How to Reduce Poverty in India ? (9 Measures)

Various measures which should be taken to reduce poverty in India are: 1. Changing Strategy of Economic Growth 2. Agricultural Growth and Poverty Alleviation 3. Speedy Development of Infrastructure 4. Accelerating Human Resource Development 5. Growth of Non-Farm Employment 6. Access to Assets 7. Public Distribution System 8. Direct Attack on Poverty 9. Economic Growth.

Measure # 1. Changing Strategy of Economic Growth:

In the fifties and sixties it was generally thought that poverty in India could be significantly reduced by accelerating economic growth. According to this view, benefits of economic growth will trickle down to the poor in the form of more employment opportunities, greater productivity and higher wages. With this it was expected that the poor will be raised above the poverty line.

Various growth models put forward in the fifties and sixties such as Harrod-Domar growth model, Mahalanobis growth model, Lewis’ model of economic development with unlimited supplies of labour suggested rapid growth of the modern industrial sector to tackle the problem of poverty in the long sun. For this purpose they suggested for increasing the rate of capital formation so as to generate more employment opportunities and increase productivity of labour.

Though this is correct that higher rate of capital formation is necessary for accelerating economic growth and thereby for solving the problem of poverty, but this will not generate sufficient employment opportunities if labour-saving capital-intensive techniques of production are used in the process of growth. This was clearly brought out by the actual experience in India in the eighties and nineties whereas in the two decades of development, rate of growth in GDP achieved was in the range of 5.5 per cent to 6 per cent per annum there had been only little increase in employment opportunities, especially in the organised industrial sector.

In the last ten years (since 2004-05) the rate of growth of employment has further declined despite the achievement of average 8 per cent GDP growth per annum. Therefore, while efforts should be made to accelerate economic growth but if it has to make a significant dent on the problem of poverty, the use of capital-intensive technologies imported from the Western countries should be avoided. In fact, we should pursue labour-intensive path of economic growth. Such monetary and fiscal policies should be adopted that provide incentives for using labour-intensive techniques.

Measure # 2. Agricultural Growth and Poverty Alleviation:

Agricultural growth has been recognised as an important factor that contributes to marked reduction in poverty. A study made by Montek Singh Ahluwalia, former member of Planning Commission, brought out clearly that agricultural growth and poverty are inversely related; the higher agricultural growth leads to lower poverty ratio. The experience of Punjab and Haryana in the late sixties and in the seventies confirmed this inverse relation between agriculture growth and poverty. The growth in agricultural output in these states propelled by the adoption of new-high yielding technology caused a marked reduction in poverty in these states. Rural poverty ratio in Punjab and Haryana declined to 6.4 and 8.3 per cent respectively in 1999-2000.

Therefore, other States should follow the path of Punjab and Haryana for reduction of rural poverty. Thus, Late Prof. S. Chakravarty states, “the solution to the problem of rural poverty requires that small farmers must also be given access to land-augmenting innovations”. By land augmenting innovations he means the new high-yielding technology represented by green revolution that occurred first in Punjab and Haryana.

However, in the recent years relationship between agricultural growth and poverty reduction seems to have weakened. For example, at all India level, employment elasticity of growth in agricultural output has been found to be zero during 1993-94-1999-2000 whereas it was 0.45 during 1977-78-1983. It appears that at the all India level employment generated by new green revolution technology has been cancelled out by increasing mechanisation of agricultural operations in various parts of a country. Thus, even in the light of the finding of zero employment elasticity of agricultural output at the all India level, positive impact of agricultural growth on the incomes of small farmers and, more particularly on the wage income of agricultural labourors, cannot be denied.

To ensure marked decline in rural poverty through agricultural growth, rate of agricultural growth should be accelerated by increasing public investment in irrigation and other infrastructure. In recent years since 1980, rate of capital formation in agriculture has been declining. This trend has to be reversed by increasing public investment in agriculture, especially irrigation. Besides, higher agricultural growth can be achieved in semi-arid and rain-fed areas by increasing public investment in infrastructure and ensuring adequate access to credit to the small farmers.

