A REVIEW OF THE STUDIES ON

POVERTY AND INEQUALITY IN INDIA

M. Phil dissertation, Calcutta University, 1980

By
Sukumar Nandi
Department of Economics
Ashutosh College
Calcutta.

1979.
 CONTENTS

Introduction Page

Chapter 1: 1

Concept of Poverty and Inequality

Concept 2: 4

Poverty in India

Chapter 3: 20

Studies on Inequality

Chapter 4: 63

Causes of Poverty and Inequality in India

Chapter 5: 75

Conclusion: The Anti-Poverty Programmes

Notes 82

Bibliography 99
 INTRODUCTION

Poverty and inequality are complex phenomena and their

major discussions and consequent policy implications deserve the
attention of all concerned. A critical review of the academic
research on these phenomena reveals a variety of perspectives.
Major differences in this respect have characterized the discussions
of the definition of poverty and its measurement on the one hand,
and of the elaboration of the concept of inequality in the context of
a developing economy on the other. Policy implications also differ
in different studies, which is a natural outcome of the differences in
approach. One of these approaches starts from the concept of
subsistence level for defined with some standard norm of nutrition.
A second approach has been to use income and expenditure data
for constructing a poverty line below which poverty will be said to
exist. In this approach data relating to per capita income or
expenditure are utilized to establish the concept of a poverty level.
Broadly speaking, these two approaches distinguish the major
studies on poverty so far undertaken in India.

Measurement of economic inequality can be regarded as one

aspect of the wider problem of securing social equity and justice.
In a sense it is perhaps the most important aspect of the broader
concept. Economic inequality prevents the realization of the goals
of social equity and justice. Economic justice becomes an
important issue in the context of widespread poverty; the contrast
becomes sharper when there exist small islands of affluence in an
ocean of poverty. The studies on inequality in India generally use
such standard measures as the Lorenz ratio though other more
refined measure have also been used. Poverty and economic
inequality can be regarded as the twin aspects of the same
problem. In India again the problem of poverty and inequality is
further aggravated by caste stratification which is a prominent
feature of her social and community life over and above the
economic stratification as commonly found in capitalist economies.

The objective of this dissertation is very modest. It attempts

to make a brief survey of the major studies on the measurement of
poverty and inequality in India. At the outset the theoretical
position in respect of the concepts of poverty and inequality has
been explained, and subsequently the various Indian studies on the
two topics have been analysed. Thus the dissertation has been
divided into five Chapters. In the first chapter, we review economic
theory relevant to the concepts of poverty and inequality. In the
second chapter we deal with different measures that have been
evolved for the study of poverty in India. In the third Chapter we
take a critical look at the studies made about economic inequality in
India. The fourth chapter is devoted to an attempt to piece
together the factors which the different studies on poverty and
inequality have shown to be the underlying causes of these
disturbing phenomena. In the last chapter we have made a brief
survey of the programmes adopted in India to launch a direct
attack on poverty in the rural areas.
 CHAPTER-1

CONCEPT OF POVERTY AND INEQUALITY

An analysis of the Indian economic situation reveals two

features: First, while the economy has attained a modest trend rate
of growth, the problem of poverty perpetuates. Secondly, in our
plan documents the problem of distribution has not been completely
left out of discussions relating to production, and the possibility of
conflict between growth and distribution has not been explicitly
recognized.1 The essence of this argument in favour of this is as
follows: A very slow rate of growth along with inequality in income
distribution has perpetuated poverty in India. A large proportion of
population has to live without even the most essential needs of
daily life because total national income is too small relative to the
size of population; and secondly, the distribution of this income is
very uneven. This problem cannot be overcome if emphasis is not
put simultaneously on economic growth and reduction of inequality.
Even the highest attainable rate of growth cannot make a major
impact on the problem of poverty in the foreseeable future if
inequality is not reduced.

There has been a clear recognition, from the First Five Year
Plan onwards, of the need for special policies for the benefit of the
poor. In fact, the justification of policies like land reforms,
subsidies to the village industries, economic assistance to the
backward communities and so on is to be partly found in the
recognition of their problem, while the problem is explicitly stated in
the plan documents, there always appears to exist a gap between
the formulation and execution of policies which could be regarded
as intended primarily for the benefit of the poor. Indeed, the
attempt to identify the poor in operational terms has started only in
recent years.

At present the problem of poverty is being dealt with both

unprofessional writing and in government policy documents and
programmes with increasing frequency. Poverty is a complex
phenomenon and at least its major dimensions require considerable
attention if the problem is to be properly comprehended. We
should, therefore, start with the basic question: What is poverty?

A review of the academic research in the field and of

government programmes dealing with this subject shows several
perspectives which have characterised approaches to the definition
of poverty. Three such perspectives can be clearly discerned from
the literature.

One such perspective to the definition of poverty uses income

and expenditure data in order to establish a bench mark income
figure below which poverty may be said to exist.2 Thus a size
distribution of incomes is constructed and per capita income data
are widely used as a means of establishing the bench mark income
figure. We can distinguish two aspects of the so-called size
distribution of incomes. The first focuses attention on one end of
the distribution, those with the lowest income or the ‘poor’,
choosing a more or less arbitrary bench-mark income figure. Here
one can study the magnitude of poverty either in terms of the
absolute number of the poor, or one can look at the different
degrees of poverty within the group designated as the poor.3 The
second aspect comprises the degrees of inequality in the
distribution of income and is concerned with the whole of the
distribution. The degree of inequality is generally measured by the
Lorenz Curve or Gini Coefficient. While the first aspect deals with
the absolute poverty level, the second deals with poverty in its
relative sense.4

The first approach has its limitations- incomprehensive

coverage, inaccuracy of measurement, inconsistency of definition
and a failure to include all the sources other than income which
support the consumption of people in the lower rung of the
economic ladder. In the Indian context, measures of supporting
resources such as ownership of land and other assets, income in
kind and private gifts should be included and these are very difficult
to compile on the part of the statistician. Thus, income figures are
not accurate especially for the two extreme economic classes- the
poor and the rich. While the poor are ill-equipped to provide
correct information required for proper income and expenditure
studies, the rich are least inclined to reveal their true economic
power. As a result, income and expenditure data tend to have a
downward bias for both the groups: for the poor, lack of literacy
and consciousness and the subsistence production system largely
play their parts; for the rich, the reasons are completely different-
lack of organization in the economy and steep progression in the
direct tax laws include the rich to record their income on the lower
side.

The second perspective can be specified as a subsistence

approach to the concept of poverty. People who cannot afford the
minimum necessities for bare subsistence are defined as ‘poor’. But
how are we to define the required minimum level? The minimum
need is defined in terms of food consumption or more specifically,
in terms of nutritional requirements. This is then converted into an
income level for a particular base year.5
 But in a country of India’s size, with wide differences in
geography, climate, habits and customs, nutritional requirements
are found to vary across levels and patterns of living and diet. In
such a situation, to develop an index of minimum needs it is
necessary to take account of customary behavior. Therefore, such
a subsistence definition of nutritional requirements; it also depends
on subjective consideration like preferences and prejudices.

A third perspective to the definition of poverty is concerned

with the degrees of differences of welfare among different group of
people who can be designated as ‘poor’ by the first two approaches
mentioned in earlier paragraphs. This approach seeks to establish
a measure of poverty by attaching appropriate weights, which vary
inversely with the difference of income levels of the poor from the
chosen ‘poverty line’.6

Thus from the first approach, we have an ‘income threshold’

definition of poverty, while the second gives a multinational
definition of the same. But these approaches divide the population
into poor and non-poor and cannot take into account the differences
in the degree of intensity of poverty in the different income layers
below the ‘poverty line’. This weakness is sought to be removed in
the third approach.

What lessons can be draw from the three approaches to the

definition of poverty? One point which emerges is that these
approaches try to define poverty in the context of economic factors
only and, again, these definitions are concerned with the people in
the lower strata of the income scale. But the concept of poverty
should be seen in the context of society as a whole. As society is
better seen as a series of stratified income layers, poverty should
be conceived in the light of how the lower strata fare as compared
to the people in the upper layers of distribution. Moreover, poverty
means helplessness of the persons designated as ‘poor’ as these
people are at the lower end of a two-fold hierarchy of stratification
along economic and social dimensions. In short, the poor are part
of a set of stratification system within the society and they are
ranked at the bottom of each hierarchy. The economic factors are
significant in the sense that these constitute the most important
dimensions of poverty; but these alone cannot fully describe the
condition of the poor. Therefore, the definition of poverty should be
broad-based, for it is only a proper identification of the poor that
can determination of policies to solve the problem in a proper way.

Measures of Inequality

A variety of indices for the measurement of the degree of

inequality are found in the literature on income distribution. These
indices emphasis different aspects of the inequality phenomenon.
Theoretically, these indices are not completely satisfactory;
sometimes, they exhibit contradictory tendencies in the distribution
of income unless the latter adapts itself to a well defined family of
distributions whose properties are completely known. Because of
the limitation inherent in all measures of inequality, one may adopt
a more general approach to the problem by laying down that any
measure of inequality should be concerned with the distribution of a
size variable (x) relative to the mean (M) or any other typical value
of x. This principle is recognized in all the known measures of
inequality. These well-known empirical measures of inequality are
Lorenz Curve, the Gini Co-efficient, the Co-efficient of variation, the
S.D. of logarithm etc. Before going into details about these
measures, we discuss the methodology regarding the measurement
of inequality of income.
 Conceptually, we can draw a distinction between the objective
and the normative approaches to the measurement of inequality of
income. As objective measurement, in itself, is not of interest and
presupposes appraisal; the difference between the two approaches,
in fact, emerges at the level at which normative considerations
come up. Therefore, use of the word ‘equality’ in the context of
distribution of income necessarily involves normative judgement.
This is so in both the situations. We may be interested in inequality
in the distribution of income of a country at different points of time
or, we may compare the inequality in the distribution of income of
different countries at the same point of time.

