#India- Inequality matters #poverty,what statistics say

 Radhicka Kapoor
Posted online: Tuesday, Mar 05, 2013 , FE
Given the average GDP growth of 8.5% during FY05 to FY10, the Eleventh Plan target of reducing poverty by 2 percentage points a year was disappointing
That poverty in India has declined between 2004-05 and 2009-10 is indisputable. Poverty estimates based on the Tendulkar poverty line released last year indicated that poverty headcount ratio declined by 8%, 4.8% and 5.7% in rural, urban and all-India, respectively, during this period. This worked out to an annual decline of 1.64% and 0.92% in rural and urban India, respectively. Given that the average growth rate of GDP during this period was about 8.5%, exceeding 9% in three of the five years, and that the Eleventh Plan aimed to reduce poverty by 2 percentage points a year, this pace of poverty reduction is indeed disappointing. If economic growth was the only factor that mattered for poverty reduction, we should have witnessed greater poverty reduction. Moreover, states with the highest growth rate should have performed the best in terms of poverty reduction. But state-wise poverty estimates indicate that this is not the case. For instance, Bihar and Chhattisgarh witnessed average growth rates of about 10% during this period, yet poverty declined by less than 1%.
While growth is unquestionably necessary for substantial poverty reduction, it appears that growth is getting weakly linked with poverty reduction. In other words, the growth elasticity of poverty (GEP) is not high enough. GEP gives the percentage change in a chosen poverty measure in response to a 1 percentage change in GDP or mean income and can be interpreted as the poverty reducing impact of growth. In the poverty literature, GEP is found to be a function of initial income distribution, and it has been shown that rising levels of inequality lower GEP. The rationale for this is that the higher the initial inequality, the lesser the poor will share in the gains from growth. Martin Ravallion explains this succinctly as: “Unless there is a sufficient change in the distribution, people who have a larger initial share of the pie will tend to gain a larger share in the pie’s expansion”.
The National Sample Survey (NSS) data point in the direction of rising inequality in India. The Gini coefficient for rural India increased from 0.27 to 0.28 between 2004-05 and 2009-10, with rural inequality rising in 11 states. The Gini coefficient for urban India increased from 0.35 to 0.37, with urban inequality increasing in 18 states. Moreover, the ratio of per capita income between the top 15% and bottom 15% of the population has risen from 3.9 to 5.8 in rural areas and from 6.4 to 7.8 in urban areas during this period. This indicates that not only is inequality between the two groups on the rise, but also that the benefits of economic growth have not trickled down to those at the bottom of the distribution. Importantly, this rising inequality has reduced GEP.
Moreover, these inequality measures need to be interpreted with caution as India measures inequality based on consumption rather than incomes, and consumption inequality tends to be lower than income inequality because of consumption smoothing by households. Also, the NSS estimates of consumption expenditure fail to capture the top income groups, thereby resulting in underestimation of inequality. Therefore, inequality in India is higher than what we believe by looking at these estimates.
Importantly, inequality of consumption is about ‘inequality of results’ and not ‘inequality of opportunities’, which may be more important but are much harder to measure. Such inequalities are associated with gender or caste, access to key social services, particularly healthcare and schooling and access to credit markets; and these tend to undermine productivity, retard growth and consequently impede the task of poverty reduction. To achieve a higher rate of poverty reduction and make the growth process more inclusive, India will need to address these inequalities in opportunities that impede poor people from participating in the growth process. This will require increased spending on education and health, and creation of quality jobs and social safety nets for the poor and vulnerable. Conditional cash transfers (CCTs), which reinforce focus on schooling and health, if designed and targeted appropriately, can also go a long way in addressing such inequalities of opportunity. Allowing children to move faster and higher up the education ladder than previous generations will enable them to enjoy better prospects in the workforce than their parents. Research at the International Poverty Centre has found that CCT programmes such as Bolsa Familia and Oportunidades were responsible for about 21% of the fall in the Brazilian and Mexican Gini coefficient, each of which fell by approximately 2.7 points between mid-1990s and 2000s.
Over the last few decades, India has lifted people out of poverty at an unprecedented rate, but the pace of poverty reduction is being seriously challenged by rising inequality, which hurts GEP.
This makes a strong case for prioritising distribution and making income distribution more equal before embarking on a high growth path. Moreover, increasing inequality could undermine the basis of growth itself by reducing social cohesion and undermining the quality of governance by increasing pressure for inefficient populist policies. That myopic political responses to growing inequality to assuage voters can have disastrous consequences for the economy is well explained in Raghuram Rajan’s book, Fault Lines: How Hidden Fractures Still Threaten the World Economy. It was to address the rising income inequality in the US that credit, in particular housing credit, was pushed on low income households fuelling the crisis. It is therefore imperative that in the quest for higher economic growth we do not ignore the perils of rising inequality, one of the most pressing problems we are likely to face in the coming decade.
The author is an economist with a keen interest in the field of poverty and inequality in developing countries


