loss caused by the inequality in the individual consumption measured by I ** = 1 −

W W*

The ratio W/W* has been called “welfare efficiency of distribution” by Bentzel. But, in this analysis the precise relationship between distribution of consumption and distribution of welfare is not brought out very clearly. Again, since the shape of the welfare function u(c) is unknown, the definition of “welfare efficiency of distribution” is not useful for empirical analysis.22 Sen’s Measure Sen has constructed a measure of poverty in an axiomatic framework.23 This measure takes into account the income distribution among the people designated as ‘poor’, that is, people below the ‘poverty line’. If yj is the income level of individual j, the individuals may be numbered in a non-decreasing order of income, satisfying y1≤ y2 ≤ ……. ≤ yn If ‘z’ is the ‘poverty line’ and ‘q’ is the number of people with income yi z, then for any person i q, there are exactly (q+1-i) people among the poor with at least as high a welfare level as person i. Let ‘n’ be the total population. The ‘poverty-measure’ P can be written as P =

2 ( z − yi)(q + 1 − i ) (q + 1)nz

This measure of poverty P is closely related to Gini Co-efficient, and Sen has established a correspondence between Gini Co-efficient and his poverty measure. Defining the “head-count ratio” H as the ratio of the number of people below the ‘poverty line’, Sen(1976) has proved the relation P = H [I*-(1-I*)G] Where G is the Gini Co-efficient and I* reveals the percentage of the mean shortfall of incomes of the poor from the ‘poverty line’.24 From this relation an important

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A Study on Poverty and Inequality in India policy implication follows: The aggregate welfare of the population can be increased by minimizing the inequality in the distribution of income. In any actual situation, the use of the measure P involves the specification of the welfare function. In such a choice, value judgment cannot be avoided. Moreover, this measure is concerned with only a part of the income distribution. Our analysis of the different measure of inequality leads finally to the following points: First, the literature is full of controversy regarding the practical relevance of the implicit welfare function, the shape of the welfare function and the question of ordering in the social welfare. Second, while descriptive measures like coefficient of variation, standard deviation of logarithm etc. lack motivation, purely normative measures seem to leave out of consideration several important characteristics of inequality.

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A Study on Poverty and Inequality in India

Chapter-2 Poverty in India The problem of poverty had attracted the attention of economists even before independence25 but as we are interested in the study of the post-independence period, we will not discuss this here. After independence a vast literature on poverty has emerged, the most important of this being Dandekar and Rath(1971), Ojha(1970), Minhas(1970), Bardhan(1970,1973) and Vaidyanathan(1974). Most of these studies take 1960-61 as a bench mark year for the purpose of comparison, and the data used by these studies cover periods up to 1968-69.

These different studies come to

different conclusions both as regards the definition of the minimum standard of living and regarding the number of people below the different studies are four in number: (i) differences in estimates of income and consumption; (ii) different concepts of adequate nutritional levels; (iii) differences regarding current price deflator to be used; and (iv) arbitrariness in the choice of some key conversion factors to overcome the lack of availability of appropriate disaggregated empirical data. Let us now explain these in turn. First, for the calculation of the size distribution of income and/or consumption most of these studies depend on the data yielded by the National Sample Surveys. But there is discrepancy between NSS data and national income statistics prepared by the C.S.O. It is alleged that NSS data underestimates consumption expenditure for the upper income classes,26 which implies that the measure of poverty will not be affected but the measure of inequality will be. Secondly, the concepts of a minimum adequate level of nutrition and its purchasing power equivalent form the basis of all the studies that have tried to estimate the numbers of people living below the national poverty line.

But different authorities give different estimates of nutritional

requirements.

Among these are: PPD, Planning Commission(1974), Sukhatma

(1971) and Gopalan, Sastri and Balasubramanian(1971). Thirdly, as most of the income and consumption expenditure data are available initially at current prices, one has to deflate them to obtain real values for the purpose of inter-temporal

15

A Study on Poverty and Inequality in India comparisons. But the choice of a correct price deflator is difficult as different income groups possess different preference patterns, some buy commodities at ex-farm prices and some obtain commodities through exchange in kind. Again, prices for the identical commodities vary region wise.

Thus conclusions vary because the

researchers use different price deflators. While Minhas(1970) and Dandekar and Rath(1971) use the national income deflator, Bardhan(1970) uses the official Agricultural Labour Consumer Price Index for deflating the values of consumption of the rural poor and the Official Working Class Consumer Price Index for deflating the consumption of the urban poor.27 In this connection, it will not be out of place to mention the nature of price movement of different commodities in different parts of India. Mahalanobis(1962) had drawn our attention to the unequal movement of the prices of cereals for different decile groups of the population in rural India.28 This was later corroborated by extensive tabulation of NSS household budget data undertaken for the Government of India Committee on Distribution of Income and Levels of Living. Since cereals occupy a very important place in the consumer budget, specially for rural households, the above finding stresses the need of constructing inter-temporal consumer price indices separately for different fractile groups of population. Fourthly, in different studies, conversion factors have been used to build up a complete picture from fragmented data.

The assumption in

Dandekar and Rath(1971) is that the top 30 per cent of the population would have fared no worse in terms of consumption between 1960-61 and 1967-68 than the lower income groups.

On the other hand, Bardhan(1970) uses a conversion factor

appropriate to the bottom 50 per cent of the population for the derivation of an estimate of total expenditure from expenditure on food items. From these it follows that there cannot be a ‘correct’ estimate that can be derived from the assumption that are made in the studies noted above. With these preliminary observations we will now turn to an analysis of the Studies on Indian Poverty. In July, 1962 the Government of India set up a Study Group29 which recommended that a per capita annual consumption of Rs.240 at 1960-1961 prices should be considered as the nationally desirable minimum level of consumer expenditure.

This excluded expenditure on health and education, which was

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A Study on Poverty and Inequality in India supposed to be provided free of cost by the state. This level of expenditure has often been taken as the ‘poverty line’ and the proportion of people below this standard of consumption has been investigated by different economists. This notice of ‘poverty line’ again constitutes the keystone for the exercise in long term planning that is presented in the Planning Commission document “Notes on Perspective of Development, India 1960-1961 to 1975-76”. It cannot be ascertained whether any competent statistical authority arrived at this figure after careful consideration. In fact, how this figure was reached remains up till now somewhat of a mystery to ordinary citizens. However, as this figure is important, we shall examine in greater detail. First, this official poverty standard, being essentially an absolute measure, is inadequate since this is based purely on money income and ignores other aspects of deprivation. No account is taken of poor quality housing, schools of health care which may be independent of low money income.

“Moreover, poverty may

represents only one aspect of a more general powerlessness, an inability to influence one’s environment.”30 Of course, this aspect of poverty is neglected by almost all the poverty measure in use in India; such powerlessness on the part of the poor makes the problem of poverty doubly acute. We will turn to this aspect of the problem in the last section. Secondly, apart from methodological criticism, the presumption that the population would be provided education and health care free of cost by the State can be questioned. In fact, as nearly two-thirds of the population remain illiterate, 31 and the government health programme has not yet been able to cover all the villages in the country, such an assumption simply ignores reality. As people are often forced to spend on medicine, inclusion of some expenditure on medicine in the consumer budget appears to be necessary and this makes the Rs.20 per month figure rather suspect. Thirdly, though the idea of nutritional norm has been accepted regarding food items in private consumption expenditure, in respect of non-food items like clothing and housing no yardsticks have been worked out on any scientific basis. The minimum standard of living prescribed by the Study Group is necessarily the biological minimum diet has been carefully worked out by Sukhatme(1965).32 He take into account various recommendation of the Food and Agricultural Organisation [FAO] and the Nutrition Advisory Committee [NAC]. Again he has made specific

17

A Study on Poverty and Inequality in India allowances for India in terms of availabilities and consumption habits; he has taken into account different requirements of persons in different age and sex groups and thus worked out two food baskets corresponding to a minimum concept and a medium concept. The cost of the minimum food basket (per day) has been worked out as Rs.0.5238 at 1960-61 prices or Rs.15.71 per month at 1960-61 prices. As compared with Sukhatme’s estimate, the cost of a minimum diet prescribed by the FAO33 is Rs.18.26 at 1960-61 prices. Sometimes alternative standards have been defined in terms of minimum Calorie requirements, as in Ojha (1970) and Dandekar and Rath (1971). They have taken 2250 Calories is met from food grain and considering the food grains intake per person in different expenditure brackets as given by NSS data they have estimated the proportion of population below the poverty line.34 On the basis of the recommendations of Dr. Patwardhan as mentioned in the Report of the Central Government Employees Pay Commission (1957-59), Bardhan (1973) has worked out the cost of the minimum diet recommended for an built in moderate activity.35 The diet consists of 15 0z. of cereals, 3 0z. of pulses, milk (4 0z) sugar and gur (1.5 0z), edible oils (1.25 0z), groundnut (1 0z) and vegetables (6 0z). These give 2100 calories and 55 grams of protein per day.

Because of non-

availability of prices, Bardhan leaves out the last two items i.e., groundnut and vegetables. For the determination of the cost of this minimum diet Bardhan adjusts the NSS rural retail prices to take account of the lower prices for non-monetized consumption. First, the cost of this minimum diet for adults is determined. Then he adjusts it by an adult-equivalent ratio to obtain the cost of the minimum diet for an average person. Then he blows it up by using food to non-food expenditure ratio of the relevant expenditure group of the rural population from NSS data, to get the estimated minimum level of living for rural India to be Rs.28 per capita per month in 1968-69 in current prices. Bardhan (1973) has taken the food basket from the report of the Second Pay Commission and has used the rural retail prices from NSS estimates as is done by the Commission; but he has arrived at a much lower value. While in the former the cost of the minimum diet is Rs. 14.51 per month per adult unit, that is, Rs.11.61 per month per person basis, the corresponding figures in Bardhan are Rs.11.61 and Rs.9.61 18

A Study on Poverty and Inequality in India respectively. The lower figures of Bardhan can be traced to the following two elements in his calculation: First, he has neglected vegetables and ground-nuts from the food baskets; and secondly, he has adjusted the NSS based average retail prices to take into account the consumption of home grown articles on the part of rural consumers. Regarding the second consideration Rudra (1974) has taken exception on two points.36 First, according to Rudra, the procedure adopted by Bardhan (1973) is arbitrary, as he overlooks the fact that it is not only the home grown part that is evaluated in the NSS data in prices different from the average retail prices; the cash purchased part in NSS expenditure data is evaluated in actual prices paid by the consumers, and not by the average retail prices independently estimated and separately presented by the NSS. While the price average in the NSS expenditure data regarding cash purchases is a weighted average, the rural retail prices are simple averages. Secondly, Rudra points out that the blow-up factor (46%) is not correct. We have discussed the nature and inadequacy of the concept of an absolute poverty line in India. Let us now turn to the studies on Indian poverty. Minhas (1970)37 has used the computations of Tewari (1968)38 to derive the estimates of per capita private consumption expenditure, which are at 1960-61 prices. He has, then, applied the NSS ratio of rural to urban consumption to obtain the estimates of rural average per Capita Consumption. These estimates of per capita overall consumption in rural area in 1960-61 prices, together with the percentage shares of different fractile groups of population in total consumption, derived from different NSS rounds, have been used to derive the average per Capita Consumption in 1960-61 prices of each fractile group of the population over several years. It will not be out of place if we reproduce here a table from Minhas:

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A Study on Poverty and Inequality in India

Table: Average Per Capita Consumption by Fractile Groups at 1960-61 prices in 1956-57 and 1967-68: Rural India

Fractile Group

1956-57 (Rs.)