In the literature, we find two broad categories of the

measures of inequality. On set of measures try to quantify the size
of inequality in some objective sense by using some statistical
measures of relative variation of income. Such measures include
the variance, the co-efficient of variation, the Lorenz Curve, the
Gini Co-efficient etc. On the other hand, there are indices that try
to measure inequality in terms of some normative notion of social
welfare- that is , when the level of income is given, a higher degree
of inequality corresponds to a lower level of social welfare.7

We now discuss the measures of inequality. It would not be

wrong if we discuss some measures briefly while concentrating on
others which have been used widely in the literature on inequality
in income distribution in India.8

Long ago Pigou maintained that any transfer of income from

the poor to the rich, ceteris paribus, should increase inequality and
diminish welfare.9 The common statistical measure of dispersion-
variance-does satisfy the Pigou condition. But the dependence of
variance on the mean income level makes its position weaker; since
one distribution with lower mean income level but greater relative
variation around the mean registers smaller variance than another
distribution with higher mean but smaller relative variation around
the mean. To remove this weakness we take the square root of the
variance and divide it by the mean to make it mean-independent.
This is the co-efficient of variation.

The Co-efficient of variation is sensitive to income transfer for

all income levels. But sometimes it is desirable that we should
attach lower importance to income transfers at the higher levels of
income and greater importance to income transfer at the lower end
of the income scale. This objective is fulfilled in another measure-
the standard deviation of logarithm. Since standard deviation is
derived from the logarithm of the actual income levels, the
staggering effect of logarithm highlights the income transfers at the
lower end of income distribution and minimises the effect of the
transfer at the higher levels. This feature makes this measure
attractive, but this creates difficulty for other reasons. The severe
contraction the income levels suffer-as they get higher and higher-
denies this welfare measure its concavity to be a concave function
of individual incomes, this measure can create difficulties.10

When we get interested about the share of different deciles of

population from the lower end in the national income, we take
recourse to the Lorenz Curve. This curve depicts the percentages
of the population arranged in ascending order according to their
positions of the income scale on the horizontal axis and the
percentages of total income enjoyed by each of these groups are
shown on the vertical axis. If everyone has the same income, the
Lorenz Curve will by the diagonal, which is called ‘equality line’.
The deviation of the Lorenz Curve from the line of absolute equality
is an index of inequality. One distribution is unequivocally more
unequal than another only if the Lorenz Curve for the former lies
below the Lorenz Curve for the latter throughout its range.

The advantage of the Lorenz Curve lies in its use of the

arithmetic scale. It is, again, independent of any assumption about
the form of the distribution to which the observed data must
conform. However, when the form of the distribution is known with
certainty, the corresponding Lorenz Curve is uniquely determined
by the values of the distributional parameters. For different values
of these parameters Lorenz Curves are obtained which are
completely non-overlapping.11

The use of Lorenz Curve as a means of measuring income

inequality within the utilitarian framework has been justified in the
literature.12 It has been shown that if social welfare is additively
separable and if it is the sum of individuals-then the partial ordering
of income distribution according to Lorenz Criterion is identical with
the ordering implied by social welfare. This result holds irrespective
of the form of the individual utility functions as long as they are
concave.13 Intuitively, one might expect that the equivalence of
partial orderings would hole for any symmetric social welfare
function which is quasi-concave and increasing in individual
utilities.14

When the Lorenz Curves of two distributions intersect, there

is ambiguity in comparison; that is, for comparative purposes, it is
difficult to say which Lorenz Curve represents greater inequality.
Gini introduced an analytical measure called the ‘concentration
ration’ or the ‘Gini Coefficient’, which is the ratio of the area
between the equality line and the Lorenz Curve to the triangular
region below the diagonal. It is defined as exactly one half of the
relative mean difference-this is the arithmetic average of the
absolute values of differences between all parts of incomes.
q q
1
G
2q 2 m
  |y
i 1 j 1
i  yj |

Where m is the mean income of the poor, and q is the number of

persons.
15
After a bit of manipulation the formula reduces to
q
1 2
G 1   2
q q m
 yiq  1  i 
i 1

for y1 ≥ y2 ≥ y3 ≥ ……. ≥ yn

Since the Gini Co-efficient takes note of differences between every

pair of incomes, it is a direct measure of income inequality; it is
also sensitive to transfer from the rich to the poor at every level.

Gini Co-efficient is ‘mean-independent’, that is, it is invariant

with respect to equi-proportionate change of incomes of all
individuals. If the mean income of the distribution changes, while
there is no change in the inequality measure, the effect on the
measure of absolute poverty is certain. It moves inversely with the
changes in the mean income. But measure of inequality being
mean-independent, changes in mean income introduce complex
difficulties in measuring of poverty in a relative sense. In a society
with higher mean income inequality causes greater injustice
compared to a society with lower mean income. This fact
introduces ambiguity in the measurement of poverty in a relative
sense.16

Since the Gini Co-efficient is an index of inequality, the

negative of it can be treated as a welfare function. But this
function, being a linear function of income levels, is not a strictly
concave group welfare function. As strict concavity is a desirable
criterion for a welfare function. Gini co-efficient is thought to be
weak on this point.17 But this measure takes into account any
transfer of income from the poor to the rich in appropriate
direction, and it is, though not strictly concave, is concave alright.18

Atkinson proposed a new measure of inequality19 by an index:

Y*
I * 1 
m

Where Y* is the level of income per head and m is the mean of the
income distribution. If the level of income is equally distributed, Y*
would give the same level of social welfare as the present
distribution.

Moreover, in a separate measure,20 Atkinson introduced

distributional objective through an explicit parameter, say E, which
represents the weight attached by the society to inequality in the
distribution. When the society is indifferent regarding the income
distribution, the value of ‘E’ becomes zero, and when the society is
concerned only with the position of the lowest income group, the
parameter becomes infinity. The index is:
1
 n  Yi 1 E  1 E
I  1     fi 
 i 1  Y  

Where Y1 is the income of those in the 1-th income range, f1 is the

proportion of the population with incomes in the 1-th range and Y—
the mean income. This index indicates the proportion of the
present total income that would be required to achieve this same
level of social welfare as at present if income were equally
distributed. The measure is an index of the potential gains from
redistribution.
 The inadequacy of the index of income distribution as an
index of the distribution of welfare has been pointed out by
Bentozel.21 In this view, it is the distribution of consumption which
has a direct bearing on the distribution of welfare. From the
welfare point of view the welfare-creating properties of the
distribution of income or consumption are important; these
properties should be represented in the analysis of income
inequality. Bentzel’s new measure seems to fulfill this condition.
The construction of this index is as follows: Assuming that a group
of individuals have the same welfare function u(c), where c denotes
the level of consumption and f(c) is the frequency function of the
level of individual consumption, the aggregate welfare (w) can be
written as

W  n  u (c) f (c) dc
0

Where ‘n’ is the number of individuals. Suppose W* is the

maximum aggregate welfare that could be obtained by a
redistribution of consumption between the individuals. The
difference between W* and W can be interpreted as the total
welfare loss caused by the inequality in the individual consumption
measured by
W
I **  1 
W*

The ratio W/W* has been called “welfare efficiency of distribution”

by Bentzel. But, in this analysis the precise relationship between
distribution of consumption and distribution of welfare is not
brought out very clearly. Again, since the shape of the welfare
function u(c) is unknown, the definition of “welfare efficiency of
distribution” is not useful for empirical analysis.22
Sen’s Measure

Sen has constructed a measure of poverty in an axiomatic

framework.23 This measure takes into account the income
distribution among the people designated as ‘poor’, that is, people
below the ‘poverty line’. If yj is the income level of individual j, the
individuals may be numbered in a non-decreasing order of income,
satisfying
y1≤ y2 ≤ ……. ≤ yn
If ‘z’ is the ‘poverty line’ and ‘q’ is the number of people with
income yi z, then for any person i q, there are exactly (q+1-i)
people among the poor with at least as high a welfare level as
person i. Let ‘n’ be the total population. The ‘poverty-measure’ P
can be written as
2
P  ( z  yi )(q  1  i )
(q  1)nz

This measure of poverty P is closely related to Gini Co-efficient, and

Sen has established a correspondence between Gini Co-efficient and
his poverty measure. Defining the “head-count ratio” H as the ratio
of the number of people below the ‘poverty line’, Sen(1976) has
proved the relation
P = H [I*-(1-I*)G]

Where G is the Gini Co-efficient and I* reveals the percentage of

the mean shortfall of incomes of the poor from the ‘poverty line’.24
From this relation an important policy implication follows: The
aggregate welfare of the population can be increased by minimizing
the inequality in the distribution of income.

In any actual situation, the use of the measure P involves the

specification of the welfare function. In such a choice, value
judgement cannot be avoided. Moreover, this measure is
concerned with only a part of the income distribution.

