India - Achievements and challenges in reducing poverty

A IWOIkLD B3ANK C OUNTRY STUDY "ImV. IC0 Ihdfia AfAlIueI'e;ne4's (/11( (/;az//eoXs   A WORLD BANK COUNTRY STUDY India Achievements and Challenges in Reducing Poverty The World Bank Washington, D.C.  Copyright G) 1997 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing July 1997 World Bank Country Studies are among the many reports originally prepared for internal use as part of the continuing analysis by the Bank of the economic and related conditions of its developing member countries and of its dialogues with the governments. Some of the reports are published in this series with the least possible delay for the use of governments and the academic, business and financial, and develop- ment communities. 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The World Bank encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to copy portions for classroom use is granted through the Copyright Clearance Center, Inc., Suite 910, 222 Rosewood Drive, Danvers, Massachusetts 01923, U.S.A. ISSN: 0253-2123 Library of Congress Cataloging-in-Publication Data India: achievements and challenges in reducing poverty. p. cm. - (A World Bank country study) Includes bibliographical references. ISBN 0-8213-3971-0 1. Poor-India. 2. Economic assistance-Developing countries. 3. India-Economic policy-1980- I. World Bank. II. Series. HC435.2.148 1997 362.5'8'0954-dc2l 97-13276 CIP  Contents iii Contents Abstract v Acknowledgments vi Abbreviations and Acronyms vii Currency viii Economic Development Data ix Social Indicators xi Executive Summary xiii Chapter 1 Poverty: Where does India stand? 1 Introduction I Evolution of poverty in India 3 Who are the poor? 10 Chapter 2 Growth, human development, and anti-poverty programs 17 Introduction 17 Growing out of poverty 17 Capital for rural growth 21 And for the rural poor 22 Poverty-reduction: The missed target 26 Conclusions and recommendations 34 Annex I Poverty measurement: the debate on how best to capture the extent of deprivation 39 Annex II Village studies 45 Statistical appendix 47 References 69  iv Contents List of tables 1.1 Poverty in India: 1993-1994 3 1.2 Trends in literacy rates and life expectancy 7 1.3 State rankings on the basis of alternative indicators of well-being 8 1.4 Rural poverty by agro-climatic region . 9 1.5 Changes in rural poverty by agro-climatic region 10 1.6 Characteristics of the rural poor 12 2.1 How responsive is poverty to economic growth in India? 18 2.2 Central plan budgetary expenditures on anti-poverty programs 26 2.3 Public distribution system: allocation of subsidy on cereals between states 28 List of boxes 1.1 What could someone living at India's poverty line consume per day? 3 1.2 Poverty measurement 5 1.3 Did India's macroeconomic stabilization increase poverty in 1992? 5 1.4 Land reforms and poverty reduction 11 1.5 Labor market imperfections and the distributional impact of non-farm employment in India 14 2.1 Poverty reduction: states performance 20 2.2 Growth-enhancing public investment 22 2.3 Child labor 23 2.4 Resource requirements for quality education 25 2.5 How well does the PDS serve the needs of the poor? 27 2.6 The targeted public distribution system 29 2.7 How well have ICDS interventions worked? 30 2.8 Decentralization and outreach to the poor: evidence from social assessment studies 33 2.9 The centrality of growth with equity to poverty reduction 35 2.10 NGOs and poverty reduction 36 2.11 Transient poverty in rural India 37 List of figures 1.1 Incidence of poverty in India 1951-94 4 1.2 Change in poverty indces: 1951-94 4 1.3 Change in poverty indices for rural areas 4 1.4 Change in poverty indices for urban areas 4 2.1 Cumulative change in headcount index in India 18 2.2 Sectoral decomposition of headcount index change in India 19 2.3 Progress in poverty reduction by states 20 2.4 Subsidies continue to crowd out productivity enhancing expenditures 21  Abstract v Abstract Poverty in India, like the nation's population, is Whether male or female or low caste, landless wage- predominantly rural but remarkably responsive to earners continue to be at the bottom of the economic economic growth. As the economy grows, poverty ladder. Besides slow growth, another important force diminishes, faster when growth is strong, slower when accounting for the slow progress in poverty reduction it is not. is investment in human resources. India's record in this India's progress in reducing poverty has been respect, has been spotty at best. Health care and uneven as well as slow. The range in poverty reduction education for the poor have been neglected. As a result, among states is so wide that Kerala's progress in half of India's labor force is illiterate and tens of lowering the headcount index of poverty (2.4 percent millions of primary-school-age children are working per year, on average, between 1957-58 and 1993-94) is rather than learning while their parents, especially their more than 120 times that of Bihar and more than four mothers, languish in illiteracy. times that of Rajasthan. Even more noticeable than The reforms India started in 1991 hold the geographic differences in rates of progress in reducing promise of considerable improvements in the living poverty incidence are the inequalities that persist standards of the country's 300 million poor. By across gender, castes and ethnic groups. Social reexamining its commitment to economic indicators for women--literacy, for example--are liberalization, and redirecting towards infrastructure, markedly lower than for men, and the level of health, and education the large resources now absorbed scheduled castes and tribes in both economic and social by subsidies, India can give its long battle to reduce achievements is still below the national average. poverty a new impetus.  vi Acknowledgmenti Acknowledgments This Poverty Assessment was prepared by a team (ASTHR), Meera Chatterjee (SA2RS), Dimitri led by Zoubida Allaoua. It draws on the results of Tzanninis and Martin Muhleisen (IMF), and Ajit a three-year World Bank project directed by Ghose (ILO). The report benefited from Luis Martin Ravallion and summarized in several Ernesto Derbez's (Division Chief) continuous papers by Martin Ravallion and Gaurav Datt. It support and Robert Drysdale's (Director) guidance also draws on work by Peter Lanjouw (village and comments. Roberto Zagha contributed to the studies and poverty profile), Valerie Kozel and report and provided direction. Richard Skolnik and Ruslan Yemtsov (survey of anti-poverty Shawki Bharghouti (Division Chiefs) also programs), Ravi Srivastava (survey of existing provided helpful comments. The document literature), Shreelata Rao-Seshadri (NGOs), Keith benefited from discussions held in May, 1997 with Hinchliffe and Mark Schlagel (human resources). the Indian authorities. The reviewers Lionel Demery and Soniya Arrangements for missions were made by Carvalho provided very helpful comments and Padma Gopalan and Sheni Rana. The report was suggestions. The report also benefited from useful desktoped by Lin Chin. Financial support for comments from John Williamson (Chief preparatory work was provided through the Economist), Rui Coutinho (SASVP), Benu Bidani Netherlands Poverty Trust Fund.  