Poverty Reduction Issues And Strategies By Tarun Das

Poverty Reduction, Issues, Modalities and StrategiesA Case Study on India Tarun Das Economic Adviser, Ministry of Finance, India And Consultant, UN-ESCAP, Bangkok, Thailand (a) Current Poverty Level and Situation Poverty ratios are estimated by the Planning Commission on the basis of the consumer expenditure surveys conducted by the National Sample Survey Organisation (NSSO). The latest survey data are available for the 55th round covering the period July 1999 to June 2000. Despite high population growth, the headcount ratio declined from 55 percent in 1973 to 26 percent in 1999 for all India i.e. at a rate of 1.1 percentage point per annum. The decline was fairly uniform across rural and urban areas. Rural poverty, which accounts for 75 percent of the overall poor, declined from 56 to 27 percent in 1973-1999, while urban poverty dropped from 49 to 24 percent during the same period. Interstate differentials of poverty also narrowed, although these still remain high. While only 6 percent of population in Punjab lives below the poverty line, the incidence of poverty is as high as 43 percent in Bihar. The absolute number of the poor declined by only 61 million from 321 million in 1973 to 260 million in 1999 due to population growth from 600 million in the early 1970s to 991 million in 1999. In fact, the number of poor remained stable around 320 million in 1973-1994 and declined to 260 million in 1999 due to reduction of poverty ratio by 10 percent in 1993-1999. This shows favourable impact of economic reforms and high economic growth on the incidence of poverty and employment in 1990s. Table-B.1 Estimates of Incidence of Poverty in India 1973-1999 ___________________________________________________________ Year Poverty Ratios (%) Number of Poor (Million) ______________________ _________________________ Rural Urban Combined Rural Urban Combined __________________________________________________________ 1973-74 56.4 49.0 54.9 261 60 321 1977-78 53.1 45.2 51.3 264 65 329 1983-84 45.7 40.8 44.5 252 71 323 1987-88 39.1 38.2 38.9 232 75 307 1993-94 37.3 32.4 36.0 244 76 320 1999 27.1 23.6 26.1 193 67 260 __________________________________________________________ It may be noted that the official poverty ratios are basically “deprivation indices” as the poverty line takes into account mainly “bare biological needs” (calorie intake of 2400 per capita per day for rural areas and 2100 per capita per day for urban areas). It does not 1

consider adequately needs on health, education, housing, transport, water, power, sanitation etc. not to talk of minimum entertainment and social, cultural and religious needs. Poverty line assumes fixed consumption basket over time and regions, although it takes into account price differentials among the states. The determination of poverty line also assumes continuous relationship between calorie intake and money income levels, which is not supported by facts. Since there are differences in consumption habits among the states and there does not exist an optimal consumption basket, neither the uniform calorie norm nor the substitution of calorie norms by monetary norms is justified.

Country

Table-B.2: Poverty incidence and growth rates in India and selected Asian countries (in percent) Poverty Poverty Annual Average ratios Ratios Reduction GDP growth 1975 1995 In 1975-95 1970-1980 % Point

Average GDP growth 1980-1995

India 54.9 26.1 1.1 3.2 5.6 China 59.5 22.2 1.9 5.0 11.1 Indonesia 64.3 11.4 2.6 7.8 6.6 Korea 23.0 5.0 0.9 9.0 8.7 Malaysia 17.4 4.3 0.7 7.8 6.4 Philippines 35.7 25.5 0.5 6.2 1.4 Thailand 8.1 0.9 0.4 7.2 7.9 Source of data: For India, Planning Commission; for others World Bank Report on Social Consequences of the East Asian Financial Crisis, September 1998. Note: For India, poverty ratios refer to the years 1973 and 1999 respectively. India’s progress in fighting poverty is modest when compared with some of Asian countries (like China and Indonesia), which experienced faster economic growth (TableB.2). It is, therefore, often argued that a sustained and long lasting solution to the problem of poverty depends on creation of opportunities for broad based economic development. More than three-fourths of the poor live in rural areas. Economic groups most prone to poverty are rural households (mainly landless agriculture labour and marginal farmers), urban casual labour and the self-employed engaged in petty services. Poverty is generated by many factors such as unemployment, ill health, and lack of access to productive assets. Demographic factors also interact with socio-economic and environmental factors. Gender, literacy, land-ownership, employment status, religion and caste are closely related to poverty. Some social and religious groups do not believe in family planning and have large family size.

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The spatial distribution of poverty in India is highly uneven; linkages between urbanisation, state domestic product and poverty ratios are weak testifying the complexity of the phenomenon of poverty; and urban poverty is both an outflow of poverty from the rural areas as also an autonomous phenomenon. The poor are caught by unfavourable forces at the local, national, and global levels that combine to form a three-tiered poverty trap. At the local level, factors include skewed distribution of land and other assets, physical weakness, higher fertility rate, and relatively lower power to fight against corrupt institutions. These are reinforced at the national level by various policies ranging from tax laws to interest policies that are generally pro-rich. At the global level, the poor are held down by a mix of oppressive factors such as tied grants, falling export prices and rising capital flight. The culture of poverty theorists argue that poverty breeds poverty and a poor family has a high probability of staying poor as these families are associated with high risks of ill health, high fertility rates, inadequate education, low skill, irregular sources of livelihood, low productive jobs, insecure shelter, limited accessibility to basic services and lack of dynamism. With the progress of urbanisation, traditional joint families progressively broke down into micro families, which are economically less viable. A general improvement in health services led to an increase in the expectation of life and a larger proportion of aged persons. A decline in the infant mortality and maternal mortality rates increased the proportion of labour force in total population and that of females in the reproductive age group. But the growth of employment generally lagged behind the growth of labour force. Various studies by the World Bank (1997, 2000, 2003) made the following observations: (a) There are sharp disparities in poverty ratios between states, between men and women, and between city and countryside. (b) Although the Central government adopted a policy of growth with social justice, no state government effectively combined both policies to encourage growth and develop human resources and physical infrastructure. (c) Agricultural investment, not agricultural subsidy, reduces poverty. Differentials in agricultural growth and rural wages were major factors, which led to different levels of poverty across Indian states (Ravallion and Dutt). Green revolution, better irrigation and infrastructure were associated with rising rural wages and increased rural non-farm employment, such as in Punjab and Haryana, which had the highest per capita GDP and lower poverty. (d) Investment on human capital reduces the extent of poverty. The human resource approach to poverty reduction across Indian states is exemplified by Kerala, which exported relatively skilled labour internationally and benefited from remittances, even though its GDP growth was not rapid. (e) Degree of urbanisation was found to be less significant to affect poverty across states, reflecting the capital-intensive, import-substituting nature of India's industrial development, its requirements for skilled rather than unskilled labour, and labour market regulations that limited the growth of organised employment.

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(f)

Inflation is a "harsh tax" on the poor because their incomes are not generally indexed to prices.