Measure # 3. Speedy Development of Infrastructure:

An important measure to generate employment opportunities for the poor and to raise their productivity is the speedy development of infrastructure. Since private sector is not attracted to make adequate investment in infrastructure, public investment needs to be stepped up for its development. Infrastructure development consists of building of roads, highways, ports, telecommunication, power and irrigation. They involve mainly construction work which is highly labour intensive.

Besides, the availability of infrastructure such as power and irrigation greatly raise productivity of labour. C.H. Hanumantha Rao in his study of East and South East Asian Countries finds that reduction in rural poverty in them achieved through economic growth occurred due to the fact that physical infrastructure in them were already highly developed. To quote him, “The experience of East and South East Asian Countries shows that the impact of development on rural poverty reduction has been greatest in situations where land reforms have been implemented effectively and a high priority has been accorded to infrastructure development, agriculture and human resource development within a liberalised economic policy framework”.

These facts suggest, in the first place, that in a country like India where the physical and social infrastructure is inherited from the pre-liberalisation period is not strong and redistribution of land on a significant scale is not feasible, public investment needs to be stepped up for expending physical infrastructure in the less developed areas.

Measure # 4. Accelerating Human Resource Development:

Besides physical infrastructure development, poverty can also be reduced through human resource development. Human resource development requires greater investment in educational facilities such as schools to promote literacy, technical training institutes and vocational colleges to import skills to the people. Further, human resource development requires healthcare by public investment in Primary Health Centres, dispensaries and hospitals.

These human resource development not only directly generates a good deal of employment opportunities but also raises productivity and income of the poor. People equipped with skills, education and good health can easily-get wage employment or self-employment with higher productivity. In this way human resource development helps in reducing poverty. The experience of East and South-East Asian Countries, referred to above, and Kerala in our country shows that poverty can be significantly reduced through investment in human resource development. However, private sector, guided as it is by profit motive, will not adequately invest in the human resource development.

Measure # 5. Growth of Non-Farm Employment:

For reduction of poverty growth of non-farm employment in the rural areas is of special importance. Non-farm employment is created in marketing (i.e., petty trade), transportation, handicrafts, dairying, and forestry, processing of food and other agricultural products, repair workshops. A study of poverty alleviation in Haryana brings out that significant reduction in rural poverty in Haryana in spite of a reduction in employment opportunities in agriculture was due to the remarkable increase in non-farm employment. Similarly, a study of Andhra Pradesh also shows that poverty declined more rapidly in the districts adjoining Hyderabad city due to large increase in non-farm employment.

Measure # 6. Access to Assets and Credit:

Rapid growth of population after independence has led to greater subdivision and fragmentation of agricultural holdings and lack of employment opportunities in industries and other non-farm sectors has worsened the conditions of agricultural labour and self-employed small farmers. With no land or little land they cannot engage themselves in self-employment activities for earning adequate income to meet their basic needs. Redistribution of land through effective redistribution, implementation of tenancy reforms so as to ensure security of tenure and fixation of fair rent would be important measures of reducing rural poverty. Except in case of West Bengal and Kerala land reforms have not been implemented to reduce rural poverty.

However, abolition of Zamindari system is the only land reform measure which had been faithfully implemented in several parts of the country. Other land reform measures, namely, ceilings on land holdings, protection of tenants against eviction, and regulation of fair rent by the Government have remained unimplemented except in case of West Bengal and Kerala. But without land reforms, a significant dent on the problem of rural poverty cannot be made.

On small farms labour employment per hectare, output per hectare and double cropping are greater as compared to those of large farmers. Tenants who enjoy no security of tenure do not invest adequately in yield-increasing inputs to raise their productivity. The effective implementation of land reforms to ensure access to land and security of tenure are therefore essential for the reduction of poverty.

But, unfortunately, the present Planning Commission and the Government do not attach much importance to these much awaited land reforms. Citing the experience of East and South East Asia in which both rate of growth and poverty reduction has been remarkable Prof. C.H. Hanumantha Rao states, “their experience shows that the impact of development on rural poverty reduction has been greatest in situation where land reforms have been implemented effectively.”

