Poverty & Unemployment - Indian Economy for UPSC CSE PDF Download

Poverty

Poverty is a social phenomenon in which a section of society is unable to secure even the basic minimum necessities of life. In practical terms, poverty refers to the inability to attain a minimum level of consumption, nutrition, health and living standards necessary for efficient functioning. According to M.L. Dantwala, the poor are those who live below the poverty line, which is commonly defined in terms of per capita household expenditure required for basic needs.

Poverty Line

The poverty line is a monetary threshold representing the minimum consumer expenditure necessary to meet basic needs. In India, official definitions of the poverty line have changed over time as methodology and surveys evolved.

• The Planning Commission adopted the definition provided by the Task Force on Projections of Minimum Needs and Effective Consumption Demand. This definition linked the poverty line to minimum calorie intake: a daily calorie intake norm of 2,400 calories per person for rural areas and 2,100 calories per person for urban areas.
• The Task Force's estimates (expressed at 1993-94 prices) put the monthly per capita expenditure required at Rs. 228.9 for rural areas and Rs. 264.1 for urban areas.
• Economists have relied primarily on National Sample Survey Organisation (NSSO) data on consumption expenditure to study poverty and to estimate poverty lines and incidence.
• Different methodologies and committees produced different poverty lines and poverty ratios. Criticism of earlier methods led to the constitution of expert groups such as the Lakdawala Committee (1989), the Tendulkar Committee and later the Rangarajan Committee, each reviewing measurement methods and recommending adjustments.

Rangarajan Committee and the 'New' Poverty Line

• An expert panel chaired by former Reserve Bank of India Governor C. Rangarajan submitted a report recommending higher cut-offs for poverty than the Tendulkar estimates. The Rangarajan panel suggested that those spending more than Rs. 32 per day in rural areas and Rs. 47 per day in urban areas should not be considered poor (figures in 2011-12 prices).
• Using the Rangarajan method, the estimated number of people below the poverty line in 2011-12 is substantially higher than the Tendulkar estimate: about 363 million versus 270 million, an increase of nearly 35% in the headcount number.
• According to Rangarajan's estimates, 29.5% of the Indian population lived below the poverty line in 2011-12, compared with 21.9% by the Tendulkar method.
• Rangarajan's estimates also changed the urban distribution: for 2009-10 the BPL share was larger under Rangarajan; for 2011-12 the panel reported that 26.4% of urban residents were below the poverty line, compared with roughly 35% (approx.) in 2009-10 under earlier measures.
• The Rangarajan panel proposed monthly per capita consumption cut-offs of Rs. 972 in rural areas and Rs. 1,407 in urban areas for 2011-12; for a family of five these correspond to Rs. 4,760 per month (rural) and Rs. 7,035 per month (urban).

Causes of Poverty

• Inequality of income and wealth: Large disparities in asset ownership and income distribution keep sections of the population trapped in poverty.
• Low economic growth/underdevelopment: Slow and uneven growth limits employment creation and income opportunities.
• Widespread unemployment and underemployment: Insufficient job creation in both rural and urban areas.
• Agricultural vulnerabilities: Heavy dependence on monsoon, low productivity, incomplete land reforms and low agricultural incomes.
• High population growth: Rapid increase in population raises the number of persons needing employment and public services.
• Faulty implementation of poverty alleviation programmes (PAP): Leakages, targeting errors and inadequate coverage reduce programme effectiveness.
• Slow industrial and allied sector growth: Insufficient expansion of non-agricultural employment and production of wage goods.
• Failure of the trickle-down hypothesis: Growth has not automatically benefited the poorest when distributional mechanisms are weak.
• Low capital formation: Low investment rates limit productivity increases and employment creation.

Measures to Reduce Poverty

The strategy for poverty reduction in India has included multiple, often simultaneous components:

1. Relying on rapid overall economic growth in the expectation that benefits will "trickle down" to the poor through employment and higher wages.
2. Land reforms and redistribution to provide productive assets to the landless and marginal farmers.
3. Investment in human capital through education, health and vocational training to improve employability and productivity.
4. Creation of additional employment through targeted schemes for the weaker sections - for example, Integrated Rural Development Programme (IRDP), Jawahar Rozgar Yojana (JRY), Employment Assurance Scheme (EAS) and similar programmes.
5. Direct support to consumption through the Public Distribution System (PDS), mid-day meal programmes, and other food/price subsidisation measures.

Poverty and Five-Year Plans

• The evolution of poverty alleviation strategy in India can be seen in three broad phases across Five-Year Plan periods.
• Phase I (1950s-1960s): Emphasis on growth through infrastructure expansion and structural reforms (for example, land redistribution and tenancy reforms) with the expectation that benefits would filter down to the poor.
• Phase II (from the Fifth Plan onwards): Launch of targeted Poverty Alleviation Programmes (PAP). Major rural programmes included Small Farmers' and Agricultural Labourers' Development Agency (SFAL), Drought Prone Areas Programme (DPAP), Crash Scheme for Rural Employment (CSRE), Food for Work Programme (FWP), Integrated Rural Development Programme (IRDP) and National Rural Employment Programme (NREP).
• Phase III (from the 1990s): Shift to policies aimed at accelerating economic growth and creating an environment for a spread or 'trickle-down' effect, while maintaining targeted programmes and structural reforms.