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(b) Improvement in human development indicators Increased availability of health care services resulted in continuous reduction of death rate, birth rate and infant mortality rate over the years (Table-B.3). The trends are consistent with the view that rapid economic growth brought about an improvement in living standards of people in general. Despite significant progress, indicators of human development such as life expectancy, literacy and medical care in India lag far behind those in East Asian countries. There are wide inter-State variations in indicators of human development. For instance, in Kerala the life expectancy at birth at 72 years and overall literacy at 90 are significantly higher than those in the States like Bihar, Madhya Pradesh, Orissa, Rajasthan and Uttar Pradesh (Table-B.4), but comparable with those in China, Malaysia, Indonesia, Thailand and Sri Lanka which made significant progress in human development (Table-B.5). Table-B.3: Basic Indicators of Human Development Year

Life expectancy at birth (years)

Literacy rate (Per cent)

Birth rate Per 1000

1951 32.1 18.3 39.9 1961 41.3 28.3 41.7 1971 45.6 34.5 41.2 1981 50.4 43.6 33.9 1991 59.4 52.2 29.5 2001 63.5 65.4 25.8 Source: Economic Survey 2002-03, Ministry of Finance.

Death rate Per 1000

Infant mortality rate Per 1000

27.4 22.8 19.0 12.5 9.8 8.5

146 146 129 110 80 68

Table-B.4: Selected Indicators of Human Development for Major States State Andhra Pradesh Assam Bihar Gujarat Haryana Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu Uttar Pradesh West Bengal All India

Life expectancy at birth (years)

Literacy rate (Percent)

Infant mortality rate per 1000

60.6 54.9 58.5 60.1 62.9 61.9 72.0 54.0 64.2 55.5 66.4 58.0 62.4 55.9 61.5 59.4

44.1 52.9 38.5 61.3 55.9 56.0 89.8 44.2 64.9 49.1 58.5 38.5 62.7 41.6 57.7 52.2

66 75 72 62 68 53 13 97 48 95 52 86 54 85 55 72

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Table-B.5: Indicators of Human Development in Selected Asian Countries Country China Indonesia India Kerala state (India) Malaysia Philippines Pakistan Korea, Republic Singapore Sri Lanka Thailand

Life expectancy at birth (years)

Infant mortality rate per 1000

Adult literacy rate (Per cent)

69.2 64.0 61.6 72.0 71.4 67.4 62.8 71.7 77.1 72.5 69.5

38 47 73 13 11 32 95 6 4 17 31

82 84 52 90 84 95 38 98 91 90 94

(c) Gender related issues Despite significant progress, indicators of human development, such as life expectancy, literacy, school enrollment and medical care, in India lag far behind those of most East Asian countries. Still more than 35 of the adult population are illiterate. Wide gender disparities also exist in India with regard to economic, health and educational attainment. More than 40 per cent of India’s illiterates are girls or women. The incidence of infant mortality and child malnutrition is more pervasive for females; however, female life expectancy at birth has improved during the last decade and now exceeds male life expectancy. The generally poorer health of women is caused by dual work burdens in production and reproduction tasks and skewed pattern of intra-household food allocation in favour of male members. Regional variations are also observed in gender disparities correlated to poverty incidence. Female unemployment rates are generally higher than male unemployment rates though differences narrowed down over time and were nearly eliminated in rural areas in 1999-2000. Female unemployment rate in urban areas at 9.8 percent was more than the male unemployment rate at 7.2 percent underlying the need to create employment opportunities for females in urban areas. (d) Increase in Real Wages for agricultural labour. Average real wages for unskilled agricultural labour, which reflect economic conditions of agricultural labourers, declined by 6.2 percent in the crisis year 1991-92, but increased in subsequent years except in 1994-95 (Table-B.6). Increase in real wages along with agricultural growth contributed to a reduction of poverty and income inequality. However, there were no uniform trends across the States implying that local conditions exert significant influence on agriculture wages.

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Table-B.6 Change in real wages for unskilled agricultural labour Year

Percentage change 1991-92

-6.19

1992-93

+5.21

1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000

+5.61 -0.39 +0.72 +1.64 +2.50 +3.45 +3.50

(e) Inequality in India In the absence of comprehensive income surveys in India, household expenditure surveys conducted by the National Sample Survey Organisation since 1950 are used to have some idea of income distribution depending on the assumptions regarding savings in different expenditure brackets. There is some bias with regard to rich households, which are under represented in both rural and urban areas. The concept of consumption expenditure used in the surveys has undergone significant changes over time and there is substantial discrepancy between total consumption expenditure estimated from the surveys and that obtained from the national accounts of the Central Statistical Organisation. There are various studies on the extent of income inequality in India, but these studies vary widely regarding the concept of income receiving unit, time period, assumption regarding savings profiles, and estimation procedures for various inequality measures. So it is very difficult to draw any meaningful conclusion regarding the extent and trend of income inequality over time in India. However, it can be observed that the degree of inequality in India is almost the same as in the case of developed countries and there is some evidence that the degree of income inequalities had a declining trend during 19771989 followed by an increasing trend since then (Das 1997). It is observed that distribution of consumption expenditure in the urban sector is more uneven than that in the rural sector, and the Gini coefficient for all India lies in between the Gini coefficients for the rural and urban sectors. Inequalities of income and consumer expenditure are mainly due to the inequalities in assets or wealth distribution among the individuals. There are very few studies on the distribution of wealth and assets in different states of India, and the studies are outdated. A study by Basu (1976) indicated that the degree of inequality in asset distribution remained almost stable during the years 1961-1971 although there were variations in different states. For the wealth distribution, a study by Jakhade and Shetty indicted a decline in the Gini index from 0.72 in 1960-61 to 0.68 in 1966-67. Another study by Bagchi and Das (1977) indicated a decline in wealth inequality from 0.73 in 1960-61 to 0.64 in 1972-73 in the rural sector, and from 0.59 to 0.58 in the urban sector.

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The extent of business concentration (i.e. the concentration in the size distribution of firms) is another source of inequalities in income and wealth. An extensive study on the size and concentration of the factory sector in India done by Sandesara (1979) indicated that the average size of the factory and concentration in all the industries declined in 1951-1970 and concentration in industry varied inversely with employment and directly with the average size of the factory. Although recent trends of wealth and asset inequalities and the degree of business concentration are not available, the fiscal and development policies of the government had always attempted to reduce such inequalities. The ongoing economic reforms and structural changes in industry, trade, financial and public sectors must have also reduced economic concentration through abolition of regulation, licensing and undue protection and enhancing competition among firms. As regards regional disparities, there is some evidence that rural incomes are generally less unequal than the urban incomes and the disparities between rural and urban incomes have widened over time. Although the rural sector has lower inequality, it has higher poverty ratios in most of the states. Several studies on the inter-state inequalities indicate that there has been a reduction of inter-state inequality during 1950-51 to 1960-61 followed by a gradual increase in inter-state disparities during 1960-61 to 1980-81. However, since 1981 there had been some reduction of inter-state inequalities due to larger central transfers of both plan and non-plan resources to the poorer states recommended by the successive Finance Commissions due to their special weightage to poverty reduction and backward states. (f) Redistribution Policies Removal of wealth and income inequalities, socio-economic injustices and assurance of minimum levels of living have been among the most important Directive Principles laid down in the Indian Constitution. Right from the inception of planning in 1951, Indian planners had attached great importance to issues relating to equity and redistribution. The income of a household is the sum of what it earns from the various income-earning assets, which it commands, e.g., land, capital and labour. Therefore, the distribution of income across households is the resultant of two factors: (i) the distribution of incomeearning assets across households; and (ii) the rate of return of these assets. Government adopted progressive tax systems for redistribution of income, wealth and property, and various employment generation and anti-poverty programs. Before reforms in 1991, government introduced strict licensing, controls, regulations and anti-trust laws restricting size and growth of firms to reduce business concentration. Wage-income policies were formulated for the organised labour to ensure equity. However, government had to operate under several social and political constraints.

