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Though the middle class has gained from recent positive economic developments, India suffers from substantial poverty. The Planning Commission has estimated that 27.5% of the population was living below the poverty line in 2004–2005, down from 51.3% in 1977–1978, and 36% in 1993-1994. The source for this was the 61st round of the National Sample Survey (NSS) and the criterion used was monthly per capita consumption expenditure below Rs. 356.35 for rural areas and Rs. 538.60 for urban areas. 75% of the poor are in rural areas, most of them are daily wagers, self-employed householders and landless labourers. Although Indian economy has grown steadily over the last two decades, its growth has been uneven when comparing different social groups, economic groups, geographic regions, and rural and urban areas.

Wealth distribution in India is fairly uneven, with the top 10% of income groups earning 33% of the income. Despite significant economic progress, 1/4 of the nation's population earns less than the government-specified poverty threshold of $0.40/day. Official figures estimate that 27.5% of Indians lived below the national poverty line in 2004-2005. A 2007 report by the state-run National Commission for Enterprises in the Unorganised Sector (NCEUS) found that 77% of Indians, or 836 million people, lived on less than 20 rupees per day with most working in "informal labour sector with no job or social security, living in abject poverty."

Income inequality in India (Gini coefficient: 32.5 in year 1999- 2000) is increasing. In addition, India has a higher rate of malnutrition among children under the age of three (46% in year 2007) than any other country in the world.

Causes of poverty in India

There are at least two main schools of thought regarding the causes of poverty in India.

The Developmentalist View

Colonial Economic Restructuring

Jawaharlal Nehru noted, "A significant fact which stands out is that those parts of India which have been longest under British rule are the poorest today." The Indian economy was purposely and severely deindustrialized (especially in the areas of textiles and metal-working) through colonial privatizations, regulations, tariffs on manufactured or refined Indian goods, taxes, and direct seizures.

In 1830, India accounted for 17.6% of global industrial production against Britain's 9.5%, but by 1900 India's share was down to 1.7% against Britain's 18.5%. (The change in industrial production per capita is even more extreme due to Indian population growth).

Not only was Indian industry losing out, but consumers were forced to rely on expensive (open monopoly produced) British manufactured goods, especially as barter, local crafts and subsistence agriculture was discouraged by law. The agriculutural raw materials exported by Indians were subject to massive price swings and declining terms of trade.

Mass Hunger

British policies in India exacerbated weather conditions to lead to mass famines which, when taken together, lead to between 30 to 60 million deaths from starvation in the Indian colonies. Community grain banks were forcibly disabled, land was converted from food crops for local consumption to cotton, opium, tea, and grain for export, largely for animal feed.

In summary, deindustrialization, declining terms of trade, and the periodic mass misery of man-made famines are the major ways in which colonial government destroyed development in India and held it back for centuries.

The Neoliberal View

• Unemployment and underemployment, arrising in part from protectionist policies pursued till 1991 that prevented high foreign investment. Poverty also decreased from the early 80s to 1990 significantly however
• Lack of property rights. The right to property is not a fundamental right in India.
• Over-reliance on agriculture. There is a surplus of labour in agriculture. Farmers are a large vote bank and use their votes to resist reallocation of land for higher-income industrial projects. While services and industry have grown at double digit figures, agriculture growth rate has dropped from 4.8% to 2%. Neoliberals tend to view food security as an unnecessary goal compared to purely financial economic growth.

There are also a variety of more direct technical factors:

• About 60% of the population depends on agriculture whereas the contribution of agriculture to the GDP is about 28%.
• High population growth rate, although demographers generally agree that this is a symptom rather than cause of poverty.

And a few cultural ones have been proposed:

• The caste system, under which hundreds of millions of Indians were kept away from educational, ownership, and employment opportunities, and subjected to violence for "getting out of line." . British rulers encouraged caste privileges and customs were encouraged, at least before the 20th century.

Despite this, India currently adds 40 million people to its middle class every year. Analysts such as the founder of "Forecasting International", Marvin J. Cetron writes that an estimated 300 million Indians now belong to the middle class; one-third of them have emerged from poverty in the last ten years. At the current rate of growth, a majority of Indians will be middle-class by 2025. Literacy rates have risen from 52 percent to 65 percent in the same period.

Historical trends in poverty statistics

The proportion of India's population below the poverty line has fluctuated widely in the past, but the overall trend has been downward. However, there have been roughly three periods of trends in income poverty.