Unemployment

Unemployment refers to those in the labour force who are willing and able to work at the prevailing wage rate but cannot find employment. The labour force broadly comprises persons in the working-age group who are either employed or actively seeking employment.

• India's unemployment problem has structural and chronic dimensions: slow growth in employment opportunities, a rapidly growing labour force and skill-mismatches between labour supply and demand.
• Urban areas may also experience cyclical unemployment during industrial recessions; rural areas commonly show disguised and seasonal unemployment tied to agricultural cycles.

Key Types of Unemployment

• Structural unemployment: Arises when there is a mismatch between workers' skills or the other factors of production required and available jobs (for example, scarcity of capital, land or requisite skills).
• Cyclical unemployment: Results from economic downturns and the recession phase of the business cycle; demand for labour falls and jobs are lost.
• Open unemployment: A situation in which a significant number of people seeking work do not find regular employment that yields a stable income.
• Underemployment: Exists where persons do not get the type of work they are capable of doing, or do not receive sufficient work for the normal working period (seasonal or intermittent employment). Underemployment often includes seasonal unemployment in agriculture.
• Disguised unemployment: Common in low-productivity agricultural households where more workers are engaged than required; marginal productivity of some workers is effectively zero, so moving them to other activities does not reduce total output.

Forms of Unemployment

• Open unemployment: A situation where a section of the labour force does not obtain employment that yields regular income; often caused by lack of complementary resources such as capital, and therefore related to structural disequilibrium.
• Underemployment (two meanings):

1. A person is not able to obtain the type of work he or she is capable of doing because suitable jobs are absent.
2. A person does not obtain sufficient work to occupy full normal working hours, or gets work only intermittently across days, weeks or seasons (seasonal unemployment is a common example).

• Disguised unemployment: In agrarian settings, disguised unemployment occurs when more workers are engaged in a task than are needed; productivity per worker is low and some workers could be withdrawn without reducing total output. In industrialised economies, the term has also been used historically to describe cyclical labour transfers during depressions.

Types of Unemployment in India

• For analytical convenience, unemployment in India is often divided into rural unemployment and urban unemployment.
• Rural unemployment is typically characterised by open unemployment, seasonal unemployment and disguised unemployment. Urban unemployment is characterised by open unemployment and underemployment, with notable underemployment among the educated.

Features of Unemployment in India

1. Incidence of unemployment is often higher in urban than in rural areas.
2. Unemployment rates for women are typically higher than for men.
3. There is a larger difference between 'usual' and 'weekly' status unemployment rates versus 'daily' status rates, especially for women, indicating high underemployment.
4. Unemployment among the educated is higher (about 12% in some measures) compared with overall usual status unemployment (around 3.77% in certain survey rounds).
5. There has been a shift over time from widespread underemployment towards more open unemployment in some segments.

Concepts and Measures Used by NSSO

• The National Sample Survey Organisation (NSSO) uses three broad concepts to classify activity and unemployment:

• Usual Status: A person's usual activity status (employed, unemployed or outside labour force) over a relatively long reference period. The usual status unemployment rate is a person-based rate reflecting persistent unemployment or employment.
• Current Weekly Status (CWS): Activity status with reference to the preceding seven days. If a person seeking employment failed to get work even for an hour on any day in the reference week, the person is counted as unemployed under CWS. This is also a person rate.
• Current Daily Status (CDS): Activity status for each of the seven days preceding the survey; CDS gives a time-based measure of unemployment and is often considered the most appropriate for capturing short-term or seasonal unemployment patterns.

Causes of Unemployment

1. Slow economic growth limiting job creation.
2. Rapid increase in the labour force due to population growth.
3. Inappropriate or labour-saving technology that displaces workers.
4. An education system mismatched with labour market requirements.
5. Underdeveloped nature of the economy with low industrialisation.
6. Inadequate employment planning and weak delivery of employment programmes.
7. Failure of the trickle-down theory to deliver benefits to the lowest income groups.
8. Agricultural backwardness and low productivity in rural areas.
9. Insufficient efforts to broaden the resource base and diversify the economy.

Summary

Poverty and unemployment are interlinked structural problems facing the Indian economy. Measurement methods (for poverty) and classification frameworks (for unemployment) have evolved through committee reports and large household surveys (NSS rounds). While poverty ratios fell between 2004-05 and 2011-12 under the Tendulkar methodology, alternative methodologies such as Rangarajan's yield higher poverty headcounts. Effective policy responses combine sustained inclusive growth, targeted poverty alleviation programmes, investments in human capital, labour-intensive industrialisation and improved targeting and delivery of social support to reduce both poverty and unemployment.