A REVIEW OF THE STUDIES ONPOVERTY AND INEQUALITY IN INDIA

M. Phil dissertation, Calcutta University, 1980

BySukumar Nandi

Department of EconomicsAshutosh College

Calcutta.

1979.

CONTENTS

Introduction Page

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 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 analysed. 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.

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 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 characterised 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 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 India’s 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 ‘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 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 judgement.

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 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 minimises 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 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

jji

q

i

yymq

G11

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

iqyimqq

G1

21

211

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 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 inequality19 by an index:

m

YI

*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:

En

i

E

fiY

YiI

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 Y—

the mean income. This index indicates the proportion of the

present total income that would be required to achieve 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. Bentzel’s 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

dccfcunW )()(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

WI

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

Sen’s 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

y1≤ y2 ≤ ……. ≤ yn

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(

2iqyiz

nzqP

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

judgement 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.

Chapter-2

Poverty in India

The problem of poverty had attracted the attention of

economists even before independence25 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 upto 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.

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 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 Group29

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 one’s 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 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

Sukhatme’s estimate, the cost of a minimum diet prescribed by the

FAO33 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-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.

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.

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 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 [16th 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.

Ojha’s 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 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 analysed the nature of Indian poverty in

greater detail, but they have also examined the feasibility of the

Planning Commission’s 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 Commission’s

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

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 judgement 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 (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 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 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, Bhatty’s

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.

Bhatty has also tried to calculate for India the magnitude of

Sen’s poverty measure P, the result of which is summarized in the

following table:

Sen’s Poverty measure ‘P’ for India, 1968-69

Poverty line: rupees per Capita per annum180 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 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,

Rajaraman’s 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-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 Bhatty’s study a greater concentration of poverty is

seen in four States (Gujrat, Tamil Nadu, Rajasthan and Madhya

Pradesh), Bardhan’s study reveals that 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?

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 analysed in greater detail.

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 recognised 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-

industrilisation 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 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.

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 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 distribution63 holds

in India. He then makes use of income-tax statistics of individuals

and Hindu undivided families, and converts the NSS 10th 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 Lydall’s 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:

(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 emphasises 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.

The implication of Swamy’s study is that the process of

industrialisation 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.

Ranadive’s 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

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 dissavings 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 18th and the 22nd 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 in determining the degree of consumption 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

analysed 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 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

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

nature68 of the Indian economy and as such inequality should be

analysed 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 hierarchian 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

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 maximise

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 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

Saini’s 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

1975-76, 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 26th round data81 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 organisational wings work with a linear authority structure

which results in a lack of cohesion within the organisation.

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 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 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 mobilise 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 characterised by moderately

high and stable rates of agricultural growth have also experienced

high growth rates in industrilisation. 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.” 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 industrilised, 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 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 organisations, some

individuals and political 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 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 orgainsed

experiment to uplift the condition of the poor, programmes for

actual transfer of assets are a pre-requisite for using asset

improvement and fuller utilisation of labour power as mechanism

for 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 1960’s, 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 organisational 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 today 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 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.

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 recognised

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:

“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).

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).

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.”

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.

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 Urban0 - 8 356 3328 - 11 480 37711 - 13 560 38813 - 15 616 41215 - 18 625 41818 - 21 675 44521 - 24 705 48524 - 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)

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).

41. NSS, 16th 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 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 telative per capita income should be raised by roughly

one-tenth.

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

Source Percentage Share

1. Intra-Sectoral Inequalilty 15.40

Rural 0.00

Urban 15.40

2. Inter-Sectoral Inequality 47.50

3. 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.

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.

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, 26th 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 30th 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).

BIBLIOGRAPHY

1. Andelman and Thorbecke (eds) (1966) – The Theory and

Design of Economic Development, Baltimore, John

Hopkins.

2. Ahmed, M. and Bhattacharya, N. (1972) – “Size

Distribution of per Capita Personal Income in India: 1956-

57, 1960-61 1963-64” in Economic and Political Weekly,

Special Number, Vol.vii.

3. Almpnd, Gabreil A. and Coleman, James S. (eds) (1960) –

The Ploitics of the Developing Areas, Princeton, N.J.

4. Atkinson, A.B. (1970) – “On the Measurement of

Inequality” in Journal of Economic Theory, Vol.2.

5. Atkinson, A.B. (1975) – The Economics of Inequality;

London, Oxford University Press.

