What is poverty :

Poverty is the state of one who lacks a certain amount of material possessions or money.^[1] Absolute poverty or destitution refers to being unable to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live in absolute poverty today. Relative poverty refers to lacking a usual or socially acceptable level of resources or income as compared with others within a society or country.^[1]

For most of history poverty had been mostly accepted as inevitable as traditional modes of production were insufficient to give an entire population a comfortable standard of living.^[1][2] After the industrial revolution, mass production in factories made wealth increasingly more inexpensive and accessible. Of more importance is the modernization of agriculture, such as fertilizers, in order to provide enough yield to feed the population.^[3]

The supply of basic needs can be restricted by constraints on government services such as corruption, debt and loan conditionalities and by the brain freeze of health care and educational professionals. Strategies of increasing income to make basic needs more affordable typically include welfare, accommodating business regulations and providing financial services. Today, poverty reduction is a major goal and issue for many international organizations such as the United Nations and the World Bank.

Definitions

Fundamentally, poverty is a denial of choices and opportunities, a violation of human dignity. It means lack of basic capacity to participate effectively in society. It means not having enough to feed and clothe a family, not having a school or clinic to go to, not having the land on which to grow one’s food or a job to earn one’s living, not having access to credit. It means insecurity, powerlessness and exclusion of individuals, households and communities. It means susceptibility to violence, and it often implies living in marginal or fragile environments, without access to clean water or sanit

Strategies to remove poverty:

Developing countries embark on economic liberalisation to close the gap between their potential and actual economic performances. Liberalisation measures are aimed at eliminating structural and institutional rigidities which are a drag on economic performance, promoting export growth and attracting greater flows of FDI. Success induces further structural change through technology transfer, and sustains the overall economic performance of an economy. The outstanding example of this is the case of China.

Critics argue that liberalisation leads to increased inequality, which at times may even aggravate absolute poverty among some groups in certain regions. China again is an example, where income inequality is still a major concern for policymakers, though the pace of poverty reduction has been remarkable. In this context, it is worth examining whether the liberalisation strategies of India have contributed to significant reduction in poverty uniformly across all its States.

Focus is on the pace of poverty reduction across Indian States and its determinants during 1993-2000. The pace of poverty reduction can measured by the average annual rate of reduction achieved in 25 Indian States from 1993-94 to 1999-2000. The analytical modeling framework followed is conceptualised in Figure 1. The analysis acknowledges the problems of endogeneity of variables used for such studies and therefore, uses the technique of three-stage least squares methods with appropriate set of instrumental variables. The results of this study have strong policy implications towards increasing the pace of poverty reduction.

The analysis identifies industrialisation (measured by the share of industry in GDP) and deprived population (the share of the economically deprived population in a state’s total population), as two important factors directly speeding up the pace of poverty reduction.

Both State and Central governments in India undertake wide ranging welfare schemes to provide safety nets for the deprived population. The deprived population is proxied by the share of scheduled caste population, an Indian population grouping, across States. Welfare expenditures have spillover effects and the entire State benefits from such government interventions. States with a larger share of the deprived population receive a higher allocation of resources, and are thus able to reduce poverty faster through spillover effects. Other liberalisation strategies, such as improving infrastructure and access to education, influence industrialisation and contribute directly to increasing the pace of poverty reduction.

The importance of governments’ efforts in looking after the deprived populations and sustaining economic liberalisation for promoting industrialisation need not be overemphasised here.

The results reveal that FDI is attracted to States with higher levels of industrialisation, lower agricultural share in the economy, higher literacy rate, and better infrastructure. The results, however, indicate that FDI flows do not directly influence the pace of poverty reduction. This is an important finding from a policy perspective because FDI has been found to contribute to reducing poverty directly in countries like China. In the case of India, FDI, thus far, has not contributed significantly to poverty reduction directly, but it has influenced the structural changes in the economy, particularly with respect to promoting industry.

Why is this so?

Only a small percentage of FDI flows went into export-oriented industries and the bulk went into import-competing or non-traded industries in this period. India’s experience has been different from other developing countries, where FDI has generally been central to the establishment of export-oriented industries. Hence, it appears that increases in FDI lack the capacity to increase India’s labour intensive exports, which could generate the unskilled jobs most required to reduce poverty faster.

The conclusions for policy making in India are as follows.

First, the pace of poverty reduction can be increased by sustaining and fine-tuning economic liberalisation measures, particularly with respect to FDI approvals to facilitate greater access and participation by the unskilled sections of the labour force.

Second, it is imperative for both the Central and State governments to promote infrastructure development and education, which facilitate industrial growth and FDI growth.

Finally, governments need to promote agricultural growth through implementing technological measures, such as water management and promotion of different crop varietals; and through encouraging cooperative/corporate farming to combat the issue of land fragmentation.

Implementation of these policy recommendations will help to ensure that liberalisation plays its full role in poverty reduction throughout India.

SOURCE ........WIKIPEDIA AND ME