+ All Categories
Home > Documents > poverty inequality.pdf

poverty inequality.pdf

Date post: 07-Aug-2018
Author: fkkfox
View: 212 times
Download: 0 times
Share this document with a friend
Embed Size (px)

of 12

  • 8/20/2019 poverty inequality.pdf



    Poverty and Inequality in India; Recent Trends

    K.S. Hari & Neelambar Hatti 

    India is a country characterized by multilayered diversity and cultural heterogeneity where different

    types of inequalities and poverty have always been a fact of life in India. Since independence in

    1947, India followed a development policy based on interventionist central planning and import

    substitution with the objective of reducing inequality and poverty. One main reason for adopting

    such a policy was the fear that a total reliance on the market mechanism would favor an excessive

    consumption by the higher income groups, along with relative under-investment in sectors essential

    to developing Indian economy. Policymakers adopted a middle path in which income inequality was

    tolerated, provided it was not ‘excessive’ and led to a higher rate of growth.

    From the mid-1980s, the Indian government gradually adopted market-oriented economic reforms.

    The pace of the policy accelerated during the early 1990s, with the adoption of neo-liberal reforms

    programs, marking a period of intensive economic liberalization. The focus changed away from state

    intervention for more equitable distribution towards liberalization, privatization and globalization.

    During the past two decades India has made rapid progress in industrial and economic fields resulting

    in an expanding middle class, with unprecedented access to goods and opportunity. Yet, it is not only

    that the new income generated by economic growth has been very unequally shared but also the

    resources newly created have been inadequately utilized to alleviate the enormous social and

    economic deprivation of a majority of the society.

    The reforms have created a great potential for economic advancement but it has also created new

    vulnerabilities and insecurities; new imbalances have emerged, including a heightened inequality of

    economic condition as well of opportunity. The capital began to flow into states and regions, which

    were already developed and this, in turn, led to greater divergence than convergence not onlybetween rural and urban sectors but also within the urban sector. The newly emerging service sector

    of the country is a mix of dichotomous activities, with highly paid IT and related activities, which

    employ a very few on the one hand and the low paid petty trade and related services, which employ

    majority on the other hand. The agriculture sector, with a history of exploitative relationship

    between land ownership and labor, continues as the last resort for 60 percent of Indian work force,

    who stay back in the rural areas. As Adam Smith put it, ‘Wherever there is great property, there is

    great inequality’. Yet, successive Indian governments have failed to make any fundamental changes

    in the land- labor relations and the end result is persistent and increasing inequality.

    Have the government policies, or the lack of them, been the cause of growing inequality in India?

    Have the neo-liberal market reforms since 1990s helped only those who were already well off whileleaving the poor behind? Are the increased inequalities observed in India in the post-reform period

    caused by the stagnation of growth in employment in both rural and urban areas across the states?

    Are the persisting inequalities a consequence of entrenched social and economic hierarchies? This

    paper analyses the nature and causes of inequality and poverty in India since 1947 and tries to

    explain the trends.


  • 8/20/2019 poverty inequality.pdf


    Poverty and Inequality in India Recent Trends

    K.S. Hari & Neelambar HattiΩ 


    The past three decades have signaled the economic emergence of many developing countries,

    generally exhibiting growth rates much higher than those in the industrialized countries.

    However, the transformation of this economic growth into reducing poverty and inequality in

    these countries has been disappointing and concerns have been raised over the growth not

     being equally distributed.1  Economists are increasingly focusing on the link between rising

    inequality and the fragility of growth. Rising inequality despite sustained high rates of growth

    has become a big issue both in popular and academic literature 2, and much of the debate has

    centered on whether the main focus should be placed on growth or poverty and/or on

    inequality. It is argued that achievement of sustainable high growth ‘must be judged in terms

    of impact that economic growth has on lives and freedoms of people’3  because economic

    growth that fails to result in sharp and sustained reductions in poverty and inequality may

    create more problems than it solves. Rapid economic growth achieved at the expense of

    worsening redistribution of resources ultimately becomes unsustainable and may engender

    social and economic tensions in the society. (Jha, 2000)

    India, one of the emerging economies, has done well in terms of the growth of GDP and

     became the second fastest growing economy, next only to China. Nevertheless, it has

    seriously fallen behind in terms of economic and social justice for large sections of its

     population. Given a young population in a hurry, uneven growth with benefits accruing to a

    few4, Indian inequality is provoking tension.

    Since gaining independence since 1947, the Indian economy has gone through various phases

    of growth. During the 1950s to mid-80s the average growth of GDP during was around  3.5

     per cent5

     while per capital income grew by a mere 1.3 per cent. The economy moved on a

    Ω Assistant Professor, Gokhale Institute of Politics and Economics, Pune (India) and Emeritus Professor,

    Department of Economic History, Lund University, Lund, Sweden.1  The link between economic growth and inequality is a hotly debated issue in economic literature. For a

    theoretical discussion of the link see, Beck and Kamionka (2012). 2  For a recent review of literature on growth, equality and poverty see, Jonathan Ostry, Andrew Berg andCharalambos Tsangarides (2014). See also Augustin Kwasi Fosu (2010); Berg and Ostry (2011).3 Amartya Sen & Jean Drèze, 2013.

    4 In India more than 10 per cent of GDP is in the hands of 55 individuals. 

    5 This is the famous ‘Hindu Rate of Growth’, a term was coined by Prof Raj Krishna who argued in one of his

    lectures in the 1970s that “…no matter what happens to the economy the trend growth rate in India will be3.5 per cent”. For a broader analysis of the different phases of growth of the Indian economy sinceindependence see, Virmani (2006). 



  • 8/20/2019 poverty inequality.pdf


    higher growth path in the late 1980s when some efforts were made to reform the economy.

    However, after a blip in growth during 1990-92, broad economic reforms were introduced for

    aligning the Indian economy with the world, putting the economy back on a higher sustained

    growth path. It is now a well-established middle-income country in terms of gross GDP: at

    US $ 1.95 trillion, the tenth richest in the world. The country is also macro-economically

    stable, having maintained relatively stable fiscal and monetary bases during the past decades.

     Nevertheless, there have been serious concerns that while the privileged class has done well in

    this period, a large part of the population continues to lead rather precarious lives. With a

     population of over 1.2 billion India is home to the largest number of poor in the world. About

    42 per cent of the Indian population lives under the global poverty line of $1.25 per day.6 

    (Government of India, 2014) Using a broader definition of the poverty line which includes

    other dimensions of human capabilities, over half of the population is poor (Kannan, 2014).

    A number of social indicators such as maternal and infant mortalities in many Indian states,

    including in Gujarat, one of the richest, is worse than in sub-Saharan Africa.7  Despite the

    sustained high growth rates, while some aspects of social inequality have diminished, ‘new

    heightened imbalances such as economic inequality and poverty have developed during the

     past two decades’.8  As Kaushik Basu has noted, “the bulk of India’s aggregate growth is

    occurring through a disproportionate rise in the incomes at the upper end of the income

    ladder” (Basu, 2008) Quality and distribution of the high growth India has experienced are

    causing widening inequalities between classes, regions, rural and urban areas, a classic

    growth-inequality paradox. The wealth created by sustained high rates of growth remains

    unevenly distributed, not only at macro-level but also in terms of significant inter-state and

    intra-state regional disparities.9  Low growth rates and poor public services in poorer states

    have further widened the disparity.10The polarization has further divided the country into two

    distinct groups of rich states and poor states (Bandyopadhyay, 2011).

    6 Even using the rather parsimonious state definition of the poverty line, there are over 30 per cent abjectly poor

    in India. 7 The societal reach of economic growth in India has been markedly limited. While India has been overtakingother countries in the progress of its real income, it has been overtaken by many of these countries in terms ofsocial indicators. Even a much poorer country like Bangladesh has caught up with and overtaken India regardingmany social indicators. (Sen & Drèze, 2013)8 Despite vast differences in the political systems of India and China, the common factor has been increasing

    inequality accompanying higher growth. However, while China grew faster, inequality or relative poverty alsogrew faster in China than in India.9 It is not only that the new income generated by rapid economic growth has been unequally shared, but also that

    the resources newly created have not been utilized adequately to relieve the marked social deprivations of large

    sections of the population.10 For example, the adjoining states of Bihar, Jharkhand, Uttar Pradesh, Madhya Pradesh, Orissa and Rajasthan

    collectively account for 44 per cent of the total population and over 60 per cent of the poor. Most of these states


  • 8/20/2019 poverty inequality.pdf


     India is a unique mixture of fundamental divisions and disparities. Few countries have had to

    contend with such extreme economic and social inequalities, characterized by deeply

    entrenched hierarchies, defined by major disparities of caste, class and gender. (Sen & Drèze,

    2013) It is precisely for this reason that Indian inequality is deeper and pernicious than that of

    many other emerging nations. Being well aware of the historical legacy of multiple

    inequalities, at the time of independence in 1947 the Indian government under Jawaharlal

