Poverty and Inequality in India - M.phil Thesis

A Study on Poverty and Inequality in India
A REVIEW OF THE STUDIES ON POVERTY AND

INEQUALITY IN INDIA

Sukumar Nandi

CONTENTS
Introduction Page
1
Chapter 1: 1
Concept of Poverty and Inequality
Concept 2: 4
Poverty in India
Chapter 3: 20
Studies on Inequality
Chapter 4: 63
Causes of Poverty and Inequality in India
Chapter 5: 75
Conclusion: The Anti-Poverty Programmes
Notes 82
Bibliography 99
INTRODUCTION
Poverty and inequality are complex phenomena and their major discussions and
consequent policy implications deserve the attention of all concerned. A critical review
of the academic research on these phenomena reveals a variety of perspectives. Major
differences in this respect have characterized the discussions of the definition of
poverty and its measurement on the one hand, and of the elaboration of the concept of
inequality in the context of a developing economy on the other. Policy implications
also differ in different studies, which is a natural outcome of the differences in
approach. One of these approaches starts from the concept of subsistence level for
defined with some standard norm of nutrition. A second approach has been to use
income and expenditure data for constructing a poverty line below which poverty will
2
be said to exist. In this approach data relating to per capita income or expenditure are
utilized to establish the concept of a poverty level. Broadly speaking, these two
approaches distinguish the major studies on poverty so far undertaken in India.
Measurement of economic inequality can be regarded as one aspect of the wider
problem of securing social equity and justice. In a sense it is perhaps the most
important aspect of the broader concept. Economic inequality prevents the realization
of the goals of social equity and justice. Economic justice becomes an important issue
in the context of widespread poverty; the contrast becomes sharper when there exist
small islands of affluence in an ocean of poverty. The studies on inequality in India
generally use such standard measures as the Lorenz ratio though other more refined
measure have also been used. Poverty and economic inequality can be regarded as the
twin aspects of the same problem. In India again the problem of poverty and inequality
is further aggravated by caste stratification which is a prominent feature of her social
and community life over and above the economic stratification as commonly found in
capitalist economies.
The objective of this dissertation is very modest. It attempts to make a brief
survey of the major studies on the measurement of poverty and inequality in India. At
the outset the theoretical position in respect of the concepts of poverty and inequality
has been explained, and subsequently the various Indian studies on the two topics have
been analyzed. Thus the dissertation has been divided into five Chapters. In the first
chapter, we review economic theory relevant to the concepts of poverty and inequality.
In the second chapter we deal with different measures that have been evolved for the
study of poverty in India. In the third Chapter we take a critical look at the studies
made about economic inequality in India. The fourth chapter is devoted to an attempt
to piece together the factors which the different studies on poverty and inequality have
shown to be the underlying causes of these disturbing phenomena. In the last chapter
we have made a brief survey of the programmes adopted in India to launch a direct
attack on poverty in the rural areas.
3
CHAPTER-1
CONCEPT OF POVERTY AND INEQUALITY
An analysis of the Indian economic situation reveals two features: First, while
the economy has attained a modest trend rate of growth, the problem of poverty
perpetuates. Secondly, in our plan documents the problem of distribution has not been
completely left out of discussions relating to production, and the possibility of conflict
between growth and distribution has not been explicitly recognized.
1
The essence of
this argument in favour of this is as follows: A very slow rate of growth along with
inequality in income distribution has perpetuated poverty in India. A large proportion
of population has to live without even the most essential needs of daily life because
total national income is too small relative to the size of population; and secondly, the
4
distribution of this income is very uneven. This problem cannot be overcome if
emphasis is not put simultaneously on economic growth and reduction of inequality.
Even the highest attainable rate of growth cannot make a major impact on the problem
of poverty in the foreseeable future if inequality is not reduced.
There has been a clear recognition, from the First Five Year Plan onwards, of
the need for special policies for the benefit of the poor. In fact, the justification of
policies like land reforms, subsidies to the village industries, economic assistance to the
backward communities and so on is to be partly found in the recognition of their
problem, while the problem is explicitly stated in the plan documents, there always
appears to exist a gap between the formulation and execution of policies which could
be regarded as intended primarily for the benefit of the poor. Indeed, the attempt to
identify the poor in operational terms has started only in recent years.
At present the problem of poverty is being dealt with both unprofessional
writing and in government policy documents and programmes with increasing
frequency. Poverty is a complex phenomenon and at least its major dimensions require
considerable attention if the problem is to be properly comprehended. We should,
therefore, start with the basic question: What is poverty?
A review of the academic research in the field and of government programmes
dealing with this subject shows several perspectives which have characterized
approaches to the definition of poverty. Three such perspectives can be clearly
discerned from the literature.
One such perspective to the definition of poverty uses income and expenditure
data in order to establish a bench mark income figure below which poverty may be said
to exist.
2
Thus a size distribution of incomes is constructed and per capita income data
are widely used as a means of establishing the bench mark income figure. We can
distinguish two aspects of the so-called size distribution of incomes. The first focuses
attention on one end of the distribution, those with the lowest income or the poor,
choosing a more or less arbitrary bench-mark income figure. Here one can study the
magnitude of poverty either in terms of the absolute number of the poor, or one can
look at the different degrees of poverty within the group designated as the poor.
3
The
second aspect comprises the degrees of inequality in the distribution of income and is
5
concerned with the whole of the distribution. The degree of inequality is generally
measured by the Lorenz Curve or Gini Coefficient. While the first aspect deals with
the absolute poverty level, the second deals with poverty in its relative sense.
4
The first approach has its limitations- incomprehensive coverage, inaccuracy of
measurement, inconsistency of definition and a failure to include all the sources other
than income which support the consumption of people in the lower rung of the
economic ladder. In the Indian context, measures of supporting resources such as
ownership of land and other assets, income in kind and private gifts should be included
and these are very difficult to compile on the part of the statistician. Thus, income
figures are not accurate especially for the two extreme economic classes- the poor and
the rich. While the poor are ill-equipped to provide correct information required for
proper income and expenditure studies, the rich are least inclined to reveal their true
economic power. As a result, income and expenditure data tend to have a downward
bias for both the groups: for the poor, lack of literacy and consciousness and the
subsistence production system largely play their parts; for the rich, the reasons are
completely different-lack of organization in the economy and steep progression in the
direct tax laws include the rich to record their income on the lower side.
The second perspective can be specified as a subsistence approach to the
concept of poverty. People who cannot afford the minimum necessities for bare
subsistence are defined as poor. But how are we to define the required minimum
level? The minimum need is defined in terms of food consumption or more
specifically, in terms of nutritional requirements. This is then converted into an income
level for a particular base year.
5
But in a country of Indias size, with wide differences in geography, climate,
habits and customs, nutritional requirements are found to vary across levels and
patterns of living and diet. In such a situation, to develop an index of minimum needs
it is necessary to take account of customary behavior. Therefore, such a subsistence
definition of nutritional requirements; it also depends on subjective consideration like
preferences and prejudices.
A third perspective to the definition of poverty is concerned with the degrees of
differences of welfare among different group of people who can be designated as
6
poor by the first two approaches mentioned in earlier paragraphs. This approach
seeks to establish a measure of poverty by attaching appropriate weights, which vary
inversely with the difference of income levels of the poor from the chosen poverty
line.
6
Thus from the first approach, we have an income threshold definition of
poverty, while the second gives a multinational definition of the same. But these
approaches divide the population into poor and non-poor and cannot take into account
the differences in the degree of intensity of poverty in the different income layers
below the poverty line. This weakness is sought to be removed in the third approach.
What lessons can be draw from the three approaches to the definition of
poverty? One point which emerges is that these approaches try to define poverty in the
context of economic factors only and, again, these definitions are concerned with the
people in the lower strata of the income scale. But the concept of poverty should be
seen in the context of society as a whole. As society is better seen as a series of
stratified income layers, poverty should be conceived in the light of how the lower
strata fare as compared to the people in the upper layers of distribution. Moreover,
poverty means helplessness of the persons designated as poor as these people are at
the lower end of a two-fold hierarchy of stratification along economic and social
dimensions. In short, the poor are part of a set of stratification system within the
society and they are ranked at the bottom of each hierarchy. The economic factors are
significant in the sense that these constitute the most important dimensions of poverty;
but these alone cannot fully describe the condition of the poor. Therefore, the
definition of poverty should be broad-based, for it is only a proper identification of the
poor that can determination of policies to solve the problem in a proper way.
Measures of Inequality
A variety of indices for the measurement of the degree of inequality are found
in the literature on income distribution. These indices emphasis different aspects of the
inequality phenomenon. Theoretically, these indices are not completely satisfactory;
sometimes, they exhibit contradictory tendencies in the distribution of income unless
7
the latter adapts itself to a well defined family of distributions whose properties are
completely known. Because of the limitation inherent in all measures of inequality,
one may adopt a more general approach to the problem by laying down that any
measure of inequality should be concerned with the distribution of a size variable (x)
relative to the mean (M) or any other typical value of x. This principle is recognized in
all the known measures of inequality. These well-known empirical measures of
inequality are Lorenz Curve, the Gini Co-efficient, the Co-efficient of variation, the
S.D. of logarithm etc. Before going into details about these measures, we discuss the
methodology regarding the measurement of inequality of income.

Conceptually, we can draw a distinction between the objective and the
normative approaches to the measurement of inequality of income. As objective
measurement, in itself, is not of interest and presupposes appraisal; the difference
between the two approaches, in fact, emerges at the level at which normative
considerations come up. Therefore, use of the word equality in the context of
distribution of income necessarily involves normative judgment. This is so in both the
situations. We may be interested in inequality in the distribution of income of a
country at different points of time or, we may compare the inequality in the distribution
of income of different countries at the same point of time.
In the literature, we find two broad categories of the measures of inequality. On
set of measures try to quantify the size of inequality in some objective sense by using
some statistical measures of relative variation of income. Such measures include the
variance, the co-efficient of variation, the Lorenz Curve, the Gini Co-efficient etc. On
the other hand, there are indices that try to measure inequality in terms of some
normative notion of social welfare- that is , when the level of income is given, a higher
degree of inequality corresponds to a lower level of social welfare.
7
We now discuss the measures of inequality. It would not be wrong if we
discuss some measures briefly while concentrating on others which have been used
widely in the literature on inequality in income distribution in India.
8
Long ago Pigou maintained that any transfer of income from the poor to the
rich, ceteris paribus, should increase inequality and diminish welfare.
9
The common
statistical measure of dispersion-variance-does satisfy the Pigou condition. But the
8
dependence of variance on the mean income level makes its position weaker; since one
distribution with lower mean income level but greater relative variation around the
mean registers smaller variance than another distribution with higher mean but smaller
relative variation around the mean. To remove this weakness we take the square root
of the variance and divide it by the mean to make it mean-independent. This is the co-
efficient of variation.
The Co-efficient of variation is sensitive to income transfer for all income
levels. But sometimes it is desirable that we should attach lower importance to income
transfers at the higher levels of income and greater importance to income transfer at the
lower end of the income scale. This objective is fulfilled in another measure- the
standard deviation of logarithm. Since standard deviation is derived from the logarithm
of the actual income levels, the staggering effect of logarithm highlights the income
transfers at the lower end of income distribution and minimizes the effect of the
transfer at the higher levels. This feature makes this measure attractive, but this creates
difficulty for other reasons. The severe contraction the income levels suffer-as they get
higher and higher-denies this welfare measure its concavity to be a concave function of
individual incomes, this measure can create difficulties.
10
When we get interested about the share of different deciles of population from
the lower end in the national income, we take recourse to the Lorenz Curve. This curve
depicts the percentages of the population arranged in ascending order according to their
positions of the income scale on the horizontal axis and the percentages of total income
enjoyed by each of these groups are shown on the vertical axis. If everyone has the
same income, the Lorenz Curve will by the diagonal, which is called equality line.
The deviation of the Lorenz Curve from the line of absolute equality is an index of
inequality. One distribution is unequivocally more unequal than another only if the
Lorenz Curve for the former lies below the Lorenz Curve for the latter throughout its
range.
The advantage of the Lorenz Curve lies in its use of the arithmetic scale. It is,
again, independent of any assumption about the form of the distribution to which the
observed data must conform. However, when the form of the distribution is known
with certainty, the corresponding Lorenz Curve is uniquely determined by the values of
9
the distributional parameters. For different values of these parameters Lorenz Curves
are obtained which are completely non-overlapping.
11
The use of Lorenz Curve as a means of measuring income inequality within the
utilitarian framework has been justified in the literature.
12
It has been shown that if
social welfare is additively separable and if it is the sum of individuals-then the partial
ordering of income distribution according to Lorenz Criterion is identical with the
ordering implied by social welfare. This result holds irrespective of the form of the
individual utility functions as long as they are concave.
13
Intuitively, one might expect
that the equivalence of partial orderings would hole for any symmetric social welfare
function which is quasi-concave and increasing in individual utilities.
14
When the Lorenz Curves of two distributions intersect, there is ambiguity in
comparison; that is, for comparative purposes, it is difficult to say which Lorenz Curve
represents greater inequality. Gini introduced an analytical measure called the
concentration ration or the Gini Coefficient, which is the ratio of the area between
the equality line and the Lorenz Curve to the triangular region below the diagonal. It is
defined as exactly one half of the relative mean difference-this is the arithmetic average
of the absolute values of differences between all parts of incomes.

