How to Reduce Poverty of India

Rediff.com » Business » How poverty in India can be eliminated
How poverty in India can be eliminated
June 29, 2007 13:06 IST
Share
this
Ask
Users
Write a
Comment

What is the cost of eliminating poverty and hunger in India [ Images ]? That of course depends on the extent of poverty, which has been mired in academic debate about the measurement of poverty.
<IMG SRC="http://imads.rediff.com/0/OasDefault/Coke_WC_Spons_180x150/coke_bck.gif" WIDTH=300 HEIGHT=250 BORDER=0>

There is however universal agreement that in the years from 1993-94 to 1999-2000 the poverty rate was between 25 per cent and 35 per cent. We can therefore skirt the esoteric debate about the precise change in poverty between 1993-94 and 1999-2000 and its level in either year by considering three numbers.

For each of these years we order the households/person by consumption level and identify the ones, which are 25 per cent, 30 per cent and 35 per cent from the bottom. That is, we identify in each year the consumption level of the person(s) who would be just at the poverty line if the poverty rate was 25 per cent, 30 per cent and 35 per cent, respectively.

Then we calculate the income transfer needed for everybody below that level to be brought up to the level. The data are summarised in the table.

In 1999-2000, the total subsidies provided by the central government were Rs 25,690 crore (Rs 256.9 billion), of which Rs 22,680 crore (Rs 226.8 billion) were for food and fertiliser.

During the same year the central and state governments together spent another Rs 28,080 crore (Rs 280.8 billion) on "Rural Development," "Welfare of SC, ST & OBCs" and "Social Security and Welfare". Either of these was sufficient to bring all the poor to the consumption level of the person/household at the 30 per cent level.

Given that poverty was between 26.1 per cent and 28.6 per cent, either of these if transferred directly to the poor and disadvantaged would have eliminated poverty.

Together these subsidies and poverty alleviation expenditures (Rs 53,770 crore or Rs 537.7 billion)) would have been sufficient to eliminate poverty in 1999-2000, even if administrative costs and leakages used up half the allocation (and the small fraction of rural development expenditure on water supply were excluded).

It can be argued that the most efficient social welfare policy is a direct transfer of income to the poor through a negative income tax. In a developed country, this would be very easy. How can we transfer these amounts directly to the poor, the needy and the disadvantaged in a poor country?