Abbrevations and Acronyms vii Abbreviations and Acronyms AERC Agricultural Economics Research Center ANM Auxiliary Nurse Midwife AWW Anganwadi Worker BRAC Bangladesh Rural Advancement Committee CPIAL Consumer Price Index for Agriculturl Labourers CPIIW Consumer Price Index for Industrial Workers DPEP District Programme for Elementary Education EAS Employment Assurance Scheme EGS Employment Guarantee Scheme FCI Food Corporation of India GDP Gross Domestic Product GOI Government of India HIV Human Immune Virus HYV High Yielding Varieties ICDS Integrated Child Development Services ICRISAT International Crops Research Institute for the Semi-Arid Tropics IMR Infant Mortality Rate IRDP Integrated Rural Development Program JRY Jowahar Rojgar Yojana NAS National Accounts Statistics NCAER National Council of Applied Economic Research NGO Non-Governmental Organization NRY Nehru Rozgar Yojana NSS National Sample Survey NSSO National Sample Survey Organization OXFAM Oxford Committee for Famine Relief PDS Public Distribution System PRIs Panchayati Raj Institutions SC/STs Scheduled Castes/Scheduled Tribes SDP State Domestic Product SEWA Self-Employed Women's Association SHGs Self-Help Groups TB Tuberculosis TPDS Targeted Public Distribution System WDR World Development Report  viii Currency Currency Rs/ US$ Currency Official Unified Market a Prior to June 1966 4.76 June 6, 1966 to mid-December 1971 7.50 Mid-December 1971 to end-June 1972 7.28 1971-72 7.44 1972-73 7.71 1973-74 7.79 1974-75 7.98 1975-76 8.65 1976-77 8.94 1977-78 8.56 1978-79 8.21 1979-80 8.08 1980-81 7.89 1981-82 8.93 1982-83 9.63 1983-84 10.31 1984-85 11.89 1985-86 12.24 1986-87 12.79 1987-88 12.97 1988-89 14.48 1989-90 16.66 1990-91 17.95 1991-92 24.52 1992-93 26.41 30.65 1993-94 31.36 1994-95 31.40 1995-96 33.46 1996-97 35.50 Note: The Indian fiscal year runs from April 1 through March 31. Source: LMF, International Finance Statistics (IFS), line "rf"; Reserve Bank of India. a A dual exchange rate system was created in March 1992, with a free market for about 60 percent of foreign exchange transactions. The exchange rate was reunified at the beginning of March 1993 at the free market rate.  Economic Development Data ix Economic Development Data GNP Per Capita (USS, 1995-96): 350 ' Gross Domestic Product (1995-96) Annual Growth Rate (% p.a., constant prices) %of 70-71- 75-76- 80-81- 85-86- 91-92 92-93- US$ Bin GDP 75-76 80-81 85-86 90-91 95-96 GDP at Factor Cost 294.6 89.7 3.4 4.2 5.4 5.9 0.8 6.4 GDP at Market Prices 328.3 100.0 3.3 4.2 5.6 6.2 0.4 6.3 Gross Domestic Investment 86.1 26.2 5.3 3.7 5.7 9.5 -11.0 12.5 Gross National Saving 80.4 24.5 4.4 2.6 3.5 8.7 -0.3 13.2 Current Account Balance -5.8 -1.8 -- -- -- - -- -- Output, Employment and Productivity (1990-91) Value Added Labor Force b V. A. per Worker US$ Bin % of Tot Mill. % of Tot. US$ % of Avg. Agriculture 82.5 31.0 186.2 66.8 443 46.4 Industry 78.0 29.3 35.5 12.7 2198 230.2 Services 105.7 39.7 57.2 20.5 1849 193.7 Total/ Average 266.2 100.0 278.9 100.0 955 100.0 Government Finance General Government c Central Government Rs. Bin. % of GDP Rs. Bin. % of GDP 95-96 95-96 90-91-95-96 95-96 95-96 90-91-95-96 Revenue Receipts 2118.7 19.3 19.4 1101.3 10.0 10.1 Revenue Expenditures 2539.4 23.1 23.3 1398.6 12.7 13.2 Revenue Surplus/ Deficit (-) -420.7 -3.8 -3.9 -297.3 -2.7 -3.1 Capital Expenditures d 416.2 3.8 4.2 305.1 2.8 3.4 External Assistance (net) ' 3.2 0.0 0.6 3.2 0.0 0.6 Money, Credit, and Prices 89-90 90-91 91-92 92-93 93-94 94-95 95-96 (Rs. billion outstanding, end of period) Money and Quasi Money 2309 2658 3170 3668 4344 5314 6040 Bank Credit to Government (net) 1172 1402 1583 1762 2039 2224 2574 Bank Credit to Commercial Sector 1517 1718 1880 2201 2378 2927 3409 (percentage or index numbers) Money and Quasi Money as % of GDP 50.6 49.6 51.4 52.0 53.6 55.7 55.0 Wholesale Price Index (1981-82 = 100) 165.7 182.7 207.8 228.7 247.8 274.7 294.8 Annual Percentage Changes in: Wholesale Price Index 7.4 10.3 13.7 10.1 8.4 10.9 7.3 Bank Credit to Government (net) 20.3 19.7 12.9 11.4 15.7 9.1 15.7 Bank Credit to Commercial Sector 14.4 13.2 9.4 17.1 8.0 23.1 16.5 a. The per capita GNP estimate is at market prices, using World Bank Atlas methodology. Other conversions to dollars in this table are at the prevailing average exchange rate for the period covered. b. Total Labor Force from 1991 Census. Excludes data for Assam and Jammu & Kashmir. c. Transfers between Centre and States have been netted out. d. All loans and advances to third parties have been netted out. e. As recorded in the government budget  x Economic Development Data Balance of Payments (US$ Millions) Merchandise Exports (Average 1990-91-1995-9C) 1993-94 1994-95 1995-96 S$ Mil % of Tot. Exports of Goods & NFS 27,947 32,796 40,181 Tea 404 1.8 Merchandise, fob 22,683 26,857 32,433 Iron Ore 487 2.2 Imports of Goods & NFS 29,798 38,150 48,788 Chemicals 1,891 8.6 Merchandise, cif 25,069 31,840 41,721 Leather & Leather products 1,439 6.5 of which Crude Petroleum 3,407 3,285 3,442 Textiles 2,708 12.3 of which Petroleum Products 2,244 2,396 4,105 Garments 2,731 12.4 Trade Balance -2,386 -4,983 -9,288 Gems and Jewelry 3,753 17.0 Non Factor Services (net) 535 -371 681 Engineering Goods 2,832 12.8 Others 5,803 26.3 Resource Balance -1,851 -5,354 -8,607 Totale 22,047 100.0 Net factor Income' -3,775 -3,621 -4,157 External Debt, March 31, 1996 Net Transfersb 3,825 6,200 7,000 US$ Mill. Balance on Current Account -1,801 -2,775 -5,764 Public & Publicly Guaranteed 79,725 Private Non-Guaranteed 6,618 Foreign Investment 4,235 4,895 4,143 Total (Including IMF and Short Tern) 93,766 Official Grants and Aid 368 472 416 Net Medium & Long Term Capi 3,122 1,153 -1,036 Debt Service Ratio for 1995-96 Gross Disbursements 7,150 5,982 5,744 Principal Repayments 4,027 4,828 6,780 % curr receipts Public & Publicly Guaranteed 21.0 Other Capital Flowsc 419 1,476 -1,654 Private Non-Guaranteed 1.4 Non-Resident Deposits 1,097 818 945 Total (Including IMF and Short Term) 27.2 Net Transactions with IMF 189 -1,174 -1,719 IBRDI IDA Lending, March 31, 1996 (USS Mill) Overall Balance 8,538 6,858 -2,005 IBRD IDA Change in Net Reserves -8,727 -5,684 3,724 Outstanding and Disbursed 9,849 17,499 Gross Reserves (end of year)d 15,476 21,160 17,436 Undisbursed 4,034 4,583 Outstanding incl. lJndisb. 