1967-68 (Rs.)

Poorest 5% 5-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90-95 Richest 5%

63 88 108 133 155 180 207 240 283 351 443 731

81 110 137 166 194 222 254 292 240 414 512 723

Source: Minhas (1970) Table 2. Abridged

We see that the richest 5% of Indians could enjoy a per Capita Consumption level of about Rs.2 in 1960-61 prices per day in the years 1956-57 and 1967-68. Even this group cannot be termed as rich by the world standard, though they are at the topmost income level in the villages of India. The poorest 30% or the people, and the other extreme, live a life beyond the description and analysis of the economists and nutrition experts. If the level of per Capita annual consumption expenditure of Rs.240 at 196061 prices is accepted as a bare minimum, the percentage of people in rural India below this poverty line was 65 in 1956-57 and 50.6 in 1967-68. But in Minhas’ estimate the absolute number of people below the poverty line in rural India remained almost same – 215 million in 1956-57 and 210 million in 1967-68. If, however, a level of Rs.200 at 1960-61 prices is taken as the minimum, the proportion of people below the poverty line would be 52.4 per cent in 1956-57 and 37.1 per cent in 1961. The steady decline in the proportion of people below the poverty line is, according to Minhas, largely explained by the growth of an average per Capita Consumption at a rate of 1.25 per cent per year over the period 1956-57 and 1967-68.

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A Study on Poverty and Inequality in India

As regards the identification of the rural poor Minhas be specified several classes to which most of them belong and these classes are: (a)

Agriculture labour households without land, which formed 58 to 61 per cent of all agricultural labour household between 1956-57 and 1963-64.

(b)

Other rural labour household without land.

(c)

Agricultural labour household with land, which formed between 42 to 39 per cent of agricultural labour households between 1956-57 and 1963-64.

(d)

Marginal farmers operating holdings below 5 acres in size. According to the estimate of Minhas, the total number of people in agriculture

labour households in 1960-61 was 66.5 million of which about 26.5 millions belonged to households who operated some land as well.

The corresponding

estimates for non-agricultural rural labour were 15.8 and 6.8 millions respectively. Therefore, the total rural labour population in 1960-61 was estimated to be 82.3 millions and of these 33.3 millions belonged to households who operated some land also. Minhas estimated that about 79 per cent of the population of these households had a per capita annual level of consumption of less than Rs.200 at 1960-61 prices in the year 1956-57. Minhas further stated that the percentage of poor among the agricultural labour population declined to 75 in 1960-61, which corresponded to about 50 million in absolute numbers.39 While Minhas is concerned with rural poverty only, Ojha (1970) deals with both rural and urban poverty for the year 1960-61 and only rural poverty for the year 1967-68. In his study Ojha accepts 2250 Calories as the barest minimum intake per capita per day for a representative Indian. He further assumes that people in urban areas derive 66 per cent of 2250 calories from food grains; for the people in rural areas that percentage is 80. he then compares the actual food consumption in grams per head of rural and urban population using the NSS data [16th round].41 This means that to attain the nutritional minimum per capita daily consumption should be 518 grams in rural areas and 532 grams in urban areas. After some modifications of the estimates of food grains intake he finds that the average level of food grains intake per person was below the standard for expenditure levels up to Rs.15-12 per capita per month at 1960-61 prices. Regarding the urban population the corresponding expenditure level for which deficiency in consumption existed was Rs.11-13 per 21

A Study on Poverty and Inequality in India capita per month at 1960-61 prices. On his basis Ojha finds that in 1960-61 about 51.8 per cent of rural population lived below the poverty line, and for the urban population the proportion of those considered as poor was only 7.6 per cent. Ojha’s conclusion regarding poverty in the urban area is surprising because of the following reasons. First, the urban households tend to spend a smaller percentage of their incomes on food grains, which Ojha has accepted in his calculation. But this again means that urban households derive a comparatively larger fraction of the required 2250 calories from food other than food grains gives greater calorie value compared to the same spent on items other than food grains, the minimum expenditure levels for the required 2250 calories should be higher in urban areas.42 Secondly, since unit prices of food grains in urban areas are higher than in rural areas, expenditure in urban areas for food grains should be higher. 43 Though Ojha takes the nutritional norm for urban are as 432 grams, which is 86 grams lower than the rural requirement of 518 grams (and this means that smaller volume of expenditure is involved), the urban people must procure additional calories from food items other than food grains, and again they are to purchase these at higher prices. These points seem to have been missed by Ojha and that is why his estimated poverty line for the urban area is as low as Rs.11-13 per Capita per month, and much lower than the figure estimated for the rural areas. From these it seems that the proportion of population in urban areas below the poverty line is much higher than the estimate of Ojha indicates. Regarding the year 1967-68, Ojha calculates that about 70 per cent of rural households were living below the poverty line. Moreover, the degree of nutritional deficiency was higher for each expenditure level.

Ojha does not consider the

question of urban poverty for the year 1967-68. The study of Dandekar and Rath (1971) has some important features which are as follows.44 First, this study is extensive in the sense that it covers both rural and urban poverty condition for the relevant period. Secondly, in this study the authors have made a number of arbitrary adjustments to the NSS data. Thirdly, these authors also assume that a daily intake a 2250 Calories per adult person is the required minimum for subsistence, and this figure is derived from the estimate of Sukhatme (1971). Fourthly, these authors have not only analyzed the nature of Indian poverty in 22

A Study on Poverty and Inequality in India greater detail, but they have also examined the feasibility of the Planning Commission’s perspective regarding the reduction of poverty in India during the planning period.45

In fact, a large part of their study is devoted to prove that “the

Planning Commission’s perspective appears to be completely out of line with the performance of the economy in the past decade and is therefore unlikely to be realized.” Moreover, Dandekar and Rath are critical about the NSS consumption expenditure data, which, according to them, do not reflect fully the pattern of inequality existing in the economy because of its downward bias regarding the consumer expenditure of the richer sections. However, we shall examine this point later on. The method followed by Dandekar and Rath is similar to that of Ojha (1970) but with difference that they have assumed that about 200 calories would be obtained per Capita per day from food other than food grains. Now according to Dandekar and Rath (henceforth D – R), in rural area, the per Capita daily consumption of food grains and substitutes reaches 616 grams for households with per Capita monthly expenditure of Rs.170.8. If one gram of food grains, including substitute, gives 3.3 Calories, 2033 Calories per capita per day can be obtained with the consumption of 616 grams of food grains. Another 200 Calories are obtained by these households from the consumption of items like edible oil, ghee and butter, sugar and gur and a little of milk, meat and fish. Thus the total intake of food at this level seems to give about 2250 Calories per capita per day.

It implies that, and annual per Capita

consumption expenditure of Rs.170 (at 1960-61 prices) is essential to give a diet adequate in respect of calories in 1960-61. Now D – R find that about 33.12 per cent of rural population had their per Capita annual consumption expenditure below the stipulated minimum i.e., Rs.170 at 1960-61 prices. Regarding urban consumption, D – R find from NSS data that urban households secure the minimum Calories requirement of 2250 at levels where their consumption of food grains and substitutes reaches 490 grams per person per day. Again, while a rural household at Rs.170 per capita per annum spends 78.56 per cent on food, an urban household at Rs.271 per capita per annum spend only 70.26 per cent on food; again of this 70.26 per cent only 36.45 per cent goes on food grains and 23

A Study on Poverty and Inequality in India substitutes and the remaining 33.81 per cent is spent on other items of food. Finally, the prices of food grains which an urban household at an expenditure level of Rs.271 per capita per annum pays are almost 25 per cent higher than the prices paid by a rural household at expenditure level of Rs.170 per capita per annum. Hence an annual per capita urban expenditure of Rs.271 is to be regarded as equivalent to an annual per capita rural expenditure of Rs.170. Now D – R find that about 48.64 per cent on urban population in 1960-61 could not afford the diet consumed by the group with an annual per capita expenditure of Rs.271. Thus 48.64 per cent of urban population lived below the poverty line. According to D – R the NSS estimate of average per capita consumption in 1967-68 is an underestimate. What is unacceptable to them regarding the NSS estimate is that NSS estimate of rural per capita consumption estimate of Rs.239.8 (at 1960-61 prices) in the year 1967-68 is about 7 per cent lower than the corresponding NSS estimate in 1960-61; again, it is about 11 per cent lower than the consumption estimate for 1967-68 derived from the national income statistics. Using the national income deflator D – R find that the average per capita consumption of the lowest 5 per cent rural fractile group in 1967-68 is 94 per cent of that in 1960-61, whereas for the topmost 5 per cent fractile group the estimate of average per capita consumption is only 73 per cent of that in 1960-61. Now such a large differential decline in per capita consumption of the richest 5 per cent is not acceptable to D – R, as this goes against their a prior judgment that during the sixties there has been an obvious increase in inequality in the structure of the Indian rural economy. It is clear that the position taken by D – R rests on whether the NSS estimate of average per capita consumption is an under estimates or not. On this point Bardhan (1974)46 is of the view that the deflating of private consumer expenditure data by the national income deflator is improper.

Bardhan cites the study of

Radhakrishnan, Srinivasan and Vaidyanathan (1974) who have worked out a general consumer price index on the basis of NSS weights for ten commodity groups and wholesale prices data issued by the office of the Economic Adviser to the Government of India.47

The Radhakrishnan, Srinivasan and Vaidyanathan (R-S-V)

index is 178.1 in 1968-69 taking 1960-61 figure as 100, but for the same period national income deflator increases from 100 to 169.8. Now if the R-S-V index is used, not only is the NSS estimate for per Capita real consumption for 1967-68 below

24

A Study on Poverty and Inequality in India that for 1960-61, but the official estimate for 1967-68 will also be lower than that for 1960-61. Thus Bardhan (1974) asserts that NSS estimate should not be discarded simply because it establishes a decline in the per Capita real Consumption during the sixties. But the observation of D-R regarding the increasing under-estimation of the consumption of the rich in NSS estimate is endorsed by Bardhan (1974) and other economists,48 though no satisfactory explanation of this is yet available.