Our analysis of the different measure of inequality leads

finally to the following points: First, the literature is full of
controversy regarding the practical relevance of the implicit welfare
function, the shape of the welfare function and the question of
ordering in the social welfare. Second, while descriptive measures
like coefficient of variation, standard deviation of logarithm etc. lack
motivation, purely normative measures seem to leave out of
consideration several important characteristics of inequality.
 Chapter-2
Poverty in India

The problem of poverty had attracted the attention of

economists even before independence25 but as we are interested in
the study of the post-independence period, we will not discuss this
here. After independence a vast literature on poverty has emerged,
the most important of this being Dandekar and Rath(1971),
Ojha(1970), Minhas(1970), Bardhan(1970,1973) and
Vaidyanathan(1974). Most of these studies take 1960-61 as a
bench mark year for the purpose of comparison, and the data used
by these studies cover periods upto 1968-69. These different
studies come to different conclusions both as regards the definition
of the minimum standard of living and regarding the number of
people below the different studies are four in number: (i)
differences in estimates of income and consumption; (ii) different
concepts of adequate nutritional levels; (iii) differences regarding
current price deflator to be used; and (iv) arbitrariness in the choice
of some key conversion factors to overcome the lack of availability
of appropriate disaggregated empirical data. Let us now explain
these in turn.

First, for the calculation of the size distribution of income

and/or consumption most of these studies depend on the data
yielded by the National Sample Surveys. But there is discrepancy
between NSS data and national income statistics prepared by the
C.S.O. It is alleged that NSS data underestimates consumption
expenditure for the upper income classes,26 which implies that the
measure of poverty will not be affected but the measure of
inequality will be. Secondly, the concepts of a minimum adequate
level of nutrition and its purchasing power equivalent form the basis
of all the studies that have tried to estimate the numbers of people
living below the national poverty line. But different authorities give
different estimates of nutritional requirements. Among these are:
PPD, Planning Commission(1974), Sukhatma (1971) and Gopalan,
Sastri and Balasubramanian(1971). Thirdly, as most of the income
and consumption expenditure data are available initially at current
prices, one has to deflate them to obtain real values for the purpose
of inter-temporal comparisons. But the choice of a correct price
deflator is difficult as different income groups possess different
preference patterns, some buy commodities at ex-farm prices and
some obtain commodities through exchange in kind. Again, prices
for the identical commodities vary region wise. Thus conclusions
vary because the researchers use different price deflators. While
Minhas(1970) and Dandekar and Rath(1971) use the national
income deflator, Bardhan(1970) uses the official Agricultural Labour
Consumer Price Index for deflating the values of consumption of the
rural poor and the Official Working Class Consumer Price Index for
deflating the consumption of the urban poor.27 In this connection,
it will not be out of place to mention the nature of price movement
of different commodities in different parts of India.
Mahalanobis(1962) had drawn our attention to the unequal
movement of the prices of cereals for different decile groups of the
population in rural India.28 This was later corroborated by
extensive tabulation of NSS household budget data undertaken for
the Government of India Committee on Distribution of Income and
Levels of Living. Since cereals occupy a very important place in the
consumer budget, specially for rural households, the above finding
stresses the need of constructing inter-temporal consumer price
indices separately for different fractile groups of population.
Fourthly, in different studies, conversion factors have been used to
build up a complete picture from fragmented data. The assumption
in Dandekar and Rath(1971) is that the top 30 per cent of the
population would have fared no worse in terms of consumption
between 1960-61 and 1967-68 than the lower income groups. On
the other hand, Bardhan(1970) uses a conversion factor
appropriate to the bottom 50 per cent of the population for the
derivation of an estimate of total expenditure from expenditure on
food items. From these it follows that there cannot be a ‘correct’
estimate that can be derived from the assumption that are made in
the studies noted above.

With these preliminary observations we will now turn to an

analysis of the Studies on Indian Poverty.

In July, 1962 the Government of India set up a Study Group29

which recommended that a per capita annual consumption of
Rs.240 at 1960-1961 prices should be considered as the nationally
desirable minimum level of consumer expenditure. This excluded
expenditure on health and education, which was supposed to be
provided free of cost by the state. This level of expenditure has
often been taken as the ‘poverty line’ and the proportion of people
below this standard of consumption has been investigated by
different economists. This notice of ‘poverty line’ again constitutes
the keystone for the exercise in long term planning that is
presented in the Planning Commission document “Notes on
Perspective of Development, India 1960-1961 to 1975-76”. It
cannot be ascertained whether any competent statistical authority
arrived at this figure after careful consideration. In fact, how this
figure was reached remains up till now somewhat of a mystery to
ordinary citizens. However, as this figure is important, we shall
examine in greater detail.

First, this official poverty standard, being essentially an

absolute measure, is inadequate since this is based purely on
money income and ignores other aspects of deprivation. No
account is taken of poor quality housing, schools of health care
which may be independent of low money income. “Moreover,
poverty may represents only one aspect of a more general
powerlessness, an inability to influence one’s environment.”30 Of
course, this aspect of poverty is neglected by almost all the poverty
measure in use in India; such powerlessness on the part of the poor
makes the problem of poverty doubly acute. We will turn to this
aspect of the problem in the last section. Secondly, apart from
methodological criticism, the presumption that the population would
be provided education and health care free of cost by the State can
be questioned. In fact, as nearly two-thirds of the population
remain illiterate,31 and the government health programme has not
yet been able to cover all the villages in the country, such an
assumption simply ignores reality. As people are often forced to
spend on medicine, inclusion of some expenditure on medicine in
the consumer budget appears to be necessary and this makes the
Rs.20 per month figure rather suspect. Thirdly, though the idea of
nutritional norm has been accepted regarding food items in private
consumption expenditure, in respect of non-food items like clothing
and housing no yardsticks have been worked out on any scientific
basis.

The minimum standard of living prescribed by the Study

Group is necessarily the biological minimum diet has been carefully
worked out by Sukhatme(1965).32 He take into account various
recommendation of the Food and Agricultural Organisation [FAO]
and the Nutrition Advisory Committee [NAC]. Again he has made
specific allowances for India in terms of availabilities and
consumption habits; he has taken into account different
requirements of persons in different age and sex groups and thus
worked out two food baskets corresponding to a minimum concept
and a medium concept. The cost of the minimum food basket (per
day) has been worked out as Rs.0.5238 at 1960-61 prices or
Rs.15.71 per month at 1960-61 prices. As compared with
Sukhatme’s estimate, the cost of a minimum diet prescribed by the
FAO33 is Rs.18.26 at 1960-61 prices.

Sometimes alternative standards have been defined in terms

of minimum Calorie requirements, as in Ojha (1970) and Dandekar
and Rath (1971). They have taken 2250 Calories is met from food
grain and considering the food grains intake per person in different
expenditure brackets as given by NSS data they have estimated the
proportion of population below the poverty line.34

On the basis of the recommendations of Dr. Patwardhan as

mentioned in the Report of the Central Government Employees Pay
Commission (1957-59), Bardhan (1973) has worked out the cost of
the minimum diet recommended for an built in moderate activity.35
The diet consists of 15 0z. of cereals, 3 0z. of pulses, milk (4 0z)
sugar and gur (1.5 0z), edible oils (1.25 0z), groundnut (1 0z) and
vegetables (6 0z). These give 2100 calories and 55 grams of
protein per day. Because of non-availability of prices, Bardhan
leaves out the last two items i.e., groundnut and vegetables. For
the determination of the cost of this minimum diet Bardhan adjusts
the NSS rural retail prices to take account of the lower prices for
non-monetized consumption. First, the cost of this minimum diet
for adults is determined. Then he adjusts it by an adult-equivalent
ratio to obtain the cost of the minimum diet for an average person.
Then he blows it up by using food to non-food expenditure ratio of
the relevant expenditure group of the rural population from NSS
data, to get the estimated minimum level of living for rural India to
be Rs.28 per capita per month in 1968-69 in current prices.
 Bardhan (1973) has taken the food basket from the report of
the Second Pay Commission and has used the rural retail prices
from NSS estimates as is done by the Commission; but he has
arrived at a much lower value. While in the former the cost of the
minimum diet is Rs. 14.51 per month per adult unit, that is,
Rs.11.61 per month per person basis, the corresponding figures in
Bardhan are Rs.11.61 and Rs.9.61 respectively. The lower figures
of Bardhan can be traced to the following two elements in his
calculation: First, he has neglected vegetables and ground-nuts
from the food baskets; and secondly, he has adjusted the NSS
based average retail prices to take into account the consumption of
home grown articles on the part of rural consumers. Regarding the
second consideration Rudra (1974) has taken exception on two
points.36 First, according to Rudra, the procedure adopted by
Bardhan (1973) is arbitrary, as he overlooks the fact that it is not
only the home grown part that is evaluated in the NSS data in
prices different from the average retail prices; the cash purchased
part in NSS expenditure data is evaluated in actual prices paid by
the consumers, and not by the average retail prices independently
estimated and separately presented by the NSS. While the price
average in the NSS expenditure data regarding cash purchases is a
weighted average, the rural retail prices are simple averages.
Secondly, Rudra points out that the blow-up factor (46%) is not
correct.

We have discussed the nature and inadequacy of the concept

of an absolute poverty line in India. Let us now turn to the studies
on Indian poverty.

Minhas (1970)37 has used the computations of Tewari

(1968)38 to derive the estimates of per capita private consumption
expenditure, which are at 1960-61 prices. He has, then, applied
the NSS ratio of rural to urban consumption to obtain the estimates
of rural average per Capita Consumption. These estimates of per
capita overall consumption in rural area in 1960-61 prices, together
with the percentage shares of different fractile groups of population
in total consumption, derived from different NSS rounds, have been
used to derive the average per Capita Consumption in 1960-61
prices of each fractile group of the population over several years.