     Nehru set the goals of unifying the nation, building industry, promoting economic growth,

    and in the course of these, reducing inequality and poverty. Particularly since the advent of

     planning era in the early 1950s, eradication of poverty and creation of a more egalitarian

    society has been one of the main objectives of India's Five-Year Plans. However, even after

    decades of planning the rate of reduction in poverty and inequality has remained painfully

    slow and, large sections of the population continue to suffer from chronic poverty. Many

    reasons have been given for the sad state of affairs; stagnation in commodity production,

    especially in the agricultural sector due to lack of suitable policies, inadequate investments in

    economic and social infrastructure and other factors. (Dandekar & Rath, 1971; Ahluwalia,

    1978, Kohli, 2012, Sen & Dréze, 2013) The poverty alleviation policies of the Indian

    government during the past decades, particularly during the Congress regimes, have focused

    more on numerous subsidies which have contributed to perpetuating inequality since such policies take away any incentive to take one's own initiatives in life.11 

    The year 1987-88 recorded a structural break in the long term GDP growth in India 12 and the

    economy started to grow around 5-6 per cent per annum. In 1991-92, broad economic

    liberalization initiatives were undertaken in the country for pushing the growth rate further.13 

    Indian economy attained the historically higher 8-9 percent growth during the period 2004-05

    to2008-09 (Nagaraj 2013). To what extent high growth phase of the economy succeeded in

    are rich in natural resources very poor in infrastructure and human development. See Census 2011 (population),Govt. of India. 11 These subsidies, political sops, have increased the dependency of poorer sections of the populace, creating aculture of dependency, a cargo cult,  wherein with each successive government the poor expect more suchsubsidies, perpetuating the dependency culture. Moreover, given widespread corruption prevailing in India,many of such subsidies have a tendency to benefit the richer than the poorer sections of the population. 12  See Wallack(2003) , Virmani(2006), Balakrishnan and Parameswaran (2007) for a detailed discussion on thelong term growth in the Indian economy.13

     The approach to liberalization in India has some clear differences with the standard approach (The Washingtonconsensus). India opted for gradual and controlled liberalization in contrast to the stress on the speed of reformsadvocated by the Washington consensus. 


  • 8/20/2019 poverty inequality.pdf


    reducing the number of poor in the country is a highly debated issue among researchers.14  It

    should also be borne in mind that the GDP growth was primarily driven by the growth in services

    sector. Not all sectors of the economy grew at the same pace; this is clearly reflected in the rather low

    agricultural growth rate, low quality employment, poor education and inadequate health infrastructure,

    rural-urban divide, and social inequalities besides regional disparities. The growth was,

    theoretically speaking, supposed to reduce the number of poor through the trickle down

    mechanism. There are mixed results in the literature, with a majority arguing that the speed of

     poverty reduction is slow in India. Here again interregional inequalities are vast. There are

    states like Bihar and Odisha, whose performance in this regard is very poor and half of the

     population in these states are still poor.

    Another major characteristic of India’s high growth phase has been growing inequality across

    sectors, regions and households15. The reform initiatives have created a great potential for

    economic advancement but it has also created new vulnerabilities and insecurities; new

    imbalances have emerged, including a heightened inequality of economic condition as well of

    opportunity. The capital began to flow into states and regions, which were already developed

    and this, in turn, led to greater divergence than convergence not only between rural and urban

    sectors but also within the urban sector. The newly emerging service sector of the country is a

    mix of dichotomous activities, with highly paid IT and related activities, which employ a very

    few on the one hand and the low paid petty trade and related services, which employ majority

    on the other hand. The agriculture sector, with a history of exploitative relationship between

    land ownership and labor, continues as the last resort for about 60 per cent of Indian work

    force, who stay back in the rural areas.

    It is against this backdrop that the present study tries to understand the long run dynamics of

     poverty and inequality in the country. Given the extremely heterogeneous character of the

    Indian economy and society, India’s achievements and failures cannot be understood in

    composite terms, and it is essential to examine the experiences in sufficiently disaggregate

    form. The internal diversities in India offer a great opportunity to learn from within (Sen

    1999). Given the heterogeneity of India, the question of learning from India itself has to be

    14  Mehta and Shah (2003) give a detailed review of poverty debate in India. See also Dev and Ravi (2007)

    Sengupta et al. (2008), Datt and Ravallion (2010) and Kannan and Ravindran (2011). 15

      There is a growing literature which discuss about the various dimensions of inequality in the country and howit affected the long term deprivation of its poor. See Deaton & Dréze 2002, Bardan 2010, Ghosh 2010, Motiramand Sarma 2011, Vakulabharanam 2010, Weisskopf 2011. 


  • 8/20/2019 poverty inequality.pdf


    integrated with learning from others.16  In a heterogeneous society like India where

    distributional aspects of growth to reduce poverty are important political decisions that

    ultimately produce policies in order to redistribute the fruits of growth are central. Thus, the

    empirical analysis will be limited to the post-1991 reform period and we will be focusing on

    the policy failures for explaining the current phenomenon of high growth along with an

    increasing inequality and continuing poverty in India.

    The paper is divided in to the five sub sections. The first section will give an understanding

    about the recent phenomenon of high growth in India and its regional dimensions. The second

    section will be devoted for analyzing the question of income inequality in the country. The

    issue of high incidence of poverty along with other capability failures will be discussed in the

    third section. The fourth section will try to explain these in the framework of policy failures of

    the state. The last section will conclude with a way forward with the idea of inclusive growth.

    Growth Profile of the States 

    As a prelude to the analysis of the two-way relationship between growth and human development, we

    first analyze the growth rate of Net State Domestic Product (NSDP) across the states in India for the

     period 1970-71 to 2009-10. The four decades under study consist of two decades before the initiation

    of large scale economic reforms and two decades after the implementation of reforms. This gives us achance to analyse whether the higher growth recorded at the national level is spread across states in an

    equitable manner. Most of the studies that analyzed regional growth in India have found large

    differentials in the attainment of growth. These studies are limited to the time period till 1999-00. We

    extend our analysis to one more decade following reform. This gives us the advantage of a relatively

    longer period to compare the results. We can identify the leading and lagging states in India in terms

    of macroeconomic growth during the last four decades. We have examined the growth rate using the

    exponential growth equation. We have not made an endogenously determined break in the time period

    since we are dealing with a data set for 14 states; the states differ in the year of break and this makesthe comparison difficult. (Dholakia 2009) Hence, we employed conventional style decade-wise

    growth estimation. The aggregate NSDP growth of the states is given in Table 1.

    From the decade-wise growth performance, we can infer that during the 1970s, most of the states

    recorded very slow growth rates. Maharashtra registered the highest growth with 5.09 per cent and the

    Madhya Pradesh recorded a very meagre growth rate of 0.46 per cent. During the 1980s, all the states

    registered a growth revival and moved to a higher growth trajectory as was the case with the national


     Torsten Person & Guido Tabellini, 2014. 


  • 8/20/2019 poverty inequality.pdf


    Soon after the initiation of reforms, there was a considerable variation in the performance of the states,

    with some states growing faster than the average and others, slower. As noted by Ahluwalia (2000),

    the dispersion in the growth rate increased in the 1990s. Higher rates of growth were recorded in the

    1990s in Gujarat, Maharashtra, Karnataka, Kerala, Tamil Nadu and West Bengal. But poorer states as

    a group had shown decline in the immediate years following large scale reform. The higher growth

    momentum of the Kerala economy is clearly visible during this decade.

    Table .1: Growth Rates of NSDP


















    Andhra Pradesh 3.31 7 6.81 2 5.27 9 7.39 8

    Bihar 2.38 8 4.57 11 2.10 14 7.76 6

    Gujarat 4.46 3 6.49 3 7.40 2 10.54 1

    Haryana 3.91 5 6.43 4 4.56 11 8.97 2

    Karnataka 4.14 4 5.58 7 7.42 1 7.12 9

    Kerala 2.18 10 2.87 14 5.81 6 8.47 4

    Madhya Pradesh 0.46 14 3.85 13 5.28 8 5.75 12

    Maharashtra 5.09 1 6.30 5 6.87 3 7.87 5

    Odisha 1.56 11 5.20 9 4.85 10 8.74 3Punjab 4.92 2 5.79 6 4.55 12 5.21 14

    Rajasthan 1.10 13 7.52 1 5.51 7 7.53 7

    Tamil Nadu 3.63 6 5.42 8 6.10 5 6.26 11

    Uttar Pradesh 1.17 12 4.92 10 3.34 13 5.51 13

    West Bengal 2.35 9 4.13 12 6.82 4 6.62 10

    Source: Estimated using Central Statistical Organization, Government of India, Estimates of State Domestic


    In the first decade of the twenty-first century, all the states had a higher growth momentum and their

    growth rates increased. All the states, except West Bengal, registered a high growth rate in this decade.

