Poverty and Distribution of Wealth

Poverty and Distribution of Wealth

Poverty, wealth distribution and inequality are complex and can be measured in more than one way. A look at trends over the last 25 years suggests that inequality has risen in India, even as extreme poverty is falling.

Resources:

  • Just how high is income inequality in India?” This 2016 piece in Scroll pulls five charts from a recent IMF report. Highlights include:
    • India is one of the most unequal countries in the Asia Pacific Region. Only China and Papua New Guinea have more income inequality.
    • India’s rate of inequality has jumped dramatically in recent years.
    • Extreme poverty (under 2 USD per day)  is falling in India, but it’s falling faster in some other countries.
    • India has a very small ‘middle class’ (10-20 USD per day).
  • Yes, India has massive income inequality – but it isn’t the second-most unequal country in the world”–This report from Scroll looks at a new report from a wealth research firm that looked at the percentage of a country’s wealth held by millionaires. It finds that 45 percent of wealth in India is owned by millionaires. (It corrects earlier news stories based on a faulty press release.)
  • Inequality in India: what’s the real story?”-a great piece by the CEO of Oxfam India. (Note, it cites the mistaken press release corrected above. But it looks at other data as well.)
  • Income inequality is only part of the problem: while India has a large economy and a lot of wealth, and thus is sometimes called “rich”, it also has a very large population. Per capita per-capita GDP measures how much each person would get if a country’s total economy were divided equally. Here are some benchmarks (in US dollars) from The World Bank:
    • India: $1,600
    • US: $56,100
    • United Kingdom: $43,900
    • China: $8,000
    • Pakistan: $1,400
    • Mexico: $9,000
    • Zimbabwe: $900
  • According to this World Bank Infographic, in 2012, 270,000,000 (about 20 percent)  Indians were poor. You can’t compare this to rates of poverty in developed countries. Though the number changes, these numbers generally refer to people living on about $2 per day. You can learn more at the World Bank’s website.
  • More recent data suggests India has lowered its rate of extreme poverty significantly: to12.4 percent in 2012 and 10 percent by 2015. See ‘India’s Poverty Rate Falls To 12.4%, Electricity Plays Big Role‘.

Interventions:

Economic Growth: There are many approaches to reducing poverty and income inequality. Poverty can be reduced by policies that encourage economic growth. Many people argue that this should be the priority. Strategies that are sometimes used to increase economic growth include:

  • Encouraging investment.
  • Investing educating people to be better workers.
  • Microfinance to small businesses in the informal sector (see below).
  • Lower taxes on businesses.

Redistribution: But economic growth alone won’t reduce inequality. In fact, India’s inequality has gotten worse in the last 25 years, even as its economy has grown. Others (see “Inequality in India: what’s the real story?”) argue governments can support economic growth through a combination of fair taxation and social programs.

There are many programs in India designed to reduce poverty. Here are a couple of big ones:

The Mahatma Gandhi National Rural Employment Guarantee Act  (NREGA) aims to provide 100 days of employment to rural people who volunteer to work at unskilled manual labor. It has had mixed success.

Public Distribution System (PDS). The Indian government buys food from farmers and sells it at subsidized (lower) rates to people at government-run ration shops. Some of the food is set aside for people who qualify as Below the Poverty Line (BPL), and some is sold to the public. The PDS system is huge. It provides farmers with a guaranteed market for some of their crops, and it provides cheap food to millions of people. Many things have been written about its successes and its failures. Each state administers the program differently; in some states it works very well, and in some states there is a great deal of corruption and wastage. Here are a few links to get you started:

Microfinance initiatives: Providing loans and financing to small business in the informal economy is one intervention that has been used to reduce poverty. Here are some links related to that:

Microcredits

Some Issues Surrounding Microfinance Institutions (MFI’s) in India.

Education Programs: Most programs aimed at improving school enrollment and reducing child labor recognize that poverty is one of the main reasons many children don’t attend school.

Mid-Day Meals for students

 

Additional resources to explain some key terms. 

This link feature a short video explain what Gross Domestic Product (GDP) is, how it is calculated and used, and why it is important.
This link provides a short video explaining that GINI index and how it is used with the GDP to represent how well a country distributes it’s wealth.