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All direct taxes are progressive, and the maximum tax rates have been reduced significantly in 1990s. Indirect taxes like excise and customs duties are determined in such a way that the mass consumption goods are generally exempted from the payment of indirect taxes, and the luxury products are taxed at higher rates. Commercial banks are directed to lend at least 40 percent of their lending to the priority sectors, which include agriculture, small-scale industries, small transport operators. There is also a reservation policy for the small-scale sector, although many items having export potentials had been dereserved in post reforms period. The agricultural development and policies led to some undesirable consequences. First, it has created interregional disparities in agricultural production, especially food grains production. Second, it has led to interregional disparities among different social groups such as landowners, tenants and landless laborers. It is generally observed that some states such as Punjab and Haryana, which enjoyed assured and better irrigation facilities, recorded higher growth rates of food grains production, compared with other states. In agricultural prices, government policy is to provide relatively high support prices for food grains and to distribute the procured grains with large subsidy. Since the major part of marketable surplus of grains is controlled by big farmers, the high support prices mostly help them rather than small farmers. The statutory stipulation of minimum wages in industry or agriculture is virtually inoperative in the vast unorganized nonunionized sectors where the overwhelming majority of the poor work. Similarly inoperative is the rent control legislation in protective tenancy reforms in agriculture. As regards direct provision of basic services for the poor, there was some progress in the last two decades, but facilities in proportion to minimum needs remain meager. Apart from the problem of inadequate delivery system, finance was a major constraint. Whenever financial situation got worse, social welfare programs were the first casualties to be shelved. There is some evidence that the upper-income groups were able to appropriate a disproportionate share in social services (particularly education, health, transport, communication, and low-cost housing). In sum, problems of poverty and inequality in India remain intractable, not because redistributive policies were inadequately considered in the planning models. At the micro level, specific programs were ill conceived and uncoordinated and there were administrative inefficiencies. The major constraint was rooted in the socio-political system dominated by a complex constellation of forces representing the rich farmers, big business, elite, bureaucrats and unionized workers of the organized sector, who wanted to protect their vested interests.

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(g) Factors Affecting Poverty at the Macro Level An econometric exercise is carried out at the macro level for India on the basis of time series data on poverty ratios and related variables for the period from 1977-2000. While data on all other variables were available for all the years, poverty ratios were available only for the years 1977-78, 1983, 1987-88, 1993-94 and 1999-2000 during which NSSO conducted large sample surveys on household consumption expenditure. For the purpose of fitting multiple regression lines, poverty ratios for the intervening years, for which no surveys were conducted, were estimated on the basis of linear interpolation. The following potential variables were considered to influence the poverty ratio: • Per capita income; • Growth rates of overall GDP and its three main components viz. agriculture and allied sectors, industry and services • Shares of agriculture, industry and services in GDP • Growth rates of private sector GDP and its three main components viz. agriculture, industry and services GDP in the private sector • Shares of private sector in agriculture, industry and services GDP • Growth rates of overall GDI and its components in agriculture, industry and services • Growth rates of private sector GDI in agriculture, industry and services • Shares of private sector in agriculture, industry and services investment • Human capital (life expectancy, literacy rate and population growth rate); • Physical capital (private and public investment); • Macroeconomic stability (WPI and CPI inflation rates and gross fiscal deficit); • Government size (share of social sector in central government expenditure); • Inequality (Gini coefficient of expenditure). The best fitted linear and log-linear regression equations; given in Tables B.7-A, B.7-B, B.8-A and B.8-B; indicate that poverty ratios are strongly influenced by the per capita income and expenditure inequalities at the macro level. While the incidence of poverty varies inversely with the per capita income, it is positively correlated with the degree of inequality. The Per capita income and Gini ratios account for 97 per cent variations in poverty ratios over time (Tables B.7-B and B.8-B). When other socio-economic and demographic variables are included as additional determinants of poverty, there is little improvement in the R-square of the regression equations, and the coefficients of per capita income and Gini index continue to retain their signs and their significance (Tables B.7-A and B.8-A). The other variables that are significant in the multiple regression equations include the growth rate of population, inflation rate, share of social sectors in government expenditure, literacy rate, expectation of life, share of service sectors in GDP, and share of private sector in gross domestic investment. However, agricultural growth, overall GDP growth and share of private sector in GDP do not have significant influence on poverty, as these variables had mixed trends in the period.

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Poverty ratio is negatively correlated with the share of social sectors in central government expenditure, share of service sectors in overall GDP, share of private sector in gross domestic investment and human development indicators such as literacy rate and expectation of life. On the other hand, poverty ratio varies directly with the population growth rate, inflation rate and gross fiscal deficit. The results confirm the following observations made in many studies by the World Bank: (a) (b) (c)

(d)

(e) (f)

An increase in per capita income is essential for reduction of poverty, as it generates extra income that can benefit the poor. Educational achievement facilitated by public investment in health allows the poor to participate in the economic growth process through employment. Inflation had negative effect on poverty reduction. Higher inflation in India is generally associated with monsoon failures and a relatively higher rise in foodgrain prices. The poor are doubly hit, as their consumption basket is predominantly food, and their wages rise less than prices in years of poor harvests. Services sectors are the fastest growing sectors in the Indian economy and account for more than fifty per cent of GDP. These sectors have in general higher employment elasticity. Their growth, therefore, helps in poverty reduction. An increasing share of private sector in total investment leads to poverty reduction, as private investment is more productive in many sectors. A reduction of fiscal deficit also helps in poverty reduction, as it does not lead to crowing out of private investment.