    The difference between the higher and the lower growth states has also narrowed down. Gujarat

    maintained the lead and moved to the double digit growth, while states like Maharashtra, Tamil Nadu

    and Kerala could sustain a higher growth than others. At the national level also studies identified the

    second wave of higher growth during 2004-05.17 

    17 Balakrishnan (2010) identifies a second turnaround in growth momentum of the Indian economy since 2004-



  • 8/20/2019 poverty inequality.pdf


    Though the poorer states in India like Bihar, Odisha and Rajasthan attained a growth rate higher than

    the national average, they have to go a long way to catch up with the higher income states. Due to

    slow growth during the previous decade, they have a lower level of endowment to start with, and so it

    will take them more time to catch up with the higher income states.

    Level of Per Capita Income

    How fast the higher growth is translated into the disposable income of the citizens in each

    state depends on the changes in the level of income, which we discuss in the present section.

    The simple way to do this was by ranking the states according to the level of per capita

    income as done in Table 2, and inferring that there was no significant difference in the

    ranking of the states. The poorer states as a group remained the same. The five poorer states in

    India, viz., Bihar, Uttar Pradesh, Madhya Pradesh, Rajasthan and Odisha remained poor

    throughout the last four decades. The number of richer states has gone up since the

    liberalization period. This was possible mainly because of higher per capita income growth

    rates in Kerala and Tamil Nadu. Andhra Pradesh moved from a poor state category in the

    1970s to the middle income state category by the end of the first decade of twenty-first

    century. Bihar continued to be the poorest state in terms of per capita income in India among

    the major fourteen states. The gap between the richer and the poorer states actually increased

    in India. The richest state in the 1980s, i.e., Punjab, had a per capita income of around threetimes that of Bihar, the poorest state. This difference doubled during the last five decades.

    During the last three years, Maharashtra, the richest state in India, had a per capita income

    almost five times that of Bihar, the poorest state.

    Punjab, which remained in the top position for the last three decades, recorded a decline in

    growth rate in the post-reform period. Punjab’s income level came down from first position to

    sixth, and Maharashtra, which was in the high income category, moved to the top position in

    India. Karnataka, West Bengal and Andhra Pradesh remained in the middle income category.

    Only significant change in the ranking happened in the case of Kerala and Tamil Nadu in the

     post-liberalization period. These two states have the dual advantage of higher economic

    growth as well as the reduction in population growth. Hence there is improvement in both

    numerator and denominator of per capita income estimate.


  • 8/20/2019 poverty inequality.pdf


    Table 2: Level of Per Capita Income (Actual Income and Ranking) across states






    to 1992/93


    to 2002/03


    to 2009/10

    Andhra Pradesh 585 (9) 1504 (8) 2078 (8) 17042(8) 34767 (8)

    Bihar 402 (14) 933(14) 1106(14) 6402(14) 10626 (14)

    Gujarat 829 (3) 2011(4) 2704(4) 18312(6) 45463(3)

    Haryana 877 (2) 2419 (3) 3476(3) 25603(2) 51250 (2)

    Karnataka 641 (7) 1563(6) 2193(7) 17623(7) 36419(7)

    Kerala 594 (8) 1487(9) 1858(10) 20804(4) 43148 (5)

    Madhya Pradesh 484 (12) 1369(10) 1617(12) 11248(11) 18616(12)

    Maharashtra 783 (4) 2452(2) 3573(2) 22532(3) 53877(1)

    Odisha 478 (13) 1265(12) 1463(13) 10468(12) 22706(11)

    Punjab 1070 (1) 2818(1) 3829(1) 25978(1) 41314 (6)

    Rajasthan 651 (6) 1261(13) 1891(9) 12942(10) 22905(10)

    Tamil Nadu 581 (10) 1555(7) 2290(5) 19910(5) 43687(4)

    Uttar Pradesh 486 (11) 1299(11) 1631(11) 9733(13) 15442(13)

    West Bengal 722 (5) 1727(5) 2236(6) 17012(9) 28581 (9)

     Note: Figures in brackets are respective ranking of states

    Source: Estimated using Central Statistical Organization, Government of India, Estimates of State Domestic Product 

    Income Inequality in India: Recent Trends

    One facet that has given rise to considerable debate and controversy is inequality. On the one

    side are some scholars who argue that inequality is not of great concern ( Bhagwati 2010 and

    Panagariya 2008), whereas on the other side are those ( Bardan 2010, Ghosh 2010, Motiram

    and Sarma 2011, Vakulabharanam 2010, Weisskopf 2011) who argue that inequality is

    increasing, raising serious questions about the equity and sustainability of the Indian growth


    In literature on inequality, a distinction has been made between inter-personal or vertical

    inequality and group based or horizontal inequality and it has been argued that the latter has

    received unduly less attention ( Stewart 2002). In the light of this, we examine both inter

    18 One prominent and sensitive observer of India (Guha, 2011) has argued that ‘inequality and corruption are twomundane and materialist’ challenges that are confronting the very idea of India today’. 


  • 8/20/2019 poverty inequality.pdf


     personal inequality and inequality among sub groups of population. We have analyzed

    inequality across caste, sector( rural versus urban), state and class.

    Table 3. Inequality (Gini) for Major States

    1993-94 2004-05 2009-10

    Rural Urban Total Rural Urban Total Rural Urban Total

    Andhra Pradesh 0.290 0.323 0.312 0.294 0.375 0.345 0.286 0.395 0.364

    Bihar 0.225 0.309 0.253 0.213 0.355 0.259 0.234 0.358 0.273

    Gujarat 0.240 0.291 0.279 0.271 0.310 0.334 0.261 0.338 0.343

    Haryana 0.314 0.284 0.311 0.339 0.366 0.355 0.310 0.368 0.339

    Karnataka 0.270 0.319 0.309 0.266 0.369 0.361 0.240 0.341 0.350

    Kerala 0.301 0.343 0.316 0.381 0.410 0.393 0.439 0.527 0.473

    Madhya Pradesh 0.280 0.331 0.315 0.277 0.407 0.357 0.297 0.367 0.351

    Maharashtra 0.307 0.357 0.376 0.312 0.378 0.393 0.276 0.423 0.409

    Odisha 0.246 0.307 0.282 0.285 0.353 0.324 0.268 0.401 0.326

    Punjab 0.281 0.281 0.285 0.294 0.402 0.351 0.297 0.382 0.339

    Rajasthan 0.265 0.293 0.280 0.250 0.371 0.303 0.230 0.396 0.300

    Tamil Nadu 0.312 0.348 0.344 0.323 0.361 0.379 0.271 0.340 0.342

    Uttar Pradesh 0.282 0.326 0.302 0.291 0.367 0.327 0.281 0.367 0.322

    West Bengal 0.254 0.339 0.308 0.274 0.383 0.353 0.245 0.393 0.338

    All India 0.286 0.344 0.326 0.305 0.376 0.363 0.300 0.393 0.370

    As we can observe, during 2004-05 to2009-10, for the country as a whole, rural inequality

    decreased slightly, urban inequality increased and all India inequality increased. The increase

    was less pronounced as compared to the same during the period 1993-94 to 2004-05.

    However, it is worth noting that in the comparison between the latest two rounds, we examine

    changes over only five years, whereas in comparison between 1993-94 and 2004-05, we

    examine a much longer period. Taking roughly the two decade period between 1993-94 and

    2009-10, inter-personal inequality increased at all the levels- rural, urban and all India.Further, we can observe that in most states, urban and overall inequality increased during

    1993-94 to 2004-05; the observation holds for rural inequality as well, although for a lesser

    number of states. If one looks at the consumption for the poor and the wealthy as a

     percentage of median consumption, we can see that, the expenditure of an individual at the

    90th percentile as a percentage of the median has increased since the 1990s - 212.63 per cent

    (1993-94), 235.20 per cent (2004-05) and 234.41 per cent (2009-10). On the other hand,

    expenditure of an individual at the 10th  percentile, as a percentage of the median has


  • 8/20/2019 poverty inequality.pdf


    decreased steadily since the 1990s- 56.67 per cent (1993-94), 56.32per cent 92004-05) and

    55.99 per cent (2009-10).

    Table 4. Theil Decomposition Analysis






    Component Total


    1993-94 0.210 0.010 0.220

    2004-05 0.267 0.014 0.281

    2009-10 0.304 0.013 0.317


    1993-94 0.195 0.025 0.220

    2004-05 0.236 0.045 0.281

    2009-10 0.367 0.049 0.317State 

    1993-94 0.200 0.020 0.220

    2004-05 0.252 0.028 0.281

    2009-10 0.281 0.036 0.317

    Table above presents the results of a decomposition of the Theil index. For Caste, the share

    contributed by the between component increased from 1993-94to2004-05, but then fell slightly in

    2009-10. For sector, the share contributed by the between component increased between 1993-94 and

    2004-05 and further in 2009-10. Essentially, rural- urban inequality increased since the 1990s. For

    inequality among states, the share contributed by the between component increased between 1993-94

    and 2004-05 and trend continued into the period 2004-05 to 2009-10. In other words, inequality

    among states has been increasing steadily since the 1990s.

