Sunday, May 06, 2012

What to Make Out of India's New-Found Prosperity

In 2011, the Indian government redefined rural poverty level at Rs. 26 ($0.50) per day per individual and urban poverty at Rs. 32 ($0.62). Anyone earning more than these cannot be classified as poor, claims the government. These amounts are supposedly enough to meet food, clothing, rent, education, medical and other personal needs, especially since the government subsidizes some of these expenses. This lower poverty threshold set by the government has reduced the poverty rate in India to 37% of the population.
OECD and World Bank still maintain the poverty level at $1.25, and as per their estimates, India’s poverty rate is around 42-45%. Not wanting to embarrass national governments, these international organizations were reluctant to raise the poverty level from $1.00 for over a decade until recently when it raised it to $1.25. However, the cost of living in practically every developing country had more than doubled during the same period. So, in reality, these organizations have also lowered their measure of poverty level in real terms.
Leaving aside these discrepancies, the astounding fact is that the Planning Commission of India chose to lower the poverty level when it found that the poverty rate had not improved despite the so-called excellent growth rate the nation has been experiencing in the past 20 years. No one wants to openly admit that most of this aggregate economic growth is confined to a relatively small segment of the economy. The trickle-down impact of growth is not sufficient to reduce poverty as a result of population and cost of living increases.
Consider the following additional statistics: The top 10% of the population own 61% of national wealth while the bottom 60% of the population own only 13%. Most of the economic activity – purchase of land, buildings, cars, appliances, etc. – is by the top 15-20% of the population or by 175-250 million people (approximately 40 million households). For example, they own the 45 million cars on the road in India today. With 4-5 members per household, the top 50-60 million households run those cars on India’s busy streets. The wealth and income gaps continue to widen rapidly as the economy expands.
Even with the current fast rate of economic progress, we may expect at most 5 million more people joining this elite class each year. At the same time, India’s population increases by nearly 18-20 million people each year. A majority of the remaining 13-15 million will join the “poor class” unless the government decides to lower the poverty threshold even further.
Instead of pursuing policies to directly benefit the poor, they government continues to follow corrupt and inefficient poverty alleviation programs in the form of subsidies and handouts. If the present trend continues, the number of people (as well as the poverty rate) living in poverty by any humane measure will only increase over the foreseeable future.
To confirm the above conclusions, The George Foundation decided to update its survey of the rural population around Shanti Bhavan School in Tamil Nadu. Two villages that are representative of most others in the area were chosen. They are nearly 50 kilometers from the prosperous city of Bangalore and 20 kilometers from the industrial town of Hosur. We believe that most other villages all over India are likely to be poorer than these two villages.
The following table summarizes the results:
Survey Results for 2 Tamil Nadu Villages in Hosur Area (2012 March)

Oppachalli Village
Oddepalli Village
Number of households
Number of individuals
Median size of households
Average size of households
Average income of a family/month
Rs 9,784 ($197.7)
Rs. 10,030 ($200.60)
Median income of a family/month
Rs 8,010 ($160.2)
Rs. 8,500 ($170)
Median Per capita income/month
Rs 2,002 ($40.04)
Rs. 1,666 ($33.3)
% of households with less than Rs. 1,900/month in per capita income
% of households having at least one member working away from local area:
% of households having at least one member working major city like Hosur:

Farm, Cattle or Labour
Brick & Tile
Other (Goldsmith, petty Shop, etc.)

% of children below 17 attending school
% of houses with kitchen and bath attached
% of houses with kitchen (no bath) attached
Source: The George Foundation, Bangalore

The above shows that 48.5% and 55.0% of the households have per capita income of less than $1.25 in the two villages. Farming as a profession is now 25.8% and 31.6% respectively. Number of houses in the two villages having both bathroom and kitchen are 13.1% and 29.3%. Contrary to what is assumed about rural migration to urban areas to seek better employment, only 5-8% of the households have at least one member working in a major city.

With these kinds of results, can India claim to be shining?

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