Kelkar Committee Report Uploaded – inviting comments from People #mustshare


Kelkar Committee has recommended sharp reduction in subsidies on petroleum, food and fertiliser, which the government said was contrary to its policy of protecting the poor.

Kelkar Committee Report Uploaded on Finance Ministry Website to Invite Comments from all Sections of the People

On August 6, 2012, the Union Finance MinisterShri P.Chidambaram  had made a statement on the economic situation and on the policy measures that were under consideration of the Government. Referring to the fiscal situation, the Finance Minister had said:

“We intend to unveil, shortly, a path of fiscal consolidation. I would like to make it clear         that the burden of fiscal correction must be shared, fairly and equitably, by different    classes of stakeholders. The poor must be protected and others must bear their fair share         of the burden. Obviously, adjustments must be made both on the revenue side and on the   expenditure side. We have asked Dr. Vijay Kelkar, Dr. IndiraRajaraman and Dr. Sanjiv         Misra to assist the Government in formulating the path of fiscal consolidation and we             expect that the work will be completed in a few weeks.”

The aforesaid Kelkar Committee submitted its report on September 3, 2012.

The Committee has reached certain conclusions and has made a number of recommendations.

The main conclusion of the report is that “We cannot over-emphasize the need and the urgency of fiscal consolidation.”

The report is under consideration of the Government and the Government has not yet taken a view on the report or on any of the recommendations.


                   The Secretary, Department of Economic Affairs, ShriArvind Mayaram said that some recommendations appear contrary to the declared objective of the Government of ‘sustained and inclusive growth’. He said that the Government is of the view that in a developing country where a significant proportion of the population is poor, a certain level of subsidies is necessary and unavoidable, and measures must be taken to protect the poor and vulnerable sections of the society. It is in this view that the Government has reiterated its intention to implement the promise of food security for all, he added. The Secretary Shri Mayaram further said while taking a final view on the various recommendations of the report, the Government will bear in mind that the goal is to achieve high growth, inclusive development, and economic and social justice for all.

                             The Secretary, Department of Economic Affairs, ShriArvind  Mayaram said that the Government welcomes an informed debate on the report submitted by the Kelkar Committee. Hence, this report is being uploaded on the website of the Ministry of Finance atwww.finmin.nic.in, he informed. Shri Mayaramsaid that the Government invites all sections of the people to send their comments to the email address: feedbackonkelkar-mof@nic.in.



29 SEP, 2012, , ET BUREAU– The government appears to have developed cold feet over implementing Kelkar panel’s recommendations to slash subsidies drastically at a time when it is facing backlash for raising diesel prices and capping subsidised cooking cylinders.
The report, which has been put out for public comments, warns that India is on the edge of a fiscal precipice. A senior finance ministry official has said that the report has not been accepted so far and that some of the panel’s recommendations run contrary to the government’s larger objectives.

“Some recommendations appear contrary to the declared objective of the government of ‘sustained and inclusive’ growth,” Arvind Mayaram, secretary in thedepartment of economic affairs said, adding, “The government is of the view that in a developing country, where a significant proportion of population is poor, a certain level of subsidies is necessary and unavoidable, and measures must be taken to protect the poor and vulnerable section of the society.”