    Growth and Poverty Reduction

    The other side of the development is deprivation. An analysis of the deprivation indicators becomes

    important in the Indian context since more than 30 per cent of the Indian population is still living below the poverty line (GoI 2014). The extent to which the better-growing Indian states succeeded in

    reducing deprivation will show the result of the ‘trickle down strategy’. With this objective, we

    analyze the two important deprivation indicators and relate them to the levels of income in this


    The differences in the growth performance of the individual states have important implications for

     poverty reduction, which is a critical objective of national policy. The debate and controversies on

     poverty in India centered around two themes: (i) whether the post-reform period succeeded in reducing

    the proportion of poor in India or not (ii) the methodology of estimation of official poverty line and the


  • 8/20/2019 poverty inequality.pdf


     per capita consumption expenditure estimate of NSSO, which is used for estimating the head count of

     poor in India. The rationale of using head count ratio as a measure of poverty is also questioned in the

    literature and the need for more comprehensive indices for understanding this complex issue is also

    highlighted.19  We classify head count poverty ratio of the states and their per capita income into low,

    medium and high categories and explore their temporal movement over the period 1983 to 2004-05.

    The percentage of officially poor among the major states in India for the period 1983 to 2004-05

    along with corresponding per capita income is given in Figures 1, 2, and 3. The poverty ratios for total

     population in major states show that it declined significantly in almost all the states since 1983.

    Although there has been a decline in the proportion of people below the poverty line, the degree of

    decline varies across the states, with some having very high poverty ratios for the total population. In

    2004-05, it was more than 40 per cent in Odisha and Bihar, between 30 and 40 per cent in Madhya

    Pradesh and Uttar Pradesh, and between 25 per cent and 30 per cent in Maharashtra, Tamil Nadu,

    Karnataka and West Bengal. It may be noted that Odisha’s poverty level of 47 per cent was almost six

    times that of Punjab’s 8 per cent in 2004-05. Rural poverty is high in all these states except in Tamil

     Nadu. Urban Poverty was 30 per cent or more in Bihar, Madhya Pradesh, Odisha, Rajasthan, Tamil

     Nadu and Uttar Pradesh in 2004-05.

    Figure 1: Classification of States based on per capita income and Head Count Poverty, 1983 

    19  See Sengupta et al (2008), Kannan and Ravindran (2011) for the Indian case, and Alkire and Santos (2010)

    for the international scenario. 


  • 8/20/2019 poverty inequality.pdf



    Figure 2: Classification of States based on per capita income and Head Count Poverty, 1993-94

    Figure 3: Classification of States based on per capita income and Head Count Poverty, 2004-05.


  • 8/20/2019 poverty inequality.pdf


    Himanshu (2007) and Dev and Ravi (2007) looked into the absolute number of poor in different states.

    They found that the number of poor for the total population (rural + urban) rose in Madhya Pradesh,

    Maharashtra, Odisha and Uttar Pradesh. The number of rural poor increased in three states, Madhya

    Pradesh, Odisha and Uttar Pradesh in 2004-05 compared to 1993-94. On the other hand, the number of

    urban poor increased in eight out of fourteen states during this period. They further found the

    concentration of poor in a few states. A group of four states comprising Bihar, Madhya Pradesh,

    Odisha and Uttar Pradesh had a share of 49.8 per cent of the rural poor in the country in 1983. This

    share increased to 55 per cent in 1993-94 and further to 61 per cent in 2004-05. Similarly the share of

    seven states, Bihar, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, Tamil Nadu and Uttar

    Pradesh in the urban areas rose from 61.6 per cent in 1983 to 70 per cent in 1993-94 and to 76 per cent

    in 2004-05. Poverty of the total population (rural + urban) was found to be concentrated in five states,

    viz., Bihar, Madhya Pradesh, Maharashtra, Odisha and Uttar Pradesh, their cumulative share being 65

     per cent of the total poor in the country in 2004-05.

    Dev and Ravi (2007) further found that the decline of percentage points per annum in total poverty

    was higher for nine out of fourteen states in the post-reform period as compared to the pre-reform

     period. The decline in rural poverty was also higher for all these states except Gujarat. In the case of

    urban poverty, the rate of decline was higher only in four states, viz., Andhra Pradesh, Gujarat,

    Karnataka and Madhya Pradesh.

    In order to further strengthen our argument for relative deprivation in many states, we analysed themovement of per capita income with the level of poverty in the state as captured in the official head

    count ratio for the three time points 1983, 1993-94 and 2004-05. It can be inferred from the figures

    that Haryana and Punjab remained in the group of high per capita income along with lower incidence

    of poverty throughout our period of analysis. Kerala had a higher incidence of poverty along with

    medium per capita income in 1983, but moved itself to low levels of poverty even at the medium

    category of income distribution. The state moved to higher income along with a lower incidence of

     poverty in 2004-05. Bihar, Odisha, Uttar Pradesh and Madhya Pradesh were in the vicious cycle of

    low income and higher incidence of poverty in India. Rajasthan was in the category of medium levels

    of poverty along with lower levels of income. West Bengal had high income and higher incidence of

     poverty in 1983, but could manage to move into the level of medium poverty in 1993-94 and 2004-05.

    Tamil Nadu, a state with a higher per capita income level throughout could only move into medium

    level from its higher levels of poverty. Karnataka on the other hand, could maintain its medium

     position on both grounds. Maharashtra continuously had a higher per capita income but failed to

    reduce the head count poor in the state drastically and even in 2004-05 is in the category of higher

    incidence of headcount poor. Its relative position has actually worsened in the post-liberalization



  • 8/20/2019 poverty inequality.pdf


    The limitations of Head Count Ratio (HCR) for estimating the number of poor is often criticised in the

    literature. We have also examined the multidimensional poverty Index developed by Alkire and

    Santos20 (2010) to give a better understanding about the extent of deprivation. The multidimensional

    indicator takes in to account the deprivation in three major dimensions namely, education, health and

    standard of living. It is a composite index of deprivation in these three dimensions. The results are

    given in Table 5, which shows that the deprivation is the lowest in Kerala followed by Punjab and

    Tamil Nadu. The poor states we have identified in our previous section, remain at the bottom ranking.

    Bihar, with 81 per cent of the population suffering from some deprivation, is having the maximum

    extent of deprivation in India. Six out of fourteen states are having a deprivation index more than the

    national average.

    Table 5. Multidimensional Poverty Index across Indian States 2010

    Source: Alkire and Santos (2010)

    Growth and Undernutrition

    The extent of under nutrition is another indicator which captures the failure of economic growth in any

    country. The macroeconomic growth and higher per capita income, if evenly distributed, is likely to

    20 See Alkire and Santos (2010) for a detailed discussion of methodology. 






    ( Proportion









    ( Millions )






    Kerala 0.065 1 0.159 0.409 35 0.6

    Punjab 0.120 2 0.262 0.460 27.1 1

    Tamil Nadu 0.141 3 0.324 0.436 68 2.6

    Maharashtra 0.193 4 0.401 0.481 108.7 6

    Haryana 0.199 5 0.416 0.479 24.1 1.3

    Gujarat 0.205 6 0.415 0.492 57.3 3.4

    Andra Pradesh 0.211 7 0.447 0.471 83.9 5.1

    Karnataka 0.223 8 0.461 0.483 58.6 4.2

    West Bengal 0.317 9 0.583 0.543 89.5 8.5

    Odisha 0.345 10 0.640 0.54 40.7 4.3

    Rajasthan 0.351 11 0.642 0.547 65.4 7

    Uttar Pradesh 0.386 12 0.699 0.552 192.6 21.3

    Madhya Pradesh 0.389 13 0.695 0.560 70 8.5Bihar 0.499 14 0.814 0.613 95 13.5

    All India 0.296 0.554 0.535 1164.7 100


  • 8/20/2019 poverty inequality.pdf


    have a positive impact in reducing the incidence of under nutrition. Cross-country studies have shown

    that income growth has a positive impact on reducing malnutrition21. Severe incidence of under

    nutrition and nutrition-related deaths are a serious problem faced by several districts in India. We have

    examined the extent of under nutrition across states in terms of three indicators for children namely,

    severely stunted, severely wasted and severely underweight and totally thin in the case of adult men

    and women. The anthropometric information collected by the National Family Health Survey (2005-

    06) indicates the severity of this problem across the Indian states. We compared these indicators with

    the average per capita income of the states for the time period 2005-06. Our results are given in Table


    In this dimension also, Maharashtra’s higher level of per capita income failed to translate into higher

    nutritional outcome. Two of India’s high income states, Maharashtra and Gujarat, showed a relatively

     poor performance in terms of nutritional outcome indicators. Their ranking in these indicators show

    that while Maharashtra was in 6th position in terms of children severely stunted, its rank came down to

    7th  and 8th  position in terms of severely wasted children and women who are totally thin. Gujarat

     performed the worst compared to all the states in the high income category. Kerala performed well in

    all the indicators of under-nutrition. Tamil Nadu also performed well except in the case of severely

    wasted children. The low income states as a group has performed badly in terms of nutritional

    indicators as well.