Availability of credit to the poor on easy terms can create the conditions for small farmers gaining access to productive resources such as HYV seeds fertilizers, construction of minor irrigation such as wells and tube wells. This will enable the small farmers to adopt high- yielding technology to raise their productivity. The new technology is size-neutral, that is, it can be adopted equally well by small farmers. But the adoption of new technology requires financial resources which are lacking with the small farmers.

Besides, the non-farmer poor need credit for marketing, food processing, dairying, forestry, development of handicrafts which can provide them gainful employment. Important changes have been introduced in the credit delivery system in India. Expansion of network of rural branches of commercial banks after nationalisation and fixation of limits for compulsory lending to the priority sectors (which include agriculture, small-scale industries) and fixation of lower interest rates to be charged from the poor farmers and artisans some progress has been made in this regard.

However, banks and other financial institutions have not shown adequate response to provide adequate credit to them as they consider the poor to be non-creditworthy. Unless the banks and other financial institutions change their attitude toward supplying credit to the poor much success cannot be achieved to ensure adequate credit to the poor farmers and artisans. What they do need is short-term loan for working capital such as for purchasing raw materials, fertilizers, pesticides.

An important step in credit delivery system for the poor has been setting up of regional rural banks (RRB). Regional rural banks are primarily meant to meet the credit needs of the poor. The government should take effective steps to improve the functioning of these financial institutions so as to ensure availability of adequate credit to the poor.

Measure # 7. Public Distribution System (PDS):

Poor households spend nearly 80 per cent of their income on food. Therefore, an effective way of raising rural incomes and ensuring food security to the poor households is an assured supply of adequate quantity of food-grains and other essential commodities at subsidised prices, that is, at prices which are lower than the market prices. A properly functioning public distribution system which is targeted to the poor households is an important element of the strategy for poverty reduction. The Central Government Organisation ‘Food Corporation of India’ procures the food-grains from the farmers at the minimum support prices (MSP) and store them in their warehouses located throughout the country.

The food-grains so procured are allotted to the State Governments to be sold through the public distribution systems (i.e., ration shops) at subsidised prices which are below market prices. The difference between the two prices is paid by the Central Government as subsidy. The expenditure on food subsidy has greatly increased in recent years.

The ratio of release of food-grains through PDS to total food-grains production is around 10 to 13 per cent. Some economists have suggested lowering of subsidies. What is needed is to ensure subsidised food-grains supply through PDS be made only to the targeted group of households living below the poverty line and not to all households. In this way the expenditure on food subsidy can be reduced significantly and only the poor will get the benefits of the subsidy. It is worth mentioning that Andhra Pradesh is a shining example of using PDS to help the poor under Rs. 2 per kilogram of rice supplied through ration shops.

Measure # 8. Direct Attack on Poverty – Special Employment Schemes for the Poor:

It was realised in the early seventies that it would take a very long time for economic growth to generate enough employment opportunities to provide productive employment to all the unemployed and poor in the country. Therefore, a strategy of providing employment to the poor in the short run, special schemes of employing poor on rural public works was proposed by Dandekar and Rath in their now famous work “Poverty in India”.

The special employment scheme of rural public works which was launched by the Government in 5th Five Year Plan constitutes a direct attack on poverty as it does not depend on the trickle-down effect of economic growth on the poor. There are mainly two types of such special anti-poverty schemes launched by the Government from time to time.

First, there are several special schemes of providing wage employment to the poor. These include Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) and Pradhan Mantri Sarak Yojna. It is centrally sponsored special employment scheme implemented by Gram Panchayats to generate wage employment for the rural poor. The approach of this scheme is to employ the poor on building durable and productive community assets such as roads, small irrigation facilities, school buildings, rural electrification. These durable productive assets after completion would create employment opportunities on sustained basis.

