Reading list: Developmnet Policy Issues in India-1: Theoretical & Empirical Studies on Poverty
India in the global competition has revealed its economic strengths and is gradually emerging in the international arena as a twenty-first century superpower. But success creates new challenges to policy makers. These are: identification of deprived people and their distribution across the states, their socio-economic upliftment, and making of financial and health services accessible to them. This book focuses on some of these important issues. Chapters in this book can be broadly divided into two parts. First part consisting of Chapters 2, 3 and 4 deals with the present scenario of poverty in India and relevant policy issues. Alternative methodologies for identification of deprived people as well as backward regions are discussed theoretically in the second part comprising Chapters 5 and 6.
Wide variation of poverty exists across the states in India. It has been discussed in Chapter 2. There is an upward linear trend in poverty rate as longitude increases, i.e. a variation of poverty from West-to-East instead of North-to-South as in global scenario. Other geography-related variable is “maximum temperature in winter” which influences poverty negatively. “Maximum temperature in summer” has a positive relation with poverty rate. Longitude-wise variation of poverty has been justified to some extent by historically determined factors like international out-migration and urbanization. It has been inferred in this chapter that geography influences institutions which in turn influences demographic and socio-economic outcomes. Demographic and socio-economic factors ultimately determine the pace of economic development as well as eradication of poverty.
Chapter 3 is an attempt to examine the rate of decline of poverty in India (over time with rural urban break up) and her 16 major states over 1973 to 2005. It has been observed that the pace of decline of poverty does vary to a large extent across the States as a result the inequality of poverty has been found increasing over time. The same analysis has been carried out in respect of health status measured by infant mortality rate; just like poverty, a similar kind of result is obtained in case of health status. It has been found that the states with higher incidence of poverty generally manifest lower heath status. Keeping in mind the ‘Health-Poverty’ nexus, a simultaneous equation model has been developed where health status and poverty is assumed to be jointly determined variables. The findings suggest that the current poverty is caused by low health status and past period’s poverty; current healthcare expenditure significantly reduces the incidence of poverty but lagged healthcare expenditure positively affects the incidence of poverty. Both way causality between poverty and health status has not been observed. It has been suggested to strengthen the health sector by raising the healthcare expenditure and it is to be coordinated with the anti-poverty programme in order to get rid-off the health-poverty trap.
Chapter 4 is a study based on a specific aspect of financial inclusion, viz. the choice of savings vehicle of the rural poor. The study is based on a primary survey conducted across five villages located in two Gram Pancahyats in the district of 24 Parganas in West Bengal. The study identifies the factors that drive the individual’s choice of savings vehicles and the constraints they face while making the choice. It also identifies the determinants of the levels of savings. Finally, the study provides some policy conclusions based on the analysis. It has been emphasized that financial inclusion has to be an integral part of any poverty alleviation program and financial inclusion requires not only timely provision of loans but also suitable and acceptable savings instruments.
Chapter 5 is involved in suggesting a Methodology of Construction of Composite Multidimensional Human Poverty Index for Identification of Regional Backwardness. The concept of multidimensional poverty has emerged from the idea that the quality of life does not necessarily increase as income of a country rises. Assigning a weight of one to income and zero weights to every other potential dimension of poverty has increasingly been considered as a severe constraint. Taking a one-dimensional approach to poverty measurement inevitably leads to a loss of information on dimension –specific shortfalls. Keeping in mind this problem and to identify the regional backwardness, a methodology based on capability shortfalls has been suggested. Since different indicators of capability shortfalls do vary across the regions, unitary weightage scheme is discarded and an alternative weightage scheme has been suggested which are to be determined endogenously through the data matrix using Principal Component Analysis. Once the backward region is identified then how the fund among those backward regions should be allocated? Depending on the degree of backwardness index of the region, the scheme suggested here is both simple and rational in determining the initial quantum of funds to be allocated to a backward region. Similarly, once the amount of fund to be allocated to one backward region determined, the PCA analysis again will help to determine a specific allocation rule to different social and human components of backwardness of a particular backward region. In order to simplify the range of variation and to make the allocation rule practical and feasible, a State-specific Block-wise uniform allocative percentages to different components of backwardness is devised here.
Chapter 6 suggests a methodology for deriving a measure for ‘vulnerability to income poverty’. This is an ex-ante measure of the risk of poverty incidence based on ex-post data regarding the incidence of poverty in the immediate past. It has been argued that this is a more useful measure than a snapshot measure of the incidence of poverty, even if such snapshots are compared over time. This is because such vulnerability measures are derived by identifying households which in their recent income behaviour have exhibited incomes that have been either temporarily or more persistently below the poverty line. This chapter not only provides illustrations of how this measure of vulnerability to income poverty may be calculated, depending on available data but also provides a detailed discussion of the value added by this measure. It notes that this measure is only useful if history suggests that masses of population have fallen into poverty after being above the poverty line or if poverty alleviation is characterized by impermanence. It provides enough evidence of significant declines into poverty and the impermanence of poverty alleviation in both developed and developing countries, thus justifying the value of such a measure.