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Table-B.7-A: Determinants of Poverty at the Macro Level: Linear Multiple Regression Equations Poverty ratio as the Dependent variable (All India time series data for the period 1977-78 to 1999-2000) Independent variables Constant Per capita national income Growth rate of real GDP at factor cost Growth rate of population Inflation rate based on WPI Gross fiscal deficit as percentage of GDP Share of social sectors in central govt. expend. Literacy rate Expectation of life Growth rate of agricultural GDP Share of service sectors in overall GDP Share of private sector in overall GDP Share of private sector in gross domestic invest. Gini ratio for consumer expenditure Time (1977-78=1) R squared No. of observations

Equation-1 Coefficient t-statistic 425.9 -0.002 2.58 0.027 0.84 2.740 4.49 0.008 0.38 0.123 1.60 -1.358 4.78 -1.407 6.02 -7.281 5.51 -0.018 1.28 -0.466 2.34 0.217 1.25 -0.067 3.42 43.801 4.16 -6.929 6.31 0.999 23

Equation-2 Coefficient t-statistic 456.1 -0.002 5.11 3.049

5.38

0.085 -1.39 -1.26 -7.68

1.11 5.11 7.38 5.86

-0.54

4.21

-0.07 44.06 -6.96

4.18 4.11 6.34 0.999 23

Table-B.7-B: Determinants of Poverty at the Macro Level: Linear Multiple Regression Equations Poverty ratio as the Dependent variable (All India time series data for the period 1977-78 to 1999-2000) Independent variables Constant Per capita national income Gini ratio for consumer expenditure Time (1977-78=1) R squared No. of observations

Equation-3 Coefficient t-statistic 47.861 -0.002 3.25 29.813 1.96 -0.540 4.51 0.985 23

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Equation-4 Coefficient t-statistic 41.594 -0.004 24.81 82.290 3.27 0.969 23

Table-B.8-A: Determinants of Poverty at the Macro Level: Log-Linear/ Semi-log Multiple Regression Equations (All India time series data for the period 1977-78 to 1999-2000) Independent variables (Log of)

Constant Per capita national income Growth rate of real GDP at factor cost Growth rate of population Inflation rate based on WPI Gross fiscal deficit as percentage of GDP Share of social sectors in central govt. expend. Literacy rate Expectation of life Growth rate of agricultural GDP Share of service sectors in overall GDP Share of private sector in overall GDP Share of private sector in gross domestic invest. Gini ratio for consumer expenditure Time (1977-78=1) R squared No. of observations

Equation-1 Log-Linear

Equation-2 Semi-log

Log of Poverty ratio as the Dependent variable

Poverty ratio as the Dependent variable

Coefficient t-statistic 41.43 -0.651 5.59 0.003 0.73 0.021 1.96 0.014 3.08 0.025 1.87 -0.043 1.98 -3.979 9.00 -3.622 3.17 -0.003 0.83 -1.078 5.79 0.190 0.61 -0.052 2.04 0.161 1.95 -0.139 6.50 0.999 23

Coefficient 1290 -7.07

t-statistic

1.88

1.96

1.09 -0.90 -114 -156

0.44 8.06 3.44 1.95

-31.6

5.77

-3.56 8.68 4.32

3.23 1.96 4.92

2.69

0.999 23

Table-B.8-B: Determinants of Poverty at the Macro Level: Semi-Log Multiple Regression Equations Poverty ratio as the Dependent variable (All India time series data for the period 1977-78 to 1999-2000) Independent variables (Log of) Constant Per capita national income Gini ratio for consumer expenditure Time (1977-78=1) R squared No. of observations

Equation-3 Semi-log Coefficient t-statistic 144.99 -10.82 1.98 3.386 1.95 -0.592 3.53 0.980 23

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Equation-4 Semi-log Coefficient t-statistic 317.96 -29.79 24.41 14.20 1.96 0.968 23

(h) Factors Affecting Poverty Across States A World Bank study (World Bank 2000) on India on the basis of inter-state and intertemporal data suggests that the major factors in reducing poverty are (a) faster growth, particularly agricultural growth that raises agricultural wages and tends to depress the (relative) price of food, (b) lower inflation, (c) infrastructure, and (d) human resource development, notably female literacy. In this paper an attempt is made to study the econometric relations between poverty and other variables at the state level on the basis two sets of data: (a) The first set of regressions uses panel data for 16 major States and All India for four years 1983, 1987-88, 1993-94 and 1999-2000 (having 68 observations) for each of Rural, Urban and Combined sectors. (b) The second set of regressions uses pooled panel data for all the sectors and all the years (having 204 observations). Although such a cross-state and inter temporal regression analysis (TableB.9-A to B.11B) faces some daunting challenges such as state and time-specific effects, omission of relevant variables, endogeneity of explanatory variables, and uncertainty about the effectiveness of the underlying statistical model, the results need special attention. (a) Per capita state domestic product and the Gini ratio for consumer expenditure have significant correlations with the poverty ratio for different states. As in the case of macro level relations, while poverty ratio varies inversely with per capita income, it varies directly with the consumption inequality across the states. (b) The other variables that have significant influence on the poverty ratio across the states include rate of unemployment, degree of literacy, expectation of life, old-age dependency ratio, and degree of urbanisation. (c) As expected, poverty ratio varies directly with the rate of unemployment and old age dependency ratio in all the sectors. (d) Poverty ratio is inversely related to expectation of life in all sectors implying that an improvement in health conditions and reduction of mortality rates have a positive contribution to poverty reduction. (e) However, certain results appear to be counter-intuitive. First, there is a positive correlation between poverty and literacy in all the sectors. This relationship may simply imply that an improvement in the degree of literacy is associated with greater poverty after taking into account the improvement in per capita income or reduction in the unemployment rate. In other words, literacy reduces poverty through improvement in employment and income earnings, and its major impact is captured by the income and unemployment variables. Second, rural poverty is inversely related with the degree of urbanisation. This suggests that urbanisation leads to growth of agro-based and food processing industries which provide more employment opportunities for the rural unemployed.

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Table-B.9-A: Determinants of Poverty across States Log-Linear Multiple Regression Equations Log of Poverty ratio as the Dependent variable (Panel Data for 16 major States and All India for four years 1983, 1987-88, 1992-93,and 1999-2000) Independent variables (log of) Constant Time (catch-all variable, 1983=1) Per capita consumption expenditure Rate of unemployment Literacy rate Expectation of life Old-age dependency ratio Gini ratio for consumer expenditure Degree of urbanisation R squared No. of observations

Rural sector Coeffici tent statistic 30.454 0.060 0.93 -0.019 6.82 0.247 2.57 0.612 1.96 -6.453 3.93 0.773 2.21 1.346 2.81 -0.380 2.12 0.856 68

Urban sector Coeffici tent statistic 15.164 -0.007 0.16 -0.023 9.50 0.004 1.97 0.926 1.55 -3.429 2.45 0.121 0.51 0.150 1.97 0.466 4.93 0.793 68

Combined Coeffici t-statistic ent 19.34 -0.016 0.46 -0.016 7.43 0.212 2.80 0.265 1.09 -3.037 2.74 -0.837 2.60 0.629 2.00 0.032 1.98 0.831 68

Table-B.9-B: Determinants of Poverty across States Log-Linear Multiple Regression Equations Log of Poverty ratio as the Dependent variable (Panel Data for 16 major States and All India for four years 1983, 1987-88, 1992-93,and 1999-2000) Independent variables (log of) Constant Time (catch-all variable, 1983=1) Inequality adjusted pc consum. Exp Rate of unemployment Literacy rate Expectation of life Old-age dependency ratio Degree of urbanization R squared No. of observations