13,883 22,082 Rate of Exchange End-March 1997 US$ 1.00 = Rs. 34.80 - Not available. a. Figures given cover all investment income (net). Major payments are interest on foreign loans and charges paid to IM and major receipts is interest earned on foreign assets. b. Figures given include workers' remittances but exclude official grant assistance which is included within official loan and grants, and non-resident deposits which are shown separately. c. Includes short-term net capital inflow, changes in reserve valuation and other items. d. Excluding gold. e. Total exports (commerce); net of crude petroleum exports. Sources: National Accounts Statistics; Ministry of Commerce; Union Budget Documents; Reserve Bank of India; 1991 Census; World Bank Debt Reporting System.  India Social Indicators xi India Social Indicators Latest single year Some region/income group 1970-75 1980-85 1990-95 South Asia Low-income POPULATION Total population, mid-year (millions) 613.5 765.2 929A 1,243.00 3,179.90 Growth rate (%/ annual average) 2.3 2.1 1.7 1.9 1.6 Urban population (%/6 of population) 21.3 24.3 26.8 26.4 28.6 Total fertility rate (births per women) 5.6 4.8 3.2 3.5 3.2 POVERTY (Y of population) National headcount index* 35.0 Urban headcount index 30.5 Rural headcount 36.7 INCOME GNP per capita (US$) 180 280 350 350 430 Consumer price index (1990=100) 36 70 165 Food price index (1990=100) 66 174 INCOME/CONSUMPTION DISTRIBUTION (Yo of income or consumption) Lowest quintile 5.9 8.1 8.5 Highest quintile 49.4 41A 42.6 SOCIAL INDICATORS Public expenditure ( of GDP) Health 0.7 Education 2.1 2.5 2.9 Social security and welfare Access to safe water (No ofpopulation) Total 31 54 63 63.2 53 Urban Rural Immunization rate (Ye under 12 months) Measles 84 80 77 DPT 41 92 84 80 Child manutrition (%/o under 5 years) 63 61 42 Life expectancy at birth (ears) Total 50 55 62 61 63 Male 51 56 62 61 62 Female 49 55 63 62 64 Mortality Infant (per thousand live births) 132 108 68 75 69 Under 5 (per thousand live births) 95 106 104 Adult (15-59) Male (per 1,000 population) 229 239 244 Femae (per 1,000 population) 219 230 2l1 Matemal (per 100,000 live births) 460 437 * Data for 1993-94 Sources: World Development Indicators CD-ROM, World Bank, February 1997 and India: Achievements and Challenges in Reducing Poverty, May 1997.   4w Executive summary The reforms India started in 1991 hold the promise of touch only those just below the poverty line while considerable improvements in the living standards of leaving the remaining poor unaffected. Rather, the the country's 300 million poor. During the last few process through which poverty was being reduced decades, India's inward-looking and public sector included those whose consumption levels were far driven industrialization strategy led to rates of growth below the poverty line. and poverty reduction far more modest than those Nonetheless, because of India's rapid population witnessed elsewhere in the world, particularly in South growth rate, even this rate of poverty reduction has not East Asia. The economy has responded well to the been sufficient to reduce the absolute number of poor reforms, and the government has made it an explicit which increased from about 164 million in 1951 (when objective to accelerate the development of the almost half the population was below the poverty line) country's human resources. By maintaining its to 312 million in 1993-94 (35 percent of the commitment to economic liberalization, and population). In addition, India's progress in fighting redirecting towards infrastructure, health, and poverty is modest when compared with some of its education the large resources now absorbed by Asian neighbors. Between 1970 and 1993, the subsidies inter-alia for power, irrigation, and fertilizer, proportion of Indonesia's population living in poverty India can give its long battle to reduce poverty a new dropped from 58 percent to 8 percent, an annual impetus. decline of nearly 10 percent--a greater decline in a shorter period of time. Where does India stand? Other social indicators of well being record a history of progress that has, like the decline of poverty Poversy is clearly declining, but slowly, and remains itself, been steady but slow. Health, education, and wIdespreall Poverty imposes an oppressive weight on nutrition indicators describe a country which has made India, especially in the rural areas where almost three substantial gains against widespread deprivation over out of four Indians and close to 80 percent of the the 50 years of its Independence but has not achieved Indian poor live. Although that burden lessened the momentum needed to lift the great majority of its somewhat during the past four decades, significant poor into the economic mainstream. Infant mortality easing did not come until the second half of that rates, as one example, fell from 146 deaths per period. Unsurprisingly, poverty in India is responsive thousand births in the 1950s to 80 at the start of this to the country's economic health. As the economy decade. Nevertheless, the Indian rate is still one of the grows, poverty diminishes, faster when growth is highest in the world. Life expectancy at birth, now strong, slower when it is not. The proportion of the twice the 30 years that was the Indian average in 1947, population living in poverty declined at an annual remains well below that of China (69 years). In 1991, average of just 0.9 percent over 1951-75--when per- adult literacy rates for Indian females (34 percent) and capita income grew by a modest 1.7 percent. In the for males (64 percent) were almost identical to those years of stronger per-capita growth--2.5 percent-- for Sub-Saharan Africa and far behind those in China-- between the mid-1970s and late 1980s, however, the 85 percent for women, 96 percent for men--ten years average reduction was almost three times as fast--2.4 earlier. Maternal mortality (437 per 100,000) is high percent. These patterns hold for both rural and urban and accounts for a quarter of maternal deaths poverty. Indicators that measure the depth and severity worldwide. of poverty suggest that the decline of poverty did not  xlv Executive summary The data also reveal sharp disparities within India, Education can be a powerful instrument to reduce between development oriented states and laggards, poverty, but two-thirds of all women and two fifths of between women and men, between adults and children, all men--poor and non-poor--remain illiterate. Among and between city and countryside. Different states have the most disadvantaged social groups, the ratios are progressed at differing paces and, even within states, even worse: literacy rates of just 19 percent among different regions have achieved markedly varied scheduled-caste women and of 46 percent for men. results. Even more noticeable than geographic One