TheRelation between Poverty, Growth, and InequalityThis sectionpresents a simple decomposition of the changes in the poverty rate in a countryto show that the changes in per capita income and the income distribution arethe main determinants of changes in the poverty rate.
The head count ratio of poverty (HCR) isdefined as the percentage of the population whose income is below a givenpoverty line. Thus, HCR will generally depend on average income per capita (Y*)and the poverty line (Y), both expressed in constant prices. It willalso depend on the income inequality or distribution (D): HCR= HCR(Y*,Y, D)Thus, change in HCR stems from changesin either of the two determinants of Y*, given the constant poverty line.1.
If income growth isdistribution-neutral, or the income of every individual grows by the sameproportion, then the Lorenz curve will stay unchanged and change in HCR is dueentirely to changes in the mean income.2. When the mean income neither growsnor contracts, a change in poverty will occur if and only if the Lorenz curveshifts, i.e., there is income redistribution among some individuals.
Policiesfor More Rapid Poverty ReductionAlthough concerned efforts have beeninitiated by the Government of India through several plans and measures toalleviate poverty in rural India, there still remains much more to be done tobring prosperity in the lives of the people in rural areas. India is a haven to22% of the world’s poor. Such a high incidence of poverty is a matter ofapprehension, in view of the fact that poverty eradication has been one of themajor objectives of the development process. Poverty eradication is consideredintegral to humanity’s mission for sustainable development. Thus, reduction of povertyin India is vital for the attainment of international goals.
The philosophyunderlying the poverty alleviation programs is to tackle the rural poverty byendowing the poor with productive assets and training for raising their skillsso that they are assured of a regular stream of employment and income inraising themselves above the poverty line.Economists, like Drèze and Sen (1995),have argued that effective government intervention in favor of the poor throughsocial welfare policies is most important for poverty alleviation, and growthplays only a minor role (so that government focus should be on education andwelfare promotion rather than growth promotion). The World Bank (1993 and 1997)suggests that poverty reduction depends not only on rapid economic growth butalso on basic human development, that is, the level of social indicators such asliteracy, life expectancy, health facilities, etc. could also be important.
ConclusionPoverty is a national problem and it must besolved on a war footing. The government is taking a number of steps tomitigate poverty. Eradication of poverty would ensure a sustainable andinclusive growth of economy and society. We all should do everything possibleand within our limits to help alleviate poverty from our country.
Given theimportance of growth, India needs to follow policies helpful in sustaining highrates of growth. These include the creation of a stable macroeconomicenvironment, good infrastructure, well functioning education and healthservices for the poor, well functioning and inclusive financial system and goodgovernance. We also need to pay special attention to the education sector anddeveloping our human resources. Failure to sustain high growth will prove quitedisastrous in terms of poverty reduction and development. But if we are able tosustain high growth, it will give India an excellent chance to reduce povertysignificantly and meet various development goals, especially if the governmenttakes steps to increase support for infrastructure development, education andhealth services, etc.