Mayaram said the government is yet to take a call on the report which calls for abolition of subsidy on diesel by next year and on cooking gas by 2014-15, suggestions that the government has indicated will be difficult to accept. “While taking a final view on the various recommendations of the report, the government will bear in mind that the goal is to achieve high growth, inclusive development, and economic and social justice for all,” Mayaram added.

Kelkar Panel has issued a grim warning on India's fiscal deficitKelkar Panel has issued a grim warning on India's fiscal deficit

The committee had submitted its report on September 3, before the government unleashed the recent reforms that sparked a stock market rally and led to appreciation of the rupee. “The Indian economy is presently poised on the edge of a fiscal precipice, making corrective measures aimed at speedy fiscal consolidation an imperative necessity if serious adverse consequences stemming from this situation are to be averted in an efficient and timely manner,” the committee has said.

If no corrective measures are taken, India can face a crisis worse than the one in 1991, the committee has said. It has also cautioned that the deficit for the current fiscal can widen to 6.1% of the GDP against the budgeted 5.1%, but the government does not seem to agree with the grim prognosis.

Mayaram said the government is committed to keeping itsfiscal deficit target as close to its target even as the fiscal deficit in the first five months of 2012-13 has touched 65.7% of that budgeted for the entire fiscal. The panel has suggested that the government should eliminate half of the per unit diesel subsidy by the end of this fiscal and the rest over 2013-14. The subsidy on cooking gas should be reduced by 25% this year and completely eliminated over the next two years, it has said. In the case of kerosene, it has said that the objective should be to reduce the subsidy by one-thirds by 2014-15.

Don’t take the wrong pill- Universal Health Coverage




Editorial, The Hindu 


The Planning Commission must not make the mistake of letting short-term fiscal concerns overturn the national aspiration for Universal Health Coverage (UHC). Some elements of the draft Twelfth Plan on health have caused alarm, as they run counter to key recommendations of the Commission’s own High Level Expert Group. The Plan panel wants to reduce out-of-pocket spending on health from 71 per cent to 50 per cent during the Plan period, to mitigate the biggest factor that leads to impoverishment of many families. But that will be impossible without substantial fiscal support. Regrettably, there appears to be a quiet attempt to peg targeted public spending on health at 1.58 per cent of GDP, ignoring the HLEG recommendation for an increase to 2.5 per cent over five years, and to 3 per cent by 2022. Among comparable nations, India brings up the rear in public spending on health at 1.2 per cent of GDP.


English: Manmohan Singh, current prime ministe...

English: Manmohan Singh, current prime minister of India. (Photo credit: Wikipedia)


It is now crucial for the Centre and the States to come together and launch a UHC model funded by general taxation that meets the essential health requirements of all people. The success of legal reform in the United States to regulate a socially disconnected, for-profit health industry, and the remarkable equity achieved by other welfare-oriented countries should persuade Indian leaders on launching a national plan.

At the polio summit in February, Prime Minister Manmohan Singh emphasised the need to strengthen public health systems, and accelerate efforts to achieve universal access to care. It would defeat this idea if UHC were to rely on for-profit providers of care and insurance under a ‘managed care’ model. The Planning Commission would do well to steer away from the siren songs of corporatisation, and focus on the core challenge: the need to set up an independent regulatory framework at the national and State level for all types of care institutions, regulate drugs to lower costs and promote generics, identify standard treatment and management guidelines, and provide resources to fund the essential health package. It is of course encouraging that the Commission has distanced itself from reports of reliance on corporate providers, but it is essential to state the vision clearly in the Plan. Also worth pointing out is the potential of UHC to create a large number of jobs and spur economic growth. India needs many more professionals to achieve the ideal norm of one doctor for 1,000 people, and three nurses and midwives per doctor. Here, the HLEG provides a useful roadmap for expansion of teaching institutions, which can quickly raise the capacity of many remote hospitals.





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