The

explanation given by D-R is as follows: “The NSS secures its estimates of consumer expenditures by interviewing a random sample of rural and urban households and inquiring from them about their consumer expenditure during the previous month. The limitations of this procedure are well known. For instance, a number of items of consumer expenditure, such as clothing and other consumer durables, which a household would purchase less frequently than once every month, are likely to be missed by this procedure and hence the expenditure on them is likely to be under-estimated. These are the items which are more important in the consumer expenditure of the rich than the poor and they become more important as the rich become richer. It is also known that the upper middle and the richer households, both in rural and urban areas, have become increasingly inaccessible to the NSS investigators who are after all class III government servants.” But the relative infrequency of the purchase of some consumer durables and articles of high consumption need not lead to underestimation as the NSS is canvassed in a number of sub-rounds spread throughout the year and so the seasonality, if any, in the purchase of consumer durables should not lead to any bias. Moreover, in any given sub-round the random sampling procedure of the survey will ensure that purchasers of cloth are not systematically excluded. Now R-S-V have shown that the estimates of consumption at current prices derived from National Income and the NSS data a are in close agreement for the period 1954-55 to 1963-64, but thereafter the two series differ considerably. These authors conclude that the relatively close agreement between the NSS and official series for some years does not necessarily indicate the absence of systematic bias in the two series and similarly the divergence between the two series for the later years 25

A Study on Poverty and Inequality in India of the sixties does not necessarily indicate the presence of such bias. But R-S-V have not given any explanation for the divergence of the two series from 1963-64 onwards. Turning now to other studies we find that the study of Vaidyanathan (1974a, 1974b) takes an income level of Rs.132 per year to denote poverty and finds that the proportion of rural population living below the poverty line is 15.7 per cent in 196061. Now the poverty line drawn by Vaidyanathan is much lower compared to the estimates of others and there is little surprise that the number of the poor will be considerably lower.49 However, Vaidyanathan (1974a) has presented the following estimate of the proportion of rural population with per Capita Consumption expenditure below Rs.20 per month at 1960-61 prices. According to NSS estimate, the percentage of people living below the poverty line was 59.5 in 1960-61; it increased to 67.8 in the year 1967-68. Again, according to official estimate, the respective percentages are 58.8 and 57.8, which shows that the level of poverty remained more or less same during the sixties, though the number of people below the poverty line increased. The study of Bardhan (1970, 1970a, 1973) uses NSS data for distribution of consumer expenditure, but uses a different minimum level of income of Rs.15.00 per month at 1960-61 prices and Rs.28.4 at 1968-69 prices for the two years respectively. Bardhan then argues that the national income deflator (which rose from 100 in 196061 to 170 in 1967-68) as used by Minhas (1970) and Dandekar and Rath (1971) is not an appropriate price index to use, as it does not accurately reflect the set of prices facing the poor consumer.50 This is due to the following reasons. First, national income includes both investment and consumption goods and as such the national income deflator cannot be a suitable index for studying changes in consumption. Secondly, the national income deflator covers the prices the prices of both agricultural and industrial commodities. The weight of the latter items in the budget of the poor is much lower than the national average and hence the national income deflator is very likely to have understated the rise in the prices paid by the rural poor. This is more so when the prices of agricultural commodities have risen at a much faster rate than the prices of manufactured items. For the above reasons, Bardhan uses an alternative deflator which is the agricultural labour consumer price index. This index is based on the Labour Bureau 26

A Study on Poverty and Inequality in India series of consumer price index number for agricultural labourers constructed on the basis of NSS rural retail prices and weighting diagrams obtained from the Second Agricultural Labour Enquiry.

Bardhan finds that the number of the rural poor

increased from about 135 million in 1960-61 to 230 million in 1968-69, that is, the percentage of the rural population living below the prescribed minimum increased from somewhat less than 38 per cent in 1960-61 to about 54 per cent in 1968-69. This result is in sharp contrast to the conclusion reached by Minhas (1970). It is contended that the high figure of population below the poverty line in 1968-69 may be traced to the consumer price index used by Bardhan. 51 But Bardhan has defended these indices by computing several alternative indices and showing their agreement. The study of Bhatty (1974)52 is concerned with the extent of rural poverty in 1968-69. The object of his study is to present a measure of absolute poverty in terms of per capita income, which takes into account the inequality of income distribution among the poor. Moreover, Bhatty is interested about the incidence of poverty in different regions of rural India and among different classes of the rural population. To avoid arbitrariness, Bhatty has set five poverty levels, which, in terms of per capita annual income in 1968-69 prices are: Rs.180, Rs.240, Rs.300, Rs.360 and Rs.420. Since the study is concerned with a single year, 1968-69, no comparison is undertaken regarding the change in poverty level of the country. Taking Rs.360 as the minimum per capita annual income, Bhatty’s study reveals that about 67.15 per cent of all rural households lived below the poverty line. If only agricultural labourer households are considered, then about 82.84 per cent of them live below the poverty line, whereas for the non-agricultural households this percentage is 69.7. Thus the incidence of poverty is most severe among agricultural labourers. Bhatty has also tried to calculate for India the magnitude of Sen’s poverty measure P, the result of which is summarized in the following table: Sen’s Poverty measure ‘P’ for India, 1968-69 Poverty line: rupees per Capita per annum 180 240 300 360 420 27

A Study on Poverty and Inequality in India

(i)

All occupation classes

0.101

0.188

0.279

0.363

0.435

(ii)

Cultivators

0.107

0.187

0.269

0.345

0.415

(iii)

Agricultural labourers

0.098

0.220

0.336

0.440

0.521

(iv)

Non-agricultural workers

0.171

0.155

0.251

0.344

0.425

Source: Bhatty (1974) Tables 7-10, pp. 316-17

From the table we find that of the three occupational classes, agricultural labourers are the most deprived. Bhatty has also analysed in detail the level of poverty in different states. He has identified the five poorest states in the country - Gujrat, Tamil Nadu, Madhya Pradesh, Rajasthan and Orissa – and explained the region wise variations of poverty level. He shows that while the incidence of poverty among the agricultural labourers is the highest in Gujrat and the lowest in Punjab, the nonagricultural workers are worse off in Madhya Pradesh. According to Bhatty, the relative incidence of absolute poverty in the rural population of different states depends on many factors, such as, land-man ratio, topography and quality of land, rainfall, irrigation, cropping pattern, rural institutional structure etc. Thus this study points to the fact that any study on poverty should be based on the diversity of different regions and it is pointless to calculate any uniform measure of poverty for India as a whole. The importance of regional study for ascertaining the poverty level has been emphasized also by Panikar, whose study is based on condition in Kerala.53

The

author is concerned with the question of choice of a nutritional measure used by Dandekar and Rath and the Nutrition advisory Committee. Panikar establishes the fact that D-R have overestimated the number of the poor in Kerala, as the minimum diet accepted by D-R is in fact the India average. Indira Rajaraman (1975) discusses the incidence of poverty in the Punjab between 1960-61 and 1970-71.54

In the year 1960-61, the lowest two deciles of

population accounted for 10.4 per cent of total consumption, while in the year 1970-

28

A Study on Poverty and Inequality in India 71, they accounted for only 8.9 per cent of total consumption. Again, during the same period the share of the topmost decile increased from 23.2 per cent to 24.7 per cent. Taking a consumption level of Rs.16.36 at 1960-61 price, Rajaraman finds that about 18.4 per cent of total population of Punjab lived below that consumption level. The poverty line for the year 1970-71 has been estimated at a consumption level of Rs.33086 at current prices, and the author has shown that the percentage of the poor has increased from 18.4 to 23.3 in ten years. It is seen in this study that poverty is most intense among the agricultural workers, as about 22.6 per cent of households lived below the poverty line in 1960-61 and in the year 1970-71, this percentage went up to about 40.5. In this respect, Rajaraman’s study is consistent with those of Bhatty (1974) and Bardhan (1970).55

Like Bhatty, Rajaraman also finds that incidence of

poverty among the cultivators is comparatively low. While the increased incidence of poverty among the agricultural labour households is significant statistically, this is not the case with the cultivating households. In a different type of study based on the socio-economic survey data derived from the sample households distributed all over Bangalore City, Hanumappa (1978) has shown that 24.35 per cent of all households can be considered as poor in the context of their monthly income.56 But the study is mainly concerned with the effect of family size and education on the pattern of income distribution and so we will not pursue it further. We now take up for consideration an important study based on Kerala which will explain the difference between the conclusions of D-R and Panikar. 57 In the study of D-R, Kerala is seen to have the largest percentage of population below the poverty line, 90.75 per cent in rural areas and 88.89 per cent in urban areas. The study on poverty by Centre of Development Studies (1975) has prepared a balance sheet compiled for Kerala and then compares it with the NSS data used by D-R. It is revealed that part of the explanation for the high proportion of the poor, as given by D-R, is that the NSS has underestimated certain items of food such as banana, coconut and fish entering into the diets of these people and as a result the extent of main nutrition in Kerala has been somewhat exaggerated. Whereas the per capita per day calories intake is 1619 calories for all food items according to the food balance sheet of this study (1975). Thus, the study reveals that 48 per cent of the population in Kerala lived below the poverty line in 1960-61.

29

A Study on Poverty and Inequality in India

But the important point which the study reveals is that per Capita Consumption of food does not depend on per capita income alone, so that while a low consumption of food may indicate under-nourishment, it need not necessarily mean ‘poverty’. Moreover it is shown that per capita consumption of food in a region depends on per capita production of food and the pattern of the distribution of land holdings; further, the degree of inequality is negatively correlated with increases in food consumption. One conclusion of this study is that the “availability” of food cannot be treated as a function of income and price alone, but it may depend also on “physical” factors such as output in the region and “institutional” factors such as distribution of land holdings. Further, the above study suggests that we require more through scrutiny of regional variations in diet patterns before we draw the poverty line by counting calories with the help of size distribution of consumption expenditure derived from NSS data. A lack of uniformity in the structure of poverty in India has been highlighted by Vaidyanathan (1974), D-R (1971), Bhatty (1974) and Bardhan (1973). Vaidyanathan finds that six States- Andhra Pradesh, Kerala, Madhya Pradesh, Tamil Nadu, Orissa and Uttar Pradesh – had a higher percentage of people below the poverty line than the national average in the year 1960-61. Again, the level of poverty is very much lower in Assam and Punjab. But in D-R study the intensity of rural poverty is greater than the All India average in eight States and these are: Kerala, Andhra Pradesh, Maharashtra, Tamil Nadu, Assam, West Bengal, Orissa, and Bihar. Again, barring Rajasthan, U.P., Bihar, Jammu and Kashmir and Assam, the other eleven States show a greater percentage of the poor living in urban areas compared to the All India average in 1960-61. While in Bhatty’s study a greater concentration of poverty is seen in four States (Gujrat, Tamil Nadu, Rajasthan and Madhya Pradesh), Bardhan’s study reveals that higher levels of poverty have been registered in West Bengal, Bihar, Kerala and Orissa. Such inter-state variations in the percentage of people below the poverty line underscores the importance of the study of poverty on a regional basis. One cal also infer a high degree of correlation between the incidence of poverty and the pattern of

30

A Study on Poverty and Inequality in India the production of cereals, as, state wise, poverty seems to be higher in the non-wheat zones stretching from eastern India to the Malabar Coast.

