TOPIC: General studies 2 and 3
- Poverty and inclusive growth
Poverty in all its faces
Amidst the noise caused by the story of rising billionaires, the message on India’s poverty decline in the recent report of the Oxford Poverty and Human Development Initiative has been lost.
Report on Global Multidimensional Poverty Index (MPI)
- UNDP and Oxford University released the report on Global Multidimensional Poverty Index (MPI) 2018.
- This report covers 105 countries. The MPI is based on 10 indicators: Health, child mortality, years of schooling, school attendance, cooking fuel, sanitation, drinking water, electricity, housing and assets.
- This report has specifically discussed the case of India. The incidence of multidimensional poverty was almost halved between 2005/6 and 2015/16, climbing down to 27.5 per cent.
What other national reports say?
- The estimates of poverty-based on consumer expenditure and using the Tendulkar committee methodology show over a seven-year period between 2004-05 and 2011-12, the number of poor came down by 137 million despite an increase in population.
- According to the Rangarajan Committee methodology, the decline between 2009-10 and 2011-12 is 92 million, which is 46 million per annum. For a decade, it will be larger than that of global MPI.
- The poverty ratios based on Tendulkar and Rangarajan Committee methodologies are lower than as estimated by global MPI.
Criticism over MPI
- Multidimensional indicators/measures raise several issues regarding their measurability, aggregation across indicators, and of databases that provide the requisite information at reasonably short intervals.
- In principle, indicators should be independent. Access to safe drinking water, for example, cannot be aggregated with indicators like child mortality.
- One can analyse the progress of non-income indicators like education, health, sanitation, drinking water, child mortality etc. over time with income or consumption poverty.
- But, converting all of them into an index poses several problems.
- Deaton and Dreze (2014) also indicate that “it is important to supplement expenditure-based poverty estimates with other indicators of living standards, relating for instance to nutrition, health, education and the quality of the environment”.
- In the minds of most people, being rich or poor is associated with levels of income. The various non-income indicators of poverty are, in fact, reflections of inadequate income.
- Defining poverty in terms of income or — in the absence of such data — in terms of expenditure, seems more appropriate and it is this method which is followed in most countries.
- Of course, it can be supplemented with non-income indicators but without aggregating them into index.
Inequality: in consumption, income and wealth
- In recent years, there has been a lot of discussion on increasing inequality.
- It is true that rising inequality has adverse economic and social consequences.
- Income and wealth inequalities are much higher than consumption inequality.
- Gini coefficient for consumption is 0.36 in 2011-12 in India. The Gini coefficient for consumption has shown only a small rise over a period of 10 to 12 years.
- Inequality in income for 2011-12 is high with a Gini coefficient of 0.55 while the Gini coefficient for wealth is 0.74 in 2011-12.
- Thus, the income Gini is 20 points higher than the consumption Gini, while the wealth Gini is nearly 40 points higher than the consumption Gini in India.
- The reasons for sharp differences between the consumption and income Gini coefficients have to be analysed. In some of the other countries, such differences are no more than 5 to 10 points.
Impact of Growth on poverty
- The trends in poverty show that the pace of reduction was much higher in the post-reform period, particularly during the high-growth period.
- The impact of higher growth on poverty reduction can also be seen from the decile-wise growth in per capita consumption expenditure.
- A comparison of the growth rate of per capita consumption (in real terms) during the periods 1993-94 to 2004-05 and 2004-05 to 2011-12 shows that the growth rate in the latter period is higher for every decile.
- It was Simon Kuznets who had argued that in the early period of economic growth, distribution of income tends to worsen and that only after reaching a certain level of economic development, an improvement in the distribution of income occurs.
- Measuring reduction in poverty ratio is not the same as measuring inequality. The two can move in opposite directions, particularly in a period of fast growth. That is what has happened in India.
- The goal certainly should be to lower both. But in the early stages of development, reducing the poverty ratio must be the immediate objective.
- The sharp reduction in the poverty ratio and the number of people who are poor happened at a time when the growth rate was very high as shown by the consumption-based poverty and multidimensional indicator poverty.
- Concerns are about the current behaviour of the poverty ratio in the light of the slowing down of growth recently.
- Growth can help to reduce poverty. As growth occurs, it does affect all sections of the society.
- However, the extent to which the bottom deciles of the population will benefit will depend upon how fast and inclusive the growth is, and thus, composition of growth also matters.
- A strong growth also increases the resources available to the public authorities and this will enable them to increase the social sector expenditures.
- It is obvious that the very fact that the poverty ratio is still high means that growth by itself will not be adequate to reduce poverty.
- It is necessary to launch specific programmes which work towards directly helping poorer groups and vulnerable sections.
TOPIC: General studies 3
- Agriculture economy
- Inclusive growth
How to weaken the mandi monopoly
- Over a quarter of a century after the liberalization process was launched, the sector that employs the largest labour force remains perversely untouched.
- The Maharashtra government’s recent amendment of the Maharashtra Agricultural Produce Marketing (Development and Regulation) Act, 1963, aims to bring the state’s agricultural economy up to speed.
- It is a valuable experiment at a time when various states are attempting to incorporate the changes proposed by the Centre’s model Agricultural Produce Market Committee (APMC) Act.
Concerns Related Agricultural market
- The Dalwai Committee on Doubling Farmers’ Income, set up in 2016, has noted that farmers’ share in consumer prices range from as low as 15% to an anaemic 40%.
- Cartelization by middlemen and traders prevents price discovery mechanisms from functioning in mandis. Poor mandi infrastructure feeds into the problem.
- Only a quarter of them have common drying yards, less than a third have grading facilities and less than a tenth cold storage. The upshot is post-harvest losses in the 6-18% range.
- This combination of factors leads to farmers demanding higher minimum support prices (MSPs), degrading the fisc and enriching traders who are able to mop up most of the gains from higher MSPs.
Need of Private players
- The Centre’s Model Agricultural Produce and Livestock Marketing (Promotion & Facilitation) Act, 2017 recognized this with its attempt to bring private actors into the sector in order to provide competition for APMCs.
- A recent study, looking at potato sales in West Bengal, found that relaying price information to farmers—a focus of various government initiatives—had “negligible average effects on farm-gate sales and revenues” in the absence of adequate competition among buyers.
Agriculture reforms in Maharashtra
- In 2016, Maharashtra government delisted horticultural produce like fruits and vegetables from the purview of APMCs.
- It has now taken the next step, allowing farmers to trade in the open market for all produce and livestock.
- APMCs’ authority to regulate sales and levy a cess, which had earlier covered all activity in the talukas, has now been restricted to “principal market yard, sub-market yard and market sub-yard”.
Criticism of recent reforms
- The Maharashtra government’s move will dismantle APMC monopoly and open up the state’s agricultural sector to private actors. In practice, it isn’t that simple, the rules for implementing the changes have yet to be notified.
- Past experience—the delisting of fruits and vegetables in 2016—doesn’t inspire confidence.
- Besides, the lack of basic and agricultural rural infrastructure makes farm gate sourcing and storage a costly proposition—one that may well lead private markets, companies and the like to rely on the same old middlemen cartels.
- Buyer licenses outside the mandi system could be another choke point and opportunity for rent extraction. The same goes for acquiring land and licenses for setting up private markets.
- The Maharashtra government’s attempt at agricultural reform is welcome, but it won’t be enough.
- In the absence of supporting policies here, delisting all produce and livestock is likely to remain a notional reform.
- It makes little sense for agricultural markets to remain constrained by state boundaries when the goods and services tax has created a common market in other sectors.
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