q
j
j i
q
i
y y
m q
G
1 1
2
| |
2
1
Where m is the mean income of the poor, and q is the number of persons.
After a bit of manipulation the formula reduces to
15

( )
+ +
q
i
i q yi
m q q
G
1
2
1
2 1
1

for y1 y2 y3 . yn
Since the Gini Co-efficient takes note of differences between every pair of incomes, it
is a direct measure of income inequality; it is also sensitive to transfer from the rich to
the poor at every level.
Gini Co-efficient is mean-independent, that is, it is invariant with respect to
equi-proportionate change of incomes of all individuals. If the mean income of the
distribution changes, while there is no change in the inequality measure, the effect on
10
the measure of absolute poverty is certain. It moves inversely with the changes in the
mean income. But measure of inequality being mean-independent, changes in mean
income introduce complex difficulties in measuring of poverty in a relative sense. In a
society with higher mean income inequality causes greater injustice compared to a
society with lower mean income. This fact introduces ambiguity in the measurement of
poverty in a relative sense.
16
Since the Gini Co-efficient is an index of inequality, the negative of it can be
treated as a welfare function. But this function, being a linear function of income
levels, is not a strictly concave group welfare function. As strict concavity is a
desirable criterion for a welfare function. Gini co-efficient is thought to be weak on
this point.
17
But this measure takes into account any transfer of income from the poor
to the rich in appropriate direction, and it is, though not strictly concave, is concave
alright.
18
Atkinson proposed a new measure of inequality
19
by an index:
m
Y
I
*
1 *
Where Y* is the level of income per head and m is the mean of the income distribution.
If the level of income is equally distributed, Y* would give the same level of social
welfare as the present distribution.
Moreover, in a separate measure,
20
Atkinson introduced distributional objective
through an explicit parameter, say E, which represents the weight attached by the
society to inequality in the distribution. When the society is indifferent regarding the
income distribution, the value of E becomes zero, and when the society is concerned
only with the position of the lowest income group, the parameter becomes infinity. The
index is:

E n
i
E
fi
Y
Yi
I

'
,
_

1
1
1
1
1
Where Y1 is the income of those in the 1-th income range, f1 is the proportion of the
population with incomes in the 1-th range and Ythe mean income. This index
indicates the proportion of the present total income that would be required to achieve
11
this same level of social welfare as at present if income were equally distributed. The
measure is an index of the potential gains from redistribution.
The inadequacy of the index of income distribution as an index of the
distribution of welfare has been pointed out by Bentozel.
21
In this view, it is the
distribution of consumption which has a direct bearing on the distribution of welfare.
From the welfare point of view the welfare-creating properties of the distribution of
income or consumption are important; these properties should be represented in the
analysis of income inequality. Bentzels new measure seems to fulfill this condition.
The construction of this index is as follows: Assuming that a group of individuals have
the same welfare function u(c), where c denotes the level of consumption and f(c) is the
frequency function of the level of individual consumption, the aggregate welfare (w)
can be written as

dc c f c u n W ) ( ) (
0
Where n is the number of individuals. Suppose W* is the maximum

aggregate welfare that could be obtained by a redistribution of consumption between
the individuals. The difference between W* and W can be interpreted as the total
welfare loss caused by the inequality in the individual consumption measured by

*
1 * *
W
W
I
The ratio W/W* has been called welfare efficiency of distribution by Bentzel. But,
in this analysis the precise relationship between distribution of consumption and
distribution of welfare is not brought out very clearly. Again, since the shape of the
welfare function u(c) is unknown, the definition of welfare efficiency of distribution
is not useful for empirical analysis.
22
Sens Measure
Sen has constructed a measure of poverty in an axiomatic framework.
23
This
measure takes into account the income distribution among the people designated as
poor, that is, people below the poverty line. If yj is the income level of individual j,
the individuals may be numbered in a non-decreasing order of income, satisfying
12
y
1
y
2
. y
n
If z is the poverty line and q is the number of people with income yi z, then for
any person i q, there are exactly (q+1-i) people among the poor with at least as high a
welfare level as person i. Let n be the total population. The poverty-measure P can
be written as

) 1 )( (
) 1 (
2
i q yi z
nz q
P +
+
This measure of poverty P is closely related to Gini Co-efficient, and Sen has
established a correspondence between Gini Co-efficient and his poverty measure.
Defining the head-count ratio H as the ratio of the number of people below the
poverty line, Sen(1976) has proved the relation
P = H [I*-(1-I*)G]
Where G is the Gini Co-efficient and I* reveals the percentage of the mean shortfall of
incomes of the poor from the poverty line.
24
From this relation an important policy
implication follows: The aggregate welfare of the population can be increased by
minimizing the inequality in the distribution of income.
In any actual situation, the use of the measure P involves the specification of
the welfare function. In such a choice, value judgment cannot be avoided. Moreover,
this measure is concerned with only a part of the income distribution.
Our analysis of the different measure of inequality leads finally to the following
points: First, the literature is full of controversy regarding the practical relevance of the
implicit welfare function, the shape of the welfare function and the question of ordering
in the social welfare. Second, while descriptive measures like coefficient of variation,
standard deviation of logarithm etc. lack motivation, purely normative measures seem
to leave out of consideration several important characteristics of inequality.
13
Chapter-2

