Poverty and Inequality in an Interconnected World

  SANSAD TV - Discussion   May 18, 2024   102  Add to Reading List
Poverty and Inequality in an Interconnected World

Recently, Indian economists have been discussing poverty and inequality in an interconnected world, including the accuracy of Oxfam's data on wealth inequality in India.



Key Highlights:

The Oxfam report underscores education's role in closing gaps and the potential of disruptive technology to diminish inequality. It stresses the necessity of a welfare state to boost individual productivity and elevate the poverty line. Additionally, it acknowledges India's strides in women's education and workforce engagement, while advocating for disruptive technology to foster global equality.

Classification of Poverty:

Absolute Poverty: Predominant in underdeveloped nations, characterized by extreme deprivation where individuals struggle for basic necessities.

Relative Poverty: Reflects income inequality resulting from comparisons between living conditions and economic standards.

Situational Poverty: Temporary hardship stemming from environmental disasters, severe health issues, or job loss.

Generational Poverty: Complex intergenerational poverty perpetuated within families and passed down through generations.

Rural Poverty: Occurs in rural areas with limited job opportunities, services, and lower-quality education.

Urban Poverty: Challenges faced by urban dwellers due to inadequate education, healthcare, and service infrastructure.

Estimates of Poverty in India:

  • According to the Household Consumption Expenditure Survey (HCES) 2022-23, rural poverty decreased to 7.2% in 2022-23 from 25.7% in 2011-12, while urban poverty dropped to 4.6% from 13.7% during the same period.
  • A Discussion Paper by NITI Ayog on Multidimensional Poverty in India since 2005-06 revealed a decline from 29.17% in 2013-14 to 11.28% in 2022-23.
  • Over nine years leading to 2022-23, 24.82 crore individuals transitioned out of multidimensional poverty, with Uttar Pradesh, Bihar, and Madhya Pradesh showing the most significant reductions.

Multidimensional Poverty Index 2023:

  • The Multidimensional Poverty Index 2023 reveals a near-halving of India's national MPI value, decreasing from 24.85% to 4.96% between 2015-16 and 2019-21.
  • This reduction of 9.89 percentage points signifies the exit of approximately 135.5 million individuals from poverty during the same period.
  • Moreover, the intensity of poverty, indicating the average deprivation among those in multidimensional poverty, declined from 47.14% to 44.39%.

Poverty Line Estimation in India:

  • Tendulkar Committee (2009): According to the Suresh Tendulkar methodology, the poverty line was set at ₹33 per day in urban areas and ₹27 per day in rural areas. This resulted in India's poverty rate being 21.9% of the total population in 2011-12, as per the Tendulkar committee's findings.

  • Rangarajan Committee (2014): Using the Rangarajan methodology, the poverty line was defined as Rs. 47 per day in urban areas and Rs. 30 per day in rural areas. Consequently, India's poverty population was estimated to be 29.5% of the total Indian population in 2011-12, according to the Rangarajan committee's assessment.

Current Poverty Line Calculation by NITI Aayog:

  • NITI Aayog has introduced a novel approach that integrates multiple dimensions and non-income factors through the Multidimensional Poverty Index 2023, based on National Family Health Surveys (NFHS) data.
  • At the core of this index lies the Alkire-Foster (AF) methodology, a widely recognized framework for measuring multidimensional poverty. This methodology captures intersecting deprivations in health, education, and living standards.
  • Regarding the international poverty line, the World Bank defines extreme poverty as living on less than $2.15 per day, adjusted for inflation and price disparities among countries.

Inequality Trends in India:

  • Wealth Inequality: India stands as one of the most unequal nations globally, with the top 10% of the populace holding 77% of the total national wealth. The wealthiest 1% possess 53% of the nation's wealth, leaving the poorer half with a meager 4.1%.
  • Income Inequality: As per the World Inequality Report 2022, India ranks among the most unequal countries, with the top 10% and top 1% owning 57% and 22% of the national income, respectively. Conversely, the share of the bottom 50% has dwindled to 13%.
  • Tax Burden on the Poor: Despite contributing 64% of the total Goods and Services tax (GST), the bottom 50% of India's population bears a disproportionately higher tax burden compared to the meager 4% from the top 10%.
  • Food Security and Nutrition: A staggering 74% of India's populace struggles to afford a healthy diet, while 39% fall short of nutritional adequacy, according to The State of Food Security and Nutrition in the World, 2023.
  • Global Hunger Index 2023: India's GHI score of 28.7 in 2023 indicates a serious level of hunger according to the GHI Severity of Hunger Scale. Notably, India's child-wasting rate, at 18.7, is the highest among the countries surveyed.
  • Gender Inequality: India ranks 127 out of 146 nations in the Global Gender Gap Report, 2023. The nation grapples with the persistent issue of "missing women" from the workforce, presenting a formidable challenge.

Causes of Increasing Inequality Despite High Economic Growth:

  • Concentration of Wealth: The accumulation of wealth among a small elite can perpetuate inequality across generations, as inherited advantages further widen the wealth gap.
  • Inadequate Land Reforms: Insufficient land reforms leave a significant portion of the population landless or with inadequate land holdings, exacerbating poverty and economic insecurity.
  • Crony Capitalism: Corruption and favoritism lead to the concentration of wealth among a privileged few, fostering inequality and promoting crony capitalism.
  • Skewed Distribution of Economic Gains: Economic growth may disproportionately benefit specific sectors or income groups, resulting in an unequal distribution of wealth.
  • Wage Gaps: Disparities in wages between skilled and unskilled workers contribute to income inequality. Informal labor markets with lower wages and fewer benefits exacerbate the income gap.

Challenges in Addressing Poverty and Inequality:

  • Limited Access to Education and Healthcare: Developing nations grapple with providing adequate education and healthcare services, hindering human capital development and increasing vulnerability to health crises.
  • Economic Vulnerability: Reliance on a few industries or commodities leaves developing economies susceptible to external shocks and market fluctuations, amplifying poverty and inequality.
  • Corruption and Governance Issues: Weak governance and corruption impede the effective implementation of poverty alleviation programs, favoring the wealthy and perpetuating inequality.
  • Social Exclusion and Discrimination: Marginalized groups, such as ethnic minorities and women, face discrimination and exclusion from economic opportunities, perpetuating cycles of poverty and inequality.
  • Debt Burden: High levels of external debt limit developing countries' ability to invest in poverty reduction programs and essential infrastructure, exacerbating poverty and inequality.

Conclusion

By focusing on education, healthcare, and skill development, implementing social protection measures, addressing systemic discrimination, and introducing progressive taxation, India can pave the way for a more equitable society. Engaging the private sector in corporate social responsibility efforts further strengthens the path towards inclusive growth and reduced inequality. Through concerted efforts across these fronts, India can strive towards a future where every individual has the opportunity to thrive and contribute to the nation's prosperity.