1950 to mid-1970s: Income poverty reduction shows no discernible trend. In 1951, 47% of India's rural population was below the poverty line. The proportion went up to 64% in 1954-55; it came down to 45% in 1960-61 but in 1977-78, it went up again to 51%.

Mid-1970s to 1990: Income poverty declined significantly between the mid-1970s and the end of the 1980s. The decline was more pronounced between 1977-78 and 1986-87, with rural income poverty declining from 51% to 39%. It went down further to 34% by 1989-90. Urban income poverty went down from 41% in 1977-78 to 34% in 1986-87, and further to 33% in 1989-90.

After 1991: This post-economic reform period evidenced both setbacks and progress. Rural income poverty increased from 34% in 1989-90 to 43% in 1992 and then fell to 37% in 1993-94. Urban income poverty went up from 33.4% in 1989-90 to 33.7% in 1992 and declined to 32% in 1993-94 Also, NSS data for 1994-95 to 1998 show little or no poverty reduction, so that the evidence till 1999-2000 was that poverty, particularly rural poverty, had increased post-reform. However, the official estimate of poverty for 1999-2000 was 26.1%, a dramatic decline that led to much debate and analysis. This was because for this year the NSS had adopted a new survey methodology that led to both higher estimated mean consumption and also an estimated distribution that was more equal than in past NSS surveys. The latest NSS survey for 2004-05 is fully comparable to the surveys before 1999-2000 and shows poverty at 28.3% in rural areas, 25.7% in urban areas and 27.5% for the country as a whole, using Uniform Recall Period Consumption. The corresponding figures using the Mixed Recall Period Consumption method was 21.8%, 21.7% and 21.8% respectively. Thus, poverty has declined after 1998, although it is still being debated whether there was any significant poverty reduction between 1989-90 and 1999-00. The latest NSS survey was so designed as to also give estimates roughly, but not fully, comparable to the 1999-2000 survey. These suggest that most of the decline in rural poverty over the period during 1993-94 to 2004-05 actually occurred after 1999-2000.

In summary, the official poverty rates recorded by NSS are:

History of attempts to alleviate poverty

Since the early 1950s, government has initiated, sustained, and refined various planning schemes to help the poor attain self sufficiency in food production. Probably the most important initiative has been the supply of basic commodities, particularly food at controlled prices, available throughout the country as poor spend about 80 percent of their income on food.

Programs like Food for work and National Rural Employment Program have attempted to use the unemployed to generate productive assets and build rural infrastructure. Other anti poverty programs include Rural Landless Employment Guarantee Program.

Outlook for poverty alleviation

Eradication of poverty in India can only be a long-term goal. Poverty alleviation is expected to make better progress in the next 50 years than in the past, as a trickle-down effect of the growing middle class. Increasing stress on education, reservation of seats in government jobs and the increasing empowerment of women and the economically weaker sections of society, are also expected to contribute to the alleviation of poverty. It is incorrect to say that all poverty reduction programmes have failed. The growth of the middle class (which was virtually non-existent when India became a free nation in August 1947) indicates that economic prosperity has indeed been very impressive in India, but the distribution of wealth is not at all even.

After the liberalization process and moving away from the socialist model, India is adding 40 million people to its middle class every year. Analysts such as the founder of "Forecasting International", Marvin J. Cetron writes that an estimated 300 million Indians now belong to the middle class; one-third of them have emerged from poverty in the last ten years. At the current rate of growth, a majority of Indians will be middle-class by 2025. Literacy rates have risen from 52 percent to 65 percent during the initial decade of liberalization (1991-2001).

Controversy over extent of poverty reduction

While total overall poverty in India has declined, the extent of poverty reduction is often debated. While there is a consensus that there has not been increase in poverty between 1993-94 and 2004-05, the picture is not so clear if one considers other non-pecuniary dimensions (such as health, education, crime and access to infrastructure). With the rapid economic growth that India is experiencing, it is likely that a significant fraction of the rural population will continue to migrate toward cities, making the issue of urban poverty more significant in the long run .

Economist Pravin Visaria has defended the validity of many of the statistics that demonstrated the reduction in overall poverty in India, as well as the declaration made by India's Finance Minister Yashwant Sinha that poverty in India has reduced significantly. He insisted that the 1999-2000 survey was well designed and supervised and felt that just because they did not appear to fit preconceived notions about poverty in India, they should not be dismissed outright. Nicholas Stern, vice president of the World Bank, has published defenses of the poverty reduction statistics. He argues that increasing globalization and investment opportunities have contributed significantly to the reduction of poverty in the country. India, together with China, have shown the clearest trends of globalization with the accelerated rise in per-capita income..