Poverty in India
The problem of poverty had attracted the attention of economists even before
independence
25
but as we are interested in the study of the post-independence period,
we will not discuss this here. After independence a vast literature on poverty has
emerged, the most important of this being Dandekar and Rath(1971), Ojha(1970),
Minhas(1970), Bardhan(1970,1973) and Vaidyanathan(1974). Most of these studies
take 1960-61 as a bench mark year for the purpose of comparison, and the data used by
these studies cover periods up to 1968-69. These different studies come to different
conclusions both as regards the definition of the minimum standard of living and
regarding the number of people below the different studies are four in number: (i)
differences in estimates of income and consumption; (ii) different concepts of adequate
nutritional levels; (iii) differences regarding current price deflator to be used; and (iv)
arbitrariness in the choice of some key conversion factors to overcome the lack of
availability of appropriate disaggregated empirical data. Let us now explain these in
turn.
14
First, for the calculation of the size distribution of income and/or consumption
most of these studies depend on the data yielded by the National Sample Surveys. But
there is discrepancy between NSS data and national income statistics prepared by the
C.S.O. It is alleged that NSS data underestimates consumption expenditure for the
upper income classes,
26
which implies that the measure of poverty will not be affected
but the measure of inequality will be. Secondly, the concepts of a minimum adequate
level of nutrition and its purchasing power equivalent form the basis of all the studies
that have tried to estimate the numbers of people living below the national poverty line.
But different authorities give different estimates of nutritional requirements. Among
these are: PPD, Planning Commission(1974), Sukhatma (1971) and Gopalan, Sastri and
Balasubramanian(1971). Thirdly, as most of the income and consumption expenditure
data are available initially at current prices, one has to deflate them to obtain real values
for the purpose of inter-temporal comparisons. But the choice of a correct price
deflator is difficult as different income groups possess different preference patterns,
some buy commodities at ex-farm prices and some obtain commodities through
exchange in kind. Again, prices for the identical commodities vary region wise. Thus
conclusions vary because the researchers use different price deflators. While
Minhas(1970) and Dandekar and Rath(1971) use the national income deflator,
Bardhan(1970) uses the official Agricultural Labour Consumer Price Index for
deflating the values of consumption of the rural poor and the Official Working Class
Consumer Price Index for deflating the consumption of the urban poor.
27
In this
connection, it will not be out of place to mention the nature of price movement of
different commodities in different parts of India. Mahalanobis(1962) had drawn our
attention to the unequal movement of the prices of cereals for different decile groups of
the population in rural India.
28
This was later corroborated by extensive tabulation of
NSS household budget data undertaken for the Government of India Committee on
Distribution of Income and Levels of Living. Since cereals occupy a very important
place in the consumer budget, specially for rural households, the above finding stresses
the need of constructing inter-temporal consumer price indices separately for different
fractile groups of population. Fourthly, in different studies, conversion factors have
been used to build up a complete picture from fragmented data. The assumption in
Dandekar and Rath(1971) is that the top 30 per cent of the population would have fared
no worse in terms of consumption between 1960-61 and 1967-68 than the lower
15
income groups. On the other hand, Bardhan(1970) uses a conversion factor appropriate
to the bottom 50 per cent of the population for the derivation of an estimate of total
expenditure from expenditure on food items. From these it follows that there cannot be
a correct estimate that can be derived from the assumption that are made in the
studies noted above.
With these preliminary observations we will now turn to an analysis of the
Studies on Indian Poverty.
In July, 1962 the Government of India set up a Study Group
29
which
recommended that a per capita annual consumption of Rs.240 at 1960-1961 prices
should be considered as the nationally desirable minimum level of consumer
expenditure. This excluded expenditure on health and education, which was supposed
to be provided free of cost by the state. This level of expenditure has often been taken
as the poverty line and the proportion of people below this standard of consumption
has been investigated by different economists. This notice of poverty line again
constitutes the keystone for the exercise in long term planning that is presented in the
Planning Commission document Notes on Perspective of Development, India 1960-
1961 to 1975-76. It cannot be ascertained whether any competent statistical authority
arrived at this figure after careful consideration. In fact, how this figure was reached
remains up till now somewhat of a mystery to ordinary citizens. However, as this
figure is important, we shall examine in greater detail.
First, this official poverty standard, being essentially an absolute measure, is
inadequate since this is based purely on money income and ignores other aspects of
deprivation. No account is taken of poor quality housing, schools of health care which
may be independent of low money income. Moreover, poverty may represents only
one aspect of a more general powerlessness, an inability to influence ones
environment.
30
Of course, this aspect of poverty is neglected by almost all the poverty
measure in use in India; such powerlessness on the part of the poor makes the problem
of poverty doubly acute. We will turn to this aspect of the problem in the last section.
Secondly, apart from methodological criticism, the presumption that the population
would be provided education and health care free of cost by the State can be
questioned. In fact, as nearly two-thirds of the population remain illiterate,
31
and the
government health programme has not yet been able to cover all the villages in the
16
country, such an assumption simply ignores reality. As people are often forced to
spend on medicine, inclusion of some expenditure on medicine in the consumer budget
appears to be necessary and this makes the Rs.20 per month figure rather suspect.
Thirdly, though the idea of nutritional norm has been accepted regarding food items in
private consumption expenditure, in respect of non-food items like clothing and
housing no yardsticks have been worked out on any scientific basis.
The minimum standard of living prescribed by the Study Group is necessarily
the biological minimum diet has been carefully worked out by Sukhatme(1965).
32
He
take into account various recommendation of the Food and Agricultural Organisation
[FAO] and the Nutrition Advisory Committee [NAC]. Again he has made specific
allowances for India in terms of availabilities and consumption habits; he has taken into
account different requirements of persons in different age and sex groups and thus
worked out two food baskets corresponding to a minimum concept and a medium
concept. The cost of the minimum food basket (per day) has been worked out as
Rs.0.5238 at 1960-61 prices or Rs.15.71 per month at 1960-61 prices. As compared
with Sukhatmes estimate, the cost of a minimum diet prescribed by the FAO
33
is
Rs.18.26 at 1960-61 prices.
Sometimes alternative standards have been defined in terms of minimum
Calorie requirements, as in Ojha (1970) and Dandekar and Rath (1971). They have
taken 2250 Calories is met from food grain and considering the food grains intake per
person in different expenditure brackets as given by NSS data they have estimated the
proportion of population below the poverty line.
34
On the basis of the recommendations of Dr. Patwardhan as mentioned in the
Report of the Central Government Employees Pay Commission (1957-59), Bardhan
(1973) has worked out the cost of the minimum diet recommended for an built in
moderate activity.
35
The diet consists of 15 0z. of cereals, 3 0z. of pulses, milk (4 0z)
sugar and gur (1.5 0z), edible oils (1.25 0z), groundnut (1 0z) and vegetables (6 0z).
These give 2100 calories and 55 grams of protein per day. Because of non-availability
of prices, Bardhan leaves out the last two items i.e., groundnut and vegetables. For the
determination of the cost of this minimum diet Bardhan adjusts the NSS rural retail
prices to take account of the lower prices for non-monetized consumption. First, the
cost of this minimum diet for adults is determined. Then he adjusts it by an adult-
17
equivalent ratio to obtain the cost of the minimum diet for an average person. Then he
blows it up by using food to non-food expenditure ratio of the relevant expenditure
group of the rural population from NSS data, to get the estimated minimum level of
living for rural India to be Rs.28 per capita per month in 1968-69 in current prices.
Bardhan (1973) has taken the food basket from the report of the Second Pay
Commission and has used the rural retail prices from NSS estimates as is done by the
Commission; but he has arrived at a much lower value. While in the former the cost of
the minimum diet is Rs. 14.51 per month per adult unit, that is, Rs.11.61 per month per
person basis, the corresponding figures in Bardhan are Rs.11.61 and Rs.9.61
respectively. The lower figures of Bardhan can be traced to the following two elements
in his calculation: First, he has neglected vegetables and ground-nuts from the food
baskets; and secondly, he has adjusted the NSS based average retail prices to take into
account the consumption of home grown articles on the part of rural consumers.
Regarding the second consideration Rudra (1974) has taken exception on two points.
36
First, according to Rudra, the procedure adopted by Bardhan (1973) is arbitrary, as he
overlooks the fact that it is not only the home grown part that is evaluated in the NSS
data in prices different from the average retail prices; the cash purchased part in NSS
expenditure data is evaluated in actual prices paid by the consumers, and not by the
average retail prices independently estimated and separately presented by the NSS.
While the price average in the NSS expenditure data regarding cash purchases is a
weighted average, the rural retail prices are simple averages. Secondly, Rudra points
out that the blow-up factor (46%) is not correct.
We have discussed the nature and inadequacy of the concept of an absolute
poverty line in India. Let us now turn to the studies on Indian poverty.
Minhas (1970)
37
has used the computations of Tewari (1968)
38
to derive the
estimates of per capita private consumption expenditure, which are at 1960-61 prices.
He has, then, applied the NSS ratio of rural to urban consumption to obtain the
estimates of rural average per Capita Consumption. These estimates of per capita
overall consumption in rural area in 1960-61 prices, together with the percentage shares
of different fractile groups of population in total consumption, derived from different
NSS rounds, have been used to derive the average per Capita Consumption in 1960-61
prices of each fractile group of the population over several years.
18
It will not be out of place if we reproduce here a table from Minhas:
Table: Average Per Capita Consumption by Fractile Groups at
1960-61 prices in 1956-57 and 1967-68: Rural India
Fractile Group
1956-57
(Rs.)
1967-68
(Rs.)
Poorest 5% 63 81
5-10 88 110
10-20 108 137
20-30 133 166
30-40 155 194
40-50 180 222
50-60 207 254
60-70 240 292
70-80 283 240
80-90 351 414
90-95 443 512
Richest 5% 731 723
Source: Minhas (1970) Table 2. Abridged
We see that the richest 5% of Indians could enjoy a per Capita
Consumption level of about Rs.2 in 1960-61 prices per day in the years 1956-57 and
1967-68. Even this group cannot be termed as rich by the world standard, though they
are at the topmost income level in the villages of India. The poorest 30% or the people,
and the other extreme, live a life beyond the description and analysis of the economists
and nutrition experts.
19
If the level of per Capita annual consumption expenditure of Rs.240 at 1960-61
prices is accepted as a bare minimum, the percentage of people in rural India below this
poverty line was 65 in 1956-57 and 50.6 in 1967-68. But in Minhas estimate the
absolute number of people below the poverty line in rural India remained almost same
215 million in 1956-57 and 210 million in 1967-68. If, however, a level of Rs.200 at
1960-61 prices is taken as the minimum, the proportion of people below the poverty
line would be 52.4 per cent in 1956-57 and 37.1 per cent in 1961. The steady decline in
the proportion of people below the poverty line is, according to Minhas, largely
explained by the growth of an average per Capita Consumption at a rate of 1.25 per
cent per year over the period 1956-57 and 1967-68.
As regards the identification of the rural poor Minhas be specified several
classes to which most of them belong and these classes are:
(a) Agriculture labour households without land, which formed 58 to 61 per cent
of all agricultural labour household between 1956-57 and 1963-64.
(b) Other rural labour household without land.
(c) Agricultural labour household with land, which formed between 42 to 39
per cent of agricultural labour households between 1956-57 and 1963-64.
(d) Marginal farmers operating holdings below 5 acres in size.
According to the estimate of Minhas, the total number of people in agriculture
labour households in 1960-61 was 66.5 million of which about 26.5 millions belonged
to households who operated some land as well. The corresponding estimates for non-
agricultural rural labour were 15.8 and 6.8 millions respectively. Therefore, the total
rural labour population in 1960-61 was estimated to be 82.3 millions and of these 33.3
millions belonged to households who operated some land also. Minhas estimated that
about 79 per cent of the population of these households had a per capita annual level of
consumption of less than Rs.200 at 1960-61 prices in the year 1956-57. Minhas further
stated that the percentage of poor among the agricultural labour population declined to
75 in 1960-61, which corresponded to about 50 million in absolute numbers.
39
While Minhas is concerned with rural poverty only, Ojha (1970) deals with
both rural and urban poverty for the year 1960-61 and only rural poverty for the year
1967-68. In his study Ojha accepts 2250 Calories as the barest minimum intake per
capita per day for a representative Indian. He further assumes that people in urban
20
areas derive 66 per cent of 2250 calories from food grains; for the people in rural areas
that percentage is 80. he then compares the actual food consumption in grams per head
of rural and urban population using the NSS data [16
th
round].
41
This means that to
attain the nutritional minimum per capita daily consumption should be 518 grams in
rural areas and 532 grams in urban areas. After some modifications of the estimates of
food grains intake he finds that the average level of food grains intake per person was
below the standard for expenditure levels up to Rs.15-12 per capita per month at 1960-
61 prices. Regarding the urban population the corresponding expenditure level for
which deficiency in consumption existed was Rs.11-13 per capita per month at 1960-61
prices. On his basis Ojha finds that in 1960-61 about 51.8 per cent of rural population
lived below the poverty line, and for the urban population the proportion of those
considered as poor was only 7.6 per cent.
Ojhas conclusion regarding poverty in the urban area is surprising because of
the following reasons. First, the urban households tend to spend a smaller percentage
of their incomes on food grains, which Ojha has accepted in his calculation. But this
again means that urban households derive a comparatively larger fraction of the
required 2250 calories from food other than food grains gives greater calorie value
compared to the same spent on items other than food grains, the minimum expenditure
levels for the required 2250 calories should be higher in urban areas.
42
Secondly, since
unit prices of food grains in urban areas are higher than in rural areas, expenditure in
urban areas for food grains should be higher.
43
Though Ojha takes the nutritional norm