positive note, however, is that female literacy rates differences in poverty reduction are the inequalities rose twice as fast as those for men during the 40 years that persist across gender, caste and ethnic groups. since 1950-51 when only nine percent of all Indian Social indicators for women--literacy, for example--are women could read and write. Continuing that progress markedly lower than for men, and the level of depends on getting girls into primary and secondary scheduled castes and tribes in both economic and social classrooms. Unfortunately, on average in India, half of achievements are still well below the national average. all girls aged 5-14 years do not attend school. And The range in poverty reduction among the states is so where poverty is deepest, female literacy is wide that Kerala's progress in lowering the headcount exceptionally low,, 18 percent in the state of Bihar and index of poverty (2.4 percent per year, on average, 21 percent in Uttar Pradesh. In Bihar, only 20 percent between 1957-58 and 1993-94) is more than 120 times of 5-9-year-old girls go to school and only 29 percent that of Bihar and more than four times that of of the girls aged 10-14. Enrollment rates for their male Rajasthan. These differences reflect more than natural counterparts were 33 percent for the younger boys and advantages or disadvantages. They mirror, instead, 55 percent for the older ones. Had Bihar begun conscious decisions on investing on the poor, developing in 1960 with human resources comparable specifically in improving their health and their to those in Kerala--where male and female literacy education and, consequently, their opportunities to rates are the highest in India and infant mortality is the participate in economic progress. As a result of these lowest--it would have achieved an annual 1.2 percent decisions, Bihar--the poorest among India's 17 largest decline in poverty incidence instead of the marginal 0.2 states which account for over 90 percent of the percent it actually achieved. population--has the fifth lowest level of male life Landlessness is closely associated with rural expectancy, the lowest level of male literacy, the poverty. Not only is Indian poverty predominantly second lowest level of female literacy and the seventh rural in absolute numbers, its incidence is more highest level of infant mortality. Kerala, by contrast, frequent in the countryside than in cities by a six-to- has the lowest infant mortality rate and the second five ratio. And in an agrarian economy a good highest rates of male and female literacy. indicator of well being is land ownership. The "risk" of poverty among the landless is considerably greater than Who are the poor? for the population as a whole. Although in 1994 only 37 percent of the rural population was estimated to be Gender, literacy, landownership, employment status, in landless households, nearly half of the poor fell in and caste are closely associated with poverty. Thus, an that category. And the incidence of poverty was illiterate rural woman, a member of a scheduled tribe highest of all--68 percent--among the landless wage or caste, a person who lives in a landless household or earners (one fifth of rural households) who provide is dependent on wage earnings, all face a significantly unskilled labor in markets where the prevalence of higher than average risk of poverty. A recent survey of long-tern contracts has been declining and wages rural households indicates that the incidence of poverty remain too low to escape poverty. Again, rural women was 68 percent among landless wage-earners, 51 are more likely than men to depend on daily wages percent for members of scheduled castes and scheduled from casual employment. More importantly perhaps, tribes, and 45 percent for members of household in village studies find little evidence of a broad rise in which no-one was literate. landlessness over time. In fact, many studies observe  Executive summary xv some decline in landlessness, often coinciding with an caste rituals and customs, women's ability to engage expansion of small-holder cultivation. socially and economically outside of the household Both secondary and village micro-study evidence declines. indicate that over time there has been a "casualization" of the rural labor force (a growth in Reducing poverty: what matters most? the size of the daily-wage labor force). This is probably a consequence of the decline in the traditional Governments in India have relied on two approaches to artisanal occupations, and also the gradual decline of reducing poverty since Independence--the first based the prevalence of permanent, long-term labor contracts. on the anticipation that the effects of aggregate rural Casual wage labor is a last resort which households growth would spread to all groups in society such that turn to only when other options have been exhausted. poverty reduction is achieved side by side with As such, it is a good indicator of the relative position increases in economic growth, and the second that of a household in the overall income distribution. specific anti-poverty programs are required. The While casual labor is seen as a last resort, this trend reliance placed on each of the two objectives has does not mean that rural poverty is increasing. Real varied over time. Overall, the slow reduction in agricultural wages have been increasing. The poverty through the 1950s and 1960s in particular, expansion of off-farm employment in the last few reinforced skepticism regarding the strength of any years and growing labor mobility, migration and trickle-down effect. Since the mid 1970s, however, the commuting may have contributed to this outcome. faster poverty decline alongside a higher rate of What this implies is that the dependence of the poor on economic growth both in India and in the developing agricultural wages has been increasing and that, more world has led to a greater appreciation of the than before, the poor stand to gain from increases in contribution of growth to lasting poverty reduction agricultural wages. and--equally importantly--reinforced the need for While there is clear evidence of gender and social investing more in human resource development since inequalities in rural India, other inequalities that are these investments not only contribute to faster long- seen in many developing countries do not appear in term growth, they also increase the capacity of the poor acute form in India. Economic inequality varies little to benefit from it. Accordingly, the govermment's from the poorest regions to the more affluent, and it is strategy has over the recent past increased its emphasis also remarkably stable over time. This blurs, however, on providing the conditions for accelerated and the social reality of a nation where