It will not be out of place if we reproduce here a table from

Minhas:

Table: Average Per Capita Consumption by Fractile Groups at

1960-61 prices in 1956-57 and 1967-68: Rural India

1956-57 1967-68
Fractile Group
(Rs.) (Rs.)
Poorest 5% 63 81
5-10 88 110
10-20 108 137
20-30 133 166
30-40 155 194
40-50 180 222
50-60 207 254
60-70 240 292
70-80 283 240
80-90 351 414
90-95 443 512
Richest 5% 731 723

Source: Minhas (1970) Table 2. Abridged

We see that the richest 5% of Indians could enjoy a per Capita
Consumption level of about Rs.2 in 1960-61 prices per day in the
years 1956-57 and 1967-68. Even this group cannot be termed as
rich by the world standard, though they are at the topmost income
level in the villages of India. The poorest 30% or the people, and
the other extreme, live a life beyond the description and analysis of
the economists and nutrition experts.

If the level of per Capita annual consumption expenditure of

Rs.240 at 1960-61 prices is accepted as a bare minimum, the
percentage of people in rural India below this poverty line was 65 in
1956-57 and 50.6 in 1967-68. But in Minhas’ estimate the absolute
number of people below the poverty line in rural India remained
almost same – 215 million in 1956-57 and 210 million in 1967-68.
If, however, a level of Rs.200 at 1960-61 prices is taken as the
minimum, the proportion of people below the poverty line would be
52.4 per cent in 1956-57 and 37.1 per cent in 1961. The steady
decline in the proportion of people below the poverty line is,
according to Minhas, largely explained by the growth of an average
per Capita Consumption at a rate of 1.25 per cent per year over the
period 1956-57 and 1967-68.

As regards the identification of the rural poor Minhas be

specified several classes to which most of them belong and these
classes are:
(a) Agriculture labour households without land, which formed
58 to 61 per cent of all agricultural labour household
between 1956-57 and 1963-64.
(b) Other rural labour household without land.
(c) Agricultural labour household with land, which formed
between 42 to 39 per cent of agricultural labour
households between 1956-57 and 1963-64.
 (d) Marginal farmers operating holdings below 5 acres in size.

According to the estimate of Minhas, the total number of

people in agriculture labour households in 1960-61 was 66.5 million
of which about 26.5 millions belonged to households who operated
some land as well. The corresponding estimates for non-
agricultural rural labour were 15.8 and 6.8 millions respectively.
Therefore, the total rural labour population in 1960-61 was
estimated to be 82.3 millions and of these 33.3 millions belonged to
households who operated some land also. Minhas estimated that
about 79 per cent of the population of these households had a per
capita annual level of consumption of less than Rs.200 at 1960-61
prices in the year 1956-57. Minhas further stated that the
percentage of poor among the agricultural labour population
declined to 75 in 1960-61, which corresponded to about 50 million
in absolute numbers.39

While Minhas is concerned with rural poverty only, Ojha

(1970) deals with both rural and urban poverty for the year 1960-
61 and only rural poverty for the year 1967-68. In his study Ojha
accepts 2250 Calories as the barest minimum intake per capita per
day for a representative Indian. He further assumes that people in
urban areas derive 66 per cent of 2250 calories from food grains;
for the people in rural areas that percentage is 80. he then
compares the actual food consumption in grams per head of rural
and urban population using the NSS data [16th round].41 This
means that to attain the nutritional minimum per capita daily
consumption should be 518 grams in rural areas and 532 grams in
urban areas. After some modifications of the estimates of food
grains intake he finds that the average level of food grains intake
per person was below the standard for expenditure levels up to
Rs.15-12 per capita per month at 1960-61 prices. Regarding the
urban population the corresponding expenditure level for which
deficiency in consumption existed was Rs.11-13 per capita per
month at 1960-61 prices. On his basis Ojha finds that in 1960-61
about 51.8 per cent of rural population lived below the poverty line,
and for the urban population the proportion of those considered as
poor was only 7.6 per cent.

Ojha’s conclusion regarding poverty in the urban area is

surprising because of the following reasons. First, the urban
households tend to spend a smaller percentage of their incomes on
food grains, which Ojha has accepted in his calculation. But this
again means that urban households derive a comparatively larger
fraction of the required 2250 calories from food other than food
grains gives greater calorie value compared to the same spent on
items other than food grains, the minimum expenditure levels for
the required 2250 calories should be higher in urban areas.42
Secondly, since unit prices of food grains in urban areas are higher
than in rural areas, expenditure in urban areas for food grains
should be higher.43 Though Ojha takes the nutritional norm for
urban are as 432 grams, which is 86 grams lower than the rural
requirement of 518 grams (and this means that smaller volume of
expenditure is involved), the urban people must procure additional
calories from food items other than food grains, and again they are
to purchase these at higher prices. These points seem to have
been missed by Ojha and that is why his estimated poverty line for
the urban area is as low as Rs.11-13 per Capita per month, and
much lower than the figure estimated for the rural areas. From
these it seems that the proportion of population in urban areas
below the poverty line is much higher than the estimate of Ojha
indicates.
 Regarding the year 1967-68, Ojha calculates that about 70
per cent of rural households were living below the poverty line.
Moreover, the degree of nutritional deficiency was higher for each
expenditure level. Ojha does not consider the question of urban
poverty for the year 1967-68.

The study of Dandekar and Rath (1971) has some important

features which are as follows.44 First, this study is extensive in the
sense that it covers both rural and urban poverty condition for the
relevant period. Secondly, in this study the authors have made a
number of arbitrary adjustments to the NSS data. Thirdly, these
authors also assume that a daily intake a 2250 Calories per adult
person is the required minimum for subsistence, and this figure is
derived from the estimate of Sukhatme (1971). Fourthly, these
authors have not only analysed the nature of Indian poverty in
greater detail, but they have also examined the feasibility of the
Planning Commission’s perspective regarding the reduction of
poverty in India during the planning period.45 In fact, a large part
of their study is devoted to prove that “the Planning Commission’s
perspective appears to be completely out of line with the
performance of the economy in the past decade and is therefore
unlikely to be realized.”

Moreover, Dandekar and Rath are critical about the NSS

consumption expenditure data, which, according to them, do not
reflect fully the pattern of inequality existing in the economy
because of its downward bias regarding the consumer expenditure
of the richer sections. However, we shall examine this point later
on.

The method followed by Dandekar and Rath is similar to that

of Ojha (1970) but with difference that they have assumed that
about 200 calories would be obtained per Capita per day from food
other than food grains. Now according to Dandekar and Rath
(henceforth D – R), in rural area, the per Capita daily consumption
of food grains and substitutes reaches 616 grams for households
with per Capita monthly expenditure of Rs.170.8. If one gram of
food grains, including substitute, gives 3.3 Calories, 2033 Calories
per capita per day can be obtained with the consumption of 616
grams of food grains. Another 200 Calories are obtained by these
households from the consumption of items like edible oil, ghee and
butter, sugar and gur and a little of milk, meat and fish. Thus the
total intake of food at this level seems to give about 2250 Calories
per capita per day. It implies that, and annual per Capita
consumption expenditure of Rs.170 (at 1960-61 prices) is essential
to give a diet adequate in respect of calories in 1960-61. Now D –
R find that about 33.12 per cent of rural population had their per
Capita annual consumption expenditure below the stipulated
minimum i.e., Rs.170 at 1960-61 prices.

Regarding urban consumption, D – R find from NSS data that

urban households secure the minimum Calories requirement of
2250 at levels where their consumption of food grains and
substitutes reaches 490 grams per person per day. Again, while a
rural household at Rs.170 per capita per annum spends 78.56 per
cent on food, an urban household at Rs.271 per capita per annum
spend only 70.26 per cent on food; again of this 70.26 per cent
only 36.45 per cent goes on food grains and substitutes and the
remaining 33.81 per cent is spent on other items of food. Finally,
the prices of food grains which an urban household at an
expenditure level of Rs.271 per capita per annum pays are almost
25 per cent higher than the prices paid by a rural household at
expenditure level of Rs.170 per capita per annum. Hence an annual
per capita urban expenditure of Rs.271 is to be regarded as
equivalent to an annual per capita rural expenditure of Rs.170.
Now D – R find that about 48.64 per cent on urban population in
1960-61 could not afford the diet consumed by the group with an
annual per capita expenditure of Rs.271. Thus 48.64 per cent of
urban population lived below the poverty line.

According to D – R the NSS estimate of average per capita

consumption in 1967-68 is an underestimate. What is unacceptable
to them regarding the NSS estimate is that NSS estimate of rural
per capita consumption estimate of Rs.239.8 (at 1960-61 prices) in
the year 1967-68 is about 7 per cent lower than the corresponding
NSS estimate in 1960-61; again, it is about 11 per cent lower than
the consumption estimate for 1967-68 derived from the national
income statistics. Using the national income deflator D – R find
that the average per capita consumption of the lowest 5 per cent
rural fractile group in 1967-68 is 94 per cent of that in 1960-61,
whereas for the topmost 5 per cent fractile group the estimate of
average per capita consumption is only 73 per cent of that in 1960-
61. Now such a large differential decline in per capita consumption
of the richest 5 per cent is not acceptable to D – R, as this goes
against their a prior judgement that during the sixties there has
been an obvious increase in inequality in the structure of the Indian
rural economy.
It is clear that the position taken by D – R rests on whether
the NSS estimate of average per capita consumption is an under
estimates or not. On this point Bardhan (1974)46 is of the view that
the deflating of private consumer expenditure data by the national
income deflator is improper. Bardhan cites the study of
Radhakrishnan, Srinivasan and Vaidyanathan (1974) who have
worked out a general consumer price index on the basis of NSS
weights for ten commodity groups and wholesale prices data issued
by the office of the Economic Adviser to the Government of India.47
The Radhakrishnan, Srinivasan and Vaidyanathan (R-S-V) index is
178.1 in 1968-69 taking 1960-61 figure as 100, but for the same
period national income deflator increases from 100 to 169.8. Now
if the R-S-V index is used, not only is the NSS estimate for per
Capita real consumption for 1967-68 below that for 1960-61, but
the official estimate for 1967-68 will also be lower than that for
1960-61. Thus Bardhan (1974) asserts that NSS estimate should
not be discarded simply because it establishes a decline in the per
Capita real Consumption during the sixties.