for urban are as 432 grams, which is 86 grams lower than the rural requirement of 518
grams (and this means that smaller volume of expenditure is involved), the urban
people must procure additional calories from food items other than food grains, and
again they are to purchase these at higher prices. These points seem to have been
missed by Ojha and that is why his estimated poverty line for the urban area is as low
as Rs.11-13 per Capita per month, and much lower than the figure estimated for the
rural areas. From these it seems that the proportion of population in urban areas below
the poverty line is much higher than the estimate of Ojha indicates.
Regarding the year 1967-68, Ojha calculates that about 70 per cent of rural
households were living below the poverty line. Moreover, the degree of nutritional
21
deficiency was higher for each expenditure level. Ojha does not consider the question
of urban poverty for the year 1967-68.
The study of Dandekar and Rath (1971) has some important features which are
as follows.
44
First, this study is extensive in the sense that it covers both rural and
urban poverty condition for the relevant period. Secondly, in this study the authors
have made a number of arbitrary adjustments to the NSS data. Thirdly, these authors
also assume that a daily intake a 2250 Calories per adult person is the required
minimum for subsistence, and this figure is derived from the estimate of Sukhatme
(1971). Fourthly, these authors have not only analyzed the nature of Indian poverty in
greater detail, but they have also examined the feasibility of the Planning
Commissions perspective regarding the reduction of poverty in India during the
planning period.
45
In fact, a large part of their study is devoted to prove that the
Planning Commissions perspective appears to be completely out of line with the
performance of the economy in the past decade and is therefore unlikely to be
realized.
Moreover, Dandekar and Rath are critical about the NSS consumption
expenditure data, which, according to them, do not reflect fully the pattern of inequality
existing in the economy because of its downward bias regarding the consumer
expenditure of the richer sections. However, we shall examine this point later on.
The method followed by Dandekar and Rath is similar to that of Ojha (1970)
but with difference that they have assumed that about 200 calories would be obtained
per Capita per day from food other than food grains. Now according to Dandekar and
Rath (henceforth D R), in rural area, the per Capita daily consumption of food grains
and substitutes reaches 616 grams for households with per Capita monthly expenditure
of Rs.170.8. If one gram of food grains, including substitute, gives 3.3 Calories, 2033
Calories per capita per day can be obtained with the consumption of 616 grams of food
grains. Another 200 Calories are obtained by these households from the consumption
of items like edible oil, ghee and butter, sugar and gur and a little of milk, meat and
fish. Thus the total intake of food at this level seems to give about 2250 Calories per
capita per day. It implies that, and annual per Capita consumption expenditure of
Rs.170 (at 1960-61 prices) is essential to give a diet adequate in respect of calories in
1960-61. Now D R find that about 33.12 per cent of rural population had their per
22
Capita annual consumption expenditure below the stipulated minimum i.e., Rs.170 at
1960-61 prices.
Regarding urban consumption, D R find from NSS data that urban households
secure the minimum Calories requirement of 2250 at levels where their consumption of
food grains and substitutes reaches 490 grams per person per day. Again, while a rural
household at Rs.170 per capita per annum spends 78.56 per cent on food, an urban
household at Rs.271 per capita per annum spend only 70.26 per cent on food; again of
this 70.26 per cent only 36.45 per cent goes on food grains and substitutes and the
remaining 33.81 per cent is spent on other items of food. Finally, the prices of food
grains which an urban household at an expenditure level of Rs.271 per capita per
annum pays are almost 25 per cent higher than the prices paid by a rural household at
expenditure level of Rs.170 per capita per annum. Hence an annual per capita urban
expenditure of Rs.271 is to be regarded as equivalent to an annual per capita rural
expenditure of Rs.170. Now D R find that about 48.64 per cent on urban population
in 1960-61 could not afford the diet consumed by the group with an annual per capita
expenditure of Rs.271. Thus 48.64 per cent of urban population lived below the
poverty line.
According to D R the NSS estimate of average per capita consumption in
1967-68 is an underestimate. What is unacceptable to them regarding the NSS estimate
is that NSS estimate of rural per capita consumption estimate of Rs.239.8 (at 1960-61
prices) in the year 1967-68 is about 7 per cent lower than the corresponding NSS
estimate in 1960-61; again, it is about 11 per cent lower than the consumption estimate
for 1967-68 derived from the national income statistics. Using the national income
deflator D R find that the average per capita consumption of the lowest 5 per cent
rural fractile group in 1967-68 is 94 per cent of that in 1960-61, whereas for the
topmost 5 per cent fractile group the estimate of average per capita consumption is only
73 per cent of that in 1960-61. Now such a large differential decline in per capita
consumption of the richest 5 per cent is not acceptable to D R, as this goes against
their a prior judgment that during the sixties there has been an obvious increase in
inequality in the structure of the Indian rural economy.
It is clear that the position taken by D R rests on whether the NSS estimate of
average per capita consumption is an under estimates or not. On this point Bardhan
23
(1974)
46
is of the view that the deflating of private consumer expenditure data by the
national income deflator is improper. Bardhan cites the study of Radhakrishnan,
Srinivasan and Vaidyanathan (1974) who have worked out a general consumer price
index on the basis of NSS weights for ten commodity groups and wholesale prices data
issued by the office of the Economic Adviser to the Government of India.
47
The
Radhakrishnan, Srinivasan and Vaidyanathan (R-S-V) index is 178.1 in 1968-69 taking
1960-61 figure as 100, but for the same period national income deflator increases from
100 to 169.8. Now if the R-S-V index is used, not only is the NSS estimate for per
Capita real consumption for 1967-68 below that for 1960-61, but the official estimate
for 1967-68 will also be lower than that for 1960-61. Thus Bardhan (1974) asserts that
NSS estimate should not be discarded simply because it establishes a decline in the per
Capita real Consumption during the sixties.
But the observation of D-R regarding the increasing under-estimation of the
consumption of the rich in NSS estimate is endorsed by Bardhan (1974) and other
economists,
48
though no satisfactory explanation of this is yet available. The
explanation given by D-R is as follows:
The NSS secures its estimates of consumer expenditures by interviewing a
random sample of rural and urban households and inquiring from them about their
consumer expenditure during the previous month. The limitations of this procedure are
well known. For instance, a number of items of consumer expenditure, such as clothing
and other consumer durables, which a household would purchase less frequently than
once every month, are likely to be missed by this procedure and hence the expenditure
on them is likely to be under-estimated. These are the items which are more important
in the consumer expenditure of the rich than the poor and they become more important
as the rich become richer. It is also known that the upper middle and the richer
households, both in rural and urban areas, have become increasingly inaccessible to the
NSS investigators who are after all class III government servants.
But the relative infrequency of the purchase of some consumer durables and
articles of high consumption need not lead to underestimation as the NSS is canvassed
in a number of sub-rounds spread throughout the year and so the seasonality, if any, in
the purchase of consumer durables should not lead to any bias. Moreover, in any given
24
sub-round the random sampling procedure of the survey will ensure that purchasers of
cloth are not systematically excluded.
Now R-S-V have shown that the estimates of consumption at current prices
derived from National Income and the NSS data a are in close agreement for the period
1954-55 to 1963-64, but thereafter the two series differ considerably. These authors
conclude that the relatively close agreement between the NSS and official series for
some years does not necessarily indicate the absence of systematic bias in the two
series and similarly the divergence between the two series for the later years of the
sixties does not necessarily indicate the presence of such bias. But R-S-V have not
given any explanation for the divergence of the two series from 1963-64 onwards.
Turning now to other studies we find that the study of Vaidyanathan (1974a,
1974b) takes an income level of Rs.132 per year to denote poverty and finds that the
proportion of rural population living below the poverty line is 15.7 per cent in 1960-61.
Now the poverty line drawn by Vaidyanathan is much lower compared to the estimates
of others and there is little surprise that the number of the poor will be considerably
lower.
49
However, Vaidyanathan (1974a) has presented the following estimate of the
proportion of rural population with per Capita Consumption expenditure below Rs.20
per month at 1960-61 prices. According to NSS estimate, the percentage of people
living below the poverty line was 59.5 in 1960-61; it increased to 67.8 in the year 1967-
68. Again, according to official estimate, the respective percentages are 58.8 and 57.8,
which shows that the level of poverty remained more or less same during the sixties,
though the number of people below the poverty line increased.
The study of Bardhan (1970, 1970a, 1973) uses NSS data for distribution of
consumer expenditure, but uses a different minimum level of income of Rs.15.00 per
month at 1960-61 prices and Rs.28.4 at 1968-69 prices for the two years respectively.
Bardhan then argues that the national income deflator (which rose from 100 in 1960-61
to 170 in 1967-68) as used by Minhas (1970) and Dandekar and Rath (1971) is not an
appropriate price index to use, as it does not accurately reflect the set of prices facing
the poor consumer.
50
This is due to the following reasons. First, national income
includes both investment and consumption goods and as such the national income
deflator cannot be a suitable index for studying changes in consumption. Secondly, the
national income deflator covers the prices the prices of both agricultural and industrial
25
commodities. The weight of the latter items in the budget of the poor is much lower
than the national average and hence the national income deflator is very likely to have
understated the rise in the prices paid by the rural poor. This is more so when the
prices of agricultural commodities have risen at a much faster rate than the prices of
manufactured items.
For the above reasons, Bardhan uses an alternative deflator which is the
agricultural labour consumer price index. This index is based on the Labour Bureau
series of consumer price index number for agricultural labourers constructed on the
basis of NSS rural retail prices and weighting diagrams obtained from the Second
Agricultural Labour Enquiry. Bardhan finds that the number of the rural poor
increased from about 135 million in 1960-61 to 230 million in 1968-69, that is, the
percentage of the rural population living below the prescribed minimum increased from
somewhat less than 38 per cent in 1960-61 to about 54 per cent in 1968-69. This result
is in sharp contrast to the conclusion reached by Minhas (1970).
It is contended that the high figure of population below the poverty line in
1968-69 may be traced to the consumer price index used by Bardhan.
51
But Bardhan
has defended these indices by computing several alternative indices and showing their
agreement.
The study of Bhatty (1974)
52
is concerned with the extent of rural poverty in
1968-69. The object of his study is to present a measure of absolute poverty in terms of
per capita income, which takes into account the inequality of income distribution
among the poor. Moreover, Bhatty is interested about the incidence of poverty in
different regions of rural India and among different classes of the rural population. To
avoid arbitrariness, Bhatty has set five poverty levels, which, in terms of per capita
annual income in 1968-69 prices are: Rs.180, Rs.240, Rs.300, Rs.360 and Rs.420.
Since the study is concerned with a single year, 1968-69, no comparison is undertaken
regarding the change in poverty level of the country. Taking Rs.360 as the minimum
per capita annual income, Bhattys study reveals that about 67.15 per cent of all rural
households lived below the poverty line. If only agricultural labourer households are
considered, then about 82.84 per cent of them live below the poverty line, whereas for
the non-agricultural households this percentage is 69.7. Thus the incidence of poverty
is most severe among agricultural labourers.
26
Bhatty has also tried to calculate for India the magnitude of Sens poverty
measure P, the result of which is summarized in the following table:
Sens Poverty measure P for India, 1968-69
Poverty line: rupees per Capita per annum
180 240 300 360 420
(i) All occupation classes 0.101 0.188 0.279 0.363 0.435
(ii) Cultivators 0.107 0.187 0.269 0.345 0.415
(iii) Agricultural labourers 0.098 0.220 0.336 0.440 0.521
(iv) Non-agricultural workers 0.171 0.155 0.251 0.344 0.425
Source: Bhatty (1974) Tables 7-10, pp. 316-17
From the table we find that of the three occupational classes, agricultural labourers are
the most deprived. Bhatty has also analysed in detail the level of poverty in different
states. He has identified the five poorest states in the country - Gujrat, Tamil Nadu,
Madhya Pradesh, Rajasthan and Orissa and explained the region wise variations of
poverty level. He shows that while the incidence of poverty among the agricultural
labourers is the highest in Gujrat and the lowest in Punjab, the non-agricultural workers
are worse off in Madhya Pradesh. According to Bhatty, the relative incidence of
absolute poverty in the rural population of different states depends on many factors,
such as, land-man ratio, topography and quality of land, rainfall, irrigation, cropping
pattern, rural institutional structure etc. Thus this study points to the fact that any study
on poverty should be based on the diversity of different regions and it is pointless to
calculate any uniform measure of poverty for India as a whole.
The importance of regional study for ascertaining the poverty level has been
emphasized also by Panikar, whose study is based on condition in Kerala.
53
The author
is concerned with the question of choice of a nutritional measure used by Dandekar and
Rath and the Nutrition advisory Committee. Panikar establishes the fact that D-R have
27
overestimated the number of the poor in Kerala, as the minimum diet accepted by D-R
is in fact the India average.
Indira Rajaraman (1975) discusses the incidence of poverty in the Punjab
between 1960-61 and 1970-71.
54
In the year 1960-61, the lowest two deciles of
population accounted for 10.4 per cent of total consumption, while in the year 1970-71,
they accounted for only 8.9 per cent of total consumption. Again, during the same
period the share of the topmost decile increased from 23.2 per cent to 24.7 per cent.
Taking a consumption level of Rs.16.36 at 1960-61 price, Rajaraman finds that about
18.4 per cent of total population of Punjab lived below that consumption level. The
poverty line for the year 1970-71 has been estimated at a consumption level of
Rs.33086 at current prices, and the author has shown that the percentage of the poor has
increased from 18.4 to 23.3 in ten years. It is seen in this study that poverty is most
intense among the agricultural workers, as about 22.6 per cent of households lived
below the poverty line in 1960-61 and in the year 1970-71, this percentage went up to
about 40.5. In this respect, Rajaramans study is consistent with those of Bhatty (1974)
and Bardhan (1970).
55
Like Bhatty, Rajaraman also finds that incidence of poverty
among the cultivators is comparatively low. While the increased incidence of poverty