     See Strauss and Thomas (1998) and Haddad et al. (2002) for a detailed discussion. Based on their cross-country study, Haddad et al. (2002) found that income growth has a positive impact on reducing undernutrition among women and children. 


  • 8/20/2019 poverty inequality.pdf


    Table 6: Extent of Under-nutrition in Indian states (2005-06)


    Children [% below -3 SD] Body Mass



  • 8/20/2019 poverty inequality.pdf


    improvement, we examined the performance of the states in terms of Sen’s improvement index22 (Sen


    Table 7 presents the achievements of the states in HDI at different time points. Judged by the

    achievements in the chosen indicators of HD, Kerala is found to be the best performing state during1971-2007. Bihar appears to be the worst-performing state in terms of HDI up to 1991, while in 2001

    and 2007 the states in this category were Uttar Pradesh and Odisha, respectively. A wide interstate

    variation in the performance of HDI is observed. The estimated value of HDI varies from 0.181 to

    0.449 in 1971, 0.237 to 0.500 in 1981, 0.308 to 0.591 in 1991, 0.316 to 0.638 in 2001, and 0.362 to

    0.790 in 2007. The percentage difference between the top performer and bottom performer increased

    from 40 per cent in 1971 to 52 per cent in 1991 but came down to 45 per cent by 2007. This decline in

    the gap between high and low HDI states has often been cited in the literature as human development

    convergence23. But the degree of such convergence is rather slow in India and there is still a high

    degree of interregional variation in the human development index. The better-off states, viz., Kerala,

    Punjab, Tamil Nadu, Maharashtra and Haryana, had a HDI above 0.550, and the worse-off states like

    Bihar, Uttar Pradesh and Madhya Pradesh had a HDI less than 0.434 in 2007. Kerala, Tamil Nadu,

    Punjab and Maharashtra have top ranks in the improvement index. West Bengal, Gujarat, Karnataka

    and Andhra Pradesh had medium improvement, while the five poorer states as a group performed

     badly in terms of the improvement index. This further supplements the reasons for their relatively low

    level of attainment in human development. 

    Here the Indian experience leaves much to be discussed. The states which have recorded higher

    economic growth throughout have failed to attain corresponding progress in human development

    attainment. As we had seen in the previous section, unless the states attain a higher level of human

    capital development, there are bound to be gaps between growth and human development and the

     benefits of growth will not trickle down to the poor. The underprivileged will continue to be caught in

    the same vicious circle. Since many states in India have focused on growth first and redistribution

    later, the long-term implications of such a strategy becomes a question for further analysis, which is

    dealt with the coming section.

    22 Sen (1981) takes the absolute shortfall of actual longevity (or literacy) from some chosen upper bound and

    then examines the percentage decline of this shortfall. The formula is (X2-X 1)/ (Xmax- X1), where X1 and X2 

    are the indicator values in the initial year and the final year, respectively, and Xmax is the chosen upper bound.

    Sen’s formula reflects the view that as longevity becomes higher, it becomes more of an achievement to raise

    it further. 23

     See Dholakia (2003, 2009) and Ghosh (2006) for a detailed discussion on human development convergence in



  • 8/20/2019 poverty inequality.pdf


    Table 7: Human Development Index for Indian States

    State 1971 1981 1991 2001 2007 SII

    Andhra Pradesh 0.236 (9) 0.298(9) 0.377(9) 0.416 (10) 0.473 (9) 0.310(8)

    Bihar 0.181(14) 0.237(14) 0.308 (14) 0.337 (13) 0.368 (13) 0.228(12)

    Gujarat 0.304 (4) 0.361(3) 0.461(5) 0.479 (6) 0.527 (6) 0.320(7)

    Haryana 0.304(5) 0.360(4) 0.473 (3) 0.509 (5) 0.552 (5) 0.356(5)

    Karnataka 0.306 (3) 0.346(5) 0.412(7) 0.478 (7) 0.519(7) 0.306(9)

    Kerala 0.449 (1) 0.500(1) 0.591(1) 0.638 (1) 0.790 (1) 0.618(1)

    Madhya Pradesh 0.203(13) 0.245(13) 0.328 (12) 0.394 (11) 0.395 (11) 0.240(11)

    Maharashtra 0.298 (6) 0.323(7) 0.452 (6) 0.523 (4) 0.572 (3) 0.390(4)

    Odisha 0.206(12) 0.267(10) 0.345 (11) 0.355 (12) 0.362 (14) 0.196(14)

    Punjab 0.347 (2) 0.411(2) 0.475(2) 0.537 (2) 0.605 (2) 0.395(3)

    Rajasthan 0.218(10) 0.256(11) 0.347 (10) 0.424 (8) 0.434 (10) 0.276(10)

    Tamil Nadu 0.278 (7) 0.343(6) 0.466(4) 0.531 (3) 0.570(4) 0.404(2)

    Uttar Pradesh 0.210(11) 0.255(12) 0.314 (13) 0.316 (14) 0.380 (12) 0.215(13)

    West Bengal 0.241 (8) 0.305(8) 0.404 (8) 0.422 (9) 0.492 (8) 0.330(6) Note: SII- Sen Improvement Index

    Source: HDI Values of 1971, 2007 and Sen Improvement index are own estimates and

    1981, 1991, 2001 were taken from National Human Development Report (2001).

    Towards an Explanation

    As discussed in the previous sections, India is a country characterized by multilayered

    diversity and cultural heterogeneity where different types of inequalities and poverty have

    always been a fact of life in India. Since independence in 1947, India followed a development

     policy based on interventionist central planning and import substitution with the objective of

    reducing inequality and poverty. One main reason for adopting such a policy was the fear that

    a total reliance on the market mechanism would favor an excessive consumption by the higher

    income groups, along with relative under-investment in sectors essential to developing Indian

    economy. Policymakers adopted a middle path in which income inequality was tolerated,

     provided it was not ‘excessive’ and led to a higher rate of growth.


  • 8/20/2019 poverty inequality.pdf


    From the mid-1980s, the Indian government gradually adopted market-oriented economic

    reforms. The pace of the policy accelerated during the early 1990s, with the adoption of neo-

    liberal reforms programs, marking a period of intensive economic liberalization. The focus

    changed away from state intervention for more equitable distribution towards liberalization,

     privatization and globalization. During the past two decades India has made rapid progress in

    industrial and economic fields resulting in an expanding middle class, with unprecedented

    access to goods and opportunity. Yet, it is not only that the new income generated by

    economic growth has been very unequally shared but also the resources newly created have

     been inadequately utilized to alleviate the enormous social and economic deprivation of a

    majority of the society. It is in this context that we review some of the country experiences

    regarding the role of state in building basic human capabilities, which is missing in India.

    The Role of State in Economic Development: The Country Experiences

    The role of the state as an institution in promoting economic development has been one of the major

    topics of discussion in the political economy literature for centuries.24 There has been a recent revival

    of interest in this subject after the collapse of hardcore state-dominated economies like the Soviet

    Union in the late 1980s as well as the failure of the free market economies to provide equitable

    growth. The successes of East Asian countries have added impetus to this discourse. The history of

    successful development shows that market and state are not opposite forms of social organization.

    Instead, they are symbiotically linked.

    Indeed, there is now a general acceptance of the role of state in economic development and an added

    emphasis on the role of state as a facilitator. An effective state is vital for the provision of the goods

    and services—and the rules and institutions—that allow markets to flourish and people to lead

    healthier, happier lives. Without it, sustainable development, both economic and social, would be

    impossible (World Bank 1997). The state is central to economic and social development, not as a

    direct provider of growth but as a partner, catalyst and facilitator. Governments have helped to deliversubstantial improvements in education and health and reductions in social inequality. There is a

    general consensus in the literature that the state’s capability to undertake and promote collective

    actions efficiently must be increased to advance human welfare.