The second special employment scheme has been IRDP (Integrated Rural Development Scheme) under which self-employment of rural people is promoted by building their capacity in such activities as dairying, poultry, handicrafts, forestry. Financial assistance to them is arranged through banks for this purpose. Similarly, a third such special employment scheme is TRYSEM (Training of Rural Youth for Self-Employment) under which rural youth are given training and equipped with skills so that they can start some self-employment activity. Bank credit is arranged to financially support them.

With effect from April 1999, IRDP and TRYSEM schemes along with the schemes of Development of Women and Children in Rural Areas (DWCRA) and Million Wells Scheme (MWS) have been merged into a single scheme called Swaran Jayanti Gram Swarozgar Yojana (SGSY) which aim at promoting micro-enterprises by helping the poor to form self-help groups with the assistance from the Centre and States. If implemented in a right spirit, these schemes can make useful contribution to poverty reduction in the rural areas. However, the actual performance of these schemes has not been satisfactory.

While a large amount of money is spent by the Government on payment of wages, durable productive assets to be used for future use are not generally created. Similarly, schemes for self-employment such as IRDP, TRYSEM are merely used to get loans from the banks and financial assistance from the States. They are not generally used for investment for viable schemes of productive self-employment. This highlights the need for making reforms in these schemes so that they lead to the expansion of productive types of wage-employment and self-employment.

Measure # 9. Economic Growth:

Whether economic growth necessarily reduces poverty has been a controversial issue. As pointed out above, it was first generally believed that benefits of economic growth would trickle down to the poor and thus alleviate poverty in the economy. This trickle-down effect of economic growth was thought to operate through an increase in employment opportunities and rise in real wages as a result of increase in productivity of workers. The favourable employment effect of economic growth depends on employment elasticity of output growth. The rise in real wages was thought to occur as a result of rise in wages of workers employed in agriculture and non-agricultural sector, both organised and informal.

The agricultural growth was visualised to cause reduction in food prices and greater availability of food-grains along with employment growth in agriculture. This would ensure reduction of poverty as it would enable the poor to meet their minimum consumption requirements. Besides, in this approach it was thought that the poor will also be benefitted by the multiplier effect of economic growth.

According to this, benefits of growth are reaped first by the rich and subsequently by the poor when the rich spend their incomes leading to the rise in income and employment for the poor. Further, as explained by T. N. Srinivasan the multiplier effect also operates through economic growth raising the revenue of the government which if invested in public goods and services which are relatively consumed more by the poor would reduce non-income facets of poverty such as reduction in infant mortality rate and rise in life expectancy of the poor.

Further, some Indian economists, especially Prof, Jagdish Bhagwati and Arvind Panagariya of Columbia University (USA), who is now vice chairman of Neeti Aayog, have argued that economic growth leads to the increase in revenue of the Government which can be spent on special anti-poverty schemes. This will help in reducing poverty. This direct approach to poverty alleviation has in fact been adopted by the Indian Government by starting various special employment schemes such as National Rural Employment Guarantee Scheme (MGNREGS), Prime Minister’s Sarak Yojana, mid­day meals in government schools and provision of food-subsidy through Public Distribution Scheme.

The reduction in poverty in the last 10 years (i.e., since 2004-05) has been mainly due to the increase in Government expenditure on special anti-poverty schemes. However, it may be noted that increase in Government expenditure might be the result of higher fiscal deficit incurred rather than due to the large revenue generated through taxation as a result of higher rate of economic growth. As Paul Streeten has observed that trickle-down effect does not happen where assets and power are concentrated. The Government did not act like Platonic guardian but reinforced the accrual of wealth to the rich and powerful.

And it was not realised that investing in the developing countries most abundant resource, its masses of poor people could be a paying proposition. This raises two issues. First, to what extent economic growth will cause reduction in poverty largely depends on the initial conditions of asset distribution. Since main asset in developing countries is land, if it is grossly unequally distributed, the benefits of agricultural growth will mainly go to the landlords with only small benefits to the landless labour, small and marginal farmers.