6. Bardhan, P.K. (1970) – “On the Minimum Level of Living of

the Rural Poor” in Indian Economic Review, April.

7. Bardhan, P.K. (1973) – “Incidence of Poverty in Rural

India” in Economic and Political Weekly, Annual Number,

Feb.

8. Bardhan, P.K. (1971) – “On the Minimum Level of Living

and the Rural Poor: A Further Note”, in Indian Econ.

Review, April.

9. Bardhan (1970) – “The Green Revolution and Agricultural

Labourers’ in Economic and Political Weekly, July.

10. Bardhan, P.K. (1974) – “Inequqlity of Farm Incomes: A

Study of Four Districts” in Economics and Political Weekly,

Annual Number, Feb.

11. Bardhan, P.K. and Srinivasan, T.N. (eds) (1974) – Poverty

and Income Distribution in India; Calcutta, Stastical

Publishing Society.

12. Bardhan, P.K. (1974a) – “Pattern of Income Distribution in

India: A R view” in Bardhan and Srinivasan (eds) (1974).

13. Bagchi, A.K. – “Long-term Constraints on India’s Industrial

Growth, 1951-1968” in Robinson and Kidron (eds) (1970).

14. Bagchi, P.K. (1975) – “Some Characteristics of Industrial

growth in India” in Econ. And Pol. Weekly, Annual Number.

15. Bagchi, P.K. (1977) – “Export-led Growth and Import

Substituting Industrialisation” in Econ. and Pol. Weekly,

Annual Number.

16. Betcille, A. (1965) – Caste, Class and Power: Changing

Pattern of Stratification in a Tanjore Village; Berkeley.

17. Betcille, A. (1966) “Closed and Open Social Stratification in

India” in European Journal of Sociology, Vol. 7.

18. Betcille, A. (1969) “Ideas and Interest: Some Conceptual

Problems in the Study of Social Stratification in Rural

“India” in International Social Science Journal, Vol.21,

No.2.

19. Baily, F.G. (1957) – Caste and Economic Frontier;

Mancherster.

20. Basu, S.K. and Bhattacharya, S.K. (1963) – land Reforms

in West Bengal; Calcutta.

21. Bhatty, I.Z. (1974) – “Inequality and Poverty in Rural

India” in Bardhan and Srinivasan (eds).

22. Baran, P.A. (1957) – The Political Economy of Growth;

New York, Monthly Review Press.

23. Bentzel (1970) – The Social Significance of Income

Distribution Statistics; in IARIW Income and Wealth Series

16.

24. Centre of the Development Studies, Trivandrum – United

Nations, New York (1975) – Poverty, Unemployment and

Development Policy – A Case Study of Selected Issues with

reference to Kerala.

25. Chatterjee, G.S. and Bhattacharya, N. – “On Disparities in

Per Capita Households Consumption in India” in Bardhan

and Srinivasan (eds) (1974).

26. Chatterjee, G.S., Sarkar, D. and Paul, G. – (1971- “A Note

on the Variation in the Dietary Levels of Households in

Rural India”, in Economic Affairs, No. 14, October.

27. Dasgupta, Sen and Starrett – Notes on the Measurement

of Inequality in Journal of Economic Theory, 6. 1973.

28. Dandekar and Rath, N. (1971) – Poverty in India;

Bombay, Indian School of Political Economy.

29. Dalton, H. – (1920) – “The Measurement of Inequality of

Incomes”, in Economic Journal, Vol.30.

30. David, P.A. (1972) – “Just How Misleading Are Official

Exchange Rate Conversion” in Economic Hournal, Vol. 82.

31. Dharampal (1971) – Indian Science and Technology,

Some Contemporary European Accounts; Impex India,

Delhi.

32. Dixit, A. (1970) – “Growth Patterns in a Dual Economy”,

in Oxford Economic Papers, Vol. 22, No. 2.

33. Dixit, A. (1971) – “Short-Run Equilibrium and Shadow

Prices in the Dual Economy” in Oxford Economic Papers,

Vol.23, No. 3.

34. Divatia, V.V. (1976) – “Inequalities in the Asset

Distribution of Rural Households” in Reserve Bank Staff

Occasional Papers, June, Vol.1, Issue No. 1.

35. Dasgupta, A.K. (1975) – The Economics of Austerity,

Delhi, Oxford University Press.

36. Dantwala, M.L. (1976) – “Agricultural Policy in India since

Independence” in Indian Journal of Agricultural Economics,

October – December

37. Dutt, R.C. (1950) – Economic History of India in the

Victoria Age, London, Routledge and Kegan Paul.