Rural sector Coeffici tent statistic 25.183 0.027 0.49 -0.030 8.42 0.242 2.62 0.574 1.91 -5.674 3.59 0.901 2.26 -0.272 2.01 0.864 68

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Urban sector Coeffici tent statistic 20.233 -0.022 0.54 -0.029 9.51 0.046 1.53 0.861 1.41 -4.616 3.42 0.237 1.95 0.311 3.65 0.780 68

Combined Coeffici t-statistic ent 19.574 -0.016 0.45 -0.022 8.56 0.211 2.77 0.244 1.01 -3.334 3.06 0.775 2.47 0.043 2.17 0.820 68

Table-B.10-A: Determinants of Poverty across States Log-Linear Multiple Regression Equations Log of Poverty ratio as the Dependent variable (Panel Data for 16 major States and All India for four years 1983, 1987-88, 1992-93,and 1999-2000) Independent variables (log of) Constant Time (catch-all variable, 1983=1) Per capita Net state domestic prod. Rate of unemployment Literacy rate Expectation of life Old-age dependency ratio Gini ratio for consumer expenditure Degree of urbanisation R squared No. of observations

Rural sector Coeffici tent statistic 42.610 0.297 3.11 -0.749 4.23 0.125 2.28 1.135 2.92 -9.623 5.42 1.797 3.50 1.018 1.96 -0.351 2.01 0.803 68

Urban sector Coeffici tent statistic 34.831 0.220 2.65 -0.684 4.26 0.006 2.00 0.509 0.57 -7.117 3.89 0.839 2.71 0.701 2.00 0.296 2.32 0.760 68

Combined Coeffici t-statistic ent 33.397 0.199 3.56 -0.595 5.60 0.138 2.12 0.692 2.29 -6.217 5.83 -0.182 0.53 1.144 2.84 0.101 1.96 0.789 68

TableB.10-B: Determinants of Poverty across States Log-Linear Multiple Regression Equations Log of Poverty ratio as the Dependent variable (Panel Data for 16 major States and All India for four years 1983, 1987-88, 1992-93,and 1999-2000) Independent variables (log of) Constant Time (catch-all variable, 1983=1) Inequality adjusted pc NSDP Rate of unemployment Literacy rate Expectation of life Old-age dependency ratio Degree of urbanisation R squared No. of observations

Rural sector Coeffici tent statistic 36.207 0.128 1.83 -0.0006 6.26 0.161 1.96 0.991 2.80 -9.860 5.96 2.035 5.08 -0.226 1.96 0.820 68

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Urban sector Coeffici tent statistic 32.590 0.099 1.55 -0.0005 4.28 0.145 2.07 -0.285 0.34 -7.371 4.07 0.891 2.83 0.341 2.89 0.680 68

Combined Coeffici t-statistic ent 29.750 0.065 1.40 -0.0005 6.11 0.195 2.16 0.481 1.65 -7.101 6.34 0.472 2.01 0.072 2.00 0.754 68

Table-B.11-A: Determinants of Poverty across States Log-Linear Multiple Regression Equations Log of Poverty ratio as the Dependent variable (Panel and Pooled Data for 16 major States and All India, stratified by rural, urban and combined for four years 1983, 1987-88, 1992-93,and 1999-2000) Independent variables (log of) Constant Dummy (0 for Urban, 1 for National, 2 for Rural) Time (catch-all variable, 1983=1) Per capita consumption expenditure Inequality adjusted per capita consump. Exp. Rate of unemployment Literacy rate Expectation of life Old-age dependency ratio Gini ratio for consumer expenditure Degree of urbanisation R squared No. of observations

Equation-1 Coefficient t-statistic 26.290 -0.298 4.66 0.125 0.12 -0.017 9.91 0.241 0.295 -5.465 0.448 0.649 0.119

4.07 1.40 5.74 2.21 2.50 2.12

Equation-2 Coefficient t-statistic 24.833 -0.271 5.42 0.093 0.93 -0.025 0.227 0.328 -5.280 0.367

12.19 3.96 1.61 5.94 1.96

0.108

0.710 204

1.98 0.727 204

Table-B.11-B: Determinants of Poverty across States Log-Linear Multiple Regression Equations Log of Poverty ratio as the Dependent variable (Panel and Pooled Data for 16 major States and All India, stratified by rural, urban and combined for four years 1983, 1987-88, 1992-93,and 1999-2000) Independent variables (log of) Constant Dummy (0 for Urban, 1 for National, 2 for Rural) Time (catch-all variable, 1983=1) Per capita net state domestic product (NSDP) Inequality adjusted per capita NSDP Rate of unemployment Literacy rate Expectation of life Old-age dependency ratio Gini ratio for consumer expenditure Degree of urbanisation

Equation-1 Coefficient t-statistic 38.18 -0.241 3.50 0.226 4.37 -0.658 7.18 0.117 0.823 -8.161 1.019 0.861 0.005

R squared

2.09 3.39 8.51 4.76 3.07 2.00

0.685 204

No. of observations

17

Equation-2 Coefficient t-statistic 33.307 -0.337 6.06 0.094 2.40 -0.0006 0.160 0.575 -8.393 .243

8.76 2.46 2.47 8.92 6.53

0.076

2.01

0.690 204

(i) Protective

safety nets

In India, positive discrimination in favour of the scheduled castes (SCs). Scheduled Tribes (STs) and Other Backward Classes (OBCs), minority ethnic groups women etc. as an instrument of social justice has been heritage of the liberation struggle and a constitutional obligation endorsed by judicial sanctions. Social security has been listed in the Concurrent List of the Constitution signifying the responsibility of both the Centre and the States in this sphere. The task of providing meaningful social security continues to be challenging in view of financial and operational constraints, high incidence of poverty, unemployment, illiteracy and the large size of labour force in the unorganized and informal sectors. The permanent social security benefits provided through legislative measures like Minimum Wages Act, Industrial Disputes Act, Workmen’s Compensation Act, Employees State Insurance Act, Employees Provident Fund & Miscellaneous Provisions Act, Maternity Benefit Act, and Payment of Gratuity Act, etc. cater to mainly organised urban labour comprising only 8 per cent of the total labour force. Most of the states have pension schemes for the old and disabled, but due to eligibility criteria of income and age, only 9 percent of old-age population gets the benefit of pension. Most of the States implemented the Minimum Wages Act, but the levels of minimum wages and coverage vary from state to state. Some special employment Programmes are also being implemented by some state governments like the Employment Guarantee Scheme in Maharashtra and the selfemployment Scheme for Registered Unemployed in West Bengal. Immediately after the independence, the Government enacted the Industrial Dispute Act (IDA), 1947 for protection of workers. IDA permits lay-off, retrenchment and closure in all undertakings, which do not employ more than 100 workers. In the case of larger units, as per the Act, no retrenchment, lay-off or closure is allowed without taking prior permission from the government and the affected workers not being served at least three months’ notice in writing indicating reasons for such actions. In addition, in order to mitigate the possible adverse impact of economic reforms, a National Renewal Fund (NRF) has been established to fund schemes for compensation, retraining and redeployment of workers affected by restructuring. The NRF is being financed partly by disinvestments of government equity in public enterprises and partly by contributions made by the World Bank and individual country donors. Since its inception in 1992 the Fund has financed the voluntary retirement of 100,000 workers who have opted for voluntary retirement. Some important initiatives taken over the years to improve the well-being of the weaker sections like the scheduled castes, as well as Other Backward Classes include: (I) Reservation of jobs to the extent of 22 per cent for SCs/STs in both public and private sectors, (ii) Reservation of 27 per cent of jobs for Other Backward Classes (OBCs) in the Central Government and Public Sector Undertakings, excluding the creamy layer. (iii) Setting up a National Commission for Backward Classes, (iv) A scheme for education complexes in low literacy pockets for improving literacy among tribal women, (v) setting up of a National Backward Classes Finance and Development Corporation to promote