While this is just a

reflection based on the available data, such a hypothesis (i.e., incidence of poverty being highly correlated with the pattern of cereal production) requires further detailed investigation for its acceptance. All the above-mentioned studies suffer from two general weakness, if any, in NSS data will render the studies inaccurate. NSS data are based on stratified random sampling and so the sample households must ‘represent’ all the rural and urban households in the country.

But, as definitions have changed to some extent in

different NSS rounds, doubts can be expressed regarding the comparability of NSS data in different years. Moreover, samples from the same universe give comparable results, but when sampling is done at two different points of time, the Universe is bound to change. This is likely to be reinforced by planned economic development. Whether data from different samples drawn at two separate points of time are comparable or not is a matter of considerable doubt. Secondly, though rural consumption in NSS data includes non-monetised consumption, the latter may be of two types – commodities produced at home and commodities simply derived from nature. While the first category can be valued by using ex-farm prices, the second category cannot be valued at all. It is our contention that the second category of commodities represents some sort of ‘free good derived from nature’ which is unique in a rural agricultural country with a largely disorganized and demonetized economy. To an NSS investigator such commodities are either not mentioned at all or, even when mentioned, are likely to be neglected because of their largely no-economic character. This is more so because of the existing studies that the per capita per day barest minimum consumption should be 2250 calories and a sizeable section of Indian population cannot afford it. But the number of such poor people is increasing, though percentage-wise the size of the poor may be falling. Should we say that a man may survive without the barest minimum consumption day after day? Accordingly, either the barest minimum has to be further lowered, or we should concede the fact that people derived their necessary calories from the consumption of commodities, only a fraction of which can be brought within the ‘economic’ categories.

31

A Study on Poverty and Inequality in India

While the first weakness is common to any method of induction in statistics i.e., any ‘representative’ sample may lose its representative character with change in the universe, second weakness points to the more fundamental fact that the economic categories used for the measurement of rural consumption should be more broadbased so that the ‘way of living’ of the rural ‘poor’ can be analyzed in greater detail.

Chapter-3 Studies on Inequality

32

A Study on Poverty and Inequality in India

Wide disparity in the living standards of the Indian population in both rural and urban areas has attracted the attention of a number of economists who have tries to measure the change in the degree of inequality in the income distribution and that in consumption expenditure. Moreover, attempts have been male to compare the degree of inequality existing in India with the same in other countries. A survey of the existing literature in this respect should be preceded by a discussion of the following points, as clarification of these points will facilitate the evaluation of the existing literature. First, it is difficult to compare the per capita income of a developing country like India with that of a developed country because of the limited scope of national income accounts in the former.58 Moreover, objection has been raised in the use of exchange rates to convert all figures to a common standard and it is recognized that exchange rates may be poor guide to purchasing power. As the study of David (1972) suggests the true gap regarding the ‘real’ per capita income between the United the United States and other countries is only four-ninths of that indicated by exchange rate conversion.59 Secondly, while it is difficult to generalize about inter-country differences because of heterogeneities of different sorts – historical, physical and regional in addition to the purely economic, we can still arrive at some conclusion regarding the effect of growth on size distribution of income by shifting to inter-temporal comparisons. This is as follows: Though inequality is generally low in the preindustrialization stage, it tends to rise with the growth of towns and cities which emerge and flourish with capitalistic enterprise and growing commerce. Concentration of capital occurs with the growth of firms and urbanization increases regional disparity. But beyond this early phase it is difficult to generalize about the pattern of the change in the inequality-index as economic development proceeds. Kuznets maintains that the degree of inequality is lower in the developed economy compared to the less developed countries.60 Kuznets has been supported by others and these authors, after a careful scrutiny of the size-distribution of income of some countries, maintain that the distribution of income tends to be more equal, the longer

33

A Study on Poverty and Inequality in India and the more thoroughly the country has been exposed to the processes of social and economic transformation after the advent of industrialization.61 We may now turn our attention to the studies on inequality in India. The RBI Study (1962) gas two parts: in the first, the method of estimation and the average state of income distribution during the period 1953-54 to 1956-57 have been described; and in the second, changes in the income distribution from Period I (195354 to 1954-55) to Period II (1955-56 to 1956-57) has been analysed. This study was undertaken under the guidance of Ojha and Bhatt (1964). Taking the household as the income-receiving unit, it attempts to present the pattern of income distribution in the households sector only, which comprises household, not-corporate business (including agriculture), and private collectives like temples, educational institutions and charitable foundations.

The household sector is divided into three income

groups: (i) low income group with annual income below or equal to Rs.3000, (ii) households with an annual income between Rs.3001 and Rs.25,000 and (iii) top income group with annual income above Rs.25,000. The essence of the method of estimation used in the study is the integration of the income tax data with the consumer expenditure data from the National Sample Survey (NSS). The integration is indirect as the study does not use either the actual expenditure given in the NSS data or the actual income for those with annual expenditure equal to or below Rs.3000. Again, the proportion of population and the size of the households in various expenditure brackets given in the NSS data on consumer expenditure are used for the following: First, to estimate independently from the population data (i) the distribution of rural and urban households between low income groups and high income groups, and (ii) the total number of households in the rural and urban areas separately. Secondly, to estimate independently from the national income data the distribution of personal consumption expenditure between the rural and urban sectors and between low income and high income groups within each sector. The savings made and taxes paid are then added to derive personal disposable income and personal income respectively of the various income groups. Moreover, personal incomes accruing to households in the top income group are obtained directly from the income tax data on the assumption that each salary earner assessed to tax represents one household. Income tax data are also used in the 34

A Study on Poverty and Inequality in India estimation of personal income accruing to households in the high income non-salary earners’ group both in urban and rural areas in so far they are obtained as residual magnitudes. The distribution of incomes and households in this group is also done from income tax data. The independently estimated households and incomes are then put together to derive the pattern of income distribution. The study reveals that for the period 1953-54 to 1956-57 the top decile accounts for 28 per cent of personal income, while the bottom decile obtains only 3 per cent. The Lorenz ratio for disposable income is only slightly lower (0.335) than that for personal income (0.340). Income distribution is more uneven in the urban sector than in the rural sector; the urban sector concentration ratio for personal income is 0.40, while this ratio for the rural sector is only 0.31. Ojha and Bhatt (1964) then conclude as follows: “Contrary to general impression, the degree of inequality in income distribution in India does not seem to be higher than in some of the advanced economies.” This conclusion of the authors goes against the thesis of Kuznets and the empirical findings of Morgan (1953) and others. This view has been challenged by Ranadive (1965), Swamy (1965) and Mueller and Sarma (1965). Though the debate is primarily concerned with the above conclusion of Ojha and Bhatt is primarily concerned with the above conclusion of Ojha and Bhatt rather than with the index of inequality as revealed in their study, this has cast some doubt on the basis on which the study of Ojha and Bhatt depends. According to Ranadive (1965), the RBI study is “marred by a lack of appreciation of the need for an appropriate concept of ‘personal income’, an incorrect use of NSS data for deriving size distribution of household income and by what seems to be a methodological error which has resulted in over-estimation of households in the high income groups.” A close scrutiny of the RBI study shows that the number of households in the high income group is over-estimated, which is revealed by the fact that the number of households in non-salary earners’ group is about six times higher than the number of the corresponding group in the tax data. Again, according to Ranadive, the concept of ‘income’ in the study excludes some elements and so the personal disposable income in high income groups is likely to be 35

A Study on Poverty and Inequality in India underestimating. Thus the under-estimation of income and/or over-estimation of households in the higher income groups might account for the sharp difference of this study with the thesis of Kuznets (1963) supported by some empirical studies. Mueller and Sarma (1965) have pointed out that the assumption in the study of Ojha and Bhatt leads to a downward bias in income inequality and they have ignored an important body of data, which is a survey conducted by NCAER in 1960 with a stratified probability sample of 4400 families in 30 cities and towns all over India.62 Mueller and Sarma have shown that NCAER income distribution is much more unequal than the OJha and Bhatt distribution. Moreover, the saving estimates in RBI study do not correspond with the NCAER estimate. Criticising the thesis of Ojha and Bhatt, Swamy (1965) also contends that the pattern of income distribution in India supports the thesis of Kuznets. Lydall (1960) assumes that Pareto ‘Law’ of distribution63 holds in India. He then makes use of income-tax statistics of individuals and Hindu undivided families, and converts the NSS 10th round data from household to a per-person basis, the income of each household being divided by the number of persons in that household. He further assumes that average number of persons covered by each tax assessment is about three. The result of his study is as follows. The top ten per cent of Indians account for 34 per cent of pre-tax income and 33 per cent of post-tax income in 195556. The corresponding figures for United Kingdom in 1954 are 30 per cent and 25 per cent respectively. But Lydall is cautious regarding any comparison of income distribution because coverage of income-tax is much smaller in India compared to U.K. and the estimate of direct income distribution in India is absent. Since Lydall’s study is based on income tax data, we do not get any reliable picture of the pattern of income distribution as a whole in the fifties. Mukherjee and Chatterjee (1967) have utilised NSS data and the national income estimates to indicate broadly the behavior pattern of income distribution. The premises of the study are as follows: (i)

First, statements are made about the nation as a whole and hence reliance has been placed on national income and allied information which relate to the country as a whole.

(ii)

Secondly, the reference period is 1950-51 to 1965-66. 36

A Study on Poverty and Inequality in India Moreover, at attempt has been made to construct size distribution of income at constant prices. The study reveals that disparity of private consumption expenditure at current prices showed some reduction at the All India level during the period 1953-54 to 1961-62. But disparity of private consumption expenditure in real terms showed a large increase from the First to the Second Plan period and then maintained a high level. Again, the evidence is not conclusive on the movement of inequality in the distribution of personal income by size reckoned at current prices, but the overwhelming suggestion is that there has been some increases in inequality after 1953-54 and also towards the end of the period. Moreover, there has been a marked increase in disparity in distribution of personal income by size reckoned in real terms throughout the period. Mukherjee and Chatterjee implicitly assume that prices of cereals and noncereals change in the same direction and also by the same proportion. While the first part of the assumption is generally true, the second part is not borne out by facts. 64 Again, NSS data give changes in the prices in the prices of individual cereals as well as shift in the composition of cereals and this must be adjusted to get a proper index for deflating the consumption expenditure.65 Swamy (1967) has adjusted the NSS data for reference period biases and differences in valuation. He establishes that inter-sectoral inequality is connected with the shift in the size distribution and the overall size distribution of income has little meaning unless it is examined along with the components of this distribution. According to Swamy about 85 per cent of the increase in inequality in the size distribution of consumer expenditure over the decade 1951-60 was due to structural shift in the economy and only about 15 per cent was due to intra-sectoral inequalities changes in inequality.66

Thus Swamy emphasizes the importance of the study of

structural parameters, as a study of intra-sectoral inequalities alone would not truly indicate the changes in the size distribution of income for the country as a whole. The implication of Swamy’s study is that the process of industrialization causes shifts in relative weights of different sectors; and without radical changes in the institutions, inequality in the income distribution must inevitably rise over time.