among the agricultural labour households is significant statistically, this is not the case
with the cultivating households.
In a different type of study based on the socio-economic survey data derived
from the sample households distributed all over Bangalore City, Hanumappa (1978)
has shown that 24.35 per cent of all households can be considered as poor in the
context of their monthly income.
56
But the study is mainly concerned with the effect of
family size and education on the pattern of income distribution and so we will not
pursue it further.
We now take up for consideration an important study based on Kerala which
will explain the difference between the conclusions of D-R and Panikar.
57
In the study
of D-R, Kerala is seen to have the largest percentage of population below the poverty
line, 90.75 per cent in rural areas and 88.89 per cent in urban areas. The study on
poverty by Centre of Development Studies (1975) has prepared a balance sheet
compiled for Kerala and then compares it with the NSS data used by D-R. It is
revealed that part of the explanation for the high proportion of the poor, as given by D-
28
R, is that the NSS has underestimated certain items of food such as banana, coconut
and fish entering into the diets of these people and as a result the extent of main
nutrition in Kerala has been somewhat exaggerated. Whereas the per capita per day
calories intake is 1619 calories for all food items according to the food balance sheet of
this study (1975). Thus, the study reveals that 48 per cent of the population in Kerala
lived below the poverty line in 1960-61.
But the important point which the study reveals is that per Capita Consumption
of food does not depend on per capita income alone, so that while a low consumption
of food may indicate under-nourishment, it need not necessarily mean poverty.
Moreover it is shown that per capita consumption of food in a region depends on per
capita production of food and the pattern of the distribution of land holdings; further,
the degree of inequality is negatively correlated with increases in food consumption.
One conclusion of this study is that the availability of food cannot be treated as a
function of income and price alone, but it may depend also on physical factors such
as output in the region and institutional factors such as distribution of land holdings.
Further, the above study suggests that we require more through scrutiny of
regional variations in diet patterns before we draw the poverty line by counting calories
with the help of size distribution of consumption expenditure derived from NSS data.
A lack of uniformity in the structure of poverty in India has been highlighted by
Vaidyanathan (1974), D-R (1971), Bhatty (1974) and Bardhan (1973). Vaidyanathan
finds that six States- Andhra Pradesh, Kerala, Madhya Pradesh, Tamil Nadu, Orissa
and Uttar Pradesh had a higher percentage of people below the poverty line than the
national average in the year 1960-61. Again, the level of poverty is very much lower in
Assam and Punjab. But in D-R study the intensity of rural poverty is greater than the
All India average in eight States and these are: Kerala, Andhra Pradesh, Maharashtra,
Tamil Nadu, Assam, West Bengal, Orissa, and Bihar. Again, barring Rajasthan, U.P.,
Bihar, Jammu and Kashmir and Assam, the other eleven States show a greater
percentage of the poor living in urban areas compared to the All India average in 1960-
61.
While in Bhattys study a greater concentration of poverty is seen in four States
(Gujrat, Tamil Nadu, Rajasthan and Madhya Pradesh), Bardhans study reveals that
29
higher levels of poverty have been registered in West Bengal, Bihar, Kerala and Orissa.
Such inter-state variations in the percentage of people below the poverty line
underscores the importance of the study of poverty on a regional basis. One cal also
infer a high degree of correlation between the incidence of poverty and the pattern of
the production of cereals, as, state wise, poverty seems to be higher in the non-wheat
zones stretching from eastern India to the Malabar Coast. While this is just a reflection
based on the available data, such a hypothesis (i.e., incidence of poverty being highly
correlated with the pattern of cereal production) requires further detailed investigation
for its acceptance.
All the above-mentioned studies suffer from two general weakness, if any, in
NSS data will render the studies inaccurate. NSS data are based on stratified random
sampling and so the sample households must represent all the rural and urban
households in the country. But, as definitions have changed to some extent in different
NSS rounds, doubts can be expressed regarding the comparability of NSS data in
different years. Moreover, samples from the same universe give comparable results,
but when sampling is done at two different points of time, the Universe is bound to
change. This is likely to be reinforced by planned economic development. Whether
data from different samples drawn at two separate points of time are comparable or not
is a matter of considerable doubt.
Secondly, though rural consumption in NSS data includes non-monetised
consumption, the latter may be of two types commodities produced at home and
commodities simply derived from nature. While the first category can be valued by
using ex-farm prices, the second category cannot be valued at all. It is our contention
that the second category of commodities represents some sort of free good derived
from nature which is unique in a rural agricultural country with a largely disorganized
and demonetized economy. To an NSS investigator such commodities are either not
mentioned at all or, even when mentioned, are likely to be neglected because of their
largely no-economic character. This is more so because of the existing studies that the
per capita per day barest minimum consumption should be 2250 calories and a sizeable
section of Indian population cannot afford it. But the number of such poor people is
increasing, though percentage-wise the size of the poor may be falling. Should we say
that a man may survive without the barest minimum consumption day after day?
30
Accordingly, either the barest minimum has to be further lowered, or we should
concede the fact that people derived their necessary calories from the consumption of
commodities, only a fraction of which can be brought within the economic categories.
While the first weakness is common to any method of induction in statistics i.e.,
any representative sample may lose its representative character with change in the
universe, second weakness points to the more fundamental fact that the economic
categories used for the measurement of rural consumption should be more broad-based
so that the way of living of the rural poor can be analyzed in greater detail.
31
Chapter-3
Studies on Inequality
Wide disparity in the living standards of the Indian population in both rural and
urban areas has attracted the attention of a number of economists who have tries to
measure the change in the degree of inequality in the income distribution and that in
consumption expenditure. Moreover, attempts have been male to compare the degree
of inequality existing in India with the same in other countries. A survey of the
existing literature in this respect should be preceded by a discussion of the following
points, as clarification of these points will facilitate the evaluation of the existing
literature.
First, it is difficult to compare the per capita income of a developing country
like India with that of a developed country because of the limited scope of national
income accounts in the former.
58
Moreover, objection has been raised in the use of
exchange rates to convert all figures to a common standard and it is recognized that
exchange rates may be poor guide to purchasing power. As the study of David (1972)
suggests the true gap regarding the real per capita income between the United the
United States and other countries is only four-ninths of that indicated by exchange rate
conversion.
59
Secondly, while it is difficult to generalize about inter-country differences
because of heterogeneities of different sorts historical, physical and regional in
addition to the purely economic, we can still arrive at some conclusion regarding the
effect of growth on size distribution of income by shifting to inter-temporal
comparisons. This is as follows: Though inequality is generally low in the pre-
industrialization stage, it tends to rise with the growth of towns and cities which emerge
and flourish with capitalistic enterprise and growing commerce. Concentration of
capital occurs with the growth of firms and urbanization increases regional disparity.
But beyond this early phase it is difficult to generalize about the pattern of the change
in the inequality-index as economic development proceeds. Kuznets maintains that the
degree of inequality is lower in the developed economy compared to the less developed
countries.
60
Kuznets has been supported by others and these authors, after a careful
32
scrutiny of the size-distribution of income of some countries, maintain that the
distribution of income tends to be more equal, the longer and the more thoroughly the
country has been exposed to the processes of social and economic transformation after
the advent of industrialization.
61
We may now turn our attention to the studies on inequality in India. The RBI
Study (1962) gas two parts: in the first, the method of estimation and the average state
of income distribution during the period 1953-54 to 1956-57 have been described; and
in the second, changes in the income distribution from Period I (1953-54 to 1954-55) to
Period II (1955-56 to 1956-57) has been analysed. This study was undertaken under
the guidance of Ojha and Bhatt (1964). Taking the household as the income-receiving
unit, it attempts to present the pattern of income distribution in the households sector
only, which comprises household, not-corporate business (including agriculture), and
private collectives like temples, educational institutions and charitable foundations.
The household sector is divided into three income groups: (i) low income group with
annual income below or equal to Rs.3000, (ii) households with an annual income
between Rs.3001 and Rs.25,000 and (iii) top income group with annual income above
Rs.25,000.
The essence of the method of estimation used in the study is the integration of
the income tax data with the consumer expenditure data from the National Sample
Survey (NSS). The integration is indirect as the study does not use either the actual
expenditure given in the NSS data or the actual income for those with annual
expenditure equal to or below Rs.3000. Again, the proportion of population and the
size of the households in various expenditure brackets given in the NSS data on
consumer expenditure are used for the following: First, to estimate independently from
the population data (i) the distribution of rural and urban households between low
income groups and high income groups, and (ii) the total number of households in the
rural and urban areas separately. Secondly, to estimate independently from the national
income data the distribution of personal consumption expenditure between the rural and
urban sectors and between low income and high income groups within each sector.
The savings made and taxes paid are then added to derive personal disposable income
and personal income respectively of the various income groups.
33
Moreover, personal incomes accruing to households in the top income group
are obtained directly from the income tax data on the assumption that each salary
earner assessed to tax represents one household. Income tax data are also used in the
estimation of personal income accruing to households in the high income non-salary
earners group both in urban and rural areas in so far they are obtained as residual
magnitudes. The distribution of incomes and households in this group is also done
from income tax data. The independently estimated households and incomes are then
put together to derive the pattern of income distribution.
The study reveals that for the period 1953-54 to 1956-57 the top decile accounts
for 28 per cent of personal income, while the bottom decile obtains only 3 per cent.
The Lorenz ratio for disposable income is only slightly lower (0.335) than that for
personal income (0.340). Income distribution is more uneven in the urban sector than
in the rural sector; the urban sector concentration ratio for personal income is 0.40,
while this ratio for the rural sector is only 0.31.
Ojha and Bhatt (1964) then conclude as follows:
Contrary to general impression, the degree of inequality in income distribution
in India does not seem to be higher than in some of the advanced economies.
This conclusion of the authors goes against the thesis of Kuznets and the empirical
findings of Morgan (1953) and others. This view has been challenged by Ranadive
(1965), Swamy (1965) and Mueller and Sarma (1965). Though the debate is primarily
concerned with the above conclusion of Ojha and Bhatt is primarily concerned with the
above conclusion of Ojha and Bhatt rather than with the index of inequality as revealed
in their study, this has cast some doubt on the basis on which the study of Ojha and
Bhatt depends.
According to Ranadive (1965), the RBI study is marred by a lack of
appreciation of the need for an appropriate concept of personal income, an incorrect
use of NSS data for deriving size distribution of household income and by what seems
to be a methodological error which has resulted in over-estimation of households in the
high income groups. A close scrutiny of the RBI study shows that the number of
households in the high income group is over-estimated, which is revealed by the fact
that the number of households in non-salary earners group is about six times higher
than the number of the corresponding group in the tax data. Again, according to
34
Ranadive, the concept of income in the study excludes some elements and so the
personal disposable income in high income groups is likely to be underestimating.
Thus the under-estimation of income and/or over-estimation of households in the
higher income groups might account for the sharp difference of this study with the
thesis of Kuznets (1963) supported by some empirical studies.
Mueller and Sarma (1965) have pointed out that the assumption in the study of
Ojha and Bhatt leads to a downward bias in income inequality and they have ignored an
important body of data, which is a survey conducted by NCAER in 1960 with a
stratified probability sample of 4400 families in 30 cities and towns all over India.
62
Mueller and Sarma have shown that NCAER income distribution is much more
unequal than the OJha and Bhatt distribution. Moreover, the saving estimates in RBI
study do not correspond with the NCAER estimate. Criticising the thesis of Ojha and
Bhatt, Swamy (1965) also contends that the pattern of income distribution in India
supports the thesis of Kuznets.
Lydall (1960) assumes that Pareto Law of distribution
63
holds in India. He
then makes use of income-tax statistics of individuals and Hindu undivided families,
and converts the NSS 10
th
round data from household to a per-person basis, the income
of each household being divided by the number of persons in that household. He
further assumes that average number of persons covered by each tax assessment is
about three. The result of his study is as follows. The top ten per cent of Indians
account for 34 per cent of pre-tax income and 33 per cent of post-tax income in 1955-
56. The corresponding figures for United Kingdom in 1954 are 30 per cent and 25 per
cent respectively. But Lydall is cautious regarding any comparison of income
distribution because coverage of income-tax is much smaller in India compared to U.K.
and the estimate of direct income distribution in India is absent.
Since Lydalls study is based on income tax data, we do not get any reliable
picture of the pattern of income distribution as a whole in the fifties.
Mukherjee and Chatterjee (1967) have utilised NSS data and the national
income estimates to indicate broadly the behavior pattern of income distribution. The
premises of the study are as follows:
35
(i) First, statements are made about the nation as a whole and hence reliance
has been placed on national income and allied information which relate to
the country as a whole.
(ii) Secondly, the reference period is 1950-51 to 1965-66.
Moreover, at attempt has been made to construct size distribution of income
at constant prices.