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economic and other development activities of the backward classes. (vi) Raising of the share capital of the National Scheduled Castes and Scheduled Tribes Finance Development Corporation. (vii) Providing rice and wheat to the tribal dominated areas at concessional prices even lower than the public distribution prices. (viii) Special Component Plan for Scheduled Castes and Integrated Tribal Development Projects in selected states, (ix) Establishment of the Tribal Cooperative Marketing Development Federation, and (x) creation of new Ministry for tribal welfare in October 1999 by the coalition government. Commercial banks are required to lend at least 40 per cent of their credits towards the priority sectors consisting of small-scale industries, agriculture, retail trade, small transport operators etc. Banks also provide loans at concessional interest rates to the weaker sections, minority communities and persons affected by natural calamities, riots, disturbances etc. All insurance companies, both life and general, are wholly nationalized, and play a major role for providing social security in the form of various schemes such as insurance for life, floods, fire, earthquakes, riots, war risks, accidents etc. In recent years, they have introduced several special schemes such as Medi-claim Policy, Comprehensive Crop Insurance Scheme (CCIS), Social Security Scheme for Poor Families in the age group of 18-60 (to provide personal accident insurance), Hut Insurance Scheme for Poor families in rural areas (to provide fire insurance cover for huts and belongings of landless labourers), Railway passengers Insurance Scheme (to cover cases of deaths and injuries to bona fide passengers on account of terrorist attacks, bomb blasts etc.), Professional Indemnity Insurance, Teak wood Insurance, Tea Plantation Insurance etc. A Social Security Fund has been set up with contributions from the Government and the Life Insurance Corporation for the purpose of providing social security through group insurance on the lives of persons forming part of weaker and vulnerable sections of the society. In the last few years, group insurance schemes for landless agricultural labourers, life insurance scheme for integrated Rural Development Program (IRDP) beneficiaries and group insurance for certain categories of workers belonging to weaker sections of a the society have been introduced. In 1999 the government launched a new Crop Insurance Scheme replacing the existing Comprehensive Crop Insurance Scheme and widened its scope to cover almost all food and non-food crops and to help farmers to stabilize their incomes particularly in disaster years. (j) Rural development and poverty alleviation programs Growth with social justice had been primary objective of Indian planning since its inception in 1951, and several anti-poverty measures are in operation for decades focusing the poor as the target groups. These include welfare programs for the weaker sections, women, children, and a number of special employment programs for self- and wage employment. Ongoing economic reforms since 1991 strengthened these programs to generate more employment, create productive assets, impart technical skills and raise the income levels of the poor.

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Government relied mainly on two approaches for poverty alleviation: the first based on the anticipation that economic growth will have a “trickle down effect” on the levels of living of all groups; and the second that direct anti-poverty programs are also required. Government shifted public expenditure away infrastructure and industry towards social sectors, and improved targeting of subsidies through changes in the public distribution system. Central government expenditure on social sectors (comprising education, health, water supply, sanitation, housing, slum development, social welfare, nutrition, rural employment and minimum basic services) as a ratio to total expenditure increased from 7.7 percent in 1990-91 to 11.3 percent in 2003-04, and as a ratio to the GDP increased from 1.3 percent to 2 percent over the same period (Table-B.12). Trends of expenditure on social services and total expenditure by the general government (Centre and States combined) in 1990-2003 given in Table-B.13 indicate that: (a) Despite fluctuations, total expenditure of the general government as a percentage of GDP increased from 27.4 per cent to 29.7 percent in 1990-2003. (b) There was significant increase in social services expenditure from 5.9 percent of GDP in 1990 to 8.2 percent in 2003, but the increase was basically for other social services except health and education which as a percentage of GDP virtually remained invariant over. (c) The share of social services in total expenditure increased from 21.5 percent in 1990 to 27.4 percent in 2003 due to substantial increase in the share of other services from 4.6 per cent to 12.9 per cent in total expenditure at the expense of shares of education and health in 1990-2003. (d) Composition of social services expenditure indicates that the share of education in it declined from 56 to 36 percent that of health from 22 to 17 percent, while share of other expenditure more than doubled from 22 to 47 percent in 1990-2003. Table-B.12 Expenditure on Social Sectors by the Central Government Year

Total Expenditure As percent of GDP

Expenditure on social sectors as percent of Total expenditure

1992-93 17.4 7.8 1998-99 16.0 10.5 1999-00 15.4 10.0 2000-01 15.5 11.1 2001-02 16.0 11.1 2002-03 16.7 11.3 2003-04 17.0 11.5 Source: Budget Documents of the Ministry of Finance.

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Expenditure on social sectors As percent of GDP 1.4 1.7 1.7 1.7 1.8 1.9 2.0

Table-B.13: Trends of expenditure on social services and total expenditure Of the general government (Centre and States combined) in 1990-2003 I T E MS Finance of Centre & States (Rs.Bln) Total expenditure Expenditure on social sector Education Health Others As percentage of GDP: Total expenditure Expenditure on social sector Education Health Others As % of total expenditure: Expenditure on social sector Education Health Others As % of expend. on social sector Education Health Others Memo item: GDP at current mp (Rupees billion)

1990 Actual

1995 Actual

1998 Actual

1999 Actual

2000 Actual

2001 Actual

2002 RE

2003 BE

1557 334 187 75 72

2931 781 346 143 292

4654 1282 588 267 427

5428 1471 623 256 593

5865 1618 657 279 681

6534 1767 687 298 782

7519 2059 748 342 970

8113 2242 816 364 1062

27.4 5.9 3.3 1.3 1.3

24.7 6.6 2.9 1.2 2.5

26.7 7.4 3.4 1.5 2.5

28.0 7.6 3.2 1.3 3.1

27.9 7.7 3.1 1.3 3.2

28.5 7.7 3.0 1.3 3.4

30.7 8.4 3.1 1.4 4.0

27.3 7.5 2.7 1.2 3.5

21.5 12.0 4.8 4.6

26.6 11.8 4.9 9.9

27.6 12.6 5.7 9.2

27.1 11.5 4.7 10.9

27.6 11.2 4.8 11.6

27.1 10.5 4.6 12.0

27.4 9.9 4.5 12.9

27.4 9.9 4.5 12.9

56 22 22

44 18 37

46 21 33

42 17 40

41 17 42

39 17 44

36 17 47

36 17 47

5687

11880

17410

19369

21043

22960

24510

27543

Source: Various Volumes on State Finances published by the Reserve Bank of India. Anti-poverty programs have been strengthened over the years to generate more employment, create productive assets, impart technical and entrepreneurial skills and raise the income level of the poor. Most of the poverty alleviation and employment generation programs are targeted towards the rural development, as majority of the poor live in rural areas. Major programs, which were operational during 2001-2003, include the following: (i)