37

A Study on Poverty and Inequality in India Neglect of this aspect, according to Swamy, is the principal cause why some income distribution studies show a decline in the disparity in the income distribution. Further, Swamy has estimated that inequality remained more or less stable in rural areas, but increased in urban areas, which is reinforced by the fact that the proportion of population increased in urban areas over the period. This increased the disparity between rural and urban areas. Modifications tot the Ojha and Bhatt method have been suggested by Ranadive (1973) to allow for not dissaving by poorer income groups and for possible tax evasion in the top income groups. Ranadive adopts two extreme alternatives: (i) where households with annual income less than Rs.2000 in the urban sector and with income less than Rs.720 in the rural sector are assumed to have zero net savings and all evaded tax payments are assumed to have zero net savings and all evaded tax payments are assumed to be fully reflected in consumption and/or savings, and (ii) where households with annual income less than Rs.3000 in the urban sector and with income less than Rs.1200 in the rural sector are assumed to have negative savings, which constitute 25 per cent of the total urban savings in the case of the former and 14 per cent of the total saving in the case of the former and 14 per cent of the total savings in the case of the latter. As for evaded tax payments, they are not reflected in consumption and/or savings, so that the estimated amount of tax evasion is added to the disposable income of the tax-paying classes. Now case (ii) should show higher inequality than case (i) due to the assumptions relating to savings and tax evasion. Ranadive’s estimate shows that in the year 1961-62, the bottom 20 per cent of population accounted for 7.6 to 7.8 per cent of total income, and top 20 per cent accounted for 45.5 to 46.7 per cent. The Lorenz ratio was between 0.351 and 0.367. The assumption of Ranadive that in the savings group total saving is distributed in proportion to consumption expenditure has been questioned by Bardhan (1974). Ahmed and Bhattacharya (1972) have tried to integrate the size distribution of consumer expenditure obtained from NSS data with the size distribution of income before tax, obtained from income tax data, to estimate the size distribution of per capita personal income in India in three different periods, 1956-57, 1960-61 and 1963-64. They have followed the technique developed by Lydall (1961) and their study is a more systematic and rigorous extension of the earlier attempt of Ahmed 38

A Study on Poverty and Inequality in India (1971). This approach is based on two assumptions: (i) income (before tax) equals consumer expenditure in the lower ranges of per capita consumer expenditure, and (ii) the distribution of per capita personal income before tax is symptotically Paritian for high values of per capita income and has the same slope as the distribution of assesses by size of incomes before tax. The results of the study of Ahmed and Bhattacharya are as follows: For the first fit, where Pareto Curve is fitted to the size distribution of income before tax taking all income classes above Rs.20,000, the Lorenz Ratio is 0.418 for 1956-57, 0.379 for 1960-61 and 0.372 for 1963-64. Again, for the second fit, that is where Pareto Curve is fitted taking the last interval of income before tax as Rs.100,000 and above, the Lorenz ratio is 0.408 for 1956-57, 0.382 for 1960-61 and 0.361 for 196364. However, this result has been qualified by the authors with two points: First, considering the fact that price increases have been more sharp for the lower income groups than for the higher income groups, this decreases in the inequality in nominal income distribution may be more ‘illusory than real’. Secondly, this decline, the authors suspect, may be traced to the ‘inherent weaknesses’ of the two sets of data. Bardhan (1974) points out that the first assumption of Ahmed and Bhattacharya rules out dis-savings in the lower income brackets and so it leads to some understatement of inequality. Moreover, considering the fact that the number of income tax assesses is not even 1 per cent of Indian population and rural rich are mostly beyond the net of income tax authority, the technique of fitting Pareto distribution in the Indian contest may very well distort the picture. On the basis of NSS data Vaidyanathan (1974) analyses inter-State variations in the levels of inequality. Vaidyanathan shows that data from the 18th and the 22nd rounds suggest a negative association between the Lorenz Ratios of consumption and per capita consumption expenditure, though the coefficients are not statistically significant. The study further reveals that, in rural India, greater inequality in the distribution of land is associated with more uneven distribution of consumption. Moreover, the pattern of land operation has influenced the degree of consumption inequality. This result is quite consistent with a priori judgment; as land is the most important source of income in rural areas and as production structure is largely

39

A Study on Poverty and Inequality in India disorganized the holding of land gives important leverage to the owners who reap the advantages of a hierarchical society. Vaidyanathan calculates the changes in Lorenz ratios during the decade 195758 to 1967-68; for rural India the inequality index (LR) has decreased from 0.334 in 1957 to 0.203 in 1967-68. But the variations over the States are not uniform; while for Andhra Pradesh, Assam and Madhya Pradesh the decline is sharp (more than allIndia average), other States like Punjab and West Bengal do not show any significant decline.67 The regional variation of inequality in rural India has been analyzed by Bhatty (1974) also. He has divided the rural population (workers) into three categoriescultivators, agricultural labourers and non-agricultural workers. Then he presents the Gini Coefficient of inequality in income distribution for India for 1968-69. Inequality is found to be highest in Gujrat followed by Uttar Pradesh, Mysore and Tamil Nadu; and it is lowest in Orissa followed by Assam, Bihar, Kerala and Rajasthan. Income distribution is most unequal among the cultivators, as Bhatty has shown, the LR is 0.493. Again, the degree of inequality is lowest among the agricultural labourers with LR 0.27; the position of the non-agricultural workers lies in between the two with LR 0.377. But in Punjab-Haryana, the Gini coefficient for agricultural labourers is higher than for bnon-agricultural workers and in Orissa, the index for agricultural labourers is above that for the cultivators. The study further reveals that the per capita income of agricultural labourers has a strong positive association with the per capita income of the rural population, with coefficient of rank correlation +0.82, at 1 per cent level of significance; though inequality in their per capita income seems to be on the rise. Thus while the first result indicates that agricultural labourers can share in any general improvement in the health of the rural economy, this paves the way for rise in inequality in their incomes. As the study of Bhatty relates only to the year 1968-69, it fails to give any indication of the change of inequality in rural India. Again, the categorization of rural income classes as cultivators, agricultural workers and non-agricultural workers misses the point that the position of small cultivators is sharply different from that of

40

A Study on Poverty and Inequality in India the large land-owners. The high index of inequality among the cultivators may be explained by this difference.

Chapter-4 Causes of Poverty and Inequality in India

41

A Study on Poverty and Inequality in India In the Indian setting poverty has been usually discussed along with the question of inequality and it has even been contended that poverty is both the cause and the consequence of inequality in income distribution.

Again, inequality in

income distribution is the manifestation of the inequitable distribution of the means of production and the imperfections existing in the market structure. The whole issue has been complicated by the dual nature68 of the Indian economy and as such inequality should be analyzed separately in the case of rural and urban areas. Behind the income inequality in the rural structure, there is often social inequality in the form of caste hierarchy, the existence of which contributes to the persistence of inequality by providing social sanction to the hierarchical structure.69 In the following paragraphs, first the issue of poverty and inequality in rural areas is discussed; then this discussion is integrated with the discussion of the urban sector to have a total view of poverty and inequality in the economy as a whole. On the question of inequality in rural India our attempt is mainly confined to post-independence period, though for the sake of continuity we have to go back beyond 1947. During this phase of Indian history, three types of factors will be discussed and they are: market forces, governmental measures and the impact of political decisions. To illustrate the impact of market forces on rural hierarchy in Orissa Bailey found (1957) that in early fifties land has been marketed and the consequence was transfer of land from one caste to another. Similarly observation has been made by other anthropologists studying villages in other parts of the country.70 Such transfer of land from the higher castes to the middle castes has been described as a change from a system of cumulative inequalities to one of dispersed inequalities, or from a relatively closed to a relatively open system of stratification.71 But marketing of land does not necessarily indicate diminution of the skewness in the distribution of land holdings. There is reason to believe that in some areas land is passing from the hands of very small holders into those of middle and large proprietors. With the introduction of new technology, agriculture has been profitable to those who have both land and capital to invest in it. It is argued that the bias against the small peasants is built into the new technology by the very costly

42

A Study on Poverty and Inequality in India nature of the inputs, the role of indivisibles like tractors and also by the selective strategy accompanying the new technology. Thus the relatively low profitability of smaller farms has induced transfer of land from the small farmers to the big ones, which increases the skewness in the distribution of land holding in the “green revolution” areas. What effect does the new agricultural strategy produce on the distribution of income? There is no positive finding on this issue. But logically one may proceed like this: Since the smaller holdings usually earn from many diverse sources, while the larger farm depends mainly on farm business income, one would expect a somewhat less skewed distribution in terms of household income, compared to the figures for land distribution. But distribution of farm assets has become more skewed over the years, which should enable the big farmers to retain their advantage over the smaller farms partly because of their greater creditworthiness and risk-bearing capacity based on the high value of their assert holding, and partly because of the higher earning capacity from the ownership of farm assets. We can study the impact of the new technology in greater detail.

The

production relations in the agrarian structure at present have a three-tier composition viz. owner-cultivator, tenant-cultivator and landless farm labourer. This composition broadly embodies a dual system of farming – peasant and capitalist with two forms of farm production, which are family labour-based and hired-labour based respectively. While the capitalist farms maximize profit-income and a part of their incomes is invested for the intensification of production, the peasant farms maximize output. The existence of a dual system of farming in Indian agriculture indicates that the magnitude of wage labour and the institutional character of land-labour relations in production belonging to the capitalist farm sector of agriculture depend primarily on the size of land holdings, social status of the farmer and the nature of the technology being applied to agriculture. Similarly, regarding the peasant farm sector, the extent of use of family labour depends o0n the size of land holdings. The use of the new technology has affected the distribution of land in our rural economy. According to Divatia (1976) the share of the lowest 30 per cent of the rural households in the total rural assets has slipped from 2.5 per cent to 2 per cent and that

43

A Study on Poverty and Inequality in India of the top 30 per cent has increased from 79 per cent to 81.9 per cent during the sixties.72 Another study by Pathak, Ganapathy and Sarma (1977) also brings cut the sharpening of inequality in rural areas. According to it, the highest decile group improved its share from 58.71 per cent to 61.79 per cent between 1961 and 1971.73 A study by C. H. Shah reveals that despite the ceiling laws, the concentration of land ownership of land has not changed much in recent years and again, despite a marginal decline in the concentration of land ownership, the concentration of assets has tended to increase.74 These all point to the insignificant effect of land reforms measures on the reduction of inequality in rural area.75 Just as the ceiling laws have failed to change the ownership pattern of land in rural areas, other Government measures since the middle of the sixties have also not been able to prevent the natural deterioration in the share of the poor in total asset holdings in the rural economy. On the contrary, measures like asset based advances, high support prices for rich farmers and provisions for highly subsidized inputs have brought about a shift in assets ownership leading to concentration of income in agriculture. The studies by Bardhan (1974), Saini (1976) and Shah (1976) have revealed this aspect of agricultural development in the country.76 Saini’s study is based on two wheat producing districts of Ferozepur in Punjab and Musaffarnagar in U.P., while Bardhan covers, apart from these two districts, some sample farms of Hooghly in West Bengal and Ahmednagar in Maharashtra. These studies reveal the following: The agricultural development since the mid-sixties has led to a widening of income disparities between regions, between small and big farms and between land owners and landless labourers. Moreover, some studies reveal that real wages of farm labourers have tended to decline even in Punjab, Haryana and Western U.P. since 1970-71.77 While the trend of development in agriculture has been going against the poor, the government has established some institutions and has taken up some programmes for the uplift of the small and marginal farmers.