The study reveals that disparity of private consumption expenditure at current
prices showed some reduction at the All India level during the period 1953-54 to 1961-
62. But disparity of private consumption expenditure in real terms showed a large
increase from the First to the Second Plan period and then maintained a high level.
Again, the evidence is not conclusive on the movement of inequality in the distribution
of personal income by size reckoned at current prices, but the overwhelming suggestion
is that there has been some increases in inequality after 1953-54 and also towards the
end of the period. Moreover, there has been a marked increase in disparity in
distribution of personal income by size reckoned in real terms throughout the period.
Mukherjee and Chatterjee implicitly assume that prices of cereals and non-
cereals change in the same direction and also by the same proportion. While the first
part of the assumption is generally true, the second part is not borne out by facts.
64
Again, NSS data give changes in the prices in the prices of individual cereals as well as
shift in the composition of cereals and this must be adjusted to get a proper index for
deflating the consumption expenditure.
65
Swamy (1967) has adjusted the NSS data for reference period biases and
differences in valuation. He establishes that inter-sectoral inequality is connected with
the shift in the size distribution and the overall size distribution of income has little
meaning unless it is examined along with the components of this distribution.
According to Swamy about 85 per cent of the increase in inequality in the size
distribution of consumer expenditure over the decade 1951-60 was due to structural
shift in the economy and only about 15 per cent was due to intra-sectoral inequalities
changes in inequality.
66
Thus Swamy emphasizes the importance of the study of
structural parameters, as a study of intra-sectoral inequalities alone would not truly
indicate the changes in the size distribution of income for the country as a whole.
36
The implication of Swamys study is that the process of industrialization causes
shifts in relative weights of different sectors; and without radical changes in the
institutions, inequality in the income distribution must inevitably rise over time.
Neglect of this aspect, according to Swamy, is the principal cause why some income
distribution studies show a decline in the disparity in the income distribution. Further,
Swamy has estimated that inequality remained more or less stable in rural areas, but
increased in urban areas, which is reinforced by the fact that the proportion of
population increased in urban areas over the period. This increased the disparity
between rural and urban areas.
Modifications tot the Ojha and Bhatt method have been suggested by Ranadive
(1973) to allow for not dissaving by poorer income groups and for possible tax evasion
in the top income groups. Ranadive adopts two extreme alternatives: (i) where
households with annual income less than Rs.2000 in the urban sector and with income
less than Rs.720 in the rural sector are assumed to have zero net savings and all evaded
tax payments are assumed to have zero net savings and all evaded tax payments are
assumed to be fully reflected in consumption and/or savings, and (ii) where households
with annual income less than Rs.3000 in the urban sector and with income less than
Rs.1200 in the rural sector are assumed to have negative savings, which constitute 25
per cent of the total urban savings in the case of the former and 14 per cent of the total
saving in the case of the former and 14 per cent of the total savings in the case of the
latter. As for evaded tax payments, they are not reflected in consumption and/or
savings, so that the estimated amount of tax evasion is added to the disposable income
of the tax-paying classes. Now case (ii) should show higher inequality than case (i) due
to the assumptions relating to savings and tax evasion.
Ranadives estimate shows that in the year 1961-62, the bottom 20 per cent of
population accounted for 7.6 to 7.8 per cent of total income, and top 20 per cent
accounted for 45.5 to 46.7 per cent. The Lorenz ratio was between 0.351 and 0.367.
The assumption of Ranadive that in the savings group total saving is distributed in
proportion to consumption expenditure has been questioned by Bardhan (1974).
Ahmed and Bhattacharya (1972) have tried to integrate the size distribution of
consumer expenditure obtained from NSS data with the size distribution of income
before tax, obtained from income tax data, to estimate the size distribution of per capita
37
personal income in India in three different periods, 1956-57, 1960-61 and 1963-64.
They have followed the technique developed by Lydall (1961) and their study is a more
systematic and rigorous extension of the earlier attempt of Ahmed (1971). This
approach is based on two assumptions: (i) income (before tax) equals consumer
expenditure in the lower ranges of per capita consumer expenditure, and (ii) the
distribution of per capita personal income before tax is symptotically Paritian for high
values of per capita income and has the same slope as the distribution of assesses by
size of incomes before tax.
The results of the study of Ahmed and Bhattacharya are as follows: For the first
fit, where Pareto Curve is fitted to the size distribution of income before tax taking all
income classes above Rs.20,000, the Lorenz Ratio is 0.418 for 1956-57, 0.379 for
1960-61 and 0.372 for 1963-64. Again, for the second fit, that is where Pareto Curve is
fitted taking the last interval of income before tax as Rs.100,000 and above, the Lorenz
ratio is 0.408 for 1956-57, 0.382 for 1960-61 and 0.361 for 1963-64. However, this
result has been qualified by the authors with two points: First, considering the fact that
price increases have been more sharp for the lower income groups than for the higher
income groups, this decreases in the inequality in nominal income distribution may be
more illusory than real. Secondly, this decline, the authors suspect, may be traced to
the inherent weaknesses of the two sets of data.
Bardhan (1974) points out that the first assumption of Ahmed and Bhattacharya
rules out dis-savings in the lower income brackets and so it leads to some
understatement of inequality. Moreover, considering the fact that the number of
income tax assesses is not even 1 per cent of Indian population and rural rich are
mostly beyond the net of income tax authority, the technique of fitting Pareto
distribution in the Indian contest may very well distort the picture.
On the basis of NSS data Vaidyanathan (1974) analyses inter-State variations in
the levels of inequality. Vaidyanathan shows that data from the 18
th
and the 22
nd
rounds suggest a negative association between the Lorenz Ratios of consumption and
per capita consumption expenditure, though the coefficients are not statistically
significant. The study further reveals that, in rural India, greater inequality in the
distribution of land is associated with more uneven distribution of consumption.
Moreover, the pattern of land operation has influenced the degree of consumption
38
inequality. This result is quite consistent with a priori judgment; as land is the most
important source of income in rural areas and as production structure is largely
disorganized the holding of land gives important leverage to the owners who reap the
advantages of a hierarchical society.
Vaidyanathan calculates the changes in Lorenz ratios during the decade 1957-
58 to 1967-68; for rural India the inequality index (LR) has decreased from 0.334 in
1957 to 0.203 in 1967-68. But the variations over the States are not uniform; while for
Andhra Pradesh, Assam and Madhya Pradesh the decline is sharp (more than all-India
average), other States like Punjab and West Bengal do not show any significant
decline.
67
The regional variation of inequality in rural India has been analyzed by Bhatty
(1974) also. He has divided the rural population (workers) into three categories-
cultivators, agricultural labourers and non-agricultural workers. Then he presents the
Gini Coefficient of inequality in income distribution for India for 1968-69. Inequality
is found to be highest in Gujrat followed by Uttar Pradesh, Mysore and Tamil Nadu;
and it is lowest in Orissa followed by Assam, Bihar, Kerala and Rajasthan.
Income distribution is most unequal among the cultivators, as Bhatty has
shown, the LR is 0.493. Again, the degree of inequality is lowest among the
agricultural labourers with LR 0.27; the position of the non-agricultural workers lies in
between the two with LR 0.377. But in Punjab-Haryana, the Gini coefficient for
agricultural labourers is higher than for bnon-agricultural workers and in Orissa, the
index for agricultural labourers is above that for the cultivators. The study further
reveals that the per capita income of agricultural labourers has a strong positive
association with the per capita income of the rural population, with coefficient of rank
correlation +0.82, at 1 per cent level of significance; though inequality in their per
capita income seems to be on the rise. Thus while the first result indicates that
agricultural labourers can share in any general improvement in the health of the rural
economy, this paves the way for rise in inequality in their incomes.
As the study of Bhatty relates only to the year 1968-69, it fails to give any
indication of the change of inequality in rural India. Again, the categorization of rural
income classes as cultivators, agricultural workers and non-agricultural workers misses
39
the point that the position of small cultivators is sharply different from that of the large
land-owners. The high index of inequality among the cultivators may be explained by
this difference.
Chapter-4
Causes of Poverty and Inequality in India
40
In the Indian setting poverty has been usually discussed along with the question
of inequality and it has even been contended that poverty is both the cause and the
consequence of inequality in income distribution. Again, inequality in income
distribution is the manifestation of the inequitable distribution of the means of
production and the imperfections existing in the market structure. The whole issue has
been complicated by the dual nature
68
of the Indian economy and as such inequality
should be analyzed separately in the case of rural and urban areas. Behind the income
inequality in the rural structure, there is often social inequality in the form of caste
hierarchy, the existence of which contributes to the persistence of inequality by
providing social sanction to the hierarchical structure.
69
In the following paragraphs, first the issue of poverty and inequality in rural
areas is discussed; then this discussion is integrated with the discussion of the urban
sector to have a total view of poverty and inequality in the economy as a whole.
On the question of inequality in rural India our attempt is mainly confined to
post-independence period, though for the sake of continuity we have to go back beyond
1947. During this phase of Indian history, three types of factors will be discussed and
they are: market forces, governmental measures and the impact of political decisions.
To illustrate the impact of market forces on rural hierarchy in Orissa Bailey
found (1957) that in early fifties land has been marketed and the consequence was
transfer of land from one caste to another. Similarly observation has been made by
other anthropologists studying villages in other parts of the country.
70
Such transfer of
land from the higher castes to the middle castes has been described as a change from a
system of cumulative inequalities to one of dispersed inequalities, or from a relatively
closed to a relatively open system of stratification.
71
But marketing of land does not necessarily indicate diminution of the skewness
in the distribution of land holdings. There is reason to believe that in some areas land
is passing from the hands of very small holders into those of middle and large
proprietors. With the introduction of new technology, agriculture has been profitable to
those who have both land and capital to invest in it. It is argued that the bias against
the small peasants is built into the new technology by the very costly nature of the
inputs, the role of indivisibles like tractors and also by the selective strategy
41
accompanying the new technology. Thus the relatively low profitability of smaller
farms has induced transfer of land from the small farmers to the big ones, which
increases the skewness in the distribution of land holding in the green revolution
areas.
What effect does the new agricultural strategy produce on the distribution of
income? There is no positive finding on this issue. But logically one may proceed like
this: Since the smaller holdings usually earn from many diverse sources, while the
larger farm depends mainly on farm business income, one would expect a somewhat
less skewed distribution in terms of household income, compared to the figures for land
distribution. But distribution of farm assets has become more skewed over the years,
which should enable the big farmers to retain their advantage over the smaller farms
partly because of their greater creditworthiness and risk-bearing capacity based on the
high value of their assert holding, and partly because of the higher earning capacity
from the ownership of farm assets.
We can study the impact of the new technology in greater detail. The
production relations in the agrarian structure at present have a three-tier composition
viz. owner-cultivator, tenant-cultivator and landless farm labourer. This composition
broadly embodies a dual system of farming peasant and capitalist with two forms of
farm production, which are family labour-based and hired-labour based respectively.
While the capitalist farms maximize profit-income and a part of their incomes is
invested for the intensification of production, the peasant farms maximize output.
The existence of a dual system of farming in Indian agriculture indicates that
the magnitude of wage labour and the institutional character of land-labour relations in
production belonging to the capitalist farm sector of agriculture depend primarily on
the size of land holdings, social status of the farmer and the nature of the technology
being applied to agriculture. Similarly, regarding the peasant farm sector, the extent of
use of family labour depends o0n the size of land holdings.
The use of the new technology has affected the distribution of land in our rural
economy. According to Divatia (1976) the share of the lowest 30 per cent of the rural
households in the total rural assets has slipped from 2.5 per cent to 2 per cent and that
of the top 30 per cent has increased from 79 per cent to 81.9 per cent during the
42
sixties.
72
Another study by Pathak, Ganapathy and Sarma (1977) also brings cut the
sharpening of inequality in rural areas. According to it, the highest decile group
improved its share from 58.71 per cent to 61.79 per cent between 1961 and 1971.
73
A
study by C. H. Shah reveals that despite the ceiling laws, the concentration of land
ownership of land has not changed much in recent years and again, despite a marginal
decline in the concentration of land ownership, the concentration of assets has tended to
increase.
74
These all point to the insignificant effect of land reforms measures on the
reduction of inequality in rural area.
75
Just as the ceiling laws have failed to change the ownership pattern of land in
rural areas, other Government measures since the middle of the sixties have also not
been able to prevent the natural deterioration in the share of the poor in total asset
holdings in the rural economy. On the contrary, measures like asset based advances,
high support prices for rich farmers and provisions for highly subsidized inputs have
brought about a shift in assets ownership leading to concentration of income in
agriculture. The studies by Bardhan (1974), Saini (1976) and Shah (1976) have
revealed this aspect of agricultural development in the country.
76
Sainis study is based
on two wheat producing districts of Ferozepur in Punjab and Musaffarnagar in U.P.,
while Bardhan covers, apart from these two districts, some sample farms of Hooghly in
West Bengal and Ahmednagar in Maharashtra. These studies reveal the following: The
agricultural development since the mid-sixties has led to a widening of income
disparities between regions, between small and big farms and between land owners and
landless labourers. Moreover, some studies reveal that real wages of farm labourers
have tended to decline even in Punjab, Haryana and Western U.P. since 1970-71.
77
While the trend of development in agriculture has been going against the poor,
the government has established some institutions and has taken up some programmes
for the uplift of the small and marginal farmers. These are Small Farmers
Development Agency (SFDA), Agency for Marginal Farmers and Agricultural
Labourers (MFAL), Crash Scheme for Rural Employment, Drought Prone Area
Programme and Integrated Tribal Development Projects. But these solutions offered
by the government suffer from the following weaknesses. First, there is a widely
shared view that most of the benefits under the schemes have been diverted and
appropriated by better-off farmers.
78
Secondly, it is now recognised that even in 1975-
43
76, after the full implementation of these programmes, their coverage has been
meager.
79
It has been contended that in the absence of basic changes in the organisation
of agriculture, such reformist measure will not redress rural poverty.
80
But in our
opinion, such a contention does not do full justice to the role of these specialised
agencies. Let us explain it in detail.
The major limitation of the small farmer is the small size of his holding, which
puts on him resource and system constraints. But the new technology in agriculture is
resource-using, which involves larger use of current inputs as well as an expanded base
of durable capital especially for irrigation. The resource position of small and marginal
farmers regarding long-term investment is extremely weak. Hence the small farmer has