38. F.A.O. – Monthly Bulletin of Agricultural Economics and

Statistics, January, 1973.

39. Fei, J,C.H. and Ranis, G. (1964) – “Development of the

Labour Surplus Economy”, Homewood, III. Irwin.

40. Fei, J.C.H. and Ranis, G. (1966) – “Agrarianism, Dualism

and Economic” in Adelman and Thorbecke (eds) (1966).

41. Gaikwad, V.R.(1971) – Small Farmers: State Policy and

Programme Implementation, National Institute of

Community Development, Hyderabad, March.

42. Gini, C. (1955): Memorie Di methodoligia Statistica, Vol.

1, Roma 2nd Eu.

43. Ganguly, B.N. (1965) – Dadabhai Naoroji and the Drain

Theory, Bombay, Asia Publishing House.

44. Gough, E. Kathleen (1955): “The Social Structure of a

Tanjore Village” in Marritt, M. (ed) (1955).

45. Govt. of India – Economic Survey 1975-76, 1971-72.

46. Fupta, Anand P. (1977): “Who Benefits From Central

Government Expenditure” in Econ. and Political Weekly,

Annual Number, Feb.

47. Govt. of Maharashtra: Integrated Area Development

Scheme for Small-holders and Agricultural Labourers,

1966; Supplementary Pamphlet, 1967, 1970.

48. Hanumappa, H.G. (1978) – “Income Distribution in Urban

Areas: A Case Study of Bangalore” in Econ. and Political

Weekly, April 15.

49. Iyenger, N.S. (1978) – ‘Size Distribution and Consumption

and Income’ in a Survey of Research in Economics, Vol.

VIII: ICSSR.

50. Jorgenson, D.W. (1967) – “Surplus Agricultural Labour

and the Development of a Dual Economy” in Oxford

Economic Papers, Vol. 19.

51. Jakhade, V.M. and Joshi, D.A (1970): An Ad-hoc Survey

Report on the Working of Pilot Integrated Area

Development (PIAD) Scheme in Sangli District – in R.B.I.

Bulletin, No. 1, January.

52. Kravis, I.B. (1965) – “Measure of Inequality, Various U.S.

Distributions, 1950” in The Structure of Income.

53. Kuznets, Simon (1963) – “Distribution of Income by Size”

in Economic Development and Cultural Change, Vol. xi,

No.2, January.

54. Kuznets, Simon (1965) – “Inequalities in the size

Distribution” in Economic Growth and Structure; Norton,

New York.

55. Kuznets, Simon (1966) – Modern Economic Growth; Yale

University Press, New Haven, Connecticut.

56. Kurien, C.T. (1973) – poverty, Planning and Social

Transformation; Bombay Allied Publishers.

57. Laxminarayan and Tyagi (1976) – “Some Aspects of

Agricultural Holding” in Econ. and Political Weekly,

October.

58. Leontieff, W. (1973) – “Socialism in China: On the Theory

and Practice of promising no more than you Deliver” in the

Atlantic Monthly, Boston, Mass. Vol. 231, No.3, March.

59. Lewis, A. (1954) – “Economic Development with Unlimited

Supplies of Labour” in Manchester School of Economics

and Social Studies, May.

60. Lydall, H.F. (1960) – “The Inequality of Indian Incomes”

in Economic Weekly, Special Number, June.

61. Maharaj and Iyer (1977): Joint Farming co-operative

Scociety in Nellore: A New Strategy for Rural Development

(mimeo): National Labour Institute.

62. Marritt, M. (ed) (1955) – village India; Chicago.

63. Mitra, A. (1977) – Terms of Trade and Class Relations;

London, Frank Case.

64. Mitra, A. (ed) 1974) – Economic Theory and Planning;

Oxford University Press.

65. Marx, K. (1943) – Articles on India; Bombay, Peoples Pub.

House.

66. Maddison, Augus (1970) – “Historical Origin of India

Poverty” in Banca Nationale del Lavoro Quarterly Review

(Rome), March).

67. Minhas, B. (1970) – “Rural Poverty, Land Redistribution

and Development” in Indian Econ. Review, April, Vol. V,

(New Series), No.1.

68. Mahalanobis, P.C. (1962) – “A Preliminary Note on the

Consumption of Cereals in India” I Bulletin of International

Statistical Institute, No. 39(4).