But the observation of D-R regarding the increasing under-

estimation of the consumption of the rich in NSS estimate is
endorsed by Bardhan (1974) and other economists,48 though no
satisfactory explanation of this is yet available. The explanation
given by D-R is as follows:
“The NSS secures its estimates of consumer expenditures by
interviewing a random sample of rural and urban households and
inquiring from them about their consumer expenditure during the
previous month. The limitations of this procedure are well known.
For instance, a number of items of consumer expenditure, such as
clothing and other consumer durables, which a household would
purchase less frequently than once every month, are likely to be
missed by this procedure and hence the expenditure on them is
likely to be under-estimated. These are the items which are more
important in the consumer expenditure of the rich than the poor
and they become more important as the rich become richer. It is
also known that the upper middle and the richer households, both
in rural and urban areas, have become increasingly inaccessible to
the NSS investigators who are after all class III government
servants.”

But the relative infrequency of the purchase of some

consumer durables and articles of high consumption need not lead
to underestimation as the NSS is canvassed in a number of sub-
rounds spread throughout the year and so the seasonality, if any, in
the purchase of consumer durables should not lead to any bias.
Moreover, in any given sub-round the random sampling procedure
of the survey will ensure that purchasers of cloth are not
systematically excluded.

Now R-S-V have shown that the estimates of consumption at

current prices derived from National Income and the NSS data a are
in close agreement for the period 1954-55 to 1963-64, but
thereafter the two series differ considerably. These authors
conclude that the relatively close agreement between the NSS and
official series for some years does not necessarily indicate the
absence of systematic bias in the two series and similarly the
divergence between the two series for the later years of the sixties
does not necessarily indicate the presence of such bias. But R-S-V
have not given any explanation for the divergence of the two series
from 1963-64 onwards.

Turning now to other studies we find that the study of

Vaidyanathan (1974a, 1974b) takes an income level of Rs.132 per
year to denote poverty and finds that the proportion of rural
population living below the poverty line is 15.7 per cent in 1960-61.
Now the poverty line drawn by Vaidyanathan is much lower
compared to the estimates of others and there is little surprise that
the number of the poor will be considerably lower.49 However,
Vaidyanathan (1974a) has presented the following estimate of the
proportion of rural population with per Capita Consumption
expenditure below Rs.20 per month at 1960-61 prices. According
to NSS estimate, the percentage of people living below the poverty
line was 59.5 in 1960-61; it increased to 67.8 in the year 1967-68.
Again, according to official estimate, the respective percentages are
58.8 and 57.8, which shows that the level of poverty remained
more or less same during the sixties, though the number of people
below the poverty line increased.

The study of Bardhan (1970, 1970a, 1973) uses NSS data for
distribution of consumer expenditure, but uses a different minimum
level of income of Rs.15.00 per month at 1960-61 prices and
Rs.28.4 at 1968-69 prices for the two years respectively. Bardhan
then argues that the national income deflator (which rose from 100
in 1960-61 to 170 in 1967-68) as used by Minhas (1970) and
Dandekar and Rath (1971) is not an appropriate price index to use,
as it does not accurately reflect the set of prices facing the poor
consumer.50 This is due to the following reasons. First, national
income includes both investment and consumption goods and as
such the national income deflator cannot be a suitable index for
studying changes in consumption. Secondly, the national income
deflator covers the prices the prices of both agricultural and
industrial commodities. The weight of the latter items in the budget
of the poor is much lower than the national average and hence the
national income deflator is very likely to have understated the rise
in the prices paid by the rural poor. This is more so when the
prices of agricultural commodities have risen at a much faster rate
than the prices of manufactured items.

For the above reasons, Bardhan uses an alternative deflator

which is the agricultural labour consumer price index. This index is
based on the Labour Bureau series of consumer price index number
for agricultural labourers constructed on the basis of NSS rural
retail prices and weighting diagrams obtained from the Second
Agricultural Labour Enquiry. Bardhan finds that the number of the
rural poor increased from about 135 million in 1960-61 to 230
million in 1968-69, that is, the percentage of the rural population
living below the prescribed minimum increased from somewhat less
than 38 per cent in 1960-61 to about 54 per cent in 1968-69. This
result is in sharp contrast to the conclusion reached by Minhas
(1970).

It is contended that the high figure of population below the

poverty line in 1968-69 may be traced to the consumer price index
used by Bardhan.51 But Bardhan has defended these indices by
computing several alternative indices and showing their agreement.

The study of Bhatty (1974)52 is concerned with the extent of

rural poverty in 1968-69. The object of his study is to present a
measure of absolute poverty in terms of per capita income, which
takes into account the inequality of income distribution among the
poor. Moreover, Bhatty is interested about the incidence of poverty
in different regions of rural India and among different classes of the
rural population. To avoid arbitrariness, Bhatty has set five poverty
levels, which, in terms of per capita annual income in 1968-69
prices are: Rs.180, Rs.240, Rs.300, Rs.360 and Rs.420. Since the
study is concerned with a single year, 1968-69, no comparison is
undertaken regarding the change in poverty level of the country.
Taking Rs.360 as the minimum per capita annual income, Bhatty’s
study reveals that about 67.15 per cent of all rural households lived
below the poverty line. If only agricultural labourer households are
considered, then about 82.84 per cent of them live below the
poverty line, whereas for the non-agricultural households this
percentage is 69.7. Thus the incidence of poverty is most severe
among agricultural labourers.

Bhatty has also tried to calculate for India the magnitude of

Sen’s poverty measure P, the result of which is summarized in the
following table:
 Sen’s Poverty measure ‘P’ for India, 1968-69

Poverty line: rupees per Capita per

annum
180 240 300 360 420

(i) All occupation classes 0.101 0.188 0.279 0.363 0.435

(ii) Cultivators 0.107 0.187 0.269 0.345 0.415

(iii) Agricultural labourers 0.098 0.220 0.336 0.440 0.521

(iv) Non-agricultural 0.171 0.155 0.251 0.344 0.425

workers

Source: Bhatty (1974) Tables 7-10, pp. 316-17

From the table we find that of the three occupational classes,

agricultural labourers are the most deprived. Bhatty has also
analysed in detail the level of poverty in different states. He has
identified the five poorest states in the country - Gujrat, Tamil
Nadu, Madhya Pradesh, Rajasthan and Orissa – and explained the
region wise variations of poverty level. He shows that while the
incidence of poverty among the agricultural labourers is the highest
in Gujrat and the lowest in Punjab, the non-agricultural workers are
worse off in Madhya Pradesh. According to Bhatty, the relative
incidence of absolute poverty in the rural population of different
states depends on many factors, such as, land-man ratio,
topography and quality of land, rainfall, irrigation, cropping pattern,
rural institutional structure etc. Thus this study points to the fact
that any study on poverty should be based on the diversity of
different regions and it is pointless to calculate any uniform
measure of poverty for India as a whole.

The importance of regional study for ascertaining the poverty

level has been emphasized also by Panikar, whose study is based
on condition in Kerala.53 The author is concerned with the question
of choice of a nutritional measure used by Dandekar and Rath and
the Nutrition advisory Committee. Panikar establishes the fact that
D-R have overestimated the number of the poor in Kerala, as the
minimum diet accepted by D-R is in fact the India average.

Indira Rajaraman (1975) discusses the incidence of poverty in

the Punjab between 1960-61 and 1970-71.54 In the year 1960-61,
the lowest two deciles of population accounted for 10.4 per cent of
total consumption, while in the year 1970-71, they accounted for
only 8.9 per cent of total consumption. Again, during the same
period the share of the topmost decile increased from 23.2 per cent
to 24.7 per cent. Taking a consumption level of Rs.16.36 at 1960-
61 price, Rajaraman finds that about 18.4 per cent of total
population of Punjab lived below that consumption level. The
poverty line for the year 1970-71 has been estimated at a
consumption level of Rs.33086 at current prices, and the author has
shown that the percentage of the poor has increased from 18.4 to
23.3 in ten years. It is seen in this study that poverty is most
intense among the agricultural workers, as about 22.6 per cent of
households lived below the poverty line in 1960-61 and in the year
1970-71, this percentage went up to about 40.5. In this respect,
Rajaraman’s study is consistent with those of Bhatty (1974) and
Bardhan (1970).55 Like Bhatty, Rajaraman also finds that
incidence of poverty among the cultivators is comparatively low.
While the increased incidence of poverty among the agricultural
labour households is significant statistically, this is not the case with
the cultivating households.
In a different type of study based on the socio-economic
survey data derived from the sample households distributed all over
Bangalore City, Hanumappa (1978) has shown that 24.35 per cent
of all households can be considered as poor in the context of their
monthly income.56 But the study is mainly concerned with the
effect of family size and education on the pattern of income
distribution and so we will not pursue it further.