    The modern state has to play a complementary and supportive role in development, as opposed to the

    restrictive role it plays under the laissez-faire system of free-market economy.25  The history of

    24 See Shonfield (1965) and Deane (1989) for a historical review. 

    25 The state can improve development outcomes in a number of ways: (i) by providing a macroeconomic and

    microeconomic environment that sets the right incentives for efficient economic activity; (ii) by providing the


  • 8/20/2019 poverty inequality.pdf


     present-day developed economies shows that the state played a major role in building up the

    fundamentals of social or human capital as well as in framing industrial policies. This complementary

    or supportive role is very much important in a developing economy like India, where the weakness of

    fundamentals is often cited as a major reason for the failure to tap the opportunities opened by free

    markets.26 In this section, we briefly examine the role played by the state in the developed countries of

    Europe and the United States. A detailed review is carried out of newly industrialized countries in East

    Asia, which had a similar pattern of growth immediately after the Second World War, but achieved

    miraculous growth after the 1970s. This will give an idea of what the appropriate role of the state is as

    an institution in the development process of India.

    Development Experience of East Asia

    The objective here is to take a brief look at the important role the attainment of humandevelopment has played in the rapid economic growth of East Asian countries. This is done

    mainly in the light of observations in the literature that a major reason why India has not been

    able to realize the full benefits of liberalization is its weakness concerning human

    development (Dreze and Sen 1995). In the 1980s, one of the reasons often cited for the failure

    of the Indian economy to attain higher economic growth was the high degree of control

    exercised by the state and there were strong arguments in favor of liberalizing the economy.

    But even after the implementation of economic reforms in 1991, India has failed to attain the

    kind of growth the East Asian economies and China have attained.27 

    East Asia has a remarkable record of high and sustained economic growth.28 From 1965 to

    1990, its 23 economies grew faster than those of all regions. Most of this achievement is

    attributable to the seemingly miraculous growth in just eight high-performing economies— 

    Japan, Hong Kong, South Korea, Singapore and Taiwan and the three newly industrializing

    economies of South East Asia, Indonesia, Malaysia and Thailand (World Bank 1993). The co-

    institutional infrastructure—property rights, peace, law and order, and rules—that encourages efficient long-

    term investment; and (iii) by ensuring the provision of basic education, healthcare and the physical

    infrastructure required for economic activity, and by protecting the natural environment. 26

      Dreze and Sen (1995) give a detailed account of state failure in India. See also, Sen & Dréze (2013). 27 Dreze and Sen (1995) argue that if India has to emulate China in market success, it is not adequate just to

    liberalise economic controls in the way Chinese have done, but to create the social opportunities that post-

    reform China inherited from its pre-reform transformation. The “magic” of China’s market rests on the solid

    foundation of social changes that had occurred earlier, and India cannot simply hope for that magic, without

    making the enabling social changes, in education, healthcare and land reforms, which helped the market

    function in the way it has in China. 28

     The exceptionally high-growth performances of East Asian economies in the past several decades have beenamply documented. See Kuznets (1988), Wade (1990) and World Bank (1993) for details.


  • 8/20/2019 poverty inequality.pdf


    existence of active public policies and rapid growth in some of the East Asian economies,

    especially Japan, Korea, Singapore and Taiwan, has raised complex, often controversial,

    questions concerning the relationship between government, the private sector and the market.

     Neoclassical economists mainly argue that the success of East Asia was primarily a result of

    the accumulation of more capital and underscore the role played by the state as an institution

    and the role of human development (Young 1992, 1994; World Bank 1993; Krugman 1994).

    They point out that Asian growth seems to be driven by extraordinary growth in inputs like

    labor and capital, rather than by gains in efficiency.

    There is a strong counter-claim in the literature that these economies succeeded not just

     because of opening up, but because institutional mechanism like the state played an active

    role in laying the foundations of human development, which in turn facilitated higher growth.

    In the Indian case, Drèze and Sen (1995) argue that the major reason why India has not

    succeeded in reaping the benefits of the free market is that it was not prepared like other

    Asian countries in terms of the level of attainment in education, healthcare and land reforms

    and strong state support for modern industrialization. If we look at the growth story in India in

    recent years, we see that the states that had high human development could better benefit from

    liberalization than states with a high number of illiterates or where the health indicators are

     poor. When we review the development experience of East Asian countries since the post-world war period,29 we can see a systematic involvement of the state in these activities. Why

    India has failed to attain a similar kind of economic growth and human development is a

    serious question to be asked.

    The economic roles of education, learning by doing, technical progress and even economies

    of large scale can all be seen contributing in different ways to the centrality of direct human

    agency in generating economic expansion in the newly industrialized countries (NICs) (Drèze

    and Sen 1995; Sen 1999, Sen & Dréze, 2013). The crucial role of education and skill makes it

    all the more essential to pay attention to public policy to expand primary and secondary

    education and promote skill formation. The role of widespread basic education has been quite

    crucial in countries that have successfully grown fast making excellent use of world markets.

    The modern industries in which these countries have particularly excelled demand many basic

    29 The speed and unanticipated nature of this development is highlighted in the literature. Morris (1996) notes

    that it took the UK 58 years from 1780 onwards to double its real per capita income. The US achieved thesame result in the 47 years from 1839, whereas Japan did it in 34 years from 1900 and South Korea took just11 years from 1966. 


  • 8/20/2019 poverty inequality.pdf


    skills for which elementary education is essential and secondary education most helpful.

    While some studies have emphasized the productive contribution of learning by doing and on

    the job training, such learning is greatly helped by basic education in schools prior to taking

    up jobs. International comparisons also raise an important general question about the

    complementarities between the opening up of economic opportunities and the social

    conditions that facilitate the use of these opportunities.30 

    The most notable common feature across the East Asian societies was a high level of access

    to elementary or primary schooling prior to industrial take off. By 1965, the enrolment rates

    for primary education in South Korea, Singapore and Hong Kong were all 100 per cent and in

    Taiwan the figure was only marginally lower at 97.15 per cent. In the low-income economies

    of the world, on the other hand, the average enrolment in that year was 73 per cent. The high

    levels of access to basic education were also reflected in the relatively high levels of literacy

    which were achieved. Further, the provision and expansion of basic education was not gender

    specific. The general effect of the expansion of primary schooling was the easy availability of

    literate and numerate women as well as men for the workforce at the time of rapid


    The second common feature which emerges across these societies was the sequential nature of

    educational expansion. In the early stages of growth and industrialization, the expansion of

     primary education took priority. Overall, much less proportionately was spent on secondary

    and tertiary education and these sectors enrolled a small proportion of the relevant age group.

    The enrolment rates in secondary schools in South Korea, Singapore and Hong Kong were 35

     per cent, 45 per cent and 29 per cent, respectively, in the early 1960s. When secondary

    education expanded rapidly, it was initially education of a general and academic orientation.

    In the more interventionist societies of South Korea and Taiwan, the state responded to public

    demand and expanded secondary education. By 1986, the enrolment rates in secondary

    schools in Taiwan had risen to 92 per cent, in Singapore to 71 per cent, in South Korea to 95

     per cent and in Hong Kong to 69 per cent.

    The expansion of tertiary education, defined broadly to include all full-time, post-secondary

    education, followed the achievement of high levels of access to secondary schooling. In South


     IMF (1991) commented that one lesson from the past is that economies such as Japan and South Korea whichcommitted themselves to education and training made great strides in both human development andeconomic growth. 


  • 8/20/2019 poverty inequality.pdf


    Korea, Singapore and Hong Kong, the percentage of the relevant age groups that survived up

    to tertiary education in 1965 were 6 per cent 10 per cent and 5 per cent, respectively. By 1986,

    enrolment rates in South Korea and Hong Kong increased to 25 and 33 per cent respectively.

    In the late 1980s, South Korea and Hong Kong embarked on massive expansion programs for

    tertiary education. In South Korea, this resulted in 44 per cent of the relevant age group

    enrolled in tertiary education. With regard to the nature of the government’s relationship with

    tertiary education, there are high levels of state control in societies such as South Korea and


    The core components of the East Asian approach to human development can be summarized

    as follows.

    (1) The state coordinates education and research with a firm emphasis both on indigenous

    value transmission and the mastery of foreign technology.

    (2) High priority is placed on universal primary education while state investment at the

    secondary and tertiary levels is limited primarily to critical areas such as engineering

    and the sciences.

    (3) Individual students, their families and the private sector are expected to provide critical

     back-up for the education provided by the state.

    (4) The state seeks to coordinate not only the development but also the utilization of

    human resources and involves itself in manpower planning and job placements and

    increasingly in the coordination of science and technology.

    The most important point in all this is that the state has played a major part in every case. An

    essential goal of public policy has been to ensure that bulk of the young population has the

    capability to read, write, communicate and interact in a way that is quite essential for modern

    industrial production. In India, in contrast, there has been remarkable apathy towards

    expanding elementary and secondary education, and certainly “too little” government action,

    rather than “too much”, has been the basic failure of Indian planning in this field. The neglect

    of illiteracy is marked in relation to the low cost of making an adult literate. A comparison of

    the type of provisioning across countries shows a skewness of public expenditure towards

    higher education in India that is far greater than elsewhere in the world. The comparative

    degree of skewness is actually quite staggering. Spending on higher education exceeds that on primary education by a factor of six in India (Balakrishnan 2010).