69. Morgan, Theorove – (1953) – “Distribution of Incomes in

Ceylon, Puerto-Rico, the United States and the United

Kingdom” in Economic Journal, December.

70. Mukherjee (1969) – National On India: Trends and

Struture. Statistical Publishing Society, Calcutta.

71. Mukherjee, M. and Chatterjee, G.S. (1967) – “Trends in

Distrihution of National Income 1950-51 to 1965-66: in

Econ. and Political Weekly, July 15.

72. Murdyal, D. (1870) – “The Challenge of World Poverty;

Allen Lane the Penguin Press.

73. Naroji, D. (1888) – Poverty in India; London, Winckworth

Fougler and co., The Aldine Pree.

74. Newbery, D.M.G. (1970) – “A “Theorem on the

Measurement of Inequality” in Journal of Economic Theory,

Vol. 2.

75. NCAER – Urban Income and Saving; New Delhi 1962.

76. NCAER - Margin, July, 1975.

77. National Sample Survey-Reports on Land Holding, All India

26th round No. 215 (July 1971 to September 1972).

78. _ _ _ Reports on Consumer Expenditure, 16th and 18th

rounds.

79. _ _ _ Survey of the Weaker Section of Rural Population

(1970-71): 25th Round.

80. Ojha, P.D. (1970) – A configuration of Indian Poverty:

Inequality and Levels of Living; RBI Bulleting, January.

81. Ojha, P.D. and Bhatt (1964) – “pattern of Income

Distribution in Under-developed Economy: A Case Study of

India” in American Econ. Review, September.

82. Page, V.S. (1970): Supplementary Pamphlet II, A Small

Note: Government of Maharashtra, pp. 160-166.

83. Panikar, P.G.K. (1972) – “Economics of Nutrition” in

Econ. and Political Weekly, February.

84. Planning Commission: Draft Fifth Five Year plan (1974-

79).

85. Popper, Karl [1952]: Open Society and Its Enemies, Vol.

II. London; Routledge & Kegan Paul.

86. Pathak, Ganapathy and Sarma (1977) – “Shifts in the

Pattern of Asset Holdings of Rural Households, 1961-62 to

1971-72” in Econ. and Political Weekly, March.

87. Planning Commission, PPD (1974) – “Perspective of

Development 1961-1976: Implications for Planning for a

Minimum Level of Living: in Srinivasan & Bardhan (1974).

88. Ranadive, K.R. (1978) – Income Distribution: The

Unsolved Puzzle: Bombay, Oxford Unviserity Press.

89. Ranadive, K.R. (1965) – “The Equality of Incomes in

India” in Bulletin of the Oxford University Institute of

Economics and Statistics, No. 7, May.

90. Ranadive, K.R. (1973) – “Distribution of Income – Trend

Since Planning’, Paper presented to ISI Seminar on Income

Distribution, February.

91. Rao, C.H. Hanumantha (1976) – “Changes in the

Structural Distribution of Land Ownership and Use (since

Independence)” in Indian Journal of Agricultural

Economics, October-December.

92. Rao, C.H. Hamumantha (1975) – Technological Change

and Distribution of Gains in Indian Agricultural; Delhi,

Macmillan.

93. Rao, C.R. (ed) (1974) – Data Base of Indian Economy, Vol.

1, Calcutta, Statistical Publishing Society.

94. Rao, V.K.R.V. (1939) – An Essay on India’s national

Income 1925-29; London, George Allen and Unwin

Limilted.

95. Radhakrishnan, Srinivasan and Vaidyanathan (1974) –

“Data on Distribution of Consumption expenditure: An

evaluation”, in Bardhan and Srinivasan (eds) (1974).

96. Rajaraman, Indira (1975) – “Poverty, Inequality and

Economic Growth: Rural Punjab, 1960-61 – 1970-71” in

Journal of Development Studies, Vol. II, No. 4, July

(1975).

97. Rawls, J. (1973) – A Theory of Justice, London, Oxford

University Press.

98. Robbins, L. (1963) – “Equality as a Social Objective” in

politics and Economics, London, Macmillan.

99. Robinson, E.A.G. and Kidron, M. (eds) (1970) – Economic

Development in South Asia, London, Macmillan.

100. Rajan, V.: (1978): Interim Report of the ICSSR Project on

the Tappers Cooperative Societies, Warangal District.

101. Raj, K.N. (1976) – “Growth and Stagnation in Indian

Industrial Development” in Economic and Political Weekly,

Annual Number, February.