We now take up for consideration an important study based

on Kerala which will explain the difference between the conclusions
of D-R and Panikar.57 In the study of D-R, Kerala is seen to have
the largest percentage of population below the poverty line, 90.75
per cent in rural areas and 88.89 per cent in urban areas. The
study on poverty by Centre of Development Studies (1975) has
prepared a balance sheet compiled for Kerala and then compares it
with the NSS data used by D-R. It is revealed that part of the
explanation for the high proportion of the poor, as given by D-R, is
that the NSS has underestimated certain items of food such as
banana, coconut and fish entering into the diets of these people and
as a result the extent of main nutrition in Kerala has been
somewhat exaggerated. Whereas the per capita per day calories
intake is 1619 calories for all food items according to the food
balance sheet of this study (1975). Thus, the study reveals that 48
per cent of the population in Kerala lived below the poverty line in
1960-61.

But the important point which the study reveals is that per
Capita Consumption of food does not depend on per capita income
alone, so that while a low consumption of food may indicate under-
nourishment, it need not necessarily mean ‘poverty’. Moreover it is
shown that per capita consumption of food in a region depends on
per capita production of food and the pattern of the distribution of
land holdings; further, the degree of inequality is negatively
correlated with increases in food consumption. One conclusion of
this study is that the “availability” of food cannot be treated as a
function of income and price alone, but it may depend also on
“physical” factors such as output in the region and “institutional”
factors such as distribution of land holdings.

Further, the above study suggests that we require more

through scrutiny of regional variations in diet patterns before we
draw the poverty line by counting calories with the help of size
distribution of consumption expenditure derived from NSS data.

A lack of uniformity in the structure of poverty in India has

been highlighted by Vaidyanathan (1974), D-R (1971), Bhatty
(1974) and Bardhan (1973). Vaidyanathan finds that six States-
Andhra Pradesh, Kerala, Madhya Pradesh, Tamil Nadu, Orissa and
Uttar Pradesh – had a higher percentage of people below the
poverty line than the national average in the year 1960-61. Again,
the level of poverty is very much lower in Assam and Punjab. But
in D-R study the intensity of rural poverty is greater than the All
India average in eight States and these are: Kerala, Andhra
Pradesh, Maharashtra, Tamil Nadu, Assam, West Bengal, Orissa,
and Bihar. Again, barring Rajasthan, U.P., Bihar, Jammu and
Kashmir and Assam, the other eleven States show a greater
percentage of the poor living in urban areas compared to the All
India average in 1960-61.

While in Bhatty’s study a greater concentration of poverty is

seen in four States (Gujrat, Tamil Nadu, Rajasthan and Madhya
Pradesh), Bardhan’s study reveals that higher levels of poverty
have been registered in West Bengal, Bihar, Kerala and Orissa.
Such inter-state variations in the percentage of people below the
poverty line underscores the importance of the study of poverty on
a regional basis. One cal also infer a high degree of correlation
between the incidence of poverty and the pattern of the production
of cereals, as, state wise, poverty seems to be higher in the non-
wheat zones stretching from eastern India to the Malabar Coast.
While this is just a reflection based on the available data, such a
hypothesis (i.e., incidence of poverty being highly correlated with
the pattern of cereal production) requires further detailed
investigation for its acceptance.

All the above-mentioned studies suffer from two general

weakness, if any, in NSS data will render the studies inaccurate.
NSS data are based on stratified random sampling and so the
sample households must ‘represent’ all the rural and urban
households in the country. But, as definitions have changed to
some extent in different NSS rounds, doubts can be expressed
regarding the comparability of NSS data in different years.
Moreover, samples from the same universe give comparable
results, but when sampling is done at two different points of time,
the Universe is bound to change. This is likely to be reinforced by
planned economic development. Whether data from different
samples drawn at two separate points of time are comparable or
not is a matter of considerable doubt.

Secondly, though rural consumption in NSS data includes

non-monetised consumption, the latter may be of two types –
commodities produced at home and commodities simply derived
from nature. While the first category can be valued by using ex-
farm prices, the second category cannot be valued at all. It is our
contention that the second category of commodities represents
some sort of ‘free good derived from nature’ which is unique in a
rural agricultural country with a largely disorganized and
demonetized economy. To an NSS investigator such commodities
are either not mentioned at all or, even when mentioned, are likely
to be neglected because of their largely no-economic character.
This is more so because of the existing studies that the per capita
per day barest minimum consumption should be 2250 calories and
a sizeable section of Indian population cannot afford it. But the
number of such poor people is increasing, though percentage-wise
the size of the poor may be falling. Should we say that a man may
survive without the barest minimum consumption day after day?
Accordingly, either the barest minimum has to be further lowered,
or we should concede the fact that people derived their necessary
calories from the consumption of commodities, only a fraction of
which can be brought within the ‘economic’ categories.

While the first weakness is common to any method of

induction in statistics i.e., any ‘representative’ sample may lose its
representative character with change in the universe, second
weakness points to the more fundamental fact that the economic
categories used for the measurement of rural consumption should
be more broad-based so that the ‘way of living’ of the rural ‘poor’
can be analysed in greater detail.
 Chapter-3
Studies on Inequality

Wide disparity in the living standards of the Indian population

in both rural and urban areas has attracted the attention of a
number of economists who have tries to measure the change in the
degree of inequality in the income distribution and that in
consumption expenditure. Moreover, attempts have been male to
compare the degree of inequality existing in India with the same in
other countries. A survey of the existing literature in this respect
should be preceded by a discussion of the following points, as
clarification of these points will facilitate the evaluation of the
existing literature.

First, it is difficult to compare the per capita income of a

developing country like India with that of a developed country
because of the limited scope of national income accounts in the
former.58 Moreover, objection has been raised in the use of
exchange rates to convert all figures to a common standard and it
is recognised that exchange rates may be poor guide to purchasing
power. As the study of David (1972) suggests the true gap
regarding the ‘real’ per capita income between the United the
United States and other countries is only four-ninths of that
indicated by exchange rate conversion.59

Secondly, while it is difficult to generalize about inter-country

differences because of heterogeneities of different sorts – historical,
physical and regional in addition to the purely economic, we can
still arrive at some conclusion regarding the effect of growth on size
distribution of income by shifting to inter-temporal comparisons.
This is as follows: Though inequality is generally low in the pre-
industrilisation stage, it tends to rise with the growth of towns and
cities which emerge and flourish with capitalistic enterprise and
growing commerce. Concentration of capital occurs with the growth
of firms and urbanization increases regional disparity. But beyond
this early phase it is difficult to generalize about the pattern of the
change in the inequality-index as economic development proceeds.
Kuznets maintains that the degree of inequality is lower in the
developed economy compared to the less developed countries.60
Kuznets has been supported by others and these authors, after a
careful scrutiny of the size-distribution of income of some countries,
maintain that the distribution of income tends to be more equal, the
longer and the more thoroughly the country has been exposed to
the processes of social and economic transformation after the
advent of industrialization.61

We may now turn our attention to the studies on inequality in

India. The RBI Study (1962) gas two parts: in the first, the method
of estimation and the average state of income distribution during
the period 1953-54 to 1956-57 have been described; and in the
second, changes in the income distribution from Period I (1953-54
to 1954-55) to Period II (1955-56 to 1956-57) has been analysed.
This study was undertaken under the guidance of Ojha and Bhatt
(1964). Taking the household as the income-receiving unit, it
attempts to present the pattern of income distribution in the
households sector only, which comprises household, not-corporate
business (including agriculture), and private collectives like
temples, educational institutions and charitable foundations. The
household sector is divided into three income groups: (i) low
income group with annual income below or equal to Rs.3000, (ii)
households with an annual income between Rs.3001 and Rs.25,000
and (iii) top income group with annual income above Rs.25,000.
 The essence of the method of estimation used in the study is
the integration of the income tax data with the consumer
expenditure data from the National Sample Survey (NSS). The
integration is indirect as the study does not use either the actual
expenditure given in the NSS data or the actual income for those
with annual expenditure equal to or below Rs.3000. Again, the
proportion of population and the size of the households in various
expenditure brackets given in the NSS data on consumer
expenditure are used for the following: First, to estimate
independently from the population data (i) the distribution of rural
and urban households between low income groups and high income
groups, and (ii) the total number of households in the rural and
urban areas separately. Secondly, to estimate independently from
the national income data the distribution of personal consumption
expenditure between the rural and urban sectors and between low
income and high income groups within each sector. The savings
made and taxes paid are then added to derive personal disposable
income and personal income respectively of the various income
groups.

Moreover, personal incomes accruing to households in the top

income group are obtained directly from the income tax data on the
assumption that each salary earner assessed to tax represents one
household. Income tax data are also used in the estimation of
personal income accruing to households in the high income non-
salary earners’ group both in urban and rural areas in so far they
are obtained as residual magnitudes. The distribution of incomes
and households in this group is also done from income tax data.
The independently estimated households and incomes are then put
together to derive the pattern of income distribution.
 The study reveals that for the period 1953-54 to 1956-57 the
top decile accounts for 28 per cent of personal income, while the
bottom decile obtains only 3 per cent. The Lorenz ratio for
disposable income is only slightly lower (0.335) than that for
personal income (0.340). Income distribution is more uneven in
the urban sector than in the rural sector; the urban sector
concentration ratio for personal income is 0.40, while this ratio for
the rural sector is only 0.31.
Ojha and Bhatt (1964) then conclude as follows:
“Contrary to general impression, the degree of inequality in
income distribution in India does not seem to be higher than in
some of the advanced economies.”