  • 8/20/2019 poverty inequality.pdf


    Towards Inclusive Growth:

    Inclusive growth is growth that not only creates new economic opportunities but also one that

    ensures equal access to the opportunities created for all segments of society including the

    disadvantaged and the marginalized. Growth is inclusive when it allows all members of the

    society to participate in, and contribute to, the growth process on an equal footing regardless

    of their individual circumstances (Ali and Zhuang 2007). The importance of equal access to

    opportunities for all lies in its intrinsic value as well as instrumental role (Ali and Son 2007).

    The intrinsic value is based on the belief that equal access to opportunity is a basic right of a

    human being and that it is unethical and immoral to treat individuals differently in access to

    opportunities. The instrumental role comes from the recognition that equal access to

    opportunities increases growth potential, while inequality in access to opportunitiesdiminishes it and makes growth unsustainable, because it leads to inefficient utilization of

    human and physical resources, lowers the quality of institutions and policies, erodes social

    cohesion, and increases social conflict.

    The distinguishing feature of the inclusive growth process is that it focuses attention on

    understanding the causal factors behind inequality outcomes and then addresses the causal

    factors. Inclusive growth depends on average opportunities available to the population and

    how opportunities are shared among the population (Ali and Son 2007).

    We have already seen the failures of India in terms of ensuring the opportunities to its

    citizen’s and the corresponding outcome indicators in the previous sections. In terms of

    opportunities and access to them, the Indian scenario tells a very miserable story. Growth

    continues to bypass a large section of the society. Large majority of Indian living in rural and

    urban areas are, and continue to be, excluded from India’s growth story. From the practical

     point of view, the efforts made by the state in India for attainment of inclusive growth, would

     be more of rhetoric of the policy makers than reality.

    It is only during the past decade the Indian policymakers have responded to widespread

    concerns over the unequal distribution of the growth and made inclusive growth a part of the

    official agenda. The Indian 11th  five-year plan31  defines inclusive growth to be “a process

    which yields broad-based benefits and ensures quality of opportunity for all”, thus implying

    an equitable allocation of resources with benefits accruing to every section of the society. 

    31 11

    th Five-Year Plan; Towards Faster and More Inclusive Growth, Government of India, Planning commission,



  • 8/20/2019 poverty inequality.pdf


    India has already completed the Eleventh Five-Year Plan (2007-12) and has continued a

    similar policy in the Twelfth Five-Year Plan: Faster, More Inclusive and Sustainable Growth 

    (GOI 2013).32 The general public perception about worsening economic plight of the masses

    has led the government to declare its commitment to the aam aadmi (common man) in general

    and the “poorest of the poor” in particular. Its policy response has been to provide for a

    variety of rights-based programs under Jawahar Rozgar Yoajna, the Mahatma Gandhi

     National Rural Employment Guarantee Act, Right to Education and recently the National

    Food Security Act.33 

    Unfortunately, none of these right based initiatives are designed with the objectives of

    improving the human capabilities and an equitable access to opportunities. The Indian policy

    makers still hobble along the old strategy of ‘subsidies to the poor’ than making an effort to

    improve their wellbeing in a holistic way. Several studies suggest that there is a correlation

     between inclusive economic growth and the level of public expenditure on social

    development, including education and health. (Habito 2009) Literacy is arguably the most

    significant factor in poverty reduction as it enhances employability. The role played by

    literacy has been found to be particularly notable by Ravallion and Datt (2002), who reported

    that nearly two-thirds of the difference between the elasticity of the headcount index of

     poverty to non-farm output for Bihar (the state with lowest absolute elasticity) and Kerala wasattributable to the latter’s substantially higher initial literacy rate. In primary education India

    is well behind other nations which have comparable level of economic growth and per capita

    income. It is on primary education that the state has to concentrate most of its resources,

     physical as well as human.

    India’s public expenditure on health care, at 0.9 percent of the GDP, has been low even by

    developing country standards. The corresponding share is higher in Pakistan (1.0),

    Bangladesh (1.5), Nepal (1.5) Sri Lanka (1.8), and Bhutan (3.6) (UNDP 2004). India’s public

    expenditure on health has been not only low, but has declined from 1.05 percent of GDP to

    0.91 percent in the liberalization period (GOI 2006). Thus, the growth in GDP did not

    translate into corresponding increase in public spending on health. By comparison, public

    32  The draft of the Twelfth Five—Year Plan (2012-2017) lists twelve strategy challenges which focus on

    inclusive growth. These include enhancing the capacity for growth, employment generation, infrastructuredevelopment, and improved access to quality education and better healthcare, and sustained agricultural growth.

    See, Inclusive Growth; A Challenging Opportunity, Deloitte, September 2011.+33 Unfortunately, in India where corruption is widespread and systemic the benefits of many such programs do

    not necessarily accrue to the poor and the needy but often to the rural economic and political elite. 


  • 8/20/2019 poverty inequality.pdf


    health expenditure in most of the OECD countries averages around five percent of their GDP

    (WHO 2006). India not only spends less on overall health, but public expenditure favours the

    rich quintile of the Indian society (NRHM 2006). One consequences of this imbalance is that

    skilled health personnel attend just 16.4 percent of births among the poorest 20 percent

    compared with 84.4 percent in the richest 20 percent. Less than three percent of India’s

     population has private health insurance. India’s attempts in recent years to provide health

    insurance for the poor have not been successful. Around 25 percent of the poor do not even

    seek healthcare because of the costs (World Bank 2002). A case study by Singh (2010) shows

    that even in the wealthy state of Punjab, healthcare costs have led to farmers’ sale of

    immovable assets and irrecoverable indebtedness.

    It is important to improve the governance because the government in India still has a majority

    stake in almost all crucial sectors such as health, sanitation and water. It is in these social

    sectors that the political parties least interested once they come to power after elections. 34 Yet

    these are the fields which need to be paid more attention to if we are to improve human

    development alongside economic growth; with the current situation, it is no wonder that India

    figures extremely low on world human development index reports. There also ought to be

    greater accountability for politicians and civil servants. Progress in a democracy is slow but

    sustaining, certainly in the case of a large and diverse country like India given its size andcomplexity.

    Inclusive growth is central for reducing social and economic disparities, and also to sustain

    economic growth. It is imperative for India to develop ‘holistic and integrated’ solutions for

    solving the long-term problems of poverty, inequality, social exclusion, weak governance

    structure and widespread corruption in all stages of public service delivery. The new

    solutions, with an emphasis on sustainable inclusive growth, should pay attention to four

     points in formulating public policies; opportunity, capability, access and security. Opportunity

    aspect means generating opportunities to people to succeed economically as well as socially;

    Capability concentrates on providing means to people to create /enhance their capabilities in

    order to take advantage of opportunities; Access of course simply implies providing the

    means to bring the first two together. If these points are in place, then follows security,

     providing means to people to protect themselves against eventual loss of livelihood.

    34 The political power of the Indian elite often serves as a barrier to the attention that the voices of the poor can

    actually get, resulting in a ‘near-exclusion’ on many issues of importance to large sections of the poor in India.This exclusion is reflected in a rather pervasive disregard for the interest of the poor in public policy. (Sen &Drèze, 2013) 


  • 8/20/2019 poverty inequality.pdf


    Particularly the first three points are of fundamental importance since if they are provided to

    the population at large, security will follow.

    The right policy mix for inclusive growth should be to expand the opportunities and

    capabilities of those who have been left behind in the growth process so as to enable them to

     participate in a sustainable  growth process. Inclusive growth thus constitutes an essential

     precondition for sustainable development, leading to equitable distribution of wealth and

     prosperity to all sections of the society.


    Ahluwalia, M. S .1978. “Rural Poverty in India: 1956-57 to 1973-74.” World Bank Staff WorkingPaper, Washington, D.C.

    Ali, I., and H. Son. 2007. “Measuring Inclusive Growth.” Asian Development Review 24(1): 11–31.

    Ali, I., and J. Zhuang, 2007. Inclusive Growth toward a Prosperous Asia: Policy Implications. ERD

    Working Paper Series No. 97,  Economics and Research Department, Asian Development


    Alkire, Sabina, and Maria, Emma, Santos. 2010. “Acute Multidimensional Poverty: A New Index for

    Developing Countries.” Oxford Poverty & Human Development Initiative (OPHI), Oxford

     Department of International Development, Queen Elizabeth House (QEH), University of

    Oxford  Working Paper No. 38.

    Balakrishnan, Pulapre, and M. Parameswaran. 2007. “Understanding Economic Growth in India: A

    Prerequisite.” Economic and Political Weekly. 42(27&28): 2915-2922.

    Balakrishnan, Pulapre. 2010. Economic Growth in India: History and Prospect. New Delhi: OxfordUniversity Press.