social stratification sustained labor-intensive growth, while expanding based on caste, ethnicity, and gender act to impede investment in human capital development. mobility. Rural growth has led to some erosion of the Economic growth reduces poverty. The poor have traditional caste structure in many parts of the country gained from economic growth, and lost from and there is some evidence that the traditionally contraction and inflation. Results from a World Bank dominant non-cultivating castes are being overtaken in research project using household surveys spanning economic terms by households of other castes who forty years demonstrates that overall growth accounted have taken advantage of the new opportunities in for the lion's share of poverty reduction: 80 percent of agriculture. However, such changes do not affect all the decline in the percentage of households below the castes. An important conclusion of the village studies poverty line between 1951 and 1970 and almost 100 is that, in general, the lowest castes remain easily percent since 1970. Improvements in distribution distinguishable from the rest of village society in terms (which occurred independently or as a result of of both their very low material well-being and their deliberate government policies) achieved their greatest limited opportunities to improve their living standards. impact by the mid-1960s specially on reducing the Even as poverty recedes, traditional inequalities largely intensity and severity of poverty, but with little impact remain. Paradoxically, in some households where on the incidence of poverty. The results of this exercise increasing affluence leads to the adoption of higher clearly refute any presumption of "immiserizing  XYi Executive summary growth"--that is growth that tends to marginalize or Investment in infrastructure and human impoverish significant segments of the population--in resources, not subsidies, reduce poverty. Roads, well- India over this forty year period. Overall, two main designed irrigation systems, flood control, and messages emerge. First, India's development strategy electrification all make inroads against rural poverty. over much of the period since Independence, focusing So also do investments in people, in their health, on capital intensive industrialization behind high tariff education and nutrition and, in general, in their greater barriers, brought negligible gains to the vast number of ability to shape their own economic and social destiny. rural poor. The jobs it created required skilled labor Since the bulk of the required investments in these few of them could provide. This may explain why, forms of physical, human, and social capital come much more than urban-oriented growth, rural growth from public rather than private sources in India, it is has been the dominant force in poverty reduction. important that poverty-reduction strategies strike and Second, investment in agriculture, by contrast, has not maintain the right balance between investments that only raised average living standards in rural India but return significant dividends and subsidies that can be has done so without accentuating inequalities. Green captured by better off sections of the population and revolution technology, initially suspected of conferring distort markets. India has not yetfound that balance. systematic advantages to larger landholders, has A recent government study estimates subsidies on generally proven scale neutral. "non-merit" goods at 11 percent of GDP whereas The same research project confirms that between spending on health and education is less than 5 percent 1960 and 1993 some states reduced poverty much of GDP, and about 4 percent of GDP on infrastructure. faster than others. In addition to differences in growth, Subsidization of current agricultural inputs has led to the study has shown that differences in initial major micro-economic distortions that encourage endowments of human capital and physical overexploitation of water and misuse of other infrastructure and in subsequent efforts at developing resources. During the 1980s, agricultural subsidies these resources appear to have been an important factor grew at over seven percent a year or three times the in the differences in long-term rates of poverty rate of expenditures on infrastructure and support reduction. An important message that has emerged is services. Since 1991, the central government has that no Indian state effectively combined both policies halved the rate of growth of subsidies but what it has to encourage growth and develop human resources achieved, the state governments have undercut. andphysical infrastructure. The study suggests that if Cross country evidence confirms that the any state had done so, it would have achieved rapid universalization of schooling and literacy are the pre- reductions in poverty, comparable to the progress made requisite for an equitable distribution of the benefits in a number of East Asian countries. From the results from higher growth. The evidence is similar between of this research, the lessons for the future are clear: the states of India. There are strong relationships promote growth and invest in human capital and between educational coverage, other indicators of the infrastructure. quality of life and poverty reduction. It is no A more open trade regime since 1991, a significant coincidence that Kerala has enjoyed the highest levels reduction in distortions, and a liberalized economy of both male and female literacy and the fastest decline where the private sector plays a larger role have led to in the incidence of poverty over the past forty years. In higher growth (7 percent in the last three years); spite of this evidence, around 33 million of the 105 improved agricultural incentives; and are creating the million children aged 6-10 years in India are still not conditions for labor intensive industrialization. This attending school; many more girls than boys are not in will not only improve the country's growth prospects, school; both boys and girls are in fact working (about it will enhance the poverty reducing effects of 17 to 44 million of them). industrialization and the role of urban areas in this Education alone does not raise the potential process. productivity of labor. Disease, maternal illness and malnutrition are all debilitating and are prevalent  Executive summary xvii among the poor. Communicable diseases and perinatal share in total central budget expenditure programs has and maternal mortality cause four times as many deaths been increasing--from 5.4 percent in 1990-91 to 7.7 per 100,000 population in India as in China and percent in 1995-96 with similar trends at the state level. tuberculosis alone kills 500,000 people a year. Half of Most evaluations of India's