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Indian Economic Policy

Notes would be significantly different from that in India because the average person is able to afford a
much higher level of living in the United States. There is an effort in all definitions of poverty to
approach the average level of living in a society and as such these definitions reflect the existence of
inequalities in a society and the extent to which different societies are prepared to tolerate them. For
instance, in India, the generally accepted definition of poverty emphasises minimum level of living rather than
a reasonable level of living. This attitude is borne out of a realization that it would not be possible to
provide even a minimum quantum of basic needs for some decades and, therefore, to talk about a
reasonable level of living or good life may appear to be wishful thinking at the present stage. Thus,
political considerations enter the definitions of poverty because programmes of alleviating poverty
may become prohibitive as the vision of a good life widens. The upshot of the entire argument is that
the absolute standard of poverty expressed in terms of minimum requirements of cereals, pulses,
milk, vegetables, butter or calorie intake is conditioned by the relative levels of living prevalent in the
country. The deprivation of a significant section of the society of minimum basic needs in the face of
a luxurious life for the elite classes, makes poverty more glaring.
Two types of standards are common in economic literature : the absolute and the relative. In the
absolute standard, minimum physical quantities of cereals, pulses, milk, butter, etc. are determined
for a subsistence level and then the price quotations convert into monetary terms the physical quantities.
Aggregating all the quantities included, a figure expressing per capita consumer expenditure is
determined. The population whose level of income (or expenditure) is below the figure, is considered
to be below the poverty line. According to the relative standard, income distribution of the population
in different fractile groups is estimated and a comparison of the levels of living of the top 5 to 10 per
cent with the bottom 5 to 10 percent of the population reflects the relative standards of poverty. The
defect of the latter approach is that it indicates the relative position of different segments of the
population in the income hierarchy. Even in affluent societies, such pockets of poverty exist. But for
underdeveloped countries, it is the existence of mass poverty that is the cause for concern.
7.2 Economic Reforms and Reduction of Poverty

A natural question arises : what has been the impact of economic reforms initiated since 1991 on
“poverty reduction ? Dr. Gaurav Datt of the World Bank in his article “Has Poverty Declined since
Economic Reforms ?” has drawn the following conclusions :
1. While there was a marked decline in both rural and urban poverty rates between 1973-74 and
1986-87, there is no sign of anything comparable thereafter.
2. For the rural sector, for the period 1973-74 and 1990-91, headcount index of poverty declined at
the annual rate of 2.7 per cent, the rate of decline since then (i.e. in the post-reform period) is not
significantly different from zero.
3. For the urban sector, during 1973-74 and 1990-91, head count index of poverty declined at the
annual average rate of 2.2 per cent, the same trend is continued in the post-reform period (1990-
91 to 1996-97) at the annual average rate of 2.2 per cent.
4. While the urban sector seems to have continued its march of poverty reduction in the process of
growth, rural poverty reduction was choked off by lack of rural growth. (Refer table 16).
Dr. Gaurav Datt has identified stagnation in rural growth as the basic cause of slowdown in poverty
reduction. This naturally puts a question mark on the very nature of the reform process in terms of
rural welfare.
st
Planning Commission’s Estimate of Poverty on the basis of 61 Round of NSS-
2004-05
NSSO results on the basis of large sample survey data oh household consumer expenditure (NSS 61 st
Round) for 2004-05 are the basis of poverty estimates. The data were collected on uniform recall
period (URP) using 30-days for all items. The data was also available using 365 days for 5 frequently
purchased non-food items namely, clothing, footwear, durable goods, education and institutional
medical expenses and 30-days recall period for the remaining items, known as mixed recall period

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