Relation between Poverty, Growth, and Inequality
presents a simple decomposition of the changes in the poverty rate in a country
to show that the changes in per capita income and the income distribution are
the main determinants of changes in the poverty rate.
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The head count ratio of poverty (HCR) is
defined as the percentage of the population whose income is below a given
poverty line. Thus, HCR will generally depend on average income per capita (Y*)
and the poverty line (Y), both expressed in constant prices. It will
also depend on the income inequality or distribution (D):
= HCR(Y*,Y, D)
Thus, change in HCR stems from changes
in either of the two determinants of Y*, given the constant poverty line.
If income growth is
distribution-neutral, or the income of every individual grows by the same
proportion, then the Lorenz curve will stay unchanged and change in HCR is due
entirely to changes in the mean income.
When the mean income neither grows
nor contracts, a change in poverty will occur if and only if the Lorenz curve
shifts, i.e., there is income redistribution among some individuals.
for More Rapid Poverty Reduction
Although concerned efforts have been
initiated by the Government of India through several plans and measures to
alleviate poverty in rural India, there still remains much more to be done to
bring prosperity in the lives of the people in rural areas. India is a haven to
22% of the world’s poor. Such a high incidence of poverty is a matter of
apprehension, in view of the fact that poverty eradication has been one of the
major objectives of the development process. Poverty eradication is considered
integral to humanity’s mission for sustainable development. Thus, reduction of poverty
in India is vital for the attainment of international goals. The philosophy
underlying the poverty alleviation programs is to tackle the rural poverty by
endowing the poor with productive assets and training for raising their skills
so that they are assured of a regular stream of employment and income in
raising themselves above the poverty line.
Economists, like Drèze and Sen (1995),
have argued that effective government intervention in favor of the poor through
social welfare policies is most important for poverty alleviation, and growth
plays only a minor role (so that government focus should be on education and
welfare promotion rather than growth promotion). The World Bank (1993 and 1997)
suggests that poverty reduction depends not only on rapid economic growth but
also on basic human development, that is, the level of social indicators such as
literacy, life expectancy, health facilities, etc. could also be important.
Poverty is a national problem and it must be
solved on a war footing. The government is taking a number of steps to
mitigate poverty. Eradication of poverty would ensure a sustainable and
inclusive growth of economy and society. We all should do everything possible
and within our limits to help alleviate poverty from our country. Given the
importance of growth, India needs to follow policies helpful in sustaining high
rates of growth. These include the creation of a stable macroeconomic
environment, good infrastructure, well functioning education and health
services for the poor, well functioning and inclusive financial system and good
governance. We also need to pay special attention to the education sector and
developing our human resources. Failure to sustain high growth will prove quite
disastrous in terms of poverty reduction and development. But if we are able to
sustain high growth, it will give India an excellent chance to reduce poverty
significantly and meet various development goals, especially if the government
takes steps to increase support for infrastructure development, education and
health services, etc.