A 2007 report by the state-run National Commission for Enterprises in the Unorganised Sector (NCEUS) found that 77% of Indians, or 836 million people, lived on less than 20 rupees per day (USD 0.50 nominal, USD 2.0 in PPP), with most working in "informal labour sector with no job or social security, living in abject poverty."

A study by the McKinsey Global Institute found that in 1985, 93% of the Indian population lived on a household income of less than 90,000 rupees a year, or about a dollar per person per day; by 2005 that proportion had been cut nearly in half, to 54%. More than 103 million people have moved out of desperate poverty in the course of one generation in urban and rural areas as well. They project that if India can achieve 7.3% annual growth over the next 20 years, 465 million more people will be spared a life of extreme deprivation. Contrary to popular perceptions, rural India has benefited from this growth: extreme rural poverty has declined from 94% in 1985 to 61% in 2005, and they project that it will drop to 26% by 2025. Report concludes that India's economic reforms and the increased growth that has resulted have been the most successful anti-poverty programmes in the country.

References

1. Poverty estimates for 2004-05, Planning commission, Government of India, March 2007. Accessed: August 25, 2007
2. ^ ""Inclusive Growth and Service delivery: Building on India's Success"" (PDF). World Bank. 2006. Retrieved 2007-04-28.
3. "In Pictures – Middle Class, or Upper Class? ". India Together. Civil Society Information Exchange. August 2003
4. This figure is extremely sensitive to the surveying methodology used. The Uniform Recall Period (URP) gives 27.5%. The Mixed Recall Period (MRP) gives a figure of 21.8%
5. Planning commission of India. Poverty estimates for 2004-2005
6. This figure has been variously reported as either "2 dollars per day" or "0.5 dollars per day". The former figure comes from the the PPP conversion rate, while the latter comes from the official exchange rate. Also note that this figure does not contradict the NSS derived figure, which uses calorie consumption as the basis for its poverty line. It just uses a more inclusive poverty line
7. "Nearly 80 Percent of India Lives On Half Dollar A Day". Reuters. August 10 2007. {{cite news}}: Check date values in: |date= (help); Unknown parameter |accessed= ignored (help)
8. "Fact Sheet: Gini Coefficient" (PDF). Source: The World Bank (2004) and Census and Statistics Department (2002). Legislative Council Secretariat Hong Kong. Retrieved 2007-08-01. Note: The Gini coeffecient in this datasheet is calculated on a scale of 0 to 1 and not 0 to 100. Hence, on a scale of 100 India's Gini coeffecient (1999-2000) is 32.5 rather than 3.25
9. Page, Jeremy (February 22, 2007). ""Indian children suffer more malnutrition than in Ethiopia"". The Times. Retrieved 2007-04-28. {{cite web}}: Check date values in: |date= (help)
10. Datt, Ruddar & Sundharam, K.P.M. "22". Indian Economy. pp. 367, 369, 370.{{cite book}}: CS1 maint: multiple names: authors list (link)
11. ^ http://www.sarkaritel.com/news_and_features/feb2005/25ecosurvey0405.htm
12. Dr. Marvin J, Cetron
13. The Multidimensions of Urban Poverty in India,Centre de Sciences Humaines - New Delhi
14. Lifting The Poverty Veil J. Ramesh, India Today
15. World BankICRIER
16. Nearly 80 pct of India lives on half dollar a day, Reuters, August 10 2007. Accessed: August 15, 2007
17. "Report on Conditions of Work and Promotion of Livelihoods in the Unorganised Sector" ], National Commission for Enterprises in the Unorganised Sector, Government of India, August, 2007. Accessed: August 25, 2007.
20. http://www.tribuneindia.com/2007/20070508/biz.htm#8

Further Reading

• Poverty in India, World Bank
• "Can India eradicate poverty? Will India's economic boom help the poor?" http://newsforums.bbc.co.uk/nol/thread.jspa?messageID=2279464&start=1605&tstart=0&&edition=2&ttl=20070217165339
• "World Hunger - India" http://www.wfp.org/country_brief/indexcountry.asp?country=356
• George, Abraham, Wharton Business School Publications - Why the Fight Against Poverty is Failing: A Contrarian View
• Poverty and riches in booming India

External links

• Rural poverty in India (IFAD)
• The George Foundation
• Poverty in India
• Poverty in India 2
• Naioth Children's Home

• Economy of India
• Indian society
• Poverty by country