anti-poverty programs-- all children under the age of five are malnourished and whether done by Government or independently--agree one third of all newborn babies are underweight. that these programs are not performing as well as Variations between states again demonstrate the ability hoped. In particular, the extent to which each program of governments to improve on these aspects of life to is accessed by the poor and by the non-poor differs which the poor are disproportionately exposed and widely. One of the better targeted programs is the which reduce their capacity to benefit from increased Integrated Child Development Services (ICDS), a economic opportunities. nutrition and general development program focused at Investments in education and health have been children aged 0-6 years and pregnant and lactating below those necessary to accelerate growth prospects mothers and initially introduced in the country's and poverty reduction. Much of the fiscal poorest blocks. However, within these groups there is responsibility for these activities lies with state no further targeting while the objective of rapidly governments and inter-state variations are large. universalizing the program may reduce further its Nationally, however, real outlays on education as a effectiveness. share of GDP have been falling. Programs to accelerate Public works have been relatively more successful educational development have begun, through the at targeting the poor. In particular, and at least until District Primary Education Program, (and there is a recently, the Maharashtra Employment Guarantee commitment to raise the allocation for education from Scheme (EGS) was successful and relatively cost- the current 3.7 percent of GDP to 6.0 percent). In efficient: it improved significantly the living standards health, government spending is equal to just 1.3 of a large number of the extreme poor at a relatively percent of GDP and covers only around 22 percent of low cost. Recent developments, however, may have all health expenditures. To raise primary health care eroded the effectiveness of the scheme. For example, from the current US$2-3 per capita to the levels the EGS wage which was on a par with prevailing required to meet essential public health and clinical agricultural wages up to 1988, and so attracted only standards would require doubling the present public those unable to find employment elsewhere, was spending level on primary care of 0.6 percent of GDP. doubled and thus eroded the program's self selecting With the exception of the Infant Mortality Rate features. In addition, public works programs including (IMR), India's social indicators are not lower than the EGS suffer from conflicting objectives (ensuring those found in countries at similar levels of income. both gainful employment for poor households and the This reinforces one of the main messages of this report expansion of infrastructure) which have led to that it is through rapid growth that India will be able to substantial leakages and a high participation of non- reduce poverty and generate the resources to invest in poor. the health and education of its people--who will in turn In contrast, a recent study of the PDS suggested sustain this growth. In the case of the IMR, the reason that only 40 percent of the total quantity of wheat and which may explain why India is an outlier is associated about 47 percent of total quantity of rice supplied with the composition of health spending, which may through the PDS is consumed by the poorest 40 percent not be reaching the poor, and gender discrimination. of people in India. Moreover, the high administrative Innovative approaches to delivering social services, costs raise questions about the cost effectiveness of particularly to the poor, are therefore required. these programs. In general, it costs the government Anti-poverty programs have not been cost effective between 2 and 7 rupees (with the highest value in reducing poverty. India's anti-poverty strategy reported for the PDS) to provide one rupee to the poor. comprises a wide range of anti-poverty programs, Several attempts have been made to reform the PDS. many of which have been in effect for decades. Their The latest--the targeted PDS (TPDS) announced in the  xviii :Executive summary 1997 Budget--would grant all households with incomes market oriented development policies and a better below the poverty line up to 10 kg of cereals at half the integration into the world economy. This is a economic cost. Subsidies for households with higher promising development because the last few decades income levels would gradually be phased out. While have shown the extent to which the poor stand to gain this proposal is promising, it is too early to assess its from an acceleration in growth. The latter widens effectiveness especially since the target group under opportunity, provides the resources needed to invest in consideration seem to still include the non-poor. human development, and creates the very foundation To summarize, assessments of the current anti- that will increase returns to human capital--and thus poverty programs indicate that there are a number of families' willingness to send their children, including systemic problems: only partial success of targeting the girls, to school, have fewer of them, or in multiple poor, such that estimates of non poor beneficiaries other ways, invest in their future. range from 20 percent in the ICDS and some rural Priority for human capitaL Neighboring countries development programs to 60 percent in the PDS; in Asia which have made a point of combining pro- under-funding of better performing ones; often growth development policies with investments in the complex administration; high administrative costs such health and education of their people have seen that in many schemes they are higher than the value of economic growth and poverty reduction follow. India, the resulting benefits; ill-defined multiple objectives however, has not accorded sufficiently high priority to which reduce quality and accountability; and the education of the poor and 33 million of its 105 inadequate monitoring often using indicators which million 6-to-10-years-olds are not in school. These distort programs' true objectives. youngsters are not offered the opportunity to develop the skills needed for upward mobility. Along with the Reducing poverty: the challenges ahead neglect of primary education goes that of gender discrimination which condemns a much greater In the half century since its independence, India has proportion of girls and women to illiteracy and to ill- accomplished many notable social and economic health. Reducing the gender inequality among the poor achievements. Among these are the eradication of requires a determined effort to focus on