102. Rudra, Ashok (1974) – “NSS Estimate on Consumption

expenditure” in Rao, C.R. (ed) (1974).

103. Rudra, Ashok (1974) – “Minimum Level of Living – A

Statistical Examination” in Bardhan and Srinivasan (eds)

(1974).

104. Rowntree, B.S. (1941) – “Poverty and Progress: A Second

Social Survey of York; London, Longmans Green.

105. Reserve Bank of India – R.B.I. Bulletin, September 1963,

Sept. 1962.

106. Reserve Bank of India – All India Debt. And Investment

Survey 1971-72: Statistical Tables Relating to Cash Dues

Outstanding against Rural Households as on 30th June,

1971.

107. Saini, G.R. (1976) – “Green Revolution and the

Distribution of Farm Incomes” in Econ. and Political Weekly

(Rev. of Agriculture) March.

108. Sau, R. (1974) – “Some Aspects of Inter-Sectoral

Resource Flows” in Econ. and Political Weekly, Special

Number, August.

109. Schillar, B.R. (1970) – The Economics of Poverty and

discrimaination, New Jersey, Prentice-Hall.

110. Sen, A.K. (1974) – On Economic Inequality; Delhi, Oxford

University Press.

111. Sen, A.K. (1973) – “Poverty, Inequality and

Unemployment” in Econ. and Political Weekly, Special

Number.

112. Sen, A.K. (1976) – Poverty: An Ordinal Approach to

Measurement in Econometrics, Vol. 44, No. 2.

113. Sheshinaki, E. (1972) – “Relation between a Social Welfare

Function and the Gini Index of Inequality” in Journal of

Economic Theory, Vol. A.

114. Shah, C.H. (1976) – “Growth and Inequality in Agriculture”

in Indian Journal of Agricultural Economics, October-

December.

115. Sukhatme, P.V. (1965) – Feeding India’s Growing Millions;

Bombay, Asia Publishing House.

116. Swamy, Subramanian (1967) – “Distribution of Income in

India” in Econ. and Political Weekly, Annual Number,

February.

117. Swamy, Subramanian (1965) – “Comment” in American

Economic Review, December.

118. Shetty, S.L. (1978) – “Structural Retrogression in the

Indian Economy since the Mid-Sixties” in Econ. and

Political Weekly, Annual Number.

119. Sethi, H. (1973) – Alternative Development Strategies: A

look at some Micro Experiments: in E.P.W. Special

Number, August.

120. Thirlllwall, A.P. (1972) – Growth and Development; with

special reference to developing economics; London,

Macmillan.

121. Tewari, S.G. (1968) – “Some Aspects of Economics Growth

in India: 1950-51 to 1964-65”, Paper presented at the

sixth Indian Conference on National Income, May.

122. Theil, H. (1967) – Economics and Information Theory;

Amsterdam, North-Holland.

123. Tinbergen, J. (1970) – “A Positive and Normative Theory of

Income Distribution” in Review of Income and Wealth, Vol.

16, No. 3.

124. Townsend, P. (1970) (ed) – The Concept of Poverty;

London, Heinemann.

125. Townsend, P. (1970a) – “Measures and Explanations of

Poverty in High Income and Low Income countries: The

Problems of Operationalizing the Concepts of

Development, Class and Poverty in Townsend (1970).

126. Titmuss, R. (1962) – Income Distribution and Social

Change; London, Allen and Unwin.

127. Usher, D. – Rich and Poor Countries, Eaton Paper No. 9

(London Institute of Economic Affairs, 1966).

128. United Nations (1954) – Economic Survey of Asia and the

Far East, 1953.

129. Vaidyanathan, A. (1970a) – “Some Aspects of Inequalities

in Living Standards in “Rural India” in Bardhan and

Srininvasan (eds) (1974).

130. Vaidyanathan, A. (1974b) – “Inequalities in Living

Standards in Rural India” in Bardhan and Srinivasan (eds)

(1974).

131. Vaidyanathan, A. (1974c) – “On the New Economics of

Poverty” in Mitra, A. (ed), (1974).

132. Yntema, D.B. (1933) – “Measures of the Inequality in the

Personal Distribution of Wealth and Income” in Journal of

the American Statistical Association, Vol. 28.

133. Gopalan, Sastri and Bala Subramanian (1971) – The

Nutritive value of Indian Foods; Indian Council of Medical

Research; Hyderabad.