This conclusion of the authors goes against the thesis of Kuznets

and the empirical findings of Morgan (1953) and others. This view
has been challenged by Ranadive (1965), Swamy (1965) and
Mueller and Sarma (1965). Though the debate is primarily
concerned with the above conclusion of Ojha and Bhatt is primarily
concerned with the above conclusion of Ojha and Bhatt rather than
with the index of inequality as revealed in their study, this has cast
some doubt on the basis on which the study of Ojha and Bhatt
depends.

According to Ranadive (1965), the RBI study is “marred by a

lack of appreciation of the need for an appropriate concept of
‘personal income’, an incorrect use of NSS data for deriving size
distribution of household income and by what seems to be a
methodological error which has resulted in over-estimation of
households in the high income groups.” A close scrutiny of the RBI
study shows that the number of households in the high income
group is over-estimated, which is revealed by the fact that the
number of households in non-salary earners’ group is about six
times higher than the number of the corresponding group in the tax
data. Again, according to Ranadive, the concept of ‘income’ in the
study excludes some elements and so the personal disposable
income in high income groups is likely to be underestimating. Thus
the under-estimation of income and/or over-estimation of
households in the higher income groups might account for the
sharp difference of this study with the thesis of Kuznets (1963)
supported by some empirical studies.
Mueller and Sarma (1965) have pointed out that the
assumption in the study of Ojha and Bhatt leads to a downward
bias in income inequality and they have ignored an important body
of data, which is a survey conducted by NCAER in 1960 with a
stratified probability sample of 4400 families in 30 cities and towns
all over India.62 Mueller and Sarma have shown that NCAER income
distribution is much more unequal than the OJha and Bhatt
distribution. Moreover, the saving estimates in RBI study do not
correspond with the NCAER estimate. Criticising the thesis of Ojha
and Bhatt, Swamy (1965) also contends that the pattern of income
distribution in India supports the thesis of Kuznets.

Lydall (1960) assumes that Pareto ‘Law’ of distribution63 holds

in India. He then makes use of income-tax statistics of individuals
and Hindu undivided families, and converts the NSS 10th round data
from household to a per-person basis, the income of each
household being divided by the number of persons in that
household. He further assumes that average number of persons
covered by each tax assessment is about three. The result of his
study is as follows. The top ten per cent of Indians account for 34
per cent of pre-tax income and 33 per cent of post-tax income in
1955-56. The corresponding figures for United Kingdom in 1954
are 30 per cent and 25 per cent respectively. But Lydall is cautious
regarding any comparison of income distribution because coverage
of income-tax is much smaller in India compared to U.K. and the
estimate of direct income distribution in India is absent.

Since Lydall’s study is based on income tax data, we do not

get any reliable picture of the pattern of income distribution as a
whole in the fifties.
Mukherjee and Chatterjee (1967) have utilised NSS data and
the national income estimates to indicate broadly the behavior
pattern of income distribution. The premises of the study are as
follows:

(i) First, statements are made about the nation as a whole

and hence reliance has been placed on national income
and allied information which relate to the country as a
whole.
(ii) Secondly, the reference period is 1950-51 to 1965-66.
Moreover, at attempt has been made to construct size
distribution of income at constant prices.

The study reveals that disparity of private consumption

expenditure at current prices showed some reduction at the All
India level during the period 1953-54 to 1961-62. But disparity of
private consumption expenditure in real terms showed a large
increase from the First to the Second Plan period and then
maintained a high level. Again, the evidence is not conclusive on
the movement of inequality in the distribution of personal income
by size reckoned at current prices, but the overwhelming
suggestion is that there has been some increases in inequality after
1953-54 and also towards the end of the period. Moreover, there
has been a marked increase in disparity in distribution of personal
income by size reckoned in real terms throughout the period.
 Mukherjee and Chatterjee implicitly assume that prices of
cereals and non-cereals change in the same direction and also by
the same proportion. While the first part of the assumption is
generally true, the second part is not borne out by facts.64 Again,
NSS data give changes in the prices in the prices of individual
cereals as well as shift in the composition of cereals and this must
be adjusted to get a proper index for deflating the consumption
expenditure.65
Swamy (1967) has adjusted the NSS data for reference
period biases and differences in valuation. He establishes that
inter-sectoral inequality is connected with the shift in the size
distribution and the overall size distribution of income has little
meaning unless it is examined along with the components of this
distribution. According to Swamy about 85 per cent of the increase
in inequality in the size distribution of consumer expenditure over
the decade 1951-60 was due to structural shift in the economy and
only about 15 per cent was due to intra-sectoral inequalities
changes in inequality.66 Thus Swamy emphasises the importance of
the study of structural parameters, as a study of intra-sectoral
inequalities alone would not truly indicate the changes in the size
distribution of income for the country as a whole.

The implication of Swamy’s study is that the process of

industrialisation causes shifts in relative weights of different
sectors; and without radical changes in the institutions, inequality
in the income distribution must inevitably rise over time. Neglect of
this aspect, according to Swamy, is the principal cause why some
income distribution studies show a decline in the disparity in the
income distribution. Further, Swamy has estimated that inequality
remained more or less stable in rural areas, but increased in urban
areas, which is reinforced by the fact that the proportion of
population increased in urban areas over the period. This increased
the disparity between rural and urban areas.

Modifications tot the Ojha and Bhatt method have been

suggested by Ranadive (1973) to allow for not dissaving by poorer
income groups and for possible tax evasion in the top income
groups. Ranadive adopts two extreme alternatives: (i) where
households with annual income less than Rs.2000 in the urban
sector and with income less than Rs.720 in the rural sector are
assumed to have zero net savings and all evaded tax payments are
assumed to have zero net savings and all evaded tax payments are
assumed to be fully reflected in consumption and/or savings, and
(ii) where households with annual income less than Rs.3000 in the
urban sector and with income less than Rs.1200 in the rural sector
are assumed to have negative savings, which constitute 25 per cent
of the total urban savings in the case of the former and 14 per cent
of the total saving in the case of the former and 14 per cent of the
total savings in the case of the latter. As for evaded tax payments,
they are not reflected in consumption and/or savings, so that the
estimated amount of tax evasion is added to the disposable income
of the tax-paying classes. Now case (ii) should show higher
inequality than case (i) due to the assumptions relating to savings
and tax evasion.

Ranadive’s estimate shows that in the year 1961-62, the

bottom 20 per cent of population accounted for 7.6 to 7.8 per cent
of total income, and top 20 per cent accounted for 45.5 to 46.7 per
cent. The Lorenz ratio was between 0.351 and 0.367. The
assumption of Ranadive that in the savings group total saving is
distributed in proportion to consumption expenditure has been
questioned by Bardhan (1974).
 Ahmed and Bhattacharya (1972) have tried to integrate the
size distribution of consumer expenditure obtained from NSS data
with the size distribution of income before tax, obtained from
income tax data, to estimate the size distribution of per capita
personal income in India in three different periods, 1956-57, 1960-
61 and 1963-64. They have followed the technique developed by
Lydall (1961) and their study is a more systematic and rigorous
extension of the earlier attempt of Ahmed (1971). This approach is
based on two assumptions: (i) income (before tax) equals
consumer expenditure in the lower ranges of per capita consumer
expenditure, and (ii) the distribution of per capita personal income
before tax is symptotically Paritian for high values of per capita
income and has the same slope as the distribution of assesses by
size of incomes before tax.
The results of the study of Ahmed and Bhattacharya are as
follows: For the first fit, where Pareto Curve is fitted to the size
distribution of income before tax taking all income classes above
Rs.20,000, the Lorenz Ratio is 0.418 for 1956-57, 0.379 for 1960-
61 and 0.372 for 1963-64. Again, for the second fit, that is where
Pareto Curve is fitted taking the last interval of income before tax
as Rs.100,000 and above, the Lorenz ratio is 0.408 for 1956-57,
0.382 for 1960-61 and 0.361 for 1963-64. However, this result has
been qualified by the authors with two points: First, considering
the fact that price increases have been more sharp for the lower
income groups than for the higher income groups, this decreases in
the inequality in nominal income distribution may be more ‘illusory
than real’. Secondly, this decline, the authors suspect, may be
traced to the ‘inherent weaknesses’ of the two sets of data.

Bardhan (1974) points out that the first assumption of Ahmed

and Bhattacharya rules out dissavings in the lower income brackets
and so it leads to some understatement of inequality. Moreover,
considering the fact that the number of income tax assesses is not
even 1 per cent of Indian population and rural rich are mostly
beyond the net of income tax authority, the technique of fitting
Pareto distribution in the Indian contest may very well distort the
picture.

On the basis of NSS data Vaidyanathan (1974) analyses inter-

State variations in the levels of inequality. Vaidyanathan shows
th nd
that data from the 18 and the 22 rounds suggest a negative
association between the Lorenz Ratios of consumption and per
capita consumption expenditure, though the coefficients are not
statistically significant. The study further reveals that, in rural
India, greater inequality in the distribution of land is associated with
more uneven distribution of consumption. Moreover, the pattern of
land operation in determining the degree of consumption inequality.
This result is quite consistent with a priori judgment; as land is the
most important source of income in rural areas and as production
structure is largely disorganized the holding of land gives important
leverage to the owners who reap the advantages of a hierarchical
society.