improved widespread famine, a reduction in population growth, health care for women, maternal health care in some lowering of caste barriers to economic particular, combined with basic education. India's opportunity and the creation of a large pool of health system needs to put a new emphasis on basic technical and scientific talent. While it has also care. Doing so will improve not only the life span and managed to reduce poverty in that period, only since well-being of poor women and their ability to 1975, when growth accelerated, has the decline been determine what family size they want, but it will also fairly steady. The pace, moreover, remains both slow contribute to the economic health of their families, and and uneven--faster in the southern states than the consequently of India's society. And since poverty is northern ones, more likely to empower men than not the only source of India's gender disparities, a women. Government efforts to reduce poverty through determined government effort to eradicate such direct anti-interventions have yielded mixed results, disparities is urgently needed. Many of those programs, in fact, have missed their There is also scope for more involvement of supposed target--the poor--and delivered their benefits India's Non-Government Organizations (NGOs). to the economically more advantaged. As India moves NGOs show great potential in helping the ahead with the economic liberalization that has yielded implementation of many government schemes, such as a higher platform for growth and therefore the potential the IRDP, Watershed Development, Total Literacy for a higher level of welfare, it has an opportunity to Campaigns, to mention a few examples. Typically, reexamine its approach to reduce poverty. unlike in Bangladesh or in Pakistan where NGOs have The centrality of Growth. The last five years have developed national networks, in India, NGOs continue shown the rates of growth that India could achieve with to work in very limited areas. Yet many of them have  Executtve summary xix proven effective in improving the poor's access to nets that insure rural poor against income fluctuations-- financial resources, education and health services, such as public works programs--are essential in government programs, or simply information. overcoming an important market failure. Reforming anti-poverty programs. There is little The challenge that India faces in reducing poverty evidence that anti-poverty programs have yielded gains in the future faster and more effectively than it has in in the living standards of the poor commensurate with the past is an enormous one. India has met and the significant resources that the country allocates to mastered other major challenges and is laying the such programs. Many recipients of their benefits are foundation for higher growth with the continued widely recognized as amongst the poor. At the same liberalization of the economy. Building on this time, many of the poorest people do not use these foundation for faster growth would require that the programs while many of the non-poor benefit from challenge of poverty reduction remains at the forefront them. There is a consensus that public works programs of the official concern and becomes the subject of the have been among the most successful attempts at same imaginative, thorough, change-minded actions as reaching the poor. the country's experiments in stabilization and structural India therefore urgently needs to formulate an anti- adjustment. In particular, the liberalization of the poverty strategy that is fiscally sustainable and more economy needs to focus on deregulating sectors on finely targeted to those who truly cannot benefit from which depends the livelihood of many of the poor the opportunities offered by growth. To increase their (agriculture, particularly agro-industry, small scale cost effectiveness and extend their outreach to the very industries), and on improving the provision of poor, safety nets need to be targeted to those who infrastructure and social services to the either cannot participate in the growth process or face underprivileged. Resources can be generated by continuing exposure to risks, which are outside of their reducing subsidies, and by reevaluating existing anti- control. Rural households are largely uninsured against poverty programs. agricultural yield shocks, for example. Effective safety  f  @ Chapter 1 4T Poverty: Where does India stand? Introduction 1991) and Madhya Pradesh (117 per thousand in 1991), even recorded proportionally more infant deaths Poverty imposes an oppressive weight on India, than the sub-Saharan average (104 per thousand in especially in the rural areas where almost three out of 1991). Life expectancy at birth, now twice the 30 years four Indians and 77 percent of the Indian poor live. that was the Indian average in 1947, remains well Although poverty has been reduced during the past below that of China (69 years.) Adult literacy rates for four decades, it remains painfully high. Unsurprisingly, Indian males (64 percent) and for females (39 percent) the strongest across-the-board progress coincided with in 1991 were almost identical to those for sub-Saharan the years of rapid growth in the Indian economy as a Africa and far behind those in China--96 percent for whole. As average annual increases of 3.4 percent in men, 85 percent for women--ten years earlier. GDP in the first half of the 1970s accelerated to rates Indicators of health, education, nutrition and of 5.9 percent in the last half of the 1980s, three widely economic opportunity discussed in this assessment of used poverty measures--headcount; poverty gap; and poverty in India describe a country which has made squared poverty gap indices (interpreted as indicating substantial gains against widespread deprivation over respectively the incidence, depth, and severity of the 50 years of its independence but has not achieved poverty)--recorded notable decreases in poverty. the momentum needed to bring the great majority of its National rates dropped by anywhere from one third to poor into the economic mainstream. Whichever way below one half their initial levels (Figure 1.1 and one chooses to think about living standards, there is no Appendix Table A. 1). question that in India in the 1990s a significant fraction Because of India's rapid population growth rate, of the population remains severely deprived. The data even that advance, however, has not been sufficient to also reveal sharp disparities within India, between reduce the absolute number of poor which increased women and men, between castes, between city and from around 200 million in the 1950s to 312 million in countryside, between prospering regions and 1993-94 (most recent Five Year Survey). This leaves impoverished ones. India