either to be content with the meager investible resources or face the increased risks
involved in using borrowed finance. The combined effect of all these is severe capital
rationing and increased economic disparity between small farmers and big farmers.
The NSS 26
th
round data
81
suggest that for every100 landless families, 37 had a
milk animal. In the next class, cultivating less than 0.2 hectare, the situation is better: 3
out of 4 families had an animal. But, those cultivating above 20 hectares had 14
animals per households. This positive association of the number of animals with the
size of the cultivated holdings can be interpreted as a resources barrier for small and
marginal farmers and landless labour. Hence agencies like SFDA have been advised to
supply cattle to these families at subsidies rates.
The agencies like SFDA and MFAL have viewed the problems of small farmers
essentially as problem of resources providing more credit, milk animals, improved
seeds etc. They have the necessary organization the extension agency, the Credit Co-
operatives, the skilled personnel of agricultural department. But the reason why they
have not succeeded fully in their tasks is that the organizational wings work with a
linear authority structure which results in a lack of cohesion within the organization.
However, we will discuss this issue in the last Chapter again.
The feeling is now wide-spread that government measures to reduce
inequalities in the agrarian structure have been unsuccessful. But the measures adopted
have at least called in question the legitimacy of the existing inequalities and created
new expectations about what is desirable and possible. One result of this has been
44
organized political action to transform the agrarian hierarchy. Different political
parties, peasant associations and other organizations are now involved in the attempt to
change the agrarian structure. Their approach to the rural conditions is completely
different from the approach adopted by the government.
82
Share-croppers in West
Bengal, for example, are known to be working under exploitative conditions and have
received little prosecution from the law.
83
The peasant associations have tried to
prevent eviction of share croppers through political pressure. However, it is difficult to
assess the redistributive affects of the forces thus operating. Then land is forcibly
seized by a party, it is not necessarily distributed to the landless poor. This often
transforms the conflict between the rich and the poor into a conflict between rival
political parties. But for our present purposes we need not pursue it further.
Industrial Stagnation and Urban Poverty:
The growths of the industrial sector in India and the consequent urbanization
have not been successful in absorbing the landless unemployed labourers in rural areas
into urban employment. While the towns have helped very little in ameliorating rural
poverty, poverty in urban areas has deepened since the middle of the sixties. Moreover,
the pattern of industrialization in India has not been on the desired lines. The
stagnation in the industrial sector in recent years has been explained in terms of
perverse industrial development in a society where extreme income inequality has
made for a shrinking demand base.
According to Dasgupta (1975), in a capitalistic society investment and
production decisions are taken by the capitalist class, who are quite distinct from the
class of labourers. The result is an unduly high premium on the production of luxury
goods profitable to the capitalist and relative neglect of the mass consumption goods
required by the labourers. This has led to high rates of growth, but this is also
associated with distortion in the pattern of production, consumption and distribution.
Dasgupta pleads for an end to the dichotomy that exists in the Capitalist system and
substitution of the present economy based on luxury by one based on austerity.
Bagchi (1970) considers inequality in the distribution of income as the basic
constraint on the industrial development in India. Inequality in income distribution is
45
aggravated by the process of growth for it is the private sector which owns the means
of production and thus appropriates the increments in income. The Government is
unable to exercise effective control over the allocation of resources between (i)
consumption and saving and (ii) essential and non-essential consumption. While
the former is reflected in the failure to mobilize domestic resources for investment, the
latter is revealed by the excessive importance of luxury goods in industrial production.
It is not possible for the government to maintain a high rate of investment in the face of
the unequal income distribution and the demand pattern generated by it.
While Bagchi puts emphasis on the overall inequality in income distribution,
Mitra (1977) argues that the redistribution of income in favour of agriculture and
against industry is a major factor responsible for the deceleration in industrial
development since 1965-66. He has suggested that the shifting terms of trade have
been instrumental in reducing the real incomes of the majority of the population in both
the urban areas and the countryside. An increase in food grain prices squeezed the non-
food expenditure of the urban as well as the rural poor, thus reducing the demand for
manufactured products. The result is the diminution of the demand for mass
consumption goods.
84
But a question remains. What about the demand of the rural
rich who, according to Mitra, have accumulated agricultural sector. It remains a puzzle
and perhaps a change in the preference pattern of the rich in rural areas can generate
demand for the manufactured items.
One interesting aspect of the pattern of consumer expenditure has been revealed
in the study of Sau (1974), who, on the basis of NSS data, has shown that the
percentage of per capita consumer expenditure spent on industrial goods declined over
the period 1952-53 to 1964-65. He further finds that the decline is much more
pronounced in the case of the poorer sections of the population.
85
Demand for manufactured goods may be constrained by stagnation in the
agricultural sector, which has been emphasized by Raj (1976). He has found that
regions characterized by moderately high and stable rates of agricultural growth have
also experienced high growth rates in industrialization. Moreover, according to Raj, if
agricultural output does not grow rapidly enough, or even if it does grow a little faster
but the increases in output are realized mainly in the larger farms, this is likely to take
place only alongside further accentuation in the inequalities of income and wealth.
46
The logical conclusion of this process is a pattern of industrial development based on
high rates of growth of demand for luxury and semi-luxury products which may
well come to be regarded as the only way of maintaining a high rate of growth of
output in this sector.
The perverse industrial development creates its own constraints and the
opportunity of exports cannot solve the problems of inadequate demand, which has
been shown by Raj (1976) and Bagchi [(1975; 1977)].
86
Moreover, with the start of the
seventies the growth in agricultural sector began to slow down for want of necessary
institutional changes and this circumscribed industrial growth in more than one way.
Food priced began to rise and necessary raw materials became scarce, which
diminished the support to industry. As the inter-sectoral terms of trade shifted in
favour of agriculture, and the support from the principal source of industrial growth
waned in course of time, industry faced a more unfavorable situation for growth. The
situation worsened with a positive deceleration in the growth of public expenditure in
India helped redistribution of income against the poor.
87
Even this, coupled with a
wide arrangement of subsidies, could not alleviate the ills surrounding the industrial
sector of the country.
The question of distribution has assumed importance in the perspective of
overall stagnation in industrial sector and the slowing down of the growth of
agricultural production. In this context the comment of Leontieff (1973) on the
economic performance of China is worth mentioning.
88
According to Leontieff, in
China, in spite of very poor per capita income compared to developed countries in the
west, basic human needs absorb a fraction of the material costs needed to satisfy the
demands of the high and middle-income groups in our industrialized, prosperous
society, and general living conditions for the average Chinese are decidedly better than
those of disadvantaged Americans at the bottom rung of our economic ladder.
Though Leontieff compares Chinese economy with its western counterpart, the
question of fair distribution becomes important in his discussion. In contrast, the
production structure in Indian industry has been oriented to elitist consumption and the
percentage of income going to non-productive consumption is also high compared to
even developed countries.
89
This explains two things simultaneously. First, it implies
lower quantum of savings to be realized for investment. Secondly, it perpetuates
47
inequality in income distribution. Such a situation is hardly conducive to the
eradication of poverty in a developing country.
Chapter-5
Conclusion: The Anti-Poverty Programmes
In the concluding section we make a brief survey of the programmes adopted in
India to launch a direct attack on poverty in the rural areas. Here, we restrict our
discussion to the programmes initiated at different levels of government, thus excluding
programmes sponsored by voluntary organizations, some individuals and political
48
parties. We feel that the present discussion will be sufficient to enable us to bring out
the basic issues involved in all rural development programmes.
Regarding the programmes, three types of approaches can be distinguished
according to the nature of the sponsoring authorities and these will be taken up in turn.
The first approach is concerned with the programmes taken up by the Central
Government and these are integrated with the overall planning process in the country.
The second approach covers some programmes sponsored by some state governments
at the regional level. The third approach is related with such programmes as are
initiated at the official level by individual officers of the government.
The Fifth Five Year Plan aimed at eradication of poverty along with reduction
of inequality.
90
The major instrument of the programme, as delineated in the Plan
document and subsequent policy announcement, was the generation of employment
opportunities. This was based on two policy approaches and these were: (i)
improvements of the value and productivity of the existing assets of the households,
and (ii) transfer of assets to poorer households. Since the removal of poverty means
increase in the income of the households to a certain minimum level and since the
average daily wage in the rural areas is not high enough,
91
policies were oriented to
supplement this wage income by income from assets through increase in productivity.
Hence the necessity for special programmes was felt to improve productivity of the
existing assets of the weaker sections and to improve the level of assets through
transfer of such assets in their favour.
Rural assets are of two kinds: land and non-land assets. Regarding land, it was
expected that land reforms would augment the size of holding of the marginal farmers.
The productivity of these holding was to be raised by increased provisions of
agricultural inputs at concessional rates. Regarding the formation and improvement of
non-land assets some special programmes were initiated in rural areas, viz. Small
Farmers Development Agency [SFDA], Scheme for Marginal Farmers and
Agricultural Labourers [MFAL], Crash Scheme for Rural Employment [CSRE] etc.
The SFDA and MFAL Schemes, which were initiated towards the end of 1969-
70 started functioning effectively from 1971-72. In both the cases, the sanctioned
amount could not be utilised fully and in 1971-72, only a very small percentage of total
49
allocation could be utilized.
92
The CSRE was announced towards the end of 1970-71
and by November, 1971 employment generation was to the extent of 87.6 lakh man-
days at the cost of Rs.3.1Crores.
93
Though the full impact of these programmes on the
rural poor is yet to be assessed, some observations are in order regarding the
potentialities of the programmes.
The benefit of any asset improvement programme can accrue only to those who
have the particular asset in question. Whether we consider households which operate
no land or only land holdings in the size classes above zero but below 1025 acres, the
number of cows and she-buffaloes per 100 households who operate either zero land or
only holdings or less than 0.5 acres and between 30-40 per cent of the households who
operate holdings of between 0.5 and 1.24 acres, have no cows or she-buffaloes.
94
Obviously, they cannot benefit from any programme for improving the breed of milch
cattle and realize the income thereof.
The problem of the extreme inadequacy of the asset bas has restricted the
usefulness of the poverty eradication programme. This has induced the policy makers
to adopt the second issue, i.e., the programme of asset transfer to the poor households
in rural India. Under the SFDA, the MFAL and such other programmes distribution of
milch animals and other animals such as pigs, sheep, goat etc. has been taken up.
These programmes do not actually contemplate transfer of these assets to the poor
households. They only provide a subsidy and that is at the rate of 25 per cent for small
farmers and 33.33 per cent for marginal farmers. This subsidy is not payable directly to
the potential beneficiary to acquire the assets. Hence, the subsidy will become
available only to those who have access to institutional credit. But in the rural structure
institutional credit plays the minimum role. It is reported that in the case of all rural
households whose assets are less than Rs.1,000, less than 3 per cent reported any
borrowing from institutional sources. Such households constituted nearly 20 per cent
of all rural households.
95
In this perspective programmes of assets transfer can be
expected to have only a limited effect on the income level of the poor in rural areas.
This analysis suggests that, in the context of organized experiment to uplift the
condition of the poor, programmes for actual transfer of assets are a pre-requisite for
using asset improvement and fuller utilization of labour power as mechanism for
50
creating an income earning potential. Only under these conditions can the poor be
expected to raise their income and consumption level above the poverty line.
The overall poverty situation in the country has led to the adoption of some
other programmes at micro-levels in different regions of the country apart from the
centrally planned ones as described above. This leads us to the programmes covered by
the second approach. In the middle of 1960s, some agricultural programmes were
launched in some states, which were associated with the New Strategy in agriculture,
viz., Rural Works Programme [RWP], Intensive Agricultural District Programme
[IADP], Integrated Area Development Scheme [IAD] etc. In July 1969, the
Maharashtra Government introduced a Pilot Employment Guarantee Scheme in some
IAD blocks. The objective was to guarantee employment to agricultural labourers who
needed it. Though well-conceived and meticulously formulated, these schemes
suffered from a big gap between programmes planning and execution. Moreover, the
organizational weakness of the programme had caused diversion of funds to the benefit
of large farmers; whereas special programme for the benefit of agricultural labourers
remained on paper only.
96
The third approach to the problem of poverty covers those programmes which
were initiated by the bureaucrats. These were isolated micro-experiments. An analysis
of these will reveal some important characteristics of Indian socio-economic structure.
The District Collector of Warangal (Andhra Pradesh) helped the formation of a Co-
operative by the toddy tappers. This was an attempt to prevent the powerful zamindar
of the region who appropriated the surplus by coercively purchasing the monopoly
tapping rights from the government and then by reselling this right at higher rent to the
individual tappers.
97
When the toddy tappers formed the Co-operative and obtained the
tapping rights with the help of the Collector, they could increases their income
considerably. Similar experiments were conducted by the District Collector of Nellore,
who induced the peasants in the region to adopt joint Co-operative farming by forming
Co-operative societies.
98
Both Warangal and Nellore, to follow Popper,
99
were experiments in
piecemeal social engineering, at least in the fact that the basic thinking was done by
the basic thinking was done by the elite bureaucracy. Once initiated, it was imperative
that the involvement of people in the region should be total. Only then would they be
in a position to sustain the movement.
51
It is high time that we make a close scrutiny of the three types of programmes
described above. All these programmes are at the micro-level, as these are meant for
solving the problem of poverty and these arouse the consciousness of the people
regarding the surrounding economic environment. But overall economic development
demands the linking up of all such micro-programmes, which is an essential task before
the country. There are many ways in which macro changes initiated at the Centre can
influence social conditions at the village level. Changes in the planning procedures,
investment allocation towards the development of a new social and economic structure,
generation of employment opportunities etc., influence the conditions of existence at
the grassroots level.
The different micro programmes which recognise absolute poverty and aim at
reducing such poverty suffer from two major deficiencies. First, these programmes are
based on the view that poverty can be removed by some piecemeal methods. But the
roots of poverty lie in the skewed distribution of ownership of the means of production.
