Poverty and Inequality in an Interconnected World

Recently, Indian economists have engaged in discussions on poverty and inequality in an interconnected world, focusing particularly on the accuracy of Oxfam's reports on wealth inequality in India.

Key Highlights of the Oxfam Report

• Education and Inequality: The report underscores the pivotal role of education in bridging social and economic gaps. It highlights the potential of disruptive technologies to enhance educational access and quality, thereby reducing inequality globally.

• Welfare State: Emphasizes the need for a welfare state that not only supports individual productivity but also raises the poverty line, helping more people move out of poverty.

• Women's Progress: Notes significant advancements in women's education and labor force participation in India, which are crucial for gender equality and economic development.

• Disruptive Technology: Suggests that disruptive technologies can be instrumental in closing inequality gaps, offering new opportunities for disadvantaged populations worldwide.

Classification of Poverty

1. Absolute Poverty: Common in underdeveloped countries, characterized by a lack of basic needs.
2. Relative Poverty: Reflects income inequality within a specific context, based on economic standards and living conditions.
3. Situational Poverty: Temporary poverty due to unforeseen events like natural disasters or health crises.
4. Generational Poverty: Persistent poverty passed down through generations within families.
5. Rural Poverty: Occurs in rural areas due to limited job opportunities, poor services, and low-quality education.
6. Urban Poverty: Challenges faced in urban areas due to inadequate services in education and healthcare.

Classification of Inequality

• Income Inequality: Uneven distribution of income among a population, leading to economic disparities.
• Pay Inequality: Differences in pay within an organization based on job roles, which can lead to systemic inequalities.

Estimates of Poverty in India

• Household Consumption Expenditure Survey (HCES) 2022-23: Rural poverty declined to 7.2% and urban poverty to 4.6%.
• Multidimensional Poverty in India (NITI Aayog): Multidimensional poverty dropped from 29.17% in 2013-14 to 11.28% in 2022-23, with 24.82 crore people moving out of poverty.
• Multidimensional Poverty Index 2023: National MPI value halved, with a decline from 24.85% to 4.96% between 2015-16 and 2019-21.

Poverty Line Estimation in India

• Tendulkar Committee (2009): Defined poverty line as ₹33/day in urban areas and ₹27/day in rural areas, with 21.9% of the population below the poverty line in 2011-12.
• Rangarajan Committee (2014): Adjusted the poverty line to ₹47/day in urban areas and ₹30/day in rural areas, resulting in 29.5% of the population below the poverty line in 2011-12.
• NITI Aayog's Multidimensional Poverty Index: Incorporates multiple dimensions and non-income factors to measure poverty more comprehensively.

Inequality Trends in India

• Wealth Inequality: The top 10% of the population holds 77% of the national wealth, with the richest 1% owning 53%.
• Income Inequality: The top 10% and 1% hold 57% and 22% of the total national income, respectively, according to the World Inequality Report 2022.
• Tax Burden on the Poor: The bottom 50% contributes 64% of the total GST, whereas the top 10% contributes only 4%.
• Food Security: 74% of India's population cannot afford a healthy diet, and 39% lack a nutrient-adequate diet.
• Gender Inequality: Ranked 127 out of 146 countries in the Global Gender Gap Report 2023, highlighting significant gender disparities in the workforce.

Causes of Increasing Inequality Despite High Economic Growth

• Concentration of Wealth: Wealth remains concentrated among a few, perpetuating inequality across generations.
• Inadequate Land Reforms: Insufficient land reforms leave many landless or with inadequate land, exacerbating poverty.
• Crony Capitalism: Corrupt practices and favoritism contribute to wealth accumulation among a select few.
• Skewed Economic Gains: Economic growth benefits certain sectors or groups disproportionately.
• Wage Gaps: Disparities between skilled and unskilled workers widen the income gap.

Challenges in Addressing Poverty and Inequality

• Limited Access to Education and Healthcare: Hinders human capital development and increases vulnerability to crises.
• Economic Vulnerability: Reliance on a few industries or commodities makes economies susceptible to external shocks.
• Corruption and Governance Issues: Weak governance and high corruption levels impede poverty alleviation efforts.
• Social Exclusion and Discrimination: Marginalized groups face systemic exclusion from economic opportunities.
• Debt Burden: High external debt limits investment in poverty reduction and essential infrastructure.

Way Forward

• Education, Health, and Skill Development: Quality education, affordable healthcare, and skill development are essential for breaking the cycle of poverty and reducing inequality.
• Social Protection Programs and Gender Equality: Establishing social safety nets and promoting gender equality can reduce poverty and inequality.
• Addressing Systemic Discrimination: Tackling discrimination based on race, ethnicity, and other factors is crucial for ensuring equal opportunities.
• Progressive Taxation: Implementing progressive taxation to ensure higher income groups contribute more, which can fund social programs and reduce inequality.
• Private Sector Engagement: Encouraging corporate social responsibility and private sector investment in social sectors and community development projects.