These are Small Farmers’

Development Agency (SFDA), Agency for Marginal Farmers and Agricultural Labourers (MFAL), Crash Scheme for Rural Employment, Drought Prone Area Programme and Integrated Tribal Development Projects. But these solutions offered by the government suffer from the following weaknesses. First, there is a widely

44

A Study on Poverty and Inequality in India shared view that most of the benefits under the schemes have been diverted and appropriated by better-off farmers.78 Secondly, it is now recognised that even in 1975-76, after the full implementation of these programmes, their coverage has been meager.79

It has been contended that in the absence of basic changes in the

organisation of agriculture, such reformist measure will not redress rural poverty. 80 But in our opinion, such a contention does not do full justice to the role of these specialised agencies. Let us explain it in detail. The major limitation of the small farmer is the small size of his holding, which puts on him resource and system constraints. But the new technology in agriculture is resource-using, which involves larger use of current inputs as well as an expanded base of durable capital especially for irrigation. The resource position of small and marginal farmers regarding long-term investment is extremely weak. Hence the small farmer has either to be content with the meager investible resources or face the increased risks involved in using borrowed finance. The combined effect of all these is severe capital rationing and increased economic disparity between small farmers and big farmers. The NSS 26th round data81 suggest that for every100 landless families, 37 had a milk animal. In the next class, cultivating less than 0.2 hectare, the situation is better: 3 out of 4 families had an animal. But, those cultivating above 20 hectares had 14 animals per households. This positive association of the number of animals with the size of the cultivated holdings can be interpreted as a resources barrier for small and marginal farmers and landless labour. Hence agencies like SFDA have been advised to supply cattle to these families at subsidies rates. The agencies like SFDA and MFAL have viewed the problems of small farmers essentially as problem of resources – providing more credit, milk animals, improved seeds etc. They have the necessary organization – the extension agency, the Credit Co-operatives, the skilled personnel of agricultural department. But the reason why they have not succeeded fully in their tasks is that the organizational wings work with a linear authority structure which results in a lack of cohesion within the organization. However, we will discuss this issue in the last Chapter again.

45

A Study on Poverty and Inequality in India The feeling is now wide-spread that government measures to reduce inequalities in the agrarian structure have been unsuccessful.

But the measures

adopted have at least called in question the legitimacy of the existing inequalities and created new expectations about what is desirable and possible. One result of this has been organized political action to transform the agrarian hierarchy. Different political parties, peasant associations and other organizations are now involved in the attempt to change the agrarian structure. Their approach to the rural conditions is completely different from the approach adopted by the government.82 Share-croppers in West Bengal, for example, are known to be working under exploitative conditions and have received little prosecution from the law.83 The peasant associations have tried to prevent eviction of share croppers through political pressure. However, it is difficult to assess the redistributive affects of the forces thus operating. Then land is forcibly seized by a party, it is not necessarily distributed to the landless poor. This often transforms the conflict between the rich and the poor into a conflict between rival political parties. But for our present purposes we need not pursue it further. Industrial Stagnation and Urban Poverty: The growths of the industrial sector in India and the consequent urbanization have not been successful in absorbing the landless unemployed labourers in rural areas into urban employment. While the towns have helped very little in ameliorating rural poverty, poverty in urban areas has deepened since the middle of the sixties. Moreover, the pattern of industrialization in India has not been on the desired lines. The stagnation in the industrial sector in recent years has been explained in terms of perverse industrial development in a society where extreme income inequality has made for a shrinking demand base. According to Dasgupta (1975), in a capitalistic society investment and production decisions are taken by the capitalist class, who are quite distinct from the class of labourers. The result is an unduly high premium on the production of luxury goods profitable to the capitalist and relative neglect of the mass consumption goods required by the labourers. This has led to high rates of growth, but this is also associated with distortion in the pattern of production, consumption and distribution.

46

A Study on Poverty and Inequality in India Dasgupta pleads for an end to the dichotomy that exists in the Capitalist system and substitution of the present economy based on luxury by one based on austerity. Bagchi (1970) considers inequality in the distribution of income as the basic constraint on the industrial development in India. Inequality in income distribution is aggravated by the process of growth for it is the private sector which owns the means of production and thus appropriates the increments in income. The Government is unable to exercise effective control over the allocation of resources between (i) consumption and saving and (ii) ‘essential’ and ‘non-essential’ consumption. While the former is reflected in the failure to mobilize domestic resources for investment, the latter is revealed by the excessive importance of luxury goods in industrial production.

It is not possible for the government to maintain a high rate of

investment in the face of the unequal income distribution and the demand pattern generated by it. While Bagchi puts emphasis on the overall inequality in income distribution, Mitra (1977) argues that the redistribution of income in favour of agriculture and against industry is a major factor responsible for the deceleration in industrial development since 1965-66. He has suggested that the shifting terms of trade have been instrumental in reducing the real incomes of the majority of the population in both the urban areas and the countryside. An increase in food grain prices squeezed the non-food expenditure of the urban as well as the rural poor, thus reducing the demand for manufactured products. The result is the diminution of the demand for mass consumption goods.84 But a question remains. What about the demand of the rural rich who, according to Mitra, have accumulated agricultural sector. It remains a puzzle and perhaps a change in the preference pattern of the rich in rural areas can generate demand for the manufactured items. One interesting aspect of the pattern of consumer expenditure has been revealed in the study of Sau (1974), who, on the basis of NSS data, has shown that the percentage of per capita consumer expenditure spent on industrial goods declined over the period 1952-53 to 1964-65. He further finds that the decline is much more pronounced in the case of the poorer sections of the population.85

47

A Study on Poverty and Inequality in India Demand for manufactured goods may be constrained by stagnation in the agricultural sector, which has been emphasized by Raj (1976). He has found that regions characterized by moderately high and stable rates of agricultural growth have also experienced high growth rates in industrialization. Moreover, according to Raj, if “agricultural output does not grow rapidly enough, or even if it does grow a little faster but the increases in output are realized mainly in the larger farms, this is likely to take place only alongside further accentuation in the inequalities of income and wealth.”

The logical conclusion of this process is “ a pattern of industrial

development based on high rates of growth of demand for ‘luxury’ and ‘semi-luxury’ products which may well come to be regarded as the only way of maintaining a high rate of growth of output in this sector.” The perverse industrial development creates its own constraints and the opportunity of exports cannot solve the problems of inadequate demand, which has been shown by Raj (1976) and Bagchi [(1975; 1977)].86 Moreover, with the start of the seventies the growth in agricultural sector began to slow down for want of necessary institutional changes and this circumscribed industrial growth in more than one way. Food priced began to rise and necessary raw materials became scarce, which diminished the support to industry. As the inter-sectoral terms of trade shifted in favour of agriculture, and the support from the principal source of industrial growth waned in course of time, industry faced a more unfavorable situation for growth. The situation worsened with a positive deceleration in the growth of public expenditure in India helped redistribution of income against the poor.87

Even this,

coupled with a wide arrangement of subsidies, could not alleviate the ills surrounding the industrial sector of the country. The question of distribution has assumed importance in the perspective of overall stagnation in industrial sector and the slowing down of the growth of agricultural production. In this context the comment of Leontieff (1973) on the economic performance of China is worth mentioning.88 According to Leontieff, in China, in spite of very poor per capita income compared to developed countries in the west, “basic human needs absorb a fraction of the material costs needed to satisfy the demands of the high and middle-income groups in our industrialized, prosperous society, and general living conditions for the average Chinese are decidedly better

48

A Study on Poverty and Inequality in India than those of disadvantaged Americans at the bottom rung of our economic ladder.” Though Leontieff compares Chinese economy with its western counterpart, the question of fair distribution becomes important in his discussion. In contrast, the production structure in Indian industry has been oriented to elitist consumption and the percentage of income going to non-productive consumption is also high compared to even developed countries.89 This explains two things simultaneously. First, it implies lower quantum of savings to be realized for investment.

Secondly, it

perpetuates inequality in income distribution. Such a situation is hardly conducive to the eradication of poverty in a developing country.

49

A Study on Poverty and Inequality in India Chapter-5 Conclusion: The Anti-Poverty Programmes In the concluding section we make a brief survey of the programmes adopted in India to launch a direct attack on poverty in the rural areas. Here, we restrict our discussion to the programmes initiated at different levels of government, thus excluding programmes sponsored by voluntary organizations, some individuals and political parties. We feel that the present discussion will be sufficient to enable us to bring out the basic issues involved in all rural development programmes. Regarding the programmes, three types of approaches can be distinguished according to the nature of the sponsoring authorities and these will be taken up in turn. The first approach is concerned with the programmes taken up by the Central Government and these are integrated with the overall planning process in the country. The second approach covers some programmes sponsored by some state governments at the regional level. The third approach is related with such programmes as are initiated at the official level by individual officers of the government. The Fifth Five Year Plan aimed at eradication of poverty along with reduction of inequality.90 The major instrument of the programme, as delineated in the Plan document and subsequent policy announcement, was the generation of employment opportunities.

This was based on two policy approaches and these were: (i)

improvements of the value and productivity of the existing assets of the households, and (ii) transfer of assets to poorer households. Since the removal of poverty means increase in the income of the households to a certain minimum level and since the average daily wage in the rural areas is not high enough,91 policies were oriented to supplement this productivity.

wage income by income from assets through increase in

Hence the necessity for special programmes was felt to improve

productivity of the existing assets of the weaker sections and to improve the level of assets through transfer of such assets in their favour. Rural assets are of two kinds: land and non-land assets. Regarding land, it was expected that land reforms would augment the size of holding of the marginal farmers. The productivity of these holding was to be raised by increased provisions of agricultural inputs at concessional rates. 50

Regarding the formation and

A Study on Poverty and Inequality in India improvement of non-land assets some special programmes were initiated in rural areas, viz. Small Farmers’ Development Agency [SFDA], Scheme for Marginal Farmers and Agricultural Labourers [MFAL], Crash Scheme for Rural Employment [CSRE] etc. The SFDA and MFAL Schemes, which were initiated towards the end of 1969-70 started functioning effectively from 1971-72.