This aspect of the problem has generally been overlooked in the micro programmes. It
has to be recognized that some change in the structures of the distribution of assets is
required for any success in the poverty removal programmes.
Secondly, these programmes are etilist in character in the sense that these are
imposed on the rural economy by the urban elite groups or the government. The
participation of the poor in these programmes is minimal. Unless the poor themselves
are mobilized for the effective implementation of these programmes, one essential
requirement of the success of such programmes will be lacking.
NOTES
1. Fourth-Five-Year Plan A Draft Outline, p.36.
Planning Commission, Government of India.
Draft Fifth-Five-Year Plan 1974-79, Vol.1, p.6.
According to the Draft:
52
The existence of poverty is incompatible with the vision of
an advanced, prosperous, democratic, egalitarian and just society implied in the
concept of a socialist pattern of development. (p.6).
2. See Bardhan (1970), Dandekar and Rath (1971), Minhas
(1970), Ojha (1970) and Vaidyanathan (1974).
3. See Sen (1973. 1976).
4. On the concepts of poverty in absolute and relative senses, there exists a large
literature, see Townsend (1970), Rowntree (1941), Rein (1970), Smolonsky
(1966) and Titmuss (1962).
Fowntree defines poverty in absolute sense as follows:
My primary poverty line represented the minimum sum on whic physical
efficiency could be maintained. It was a standard of bare subsistence rather than
living, (pp. 102-103).
Again, Townsend defines poverty very broadly as inequalities in the distribution of
five resources, including income, capital assets, occupational fringe benefits,
current public services and current private services.
He suggests that needs which are unmet, can be defined satisfactorily only in
terms relative to the society in which they are found. He does not accept the
distinction between absolute and relative poverty or between basic and
cultural needs, because he argues that the needs which are believed to be basic
or absolute can be shown to be relative. Here, he suggests that Poverty must be
regarded as a general form of relative deprivation which is the effect of the
maldistribution of resources, and that section of the population whose resources
are so depressed from the mean as to be deprived of enjoying the benefits and
participating in the activities which are customary in that society can by said to be
in poverty.
5. P.P.D., Planning Commission (1974).
6. Sen (1973), (1976).
53
7. Such normative approach to the measurement of income distribution has been
developed by Atkinson (1970), Tinbergen (1970) and Bentzel (1970).
8. For detailed analysis see Sen (1973), pp. 24-46.
9. Pifou (1912), p. 24.
10. Sen (1973), p. 29.
11. Roy, Chakraborti and Laha (1959).
12. Atkinson (1970): Vol.2.
13.A welfare function is concave if the weighted average of social welfare levels from
two income distribution x1 and x2 is less than or equal to the social welfare of the
weighted average of the two distributions, when same weights are used; that is
[t.f(x1) + (l-t) f (x2)] f[tx1 + (l-t)x2]
For any t,
A welfare function is quasi-concave when the minimum of the two social welfare
levels from x1 and x2 respectively is less than or equal to the social welfare of the
weighted average of the two distribution. When the weak inequality ( ) is
replaced by strict inequality ( ), the function is strictly quasi-concave, that is
Min [f(x1), f(x2)] f[tx1 + (l-t)x2]
For any t,
See Sen (1973), p. 52.
14. Dasgupta, Sen and Starrett: (1973), pp. 180-187.
These authors have generalized the result of Atkinson (1970) in situations where
size of population varies in two countries.
See again, Sen (1973), pp. 48-50.
15. Sen (1976).
16. Atkinson (1970).
17. See Atkinson (1970), Newbery (1970), Dasgupta, Sen and Starret (1973).
54
Atkinson points out certain in egalitarian features of Gini Coefficient and Newbery
(1970) buttresses the criticism by demonstrating that the Gini ordering over
income distribution is not implied by any additive social welfare function when
the individual utility function is strictly concave. Dasgupta, Sen and Starret
(1973) demonstrate that the Gini ranking cannot be reflected by any group
welfare function if it is strictly quasi-concave on individual incomes. Moreover,
they maintain that the problem with the Gini Co-efficient is that the marginal
social rate of substitution between income accruing to individual (j-l) is simply j/
(j-l), and is thus independent of the actual income differences between them. As
a measure of inequality this feature may well be unpalatable to some.
18. See Sen (1973), p.34.
19. Atkinson (1970), Atkinson (1975).
20. A value of the Index I, say 0.12, means that the same level of social welfare could
be reached with only 88 per cent [i.e. 1.00 0.12 = 0.88] of the present total
income. Alternatively, the gain from redistribution to bring about equality would
be equivalent to raising total income by 12 per cent.
21. Bentzel (1970).
22. Iyenger (1978), p. 297.
23. Sen (1973), (1976).
24. Sen (1976).
The income gap g1 of any individual I is the difference between
the poverty line z and his income yi
gi = z yi
The poverty gap measure is normalized by Sen into a per-person
percentage gap I*
Where S(Z) is the set of the poor. This I* is called the income
gap ratio.
55
25. Dadabhai Naoroji read a paper Poverty in India in 1876 before the Bombay
Branch of East India Association in which he worked out the per capita output of
India.
Naroji, D. (1888), Rao, V.K.R.V. (1939), Ganguly (1965),
Maddision (1970), Marx (1943) and Dharampal (1971).
Maddison was critical about the Indian authors position on
Poverty during the British rule. He questioned the claim of some Indian nationalist
historians that the Moghul period was a golden age. He quoted Abdul Fazl to
show the example of poverty in Orissa and Bengal. But the contrary view was
provided by Dharampal (1971).
26. Bardhan (1974) and Dandekar and Rath (1971).
Some studies [Kansal (1968), Radhakrishnan, Srinivasan and Vaidyanathan (1974)]
have compared for selected items the NSS consumption estimates for individual
commodities and commodity flow estimates from official output data. There are
significant differences of coverage, differences in classification and differences in
valuation between the two sets of figures.
27. Bardhan (1970) and Minhas (1970) described in detail the use of alternative price
deflators.
28. Mahalanobis, P.C. (1962).
29. Mahalanobis, Op.cit.
30. Atkinson (1970), p. 191.
31. R.B.I. Bulletin, Supplement, October 1977.
Percentage of literacy in India was 33.8 in 1971 (Census).
32. Sukhatme (1965).
33. F.A.O. (1973).
34. Consumption of food grains increases from the poorest to the relatively better-off
expenditure brackets and this occurs much more rapidly in rural areas than in the
urban areas.
56
Table: Per Capita Daily Consumption of Food Grains and substitutes
at Consumption Levels below the average: (1960-61)
Monthly per capita
expenditure (Rs.)
Per Capita Daily Consumption of Food grains and
substitutes (grams)
Rural Urban
0 - 8 356 332
8 - 11 480 377
11 - 13 560 388
13 - 15 616 412
15 - 18 625 418
18 - 21 675 445
21 - 24 705 485
24 - 28 690 506
Source: Dandekar and Rath (1971): p.6.
Table abridged
The per capita daily consumption of food grains and substitutes in rural area reaches
616 grams for households with per capita monthly expenditure of Rs.13-15. If
one gram of food grains and substitute gives 3.3 Calories, then 2033 Calories can
be obtained from 616 grams of food grains. According to the estimate of
Dandekar and Rath, this takes up nearly 60 per cent of total consumption
expenditure of these households. They spend another 20 per cent on other items
of food which together give another 200 calories per day. Thus the entire food at
this level gives about 2250 calories per capita per day. Thus in 1960-61, a
monthly expenditure of Rs.13-15 was essential to give a diet adequate at least in
respect of calories.
As the urban households spend less on food than their rural counterpart, they derive
proportionately more calories from food other than food grains and substitutes.
The NSS data suggest that the urban household secure the minimum calories
requirement of 2250 at levels where their consumption of food grains and
substitute reaches 490 grams per person per day.
35. Bardhan (1973)
57
Table: Cost of Minimum diet for the month for an Individual
Consuming the items as in Column (1) on Daily Basis
Daily Cost of Diet over a month
(1)
1968-69
(Rs.)
(2)
1960-61
(Rs.)
(3)
Cereals 15 0z. 10.80 5.20
Pulses 3 0z. 3.35 1.51
Milk 4 0z 3.16 1.58
Gur 1.5 0z 2.06 0.72
Edible oil 1.25 0z 5.06 2.86
Total: 24.43 11.87
Source: Bardhan (1973)
Assuming that an average person is usually equal to 0.81 adult unit, the minimum
diet for an average person in rural India costs Rs.19.79 per month in 1968-69 and
Rs.9.61 per month in 1960-61. From NSS data it is seen that in 1960-61 total per
capita expenditure for the expenditure group which has roughly an amount of
food expenditure equal to the minimum diet above was 46 per cent above that on
cereals, pulses, milk, sugar and gur and edible oil taken together; in 12968-69 the
former was 42 per cent above the latter. As proper norms for non-food items are
not available, these percentages are used to obtain the blown-up estimates of per
capita expenditure bases on the cost of minimum diet. Thus the estimated rural
minimum level of living was Rs.14.00 in 1960-61 and Rs.28.00 in 1968-69.
36. Rudra, A. in Bardhan and Srinivasan (eds) (1974).
37. Minhas, B. (1970).
38. Tewari, S.G. (1968).
39. The estimated of Minhas is based on data from Second and Third Agricultural
Labour Enquiry conducted in the 11th, 12th and 18th rounds of NSS. The
numbers of 1960-61 are based on crude guess work and rough interpolation.
[Minhas (1970): Appendix]
40. Ojha, P.D. (1970).
58
41. NSS, 16
th
round, July 1960 to Aug. 1961.
42. Data from NSS, 13th round, covering the period September 1957 to May 1958
suggest that the per capita intake of calories for the lowest 20 per cent of Indian
population is about 40 per cent less than the All India average. The
corresponding percentage for protein is 38 per cent less, for fat 58 per cent less
(roughly). The study of Chatterjee, Sarkar and Paul (1971) reveals that the
concentration Co-efficient for calories was 0.175 for the above period, for protein
it was 0.187 and for fat 0.288.
43. We find from NSS 18th round (February 1963 to January 1964) data that urban
price level was, on the whole, 15 per cent above the rural price level for the
general population. This differential is 11 or 12 per cent for cereals and cereals
substitute, 14 per cent for other food items, 13 per cent for all food items and
nearly 26 per cent for the non-food items.
Chatterjee and Bhattacharya in Bardhan and Srinivasan (des) (1974).
44. Dandekar and Rath (1971).
45. Fourth Five-Year Plan, 1969-70.
46. Bardhan, P.K. in Bardhan and Srinivasan (eds) (1974).
47. Radhakrishnan, Srinivasan and Vaidyananthan in Bardhan and Srinivasan (eds)
(1974).
48. Rudra, A. in Rao, C.R. (ed): (1974), p. 138.
The underestimation in the NSS estimate of the consumption pattern of the
poorer section of the population than the average consumption pattern. This is
seen in the lower in the lower figures for the estimates of the consumption items
of the rich. Estimates of the purchases of gadgets and other durable consumer
goods based on the NSS data are seen to be underestimates when compared with
the corresponding supply figures based on production and import statistics. As
the income distribution is highly skewed, the probability is extremely high that
59
the upper tail area representing the richer sections of the population will remain
unrepresented in the sample.
49. Vaidyananthan, A. (1974a) in Bardhan and Srinivasan (eds) Vaidyanathan (1974b)
in Mitra, A. (ed) (1974).
50. Bardhan, P.K. (1970), (1971) and (1973).
51. Mukherjee and others (1974).
52. Bhatty, I.Z. in Bardhan and Srinivasan (eds) (1974).
53. Panikar, P.G.K. (1972).
54. Rajaraman, Indira (1975).
55. Bardhan, P.K. (1970a)
Bardhan finds that the green revolution has brought prosperity in Punjab but that
is true only for a handsome few i.e., big Punjab but that is true only for a
handsome few i.e., big peasants. It is seen that technological improvement in
agriculture has not been associated with diminution of rural poverty as inequality
in income distribution perpetuates. See Mitra, A. (1977), p.144.
56. Hanumappa, H.G. (1978).
57. Centre of Development Studies, (1975).
58. Kuznets, S. (1966)
There exists a downward bias in the estimation of National income as production for
own consumption is not properly represented. Kuznets makes an approximate
estimate of the extent of exaggeration in the national income accounts in the
developed country. Assuming that the net missing output in the developing
country would be a quarter of the total product of the agricultural sector, and this,
in turn, represents about 40 per cent of output in such countries, Kuznets
concludes that their relative per capita income should be raised by roughly one-
tenth.
60
59. David, P.A. (1972) and Usher, D. (1966), pp. 10-11 as cited in Thirlwall (1972),
p.26.
It is held that the exchange rates do not adequately represent goods and services
which are not exchanged internationally, even if these reflect the relative prices of
goods entering into foreign trade. In fact, real income per head in developing
countries is much higher compared with America than is suggested by estimates
obtained simply by converting per capital-incomes into dollars at the official
exchange rate (Usher 1966).
60. Kuznets (1963).
61. Morgan (1953).
Morgan shows greater inequality in Ceylon and Puerto-Rico than in USA and
UK. He generalizes his conclusion as follows:
that it will be found . that income distribution in under-developed
economies, by size, by occupations and by national groups, is more unequal than
in developed economies. The persisting cause is immobility in the wildest sense:
High incomes, and surplus in general, are less subject to erosion in a traditional
than in a commercial industrial society.
62. NCAER (1962).
63. Here the implication is that the cumulative frequency distribution of incomes, when
drawn on double-logarithmic paper, follows the path of a reasonably straight line
for income above the mode.
64. The index number of wholesale prices in 1959 was 128.4 for food articles (1953-
100), 121.0 for industrial raw materials, 118.2 for semi-manufactures, 105.3 for
manufactures and 117.3 for all commodities.
Source: Office of the Economic Adviser to the Government of India.
65. Vaidyanathan, A. in Bardhan and Srinivasan (eds) (1974).
66. This is shown in the table below (Swamy, 1967).
Sources of Increase in inequality in the Size Distribution: All India 1951-52
1959-60
61
Source Percentage Share
Intra-Sectoral Inequalilty 15.40
Rural 0.00
Urban 15.40
Inter-Sectoral Inequality 47.50
Sectoral Weights 37.10
Total Increase 100
67. Vaidyanathan (1974), Table 13.
For each year, three estimates are given; two for sub-samples and one is the
combined estimates of the two. Here the combined estimates are considered.
68. In the literature dealing with the duality of the developing countries with a modern
exchange sector and an indigenous subsistence sector it is assumed that supply of
labour in the subsistence sector is unlimited with wage rate often below the
subsistence level. Thus a decrease in the number of workers as a result of
migration to modern sector would not lower the average product of labour and
might even raise it.
See, for example, Lewis, A (1954), Dixit, A. (1970), (1971), Fei, J.C.H. and Ranis,
G. (1964) (1966) and Jorgenson (1967).
69. Betielle, A. (1969), Gough, E.K. (1955).
70. Betielle (1965).
71. Betielle (1966).
72. Divatia, V.V. (1976), p.20.
73. Pathak, Ganapathy and Sarma (1977).
According to these authors:
The basic pattern of asset-holding ... has not undergone any significant
change as judged by the assets distribution on June 30,1971. If it all, the share of
top asset-holding has registered varying increases in most of the states resulting in
marginally higher magnitudes of oveall inequality (p.517).
74. Shah, C.H. (1976), p.76.
62
75. A number of studies have supported this view; viz, Hanumantha Rao (1976), and
Laxminarayan and Tyagi (1976).
76. Saini, G.R. (1976), pp. A.17-22
Bardhan, P.K. (1974), pp. 301-307.
77. Rao, C.H.H. (1975).
78. Dantwala, M.L. (1976), pp.49-50.
79. Economic Survey, 1975-76, p.8.
80. Shettty, S.L. (1973), p.210.
81. NSS (1976), p.53.
82. Introduction by Almond in Almond and Coleman (eds) (1960).
83. Bau, S.K. and Bhattacharyya, S.K. (1963).
84. Mitra, A. (1977), p. 144.
85. Sau, R. (1974), pp. 144.
86. Bagchi, A.K. (1975), pp. 157-164.
Bagchi (1977), pp. 219-224.
87. Gupta, A.P. (1977).
88. Leontief, W. (1973), p. 78.
89. Mukherjee (1969).
This study reveals that, in India, the share of wages and salaries were lower than
poorest countries covered by Kuznets (1959), while the share of the
unincorporated business enterprises is considerably higher. The share of income
from asset is higher than the average for poorer countries, (pp.266-67).
90. Draft Fifth Five Year Plan: Part I, p.32.
63
91. NSS 25th Round Survey of the weaker section of rural population (1970-71) give
the daily wage at Rs.2.03 per person at 1970-71 prices.
92. Economic Survey, 1971-72, pp. 19-22.
Margin, July 1975.
93. Ibid, pp.23-24.
94. NSS, No. 215, 26
th
Round, July 1971 September 1972: Table on land-holding, All
India, February, 1976.
95. R.B.I. All India Debt and Investment Survey 1971-72: Statistical Tables Relating
to Cash Dues outstanding against rural households as on 30
th
June, 1971 (1976).
96. Page, V.S. (1970), pp. 160-166.
Jakhade and Joshi (1970).
Gaikward (1971) quoted in Dantwala: p.53.
97. V. Rajan: 1978.
98. Maharaj and Iyer (1977) as quoted in Sethi (1978), pp. 1307-
1316.
99. Popper, Karl: Open Society and its Enemies,
Vol.II (Routledge and Kegan Paul, London, 1952).
64
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A Study on Poverty and Inequality in India

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Where n is the number of individuals. Suppose W* is the maximum

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