with the largest concentration of poor people in This assessment concludes that growth-enhancing the world, particularly in the villages--fewer than 5,000 public policies are the sine qua non of lasting progress people--where 60 percent of all Indians live. in reducing poverty. Such growth can both provide the Staggering as the overall numbers remain--240 million Indian poor with opportunities to raise themselves rural poor and 72 million urban poor--they do not tell above deprivation and can enable governments at all the full story of change. Social indicators of well- levels to promote that rise through sustained being, for instance, record a history of progress that investment in health, education, nutrition, family has, like the decline of poverty itsely, been steady but planning and other human capital development slow. policies. These conclusions are consistent with the first Among those indicators, three illustrate this point. Bank poverty assessment for India issued in 1989, based Infant mortality rates, as one example, fell from 146 on data up to 1983-84. The report's main conclusions deaths per thousand births in the 1950s to 80 at the then were: that both growth and redistributive policies start of this decade. Nevertheless, the Indian rate is still played a role in reducing poverty over much of the high and two Indian states, Orissa (124 per thousand in 1970s and 1980s; and that while more rapid growth led  2 Poverty: Where does India stand? to significant declines in poverty, the agricultural, persistent chronic poverty to inform public policy industrial and labor regulations prevailing at that time design to reduce and possibly elimninate it. It diluted the effect of growth on poverty reduction. The recognizes, however, that transient poverty (due to report also emphasized the importance of targeting anti- unforeseen fluctuations in income such as in drought poverty programs because of India's unsustainably high years or the death of the bread winner) is just as fiscal deficits at the end of the 1980s and the need to important and is the basis on which is built a rationale protect poverty programs (which the report argued were for effective safety nets policies (see chapter II). required to protect those who, because they lack the This report is largely, although not exclusively, human or physical capital, or live in chronically concerned with rural poverty. This is partly because at depressed regions, cannot benefit directly or present there is a much stronger analytical immediately from the growth process) which were likely underpinning to our understanding of rural poverty and to bear the brunt of inevitable expenditure cuts. its causes. It is also clear that while population trends Since the publication of that report, India has point to a continued rise of the urban sector in the radically changed its development strategy through future, current poverty incidence as well as numbers of reforms that have significantly liberalized the economy poor remain considerably higher in rural than in urban and improved its growth performance (growth rates areas. Further, it is important to recognize that the have been at around 7 percent in the last three years). defnition of urban encompasses a wide range of town Also, much more is now known on India's poverty. and city sizes. A large share of the urban population The Bank has conducted an extensive research resides in small and medium-sized towns and cities, program on the causes and evolution of poverty and much migration from rural to urban areas goes to (Ravallion and Datt, 1996a, Ravallion, 1996). At the such centres. These towns generally retain strong links same time, the debate over the real number of poor to the rural economy, and therefore poverty is likely to intensified as it became increasingly clear that the be strongly influenced by developments in rural official methodology was underestimating poverty surroundings. While we are able to say relatively little incidence. The Government set up an Expert about the causes of, and solutions to, poverty in India's Committee (whose recommendations were recently large urban centres, the analysis and recommendations endorsed by the Government) which suggested ways of in this report are likely to be of some relevance to the remedying some of the methodological shortcomings small cities in the urban sector. That said, there is an as well as further areas of research to refine further the obvious need for further analytical research leading to estimation of poverty incidence in a country as vast better insights on how the workings of the urban and diversified as India (see Annex I). This report economy affect the poor, and the public policies extends the analysis contained in the 1989 report to needed to improve the future of the urban poor. include data from the 1993-94 survey--last year for which nationally representative data are available. By Poverty measurement analyzing India's past performance in these areas, this assessment hopes to contribute to renewed and W7hat is poverty? In India, poverty is officially linked reinvigorated efforts to reduce poverty in the world's to a nutritional baseline measured in calories (food- second largest nation. The analysis provides a stronger energy method). The Planning Commission defines empirical underpinning of the central role of growth poverty lines as a per capita monthly expenditure of over distributive policies for poverty reduction, a better Rs. 49 for the rural areas and Rs. 57 in urban areas at understanding of the effect of past development 1973-74 all-India prices. These poverty lines policies on the incidence of poverty, and of the correspond to a total household per capita expenditure important role played by initial endowments in human sufficient to provide, in addition to basic non-food capital and physical resources in reducing poverty over items--clothing, transport--a daily intake of 2400 the long-term. In this context, after reviewing the calories per person in rural areas and 2100 in urban profile of the poor (Chapter I), the report takes a longer areas (Box 1.1). Individuals who do not meet these term perspective by focusing on deterninants of calorie nonns fall below the poverty line. This report  Poverty: Where does India stand? 3 uses the poverty lines as refined by the 1993 recommendations of the Planning Commission's oii.l Whiat Could Someone Living iandiki Expert Group on Estimation of Number of Proportion P tyLie C fi mer Day? of poor (see Annex I for a fuller discussion of poverty I-. ee ( 4dI r the e- measurement) but corrects for across states and survey Obe, {c io correspondsto th periods price differentials (Table 1.1 gives results . efobrhe-4 304-percent fri under both methodologies). are : ---.- Tablel..I--Poverty Inl :iidiat1