In both the cases, the

sanctioned amount could not be utilised fully and in 1971-72, only a very small percentage of total allocation could be utilized.92 The CSRE was announced towards the end of 1970-71 and by November, 1971 employment generation was to the extent of 87.6 lakh man-days at the cost of Rs.3.1Crores.93 Though the full impact of these programmes on the rural poor is yet to be assessed, some observations are in order regarding the potentialities of the programmes. The benefit of any asset improvement programme can accrue only to those who have the particular asset in question. Whether we consider households which operate no land or only land holdings in the size classes above zero but below 1025 acres, the number of cows and she-buffaloes per 100 households who operate either zero land or only holdings or less than 0.5 acres and between 30-40 per cent of the households who operate holdings of between 0.5 and 1.24 acres, have no cows or shebuffaloes.94 Obviously, they cannot benefit from any programme for improving the breed of milch cattle and realize the income thereof. The problem of the extreme inadequacy of the asset bas has restricted the usefulness of the poverty eradication programme. This has induced the policy makers to adopt the second issue, i.e., the programme of asset transfer to the poor households in rural India. Under the SFDA, the MFAL and such other programmes distribution of milch animals and other animals such as pigs, sheep, goat etc. has been taken up. These programmes do not actually contemplate transfer of these assets to the poor households. They only provide a subsidy and that is at the rate of 25 per cent for small farmers and 33.33 per cent for marginal farmers. This subsidy is not payable directly to the potential beneficiary to acquire the assets. Hence, the subsidy will become available only to those who have access to institutional credit. But in the rural structure institutional credit plays the minimum role. It is reported that in the case of all rural households whose assets are less than Rs.1,000, less than 3 per cent 51

A Study on Poverty and Inequality in India reported any borrowing from institutional sources.

Such households constituted

nearly 20 per cent of all rural households.95 In this perspective programmes of assets transfer can be expected to have only a limited effect on the income level of the poor in rural areas. This analysis suggests that, in the context of organized experiment to uplift the condition of the poor, programmes for actual transfer of assets are a pre-requisite for using asset improvement and fuller utilization of labour power as mechanism for creating an income earning potential. Only under these conditions can the poor be expected to raise their income and consumption level above the poverty line. The overall poverty situation in the country has led to the adoption of some other programmes at micro-levels in different regions of the country apart from the centrally planned ones as described above. This leads us to the programmes covered by the second approach. In the middle of 1960’s, some agricultural programmes were launched in some states, which were associated with the New Strategy in agriculture, viz., Rural Works Programme [RWP], Intensive Agricultural District Programme [IADP], Integrated Area Development Scheme [IAD] etc.

In July 1969, the

Maharashtra Government introduced a Pilot Employment Guarantee Scheme in some IAD blocks. The objective was to guarantee employment to agricultural labourers who needed it. Though well-conceived and meticulously formulated, these schemes suffered from a big gap between programmes planning and execution. Moreover, the organizational weakness of the programme had caused diversion of funds to the benefit of large farmers; whereas special programme for the benefit of agricultural labourers remained on paper only.96 The third approach to the problem of poverty covers those programmes which were initiated by the bureaucrats.

These were isolated micro-experiments.

An

analysis of these will reveal some important characteristics of Indian socio-economic structure. The District Collector of Warangal (Andhra Pradesh) helped the formation of a Co-operative by the toddy tappers. This was an attempt to prevent the powerful zamindar of the region who appropriated the surplus by coercively purchasing the monopoly tapping rights from the government and then by reselling this right at higher rent to the individual tappers.97

When the toddy tappers formed the Co-

operative and obtained the tapping rights with the help of the Collector, they could

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A Study on Poverty and Inequality in India increases their income considerably. Similar experiments were conducted by the District Collector of Nellore, who induced the peasants in the region to adopt joint Co-operative farming by forming Co-operative societies.98 Both Warangal and Nellore, to follow Popper,99 were experiments in ‘ piecemeal social engineering’, at least in the fact that the basic thinking was done by the basic thinking was done by the elite bureaucracy.

Once initiated, it was

imperative that the involvement of people in the region should be total. Only then would they be in a position to sustain the movement. It is high time that we make a close scrutiny of the three types of programmes described above. All these programmes are at the micro-level, as these are meant for solving the problem of poverty and these arouse the consciousness of the people regarding the surrounding economic environment.

But overall economic

development demands the linking up of all such micro-programmes, which is an essential task before the country. There are many ways in which macro changes initiated at the Centre can influence social conditions at the village level. Changes in the planning procedures, investment allocation towards the development of a new social and economic structure, generation of employment opportunities etc., influence the conditions of existence at the grassroots level. The different micro programmes which recognise absolute poverty and aim at reducing such poverty suffer from two major deficiencies. First, these programmes are based on the view that poverty can be removed by some piecemeal methods. But the roots of poverty lie in the skewed distribution of ownership of the means of production. This aspect of the problem has generally been overlooked in the micro programmes. It has to be recognized that some change in the structures of the distribution of assets is required for any success in the poverty removal programmes. Secondly, these programmes are etilist in character in the sense that these are imposed on the rural economy by the urban elite groups or the government. The participation of the poor in these programmes is minimal.

Unless the poor

themselves are mobilized for the effective implementation of these programmes, one essential requirement of the success of such programmes will be lacking.

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A Study on Poverty and Inequality in India

NOTES 1.

Fourth-Five-Year Plan – A Draft Outline, p.36. Planning Commission, Government of India. Draft Fifth-Five-Year Plan 1974-79, Vol.1, p.6. According to the Draft: “The existence of poverty is incompatible with the vision of an advanced, prosperous, democratic, egalitarian and just society implied in the concept of a socialist pattern of development.” (p.6).

2.

See Bardhan (1970), Dandekar and Rath (1971), Minhas (1970), Ojha (1970) and Vaidyanathan (1974).

3.

See Sen (1973. 1976).

4.

On the concepts of poverty in absolute and relative senses, there exists a large literature, see Townsend (1970), Rowntree (1941), Rein (1970), Smolonsky (1966) and Titmuss (1962). Fowntree defines poverty in absolute sense as follows: “My primary poverty line represented the minimum sum on whic physical efficiency could be maintained. It was a standard of bare subsistence rather than living,” (pp. 102-103). Again, Townsend defines poverty very broadly as inequalities in the distribution of five resources, including income, capital assets, occupational fringe benefits, current public services and current private services. He suggests that “needs which are unmet, can be defined satisfactorily only in terms relative to the society in which they are found.” He does not accept the distinction between ‘absolute’ and ‘relative’ poverty or between ‘basic’ and ‘cultural’ needs, because he argues that the “needs which are believed to be basic or absolute can be shown to be relative.” Here, he suggests that “Poverty must be regarded as a general form of relative deprivation which is the effect of the maldistribution of resources”, and “that section of the population whose resources are so depressed from the mean as to be deprived of enjoying the 54

A Study on Poverty and Inequality in India benefits and participating in the activities which are customary in that society can by said to be in poverty.” 5.

P.P.D., Planning Commission (1974).

6.

Sen (1973), (1976).

7.

Such normative approach to the measurement of income distribution has been developed by Atkinson (1970), Tinbergen (1970) and Bentzel (1970).

8.

For detailed analysis see Sen (1973), pp. 24-46.

9.

Pifou (1912), p. 24.

10. Sen (1973), p. 29. 11. Roy, Chakraborti and Laha (1959). 12. Atkinson (1970): Vol.2. 13. A welfare function is concave if the weighted average of social welfare levels from two income distribution x1 and x2 is less than or equal to the social welfare of the weighted average of the two distributions, when same weights are used; that is [t.f(x1) + (l-t) f (x2)]

f[tx1 + (l-t)x2]

For any t, A welfare function is quasi-concave when the minimum of the two social welfare levels from x1 and x2 respectively is less than or equal to the social welfare of the weighted average of the two distribution. When the weak inequality ( ) is replaced by strict inequality ( ), the function is strictly quasi-concave, that is Min [f(x1), f(x2)]

f[tx1 + (l-t)x2]

For any t, See Sen (1973), p. 52. 14. Dasgupta, Sen and Starrett: (1973), pp. 180-187. These authors have generalized the result of Atkinson (1970) in situations where size of population varies in two countries.

55

A Study on Poverty and Inequality in India See again, Sen (1973), pp. 48-50. 15. Sen (1976). 16. Atkinson (1970). 17. See Atkinson (1970), Newbery (1970), Dasgupta, Sen and Starret (1973). Atkinson points out certain in egalitarian features of Gini Coefficient and Newbery (1970) buttresses the criticism by demonstrating that the Gini ordering over income distribution is not implied by any additive social welfare function when the individual utility function is strictly concave. Dasgupta, Sen and Starret (1973) demonstrate that the Gini ranking cannot be reflected by any group welfare function if it is strictly quasi-concave on individual incomes. Moreover, they maintain that the problem with the Gini Co-efficient is that the marginal social rate of substitution between income accruing to individual (j-l) is simply j/(j-l), and is thus independent of the actual income differences between them. As a measure of inequality this feature may well be unpalatable to some. 18. See Sen (1973), p.34. 19. Atkinson (1970), Atkinson (1975). 20. A value of the Index I, say 0.12, means that the same level of social welfare could be reached with only 88 per cent [i.e. 1.00 – 0.12 = 0.88] of the present total income. Alternatively, the gain from redistribution to bring about equality would be equivalent to raising total income by 12 per cent. 21. Bentzel (1970). 22. Iyenger (1978), p. 297. 23. Sen (1973), (1976). 24. Sen (1976). The income gap g1 of any individual I is the difference between the poverty line z and his income yi

56

A Study on Poverty and Inequality in India gi = z – yi The poverty gap measure is normalized by Sen into a per-person percentage gap I* Where S(Z) is the set of the poor. This I* is called the “income gap ratio.” 25. Dadabhai Naoroji read a paper “Poverty in India” in 1876 before the Bombay Branch of East India Association in which he worked out the per capita output of India. Naroji, D. (1888), Rao, V.K.R.V. (1939), Ganguly (1965), Maddision (1970), Marx (1943) and Dharampal (1971). Maddison was critical about the Indian authors’ position on Poverty during the British rule. He questioned the claim of‘ some Indian nationalist historians that the Moghul period was a golden age’. He quoted Abdul Fazl to show the example of poverty in Orissa and Bengal. But the contrary view was provided by Dharampal (1971). 26. Bardhan (1974) and Dandekar and Rath (1971). Some studies [Kansal (1968), Radhakrishnan, Srinivasan and Vaidyanathan (1974)] have compared for selected items the NSS consumption estimates for individual commodities and commodity flow estimates from official output data. There are significant differences of coverage, differences in classification and differences in valuation between the two sets of figures. 27. Bardhan (1970) and Minhas (1970) described in detail the use of alternative price deflators. 28. Mahalanobis, P.C. (1962). 29. Mahalanobis, Op.cit. 30. Atkinson (1970), p. 191. 31. R.B.I. Bulletin, Supplement, October 1977. Percentage of literacy in India was 33.8 in 1971 (Census).

57

A Study on Poverty and Inequality in India

32. Sukhatme (1965). 33. F.A.O. (1973). 34. Consumption of food grains increases from the poorest to the relatively better-off expenditure brackets and this occurs much more rapidly in rural areas than in the urban areas.