    Bandyopadhyay, 2011. “Rich States, Poor States: Convergence and Polarisation in India.”  Scottish Journal of Political Economy.  58(3): 414-436. 

    Bardan, P. 2010. "Economic Reforms, Poverty and Inequality in China and India." in K. Basu and RKanvur (eds.), ‘Arguments for a Better World: Essays in Honor of Amartya Sen’. Vol II.

    Oxford University Press.Basu, Kaushik. 2008. “Globalization and Inequality,” UNCTAD Conference on ‘How the Poor are

    Affected by Trade’. New Delhi, October 2008.

    Beck Simon and Kamionka Thierry, 2012. “Who Benefits from Growth?” CREST Working Paper No. 2012-18. Centre for Research on Economics and Statistics, France.

    Berg Andrew G. and Ostry, Jonathan D. 2011. Inequality and Unsustainable Growth: Two Sides ofthe Same Coin? IMF Staff Discussion Note. SDN/11/08. April 2011.

    Bhadiru, Amit. 2008. “Predatory Growth”, Economic & Political Weekly, April 19, 2008, pp. 10-14.

    Dandekar, V. M. and Rath, N. 1971. “Poverty in India: Dimensions and Trends.”  Economic and

    Political Weekly, 6(2): 106- 154.



  • 8/20/2019 poverty inequality.pdf


    Datt, Gaurav and Ravallion, Martin 2010. “Shining for the poor too?”  Economic and Political

    Weekly, 45 (7): 55-60.

    Deane, Phyllis.1989. The state and the economic system: An introduction to the history of politicaleconomy. Oxford: Oxford University Press.

    Deaton, Angus & Dréze, Jean. 2002. “Poverty and Inequality in India: A Re-Examination.” Economic and Political Weekly, 37 (36): 3729-3748.

    Dev, Mahendra S., and C. Ravi. 2007. “Poverty and Inequality: All India and States, 1983-2005.”

     Economic and Political Weekly, 42(6): 509-521.

    Dholakia, R. H. 2009. “Regional Sources of Growth Acceleration in India.” Economic and PoliticalWeekly, 44(47): 67-74.

    Dholakia, R.H. 2003. “Regional Disparity in Economic and Human Development in India.” Economic

    and Political Weekly, 38(39):4166-4172.

    Dreze Jean, and Amartya Sen. 1995. “Economic Development and Social Opportunity.” Oxford

    University Press, New Delhi.

    Fosu, Augustin Kwasi. 2010. “Inequality, Income and Poverty: Comparative Global Evidence.”

     Brooks World Poverty Institute, Working Paper No. 140. The University of Manchester.

    Ghosh, Jayati. 2010. “Poverty reduction in China and India: Policy implications of recent trends.”United Nations Department of Economic and Social Affairs. New York. DESA WorkingPaper No. 92ST/ESA/2010/DWP/92.

    Ghosh, Madhusudan. 2006. “Economic Growth and Human Development in Indian States.” Economicand Political Weekly, 41(30): 3321-3329.

    Government of India. 2014. “Report of the Expert Group to Review the Methodology forMeasurement of Poverty”. New Delhi: Planning Commission of India.

    Guha, R. 2011. “The Nation Consumed by the State”. Outlook, 31, January.

    Habito, C. F. 2009. “Patterns of inclusive growth in developing Asia: Insights from an enhanced

    Growth-Poverty Elasticity analysis.”  Asian Development Bank Institute. Working paper No.


    Haddad, Lawrence, Alderman,Harald, Appleton, Simon, Lina Song and Yohannes, Yisehac. 2002.

    “Reducing Child Undernutrition: How far does Income Growth Take Us?” Washington DC:

    International Food Policy Research Institute, FCND Discussion paper No. 137.

    Himanshu. 2007. “Recent Trends in Poverty and Inequality: Some Preliminary Results.” Economicand Political Weekly, 42(6): 497-508.

    International Monetary Fund. 1991. “Development issues:  Presentations to the 42nd meeting of the

    Development committee Bangkok.” Washington: World Bank and International Monetary

    Fund, Development.

    Jha,R. 2000. "Reducing Poverty and Inequality in India: Has Liberalization Helped?", Research

    Paper No. 204, World Institute for Development Economics Research. Helsinki.

    Jonathan Ostry, Andrew Berg, and Charalambos Tsangarides. 2014. “Redistribution, Inequality and

    Growth”. International Monetary Fund, SDN/14/02. February, 2014.



  • 8/20/2019 poverty inequality.pdf


    Kannan, 2014. “Interrogating Inclusive Growth: Poverty and Inequality in India”. New Delhi,

    Routledge India.

    Kannan, K.P., and G. Ravindran. 2011. “India’s Common People: The Regional Profile.” Economic

    and Political Weekly, 46 (38): 60-73.

    Kohli, Atul. 2012. Poverty Amid Plenty in the New India. New Delhi: Cambridge University Press.

    Krugman, P. 1994. “The Myth of Asia’s Miracle.” Foreign Affairs, 73(6): 62-78.

    Kuznets, P. W. 1988. “An East Asian Model of Economic Development: Japan, Taiwan, and SouthKorea.” Economic Development and Cultural Change, 36(3): S11-S43.

    Kuznets, Simon. 1955. “Economic Growth and Income Inequality”. The American Economic Growth,45 (1), pp. 1-28.

    Mehta, Asha, Kapur., and Amita, Shah. 2003. “Chronic Poverty in India: Incidence, Causes and

    Policies.” World Development, 31(3): 491-511.

    Motiram, S. and N. Sarma. 2011. “Polarization, Inequality and Growth: The Indian Experience.”

    ECINEQ Working Paper 2011-225, Society for the Study of Economic Inequality.

     Nagaraj, R. 2013. “India’s Dream Run, 2003-08: Understanding the Boom and Its Aftermath.”

    Economic and Political Weekly, 48(20): 39-51.

    Persson, Torsten and Tabellini, Guido. 1994 (2014). “Inequality Harmful for Growth?,” The American Economic Review, Vol. 84, No. 3, pp. 600-621.

    Ravallion Martin, and Gaurav Datt (2002), Why has economic growth been more pro-poor in some

    states of India than others? Journal of Development Economics, 68 (2002): 381 – 400.

    Sen, Amartya. 1981. Poverty and Famines: An Essay on Entitlement and Deprivation. Oxford:

    Clarendon Press.

    Sen, Amartya. 1999. Development as Freedom. New Delhi: Oxford University Press.

    Sen, Amartya and Dréze, Jean, 2013. An Uncertain Glory; India and Its Contradictions. Allen Lane,


    Sengupta, Arjun., G. Ravindran, and K.P. Kannan. 2008. “India’s Common People: Who Are They,

    How Many Are They and How Do They Live.” Economic and Political Weekly. 43 (11): 49-


    Shonfield. 1965.  Modern Capitalism: The Changing Balance of Private and Public Power, Oxford:Oxford University Press.

    Stewart, F. 2002. “Horizontal Inequity: A Neglected Dimension of Development.” 5th AnnualLecture. Helsinki: World Institute of Development Economics Research.

    Strauss, J. and D. Thomas. 1998. “Health, Nutrition and Economic Development.”  Journal of

     Economic Literature, 36(2): 766-817.

    Topalova, Petia. 2007. “Trade Liberalization, Poverty and Inequality; Evidence from Indian Districts”,

    in Ann Harrison (Ed.), Globalization and Poverty,  University of Chicago Press, Chicago.


    Vakulabharanam, V. 2010. “Does Class Matter? Class Structure and Worsening Inequality inIndia?”, Economic and Political Weekly, 45 (29): 67-76.

    Viramani, A. 2006. “India’s Economic Growth History: Fluctuations, Trends, Break Points andPhases.” Indian Economic Review, 41(1): 81-107


  • 8/20/2019 poverty inequality.pdf


    Wade, Robert. 1990. “Governing the Market: Economic theory and The Role of Government in EastAsian Industrialisation”. Princeton, New Jersey: Princeton University Press.

    Wallack, J.S. 2003. “Structural Breaks in Indian Macroeconomic Data.” Economic and Political

    Weekly, 38(41): 81-107.

    Weisskopf, Thomas E. 2011. Why Worry about Inequality in the Booming Indian Economy? Economic and Political Weekly. 46 (47): 41-51.

    World Bank. 1993. The East Asian Miracle: Economic Growth and Public Policy. New York: OxfordUniversity Press.

    World Bank. 1997. World Development Report: The State in a Changing World. New York: OxfordUniversity Press.

    Young, A. 1992. “A Tale of Two Cities: Factor Accumulation and Technical Change in Hong-Kongand Singapore.” Cambridge: National Bureau of Economic Research, MacroeconomicsAnnual.

    Young, A. 1994. “Lessons from the NICs: A Contrarian View.”  European Economic Review,  38,

    (314): 964-73.