(ii)

Jawahar Village Development Program: introduced in April 1999 as successor to Jawahar Rozgar Yojana for generation of productive employment for the rural unemployed poor that result in the creation of durable community assets. The Golden Jubilee Village Self-Employment Scheme, which was introduced in April 1999 as a result of restructuring and combining the Integrated Rural Development Program and allied programs along with Million Wells Scheme into a single self-employment program. It aims at promoting micro enterprises and helping the rural poor into self-help groups (SHG). The scheme covers all aspects of self-employment like organisation of rural poor into SHG, their capacity building, training, development of infrastructure and clusters, financial assistance through bank credit and subsidy and marketing support.

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(iii)

(iv)

(v)

(vi)

(vii)

(viii)

(ix)

(x)

(xi)

(xii) (xiii) (xiv)

(xv)

Employment Assurance Scheme (EAS) started on the 2nd October 1993 aims at creating economic infrastructure and community assets for sustained employment for at least 100 days of unskilled manual labour for poor rural households in drought prone areas, desert areas, tribal and hilly areas. The scheme was restructured in 1999-2000 to make it a single wage employment program. Integrated Village Employment Program launched in September 2001 aims at providing wage employment in rural areas and food security along with creation of durable social, economic and community assets. The National Social Assistance Programme is a centrally sponsored scheme launched on the 15th August 1995 with 100 per cent Central funding to the States and Union Territories for providing social assistance to the poor households affected by old age, maternity, and death of sole bread earner. The Prime Minister’s Village Development Scheme: introduced in 2000-01 for village level development in 5 critical areas viz. Health, primary education, drinking water, housing and rural roads. The Golden Jubilee Commemorative Employment Scheme: The Urban SelfEmployment Program and the Urban Wage Employment Program are the two special schemes under this program. It was introduced in December 1997 by consolidating various programs operated earlier for alleviation of urban poverty. Indira Awas Yojana aims at providing housing units free of cost to the members of the scheduled casts and scheduled tribes and free bonded labour below the poverty line. Samagra Awas Yojana was launched as a comprehensive housing scheme in 1999-2000 with a view to ensuring integrated provision of shelter, sanitation and drinking water. Food for Work Programme launched in February 2001 and aims at augmenting food security through wage employment in drought affected rural areas. Wages are paid partly in kind (i.e. foodgrains) and partly in cash. Annapurna launched in April 2000 provides foodgrains at highly subsidised prices (Rupees 2 per kilogram of wheat and rupees 3 per kilogram of rice) to the senior citizens who donot get pensions. Krishi Shramik Samajik Suraksha Yojana launched in July 2001 provides social security benefits to agricultural labourers on hire. Shiksha Sahayog Yojana launched in 2002 provides educational allowance for study in classes 9th to 12th to children of parents living below the poverty line. (Targeted) Public Distributed System (PDS) provides foodgrains to the poor households at subsidised prices, which are even lower than the subsidised prices of foodgrains supplied to the other households. Integrated Child Development Services provides an integrated package of services comprising supplementary nutrition, health, immunisation, health checkup and referral services, pre-school non-formal education and health to children below six years.

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(k) Progress and issues in poverty reduction efforts The relations between poverty and other variables lead to the following policy prescriptions:  Higher growth rate of national income than that of population is essential for poverty reduction as it provides extra income for distribution among the poor without affecting the well being of the relatively richer households.  While growth in per capita income is a necessary condition for poverty reduction, it is by no means sufficient. It is also important to focus on creating an enabling environment for the poor to participate in, and benefit from, the growth process. The pro-poor public policies include creation of employment opportunities and enhancing the level of health, education and skill of the poor.  A stable macroeconomic environment, characterized by low inflation and sustainable level of gross fiscal deficit makes it possible for the poor to safeguard their purchasing power.  The reduction of government deficit allows banks to provide more funds for private investment, which is more productive and more efficient. It also allows the government to devote more scarce resources to investment in social sectors. . Most evaluations of the poverty alleviation programs, done by the government or others, conclude that these programs are not very effective in reducing poverty. They suffer from ill defined and multiple objectives, limited targeting, under-funding, complex administration, high administrative costs and leakage, lack of proper accountability and adequate monitoring. A recent study of the Public Distribution System (PDS) suggested that only 25 percent of food grains actually reach the poorest 40 percent of the population, and administrative costs account for 85 percent of total expenditure and therefore far outweigh the income gains to the poor. One of the better-targeted programs is the Integrated Child Development Services. Food for works program is also more successful at targeting the poor and improved their living standards at a relatively low cost. As unemployment is the root cause of poverty and the population growth in India is very high, there should be more emphasis on family planning. For an urban family a child is born by parental planning and family size is limited to the necessary minimum. On contrary, in rural India a child is regarded as an asset and is expected simply because of normal life cycle progressions. Government is trying to change this environment by suitable public policy on education, health and family welfare, and economic incentives for micro families. But these measures have marginal impact on the net reproduction rates and the family size as sociocultural-religious environment put a constraint on the effectiveness of family planning. Female education, awareness and better standard of living would create the required consciousness among the people that smaller families are desirable. If the needs for

23

health and family welfare services are fully met, it will be possible to achieve substantial decline in the family size and enable the families to improve quality of life. Low productivity of small landholders leads to poverty, low energy in-take and under nutrition, which in turn prevents the development and creates a vicious circle. In most of the States, non-farm employment in rural areas has not grown very much and cannot absorb the growing in labour force due to high population growth. Those who are getting educated specially beyond the primary level do not wish to do manual agricultural work. They would like better opportunities and more remunerative employment in rural areas. This can be done by developing agro-based and rural resource-based enterprises. Government provides several fiscal and monetary incentives for the small-scale industries, many of which are based on agricultural goods and rural resources. But these small industries suffer from lack of modern technology, adequate bank credits, skill labour and efficient network of markets. It is imperative that a program of skill development, vocational training and technical education is adopted on a large scale in order to generate productive employment in rural areas for those living there. The entire gamut of existing poverty alleviation and employment generation programs may have to be restructured to meet the newly emerging demand for employment. It is observed that investment on rural infrastructure and agricultural extension services reduces poverty to a greater extent than agricultural subsidies, which are not properly targeted and enjoyed by the rich farmers. Roads, well-designed irrigation systems, flood control, rural electrification and telecommunications and the economic use of fertilizers can make inroads against rural poverty. While some states were able to take advantage of the stabilization and economic reforms to speed up growth and poverty reduction, others lagged behind due to poor governance, insufficient infrastructure, lack of human development and lack of fiscal adjustment. Agriculture, which may have lost its impetus in reducing poverty, remains the least reformed and most distorted sector. Lack of reforms of labour and product markets limit both the rate of growth and its labour intensity. International experience indicates that the cost recovery for basic social services does not generate much revenue and adversely affects the utilization rates, especially by the poor. Therefore, any attempt to raise the services charges to cover full cost for the provision of basic services will be counter-productive and is to be avoided to the maximum extent possible. When imposed, cost recovery should improve quality and exempt the poor. When cost recovery occurs, revenues should go a special fund to be reinvested in the social sectors. In the education sector, at the higher level, there is a case for greater cost recovery, but the political economy constraints may go against the enhancement of user charges. In countries like Malaysia and Sri Lanka, lower level services have been delivered free of