In India under the economic reforms initiated in 1991 involved liberalisation, privatisation and globalisation of the Indian economy have not paid any attention to the question of asset distribution (including the distribution of surplus land held by big landlords), and to the tenancy reforms. This explains why agricultural growth in India, though low it has been since 1991, has not led to any significant reduction in rural poverty, despite claims to the contrary by the Government and the Planning Commission.

It is due to the fact that strategy of economic growth pursued by the government failed to reduce poverty significantly that it has undertaken special employment and anti-poverty schemes to alleviate poverty in the country. Besides, benefits of growth have not reached the poor that Government has been providing subsidies on food, sugar, kerosene oil and distributing them through public distribution system to help them. The quotation from Paul Streeten given above indicates that, solution to the problem of poverty lies in developing countries undertaking greater investment in the masses of poor people. This can happen if Government spends a significant amount of its investment expenditure on human development, that is, on promotion of education and health of the poor.

Labour is essentially the only source of income for the poor people. Therefore, increasing the productivity of labour through providing education and health care and technical skills to them provides a sustainable means of poverty reduction. Dreze and Amartya Sen have laid great stress on instrument role of education in enabling people to seize economic opportunities created by the growth process.

The best example of this is Kerala where a very high rate of literacy of about 90 per cent, has provided most successful performance in rural poverty reduction. In contrast Bihar, the weakest of the large Indian States in terms of poverty reduction is characterised by an abysmally low literacy rate. In an important study Datt and Ravallion have also found that initial levels of education affect the poverty-reducing effect of economic growth.

Moreover, the impact of economic growth on poverty reduction also depends on to what extent it is accompanied by inflation. Inflation determines the purchasing power of money wages and incomes earned by the poor people. A higher rate of inflation erodes to a large extent the purchasing power of wage earners as it affects the ability of the people to meet the specified level of consumption. Given the money wages, a higher rate of inflation will send more people below the poverty line. In the unorganised labour market wages of workers are not indexed to the cost of living, the rate of inflation accompanying economic growth has an adverse effect on poverty through its effect on real wages.

Further, for economic growth to have a significant impact on poverty depends not much on its trickle-down effect but whether economic growth is pro-poor or what has been recently described as “inclusive growth”. However, our Planning Commission considers inclusive growth merely in terms of starting some special employment or anti-poverty schemes in which not only there are a lot of leakages but also do not result in the creation of durable productive assets.

If economic growth has to be pro-poor or inclusive, the strategy of growth should be such that generates a lot of employment opportunities for the poor people in agricultural, industrial and services sectors at reasonable wages that enable them to meet their basic minimum needs. Such a pro-poor or inclusive growth strategy will involve adequate public expenditure on human resource development in the fields of education and health care which benefit the poor and enable them to participate in the activities that bring about expansion in output. Therefore, Kakwani and Pernia rightly defines pro- poor growth as “growth that enables the poor to actively participate and significantly benefit from economic activity”.

However, as pointed out by Gaurav Nayyar, “Owing to the inherent advantages enjoyed by the rich in terms of material and human capital, the growth process generally tends to benefit the rich proportionately more than the poor”. Therefore, pro-poor and inclusive growth strategy requires building up human development which depends on increase in public expenditure on education and healthcare which depends on the poor people. Besides, pro-poor growth strategy also involves institutional reforms such as land reforms in agriculture aimed at distributing surplus land of big landlords among the landless agricultural workers and marginal and small farmers and also taking effective measures to protect the tenants and sharecroppers against exploitation by landlords.

Besides, inclusive growth strategy requires the adoption of labour-intensive technologies wherever feasible so as to generate adequate employment opportunities for the poor and unemployed. For this purpose reckless mechanisation of agriculture should be discouraged and appropriate fiscal measures be taken so that in the organised industries and service sector labour displacing technologies imported from abroad and unsuited to labour-surplus conditions of the Indian economy are not used in production of goods and services.

Moreover, to provide gainful employment opportunities to the poor higher priority should be given to investment in physical infrastructure. It has been empirically found that development of physical infrastructure such as roads, irrigation facilities, and power (electricity) apart from creating direct employment has a large multiplier effect on both output and employment in agricultural and non-agricultural sectors.