Table: Per Capita Daily Consumption of Food Grains and substitutes at Consumption Levels below the average: (1960-61) Monthly per capita Per Capita Daily Consumption of Food grains and expenditure (Rs.) substitutes (grams) 0-8 8 - 11 11 - 13 13 - 15 15 - 18 18 - 21 21 - 24 24 - 28

Rural 356 480 560 616 625 675 705 690

Urban 332 377 388 412 418 445 485 506

Source: Dandekar and Rath (1971): p.6. Table abridged

The per capita daily consumption of food grains and substitutes in rural area reaches 616 grams for households with per capita monthly expenditure of Rs.13-15. If one gram of food grains and substitute gives 3.3 Calories, then 2033 Calories can be obtained from 616 grams of food grains. According to the estimate of Dandekar and Rath, this takes up nearly 60 per cent of total consumption expenditure of these households. They spend another 20 per cent on other items of food which together give another 200 calories per day. Thus the entire food at this level gives about 2250 calories per capita per day. Thus in 1960-61, a monthly expenditure of Rs.13-15 was essential to give a diet adequate at least in respect of calories. 58

A Study on Poverty and Inequality in India As the urban households spend less on food than their rural counterpart, they derive proportionately more calories from food other than food grains and substitutes.

The NSS data suggest that the urban household secure the

minimum calories requirement of 2250 at levels where their consumption of food grains and substitute reaches 490 grams per person per day. 35. Bardhan (1973) Table: Cost of Minimum diet for the month for an Individual Consuming the items as in Column (1) on Daily Basis Daily (1) Cereals Pulses Milk Gur Edible oil

15 0z. 3 0z. 4 0z 1.5 0z 1.25 0z Total: Source: Bardhan (1973)

Cost of Diet over a month 1968-69 1960-61 (Rs.) (Rs.) (2) (3) 10.80 5.20 3.35 1.51 3.16 1.58 2.06 0.72 5.06 2.86 24.43 11.87

Assuming that an average person is usually equal to 0.81 adult unit, the minimum diet for an average person in rural India costs Rs.19.79 per month in 1968-69 and Rs.9.61 per month in 1960-61. From NSS data it is seen that in 1960-61 total per capita expenditure for the expenditure group which has roughly an amount of food expenditure equal to the minimum diet above was 46 per cent above that on cereals, pulses, milk, sugar and gur and edible oil taken together; in 12968-69 the former was 42 per cent above the latter. As proper norms for non-food items are not available, these percentages are used to obtain the blown-up estimates of per capita expenditure bases on the cost of minimum diet. Thus the estimated rural minimum level of living was Rs.14.00 in 1960-61 and Rs.28.00 in 1968-69. 36. Rudra, A. in Bardhan and Srinivasan (eds) (1974). 37. Minhas, B. (1970).

59

A Study on Poverty and Inequality in India 38. Tewari, S.G. (1968). 39. The estimated of Minhas is based on data from Second and Third Agricultural Labour Enquiry conducted in the 11th, 12th and 18th rounds of NSS. The numbers of 1960-61 are based on crude guess work and rough interpolation. [Minhas (1970): Appendix] 40. Ojha, P.D. (1970). 41. NSS, 16th round, July 1960 to Aug. 1961. 42. Data from NSS, 13th round, covering the period September 1957 to May 1958 suggest that the per capita intake of calories for the lowest 20 per cent of Indian population is about 40 per cent less than the All India average.

The

corresponding percentage for protein is 38 per cent less, for fat 58 per cent less (roughly). The study of Chatterjee, Sarkar and Paul (1971) reveals that the concentration Co-efficient for calories was 0.175 for the above period, for protein it was 0.187 and for fat 0.288. 43. We find from NSS 18th round (February 1963 to January 1964) data that urban price level was, on the whole, 15 per cent above the rural price level for the general population. This differential is 11 or 12 per cent for cereals and cereals substitute, 14 per cent for other food items, 13 per cent for all food items and nearly 26 per cent for the non-food items. Chatterjee and Bhattacharya in Bardhan and Srinivasan (des) (1974). 44. Dandekar and Rath – (1971). 45. Fourth Five-Year Plan, 1969-70. 46. Bardhan, P.K. in Bardhan and Srinivasan (eds) (1974). 47. Radhakrishnan, Srinivasan and Vaidyananthan in Bardhan and Srinivasan (eds) (1974). 48. Rudra, A. in Rao, C.R. (ed): (1974), p. 138.

60

A Study on Poverty and Inequality in India The underestimation in the NSS estimate of the consumption pattern of the poorer section of the population than the average consumption pattern. This is seen in the lower in the lower figures for the estimates of the consumption items of the rich. Estimates of the purchases of gadgets and other durable consumer goods based on the NSS data are seen to be underestimates when compared with the corresponding supply figures based on production and import statistics. As the income distribution is highly skewed, the probability is extremely high that the upper tail area representing the richer sections of the population will remain unrepresented in the sample. 49. Vaidyananthan, A. (1974a) in Bardhan and Srinivasan (eds) Vaidyanathan (1974b) in Mitra, A. (ed) (1974). 50. Bardhan, P.K. (1970), (1971) and (1973). 51. Mukherjee and others (1974). 52. Bhatty, I.Z. in Bardhan and Srinivasan (eds) (1974). 53. Panikar, P.G.K. (1972). 54. Rajaraman, Indira (1975). 55. Bardhan, P.K. (1970a) Bardhan finds that the “green revolution” has brought prosperity in Punjab but that is true only for a handsome few i.e., big Punjab but that is true only for a handsome few i.e., big peasants. It is seen that technological improvement in agriculture has not been associated with diminution of rural poverty as inequality in income distribution perpetuates. See Mitra, A. (1977), p.144. 56. Hanumappa, H.G. (1978). 57. Centre of Development Studies, (1975). 58. Kuznets, S. (1966) There exists a downward bias in the estimation of National income as production for own consumption is not properly represented. 61

Kuznets makes an

A Study on Poverty and Inequality in India approximate estimate of the extent of exaggeration in the national income accounts in the developed country. Assuming that the net missing output in the developing country would be a quarter of the total product of the agricultural sector, and this, in turn, represents about 40 per cent of output in such countries, Kuznets concludes that their telative per capita income should be raised by roughly one-tenth. 59. David, P.A. (1972) and Usher, D. (1966), pp. 10-11 as cited in Thirlwall (1972), p.26. It is held that the exchange rates do not adequately represent goods and services which are not exchanged internationally, even if these reflect the relative prices of goods entering into foreign trade. In fact, real income per head in developing countries is much higher compared with America than is suggested by estimates obtained simply by converting per capital-incomes into dollars at the official exchange rate (Usher 1966). 60. Kuznets (1963). 61. Morgan (1953). Morgan shows greater inequality in Ceylon and Puerto-Rico

than in USA and

UK. He generalizes his conclusion as follows: “………that it will be found ………. that income distribution in ‘underdeveloped’ economies, by size, by occupations and by national groups, is more unequal than in developed economies. The persisting cause is immobility in the wildest sense: High incomes, and surplus in general, are less subject to erosion in a traditional than in a commercial industrial society.” 62. NCAER (1962). 63. Here the implication is that the cumulative frequency distribution of incomes, when drawn on double-logarithmic paper, follows the path of a reasonably straight line for income above the mode. 64. The index number of wholesale prices in 1959 was 128.4 for food articles (1953100), 121.0 for industrial raw materials, 118.2 for semi-manufactures, 105.3 for manufactures and 117.3 for all commodities.

62

A Study on Poverty and Inequality in India Source: Office of the Economic Adviser to the Government of India. 65. Vaidyanathan, A. in Bardhan and Srinivasan (eds) (1974). 66. This is shown in the table below (Swamy, 1967). Sources of Increase in inequality in the Size Distribution: All India 1951-52 – 1959-60

Source

Percentage Share

Intra-Sectoral Inequalilty Rural 0.00 Urban 15.40 Inter-Sectoral Inequality Sectoral Weights Total Increase

15.40 47.50 37.10 100

67. Vaidyanathan (1974), Table 13. For each year, three estimates are given; two for sub-samples and one is the combined estimates of the two. Here the combined estimates are considered. 68. In the literature dealing with the duality of the developing countries with a modern exchange sector and an indigenous subsistence sector it is assumed that supply of labour in the subsistence sector is unlimited with wage rate often below the subsistence level. Thus a decrease in the number of workers as a result of migration to modern sector would not lower the average product of labour and might even raise it. See, for example, Lewis, A (1954), Dixit, A. (1970), (1971), Fei, J.C.H. and Ranis, G. (1964) (1966) and Jorgenson (1967). 69. Betielle, A. (1969), Gough, E.K. (1955). 70. Betielle (1965). 71. Betielle (1966). 72. Divatia, V.V. (1976), p.20. 73. Pathak, Ganapathy and Sarma (1977).

63

A Study on Poverty and Inequality in India According to these authors: “The basic pattern of asset-holding ……... has not undergone any significant change as judged by the assets distribution on June 30,1971. If it all, the share of top asset-holding has registered varying increases in most of the states resulting in marginally higher magnitudes of oveall inequality” (p.517). 74. Shah, C.H. (1976), p.76. 75. A number of studies have supported this view; viz, Hanumantha Rao (1976), and Laxminarayan and Tyagi (1976). 76. Saini, G.R. (1976), pp. A.17-22 Bardhan, P.K. (1974), pp. 301-307. 77. Rao, C.H.H. (1975). 78. Dantwala, M.L. (1976), pp.49-50. 79. Economic Survey, 1975-76, p.8. 80. Shettty, S.L. (1973), p.210. 81. NSS (1976), p.53. 82. ‘Introduction’ by Almond in Almond and Coleman (eds) (1960). 83. Bau, S.K. and Bhattacharyya, S.K. (1963). 84. Mitra, A. (1977), p. 144. 85. Sau, R. (1974), pp. 144. 86. Bagchi, A.K. (1975), pp. 157-164. Bagchi (1977), pp. 219-224. 87. Gupta, A.P. (1977). 88. Leontief, W. (1973), p. 78.

64

A Study on Poverty and Inequality in India 89. Mukherjee (1969). This study reveals that, in India, the share of wages and salaries were lower than poorest countries covered by Kuznets (1959), while the share of the unincorporated business enterprises is considerably higher. The share of income from asset is higher than the average for poorer countries, (pp.266-67). 90. Draft Fifth Five Year Plan: Part I, p.32. 91. NSS 25th Round Survey of the weaker section of rural population (1970-71) give the daily wage at Rs.2.03 per person at 1970-71 prices. 92. Economic Survey, 1971-72, pp. 19-22. Margin, July 1975. 93. Ibid, pp.23-24. 94. NSS, No. 215, 26th Round, July 1971 – September 1972: Table on land-holding, All India, February, 1976. 95. R.B.I. – All India Debt and Investment Survey 1971-72: Statistical Tables Relating to Cash Dues outstanding against rural households as on 30th June, 1971 (1976). 96. Page, V.S. (1970), pp. 160-166. Jakhade and Joshi (1970). Gaikward (1971) quoted in Dantwala: p.53. 97. V. Rajan: 1978. 98. Maharaj and Iyer (1977) as quoted in Sethi (1978), pp. 13071316. 99. Popper, Karl: Open Society and its Enemies, Vol.II (Routledge and Kegan Paul, London, 1952).

65

A Study on Poverty and Inequality in India

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