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charge for decades on the principle of universality, and even the World Bank was persuaded against the imposition of user charges. While the level, efficiency and equity of social expenditure matters, there is need to ensure effective utilization of existing resources. Expenditure levels cannot be increased without improved absorptive capacity. In this respect, the involvement of the community appears to be extremely important in order to improve absorptive capacity, transparency and the appropriate monitoring of expenditures. There is a wide scope for strengthening the public-private partnership in the delivery of health care services. There is also a wider scope for more involvement of India’s several thousand Non-Government Organisations (NGOs) for implementation of many government schemes in social sectors. In sum, India needs to reformulate an anti-poverty strategy that is fiscally sustainable and more finely targeted to those who cannot benefit from the opportunities offered by growth. Safety nets should focus on those who either cannot participate in the growth process (for reasons of extreme deprivation or vulnerability combined with poverty) or face continuing exposure to risks. Effective safety nets that insure rural poor against the income fluctuations, such as public works programs, are very effective in overcoming important market failures, and need to be strengthened and widened. (l) Future agenda on poverty reduction with special reference to the United Nations Millennium development goals The UN Millennium Development Goals (MDG) - global targets that the world’s leaders set at the Millennium Summit in September 2000 are an ambitious agenda for poverty reduction. The targets include the following: (i)

Halve, between 1990 and, 2015, the proportion of people whose income is less than one dollar a day. (ii) Halve, between 1990 and 2015, the proportion of people who suffer from hunger. (iii) Ensure that by 2015, all children will be able to complete a full course of primary schooling. (iv) Eliminate gender disparity in primary and secondary education preferably by 2005 and to all levels of education no later than by 2015. (v) Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate. (vi) Reduce by three-quarters, between 1990 and 2015, the maternal maternity ratio. (vii) Have halted by 2015, and begun to reverse the spread of HIV/ AIDS. (viii) Have halted by 2015, and begun to reverse the incidence of malaria and other major diseases. (ix) Integrate the principles of sustainable development into country policies and programmes and reverse the loss of environmental resources.

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(x)

Halve by 2015 the proportion of people without sustainable access to safe drinking water. (xi) By 2020, to have achieved a significant improvement in the lives of at least 100 million slum dwellers. (xii) Develop further an open, rule-based, predictable, non-discriminatory trading and financial system. (xiii) Address the Special Needs of the Least Developed Countries. Net ODA as percentage of DAC donors’ GNI is targeted to be raised to 0.7 percentages in total, and 0.15 per cent for LDCs. (xiv) Address the special needs of landlocked countries and small island developing states. (xv) Deal comprehensively with the debt problems of the developing countries through national and international measures to make debt sustainable in the long run. (xvi) In co-operation with developing countries, develop and implement strategies for decent and productive work for the youth. (xvii) In co-operation with pharmaceutical companies, provide access to affordable, essential drugs in developing countries. (xviii) In co-operation with the private sector, make available the benefits of new technologies, especially information and communications. India is committed to achieve the UN MDG targets by 2015. According to the Human Development Report (UNDP 2001) India is one of the 11 countries in the world that is on track to meet the UN MDG while 70 other countries are lagging or slipping. The report acknowledges the significant reduction of poverty ratio from 36 per cent in 19931994 to 26 per cent in 1999-2000, and also significant improvement in literacy rate. There has been continuous increase in the share of expenditure on social services of the Centre, States and Union Territories taken together in their total expenditure from 14.4 per cent in the Sixth Five Year Plan (1980-1985) to 21.7 per cent in the Ninth Five Year Plan (1997-2002). In this respect, it may be mentioned that since 1991 India has undertaken a number of reforms in industry, trade, financial and fiscal sectors to improve efficiency, productivity and competitiveness of Indian industries and to impart dynamism to the overall growth process. These reforms had a human face from the very beginning and had been further deepened through second-generation reforms initiated in 2000. These reforms have placed India on a higher growth profile with faster reduction of poverty and malnutrition, improvement in literacy rate, improvement in overall employment growth, moderate rate of inflation, favourable balance of payments and increase in overall levels of living of the Indian people. However, on fiscal front the progress is not adequate implying problems for sustainability of growth in future. There are serious constraints on infrastructure development. There are also problems relating to widening of inter and intra regional and sectoral disparities and inter-personal inequalities. Therefore, the objectives and scope of second-generation reforms are to remove these constraints for higher growth alongwith inter sectoral and inter regional equity and social justice.

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Under second-generation reforms government is allocating more and more resources for the development and utilisation of human resources. Suitable targets for the reduction of poverty, hunger, mortality and illiteracy rates have been incorporated in the Tenth fiveyear Plan (2002-2007). The Approach Paper to the Tenth Five-Year Plan (2002-2007), which outlines a strategy to achieve a GDP growth rate of 8 per cent, has a specific focus on human development. The Approach Paper stipulates that growth in per capita GDP should be accompanied by significant improvement in human development indicators and basic services to the people such as basic health, education, drinking water and sanitation. It also includes the expansion of economic and social opportunities for all individuals and groups, reduction in disparities and a greater participation of people in the decision making process. The Plan indicates the following monitorable targets:  Reduction of poverty ratio by 5-percentage point by 2007 and by 15 percentage points by 2012.  Providing gainful high quality employment to the addition to the labour force over the Tenth Five-Year Plan.  All children to go to schools by 2003, and all children to complete at least five years of schooling by 2007.  Reduction of gender gaps in literacy and wage rates by at least 50 per cent by 2007.  Reduction in the decadal rate of population growth between 2001 and 2011 to 16.2 per cent.  Increase in the literacy rate to 75 per cent during the Tenth Five-Year Plan.  Reduction in the infant mortality rate to 45 per 1000 births by 2007 and to 28 by 2012.  Increase in the forest and tree cover to 25 per cent by 2007 and 33 per cent by 2012.  All villages to have sustained access to potable drinking water within the plan period.  Cleaning of major polluted rivers by 2007 and other notified stretches by 2012. The attainment of these targets not only necessities a substantial allocation of resources for the social sectors but also involves an enhanced role for the government in the provision of social services and development of urban and rural infrastructure.

27