Vaidyanathan calculates the changes in Lorenz ratios during

the decade 1957-58 to 1967-68; for rural India the inequality index
(LR) has decreased from 0.334 in 1957 to 0.203 in 1967-68. But
the variations over the States are not uniform; while for Andhra
Pradesh, Assam and Madhya Pradesh the decline is sharp(more
than all-India average), other States like Punjab and West Bengal
do not show any significant decline.67

The regional variation of inequality in rural India has been

analysed by Bhatty (1974) also. He has divided the rural
population (workers) into three categories- cultivators, agricultural
labourers and non-agricultural workers. Then he presents the Gini
Coefficient of inequality in income distribution for India for 1968-69.
Inequality is found to be highest in Gujrat followed by Uttar
Pradesh, Mysore and Tamil Nadu; and it is lowest in Orissa followed
by Assam, Bihar, Kerala and Rajasthan.

Income distribution is most unequal among the cultivators, as

Bhatty has shown, the LR is 0.493. Again, the degree of inequality
is lowest among the agricultural labourers with LR 0.27; the
position of the non-agricultural workers lies in between the two with
LR 0.377. But in Punjab-Haryana, the Gini coefficient for
agricultural labourers is higher than for bnon-agricultural workers
and in Orissa, the index for agricultural labourers is above that for
the cultivators. The study further reveals that the per capita
income of agricultural labourers has a strong positive association
with the per capita income of the rural population, with coefficient
of rank correlation +0.82, at 1 per cent level of significance; though
inequality in their per capita income seems to be on the rise. Thus
while the first result indicates that agricultural labourers can share
in any general improvement in the health of the rural economy, this
paves the way for rise in inequality in their incomes.

As the study of Bhatty relates only to the year 1968-69, it

fails to give any indication of the change of inequality in rural India.
Again, the categorization of rural income classes as cultivators,
agricultural workers and non-agricultural workers misses the point
that the position of small cultivators is sharply different from that of
the large land-owners. The high index of inequality among the
cultivators may be explained by this difference.
 Chapter-4
Causes of Poverty and Inequality in India

In the Indian setting poverty has been usually discussed

along with the question of inequality and it has even been
contended that poverty is both the cause and the consequence of
inequality in income distribution. Again, inequality in income
distribution is the manifestation of the inequitable distribution of the
means of production and the imperfections existing in the market
structure. The whole issue has been complicated by the dual
nature68 of the Indian economy and as such inequality should be
analysed separately in the case of rural and urban areas. Behind
the income inequality in the rural structure, there is often social
inequality in the form of caste hierarchy, the existence of which
contributes to the persistence of inequality by providing social
sanction to the hierarchian structure.69

In the following paragraphs, first the issue of poverty and

inequality in rural areas is discussed; then this discussion is
integrated with the discussion of the urban sector to have a total
view of poverty and inequality in the economy as a whole.

On the question of inequality in rural India our attempt is

mainly confined to post-independence period, though for the sake
of continuity we have to go back beyond 1947. During this phase
of Indian history, three types of factors will be discussed and they
are: market forces, governmental measures and the impact of
political decisions.

To illustrate the impact of market forces on rural hierarchy in

Orissa Bailey found (1957) that in early fifties land has been
marketed and the consequence was transfer of land from one caste
to another. Similarly observation has been made by other
anthropologists studying villages in other parts of the country.70
Such transfer of land from the higher castes to the middle castes
has been described as a change from a system of cumulative
inequalities to one of dispersed inequalities, or from a relatively
closed to a relatively open system of stratification.71

But marketing of land does not necessarily indicate diminution

of the skewness in the distribution of land holdings. There is reason
to believe that in some areas land is passing from the hands of very
small holders into those of middle and large proprietors. With the
introduction of new technology, agriculture has been profitable to
those who have both land and capital to invest in it. It is argued
that the bias against the small peasants is built into the new
technology by the very costly nature of the inputs, the role of
indivisibles like tractors and also by the selective strategy
accompanying the new technology. Thus the relatively low
profitability of smaller farms has induced transfer of land from the
small farmers to the big ones, which increases the skewness in the
distribution of land holding in the “green revolution” areas.

What effect does the new agricultural strategy produce on the

distribution of income? There is no positive finding on this issue.
But logically one may proceed like this: Since the smaller holdings
usually earn from many diverse sources, while the larger farm
depends mainly on farm business income, one would expect a
somewhat less skewed distribution in terms of household income,
compared to the figures for land distribution. But distribution of
farm assets has become more skewed over the years, which should
enable the big farmers to retain their advantage over the smaller
farms partly because of their greater creditworthiness and risk-
bearing capacity based on the high value of their assert holding,
and partly because of the higher earning capacity from the
ownership of farm assets.

We can study the impact of the new technology in greater

detail. The production relations in the agrarian structure at present
have a three-tier composition viz. owner-cultivator, tenant-
cultivator and landless farm labourer. This composition broadly
embodies a dual system of farming – peasant and capitalist with
two forms of farm production, which are family labour-based and
hired-labour based respectively. While the capitalist farms
maximize profit-income and a part of their incomes is invested for
the intensification of production, the peasant farms maximise
output.

The existence of a dual system of farming in Indian

agriculture indicates that the magnitude of wage labour and the
institutional character of land-labour relations in production
belonging to the capitalist farm sector of agriculture depend
primarily on the size of land holdings, social status of the farmer
and the nature of the technology being applied to agriculture.
Similarly, regarding the peasant farm sector, the extent of use of
family labour depends o0n the size of land holdings.

The use of the new technology has affected the distribution of

land in our rural economy. According to Divatia (1976) the share of
the lowest 30 per cent of the rural households in the total rural
assets has slipped from 2.5 per cent to 2 per cent and that of the
top 30 per cent has increased from 79 per cent to 81.9 per cent
during the sixties.72 Another study by Pathak, Ganapathy and
Sarma (1977) also brings cut the sharpening of inequality in rural
areas. According to it, the highest decile group improved its share
from 58.71 per cent to 61.79 per cent between 1961 and 1971.73 A
study by C. H. Shah reveals that despite the ceiling laws, the
concentration of land ownership of land has not changed much in
recent years and again, despite a marginal decline in the
concentration of land ownership, the concentration of assets has
tended to increase.74 These all point to the insignificant effect of
land reforms measures on the reduction of inequality in rural
area.75

Just as the ceiling laws have failed to change the ownership

pattern of land in rural areas, other Government measures since
the middle of the sixties have also not been able to prevent the
natural deterioration in the share of the poor in total asset holdings
in the rural economy. On the contrary, measures like asset based
advances, high support prices for rich farmers and provisions for
highly subsidized inputs have brought about a shift in assets
ownership leading to concentration of income in agriculture. The
studies by Bardhan (1974), Saini (1976) and Shah (1976) have
revealed this aspect of agricultural development in the country.76
Saini’s study is based on two wheat producing districts of Ferozepur
in Punjab and Musaffarnagar in U.P., while Bardhan covers, apart
from these two districts, some sample farms of Hooghly in West
Bengal and Ahmednagar in Maharashtra. These studies reveal the
following: The agricultural development since the mid-sixties has
led to a widening of income disparities between regions, between
small and big farms and between land owners and landless
labourers. Moreover, some studies reveal that real wages of farm
labourers have tended to decline even in Punjab, Haryana and
Western U.P. since 1970-71.77

While the trend of development in agriculture has been going

against the poor, the government has established some institutions
and has taken up some programmes for the uplift of the small and
marginal farmers. These are Small Farmers’ Development Agency
(SFDA), Agency for Marginal Farmers and Agricultural Labourers
(MFAL), Crash Scheme for Rural Employment, Drought Prone Area
Programme and Integrated Tribal Development Projects. But these
solutions offered by the government suffer from the following
weaknesses. First, there is a widely shared view that most of the
benefits under the schemes have been diverted and appropriated
by better-off farmers.78 Secondly, it is now recognised that even in
1975-76, after the full implementation of these programmes, their
coverage has been meager.79 It has been contended that in the
absence of basic changes in the organisation of agriculture, such
reformist measure will not redress rural poverty.80 But in our
opinion, such a contention does not do full justice to the role of
these specialised agencies. Let us explain it in detail.

The major limitation of the small farmer is the small size of

his holding, which puts on him resource and system constraints.
But the new technology in agriculture is resource-using, which
involves larger use of current inputs as well as an expanded base of
durable capital especially for irrigation. The resource position of
small and marginal farmers regarding long-term investment is
extremely weak. Hence the small farmer has either to be content
with the meager investible resources or face the increased risks
involved in using borrowed finance. The combined effect of all
these is severe capital rationing and increased economic disparity
between small farmers and big farmers.

The NSS 26th round data81 suggest that for every100 landless
families, 37 had a milk animal. In the next class, cultivating less
than 0.2 hectare, the situation is better: 3 out of 4 families had an
animal. But, those cultivating above 20 hectares had 14 animals
per households. This positive association of the number of animals
with the size of the cultivated holdings can be interpreted as a
resources barrier for small and marginal farmers and landless
labour. Hence agencies like SFDA have been advised to supply
cattle to these families at subsidies rates.

The agencies like SFDA and MFAL have viewed the problems
of small farmers essentially as problem of resources – providing
more credit, milk animals, improved seeds etc. They have the
necessary organization – the extension agency, the Credit Co-
operatives, the skilled personnel of agricultural department. But
the reason why they have not succeeded fully in their tasks is that
the organisational wings work with a linear authority structure
which results in a lack of cohesion within the organisation.
However, we will discuss this issue in the last Chapter again.

The feeling is now wide-spread that government measures to

reduce inequalities in the agrarian structure have been
unsuccessful. But the measures adopted have at least called in
question the legitimacy of the existing inequalities and created new
expectations about what is desirable and possible. One result of
this has been organized political action to transform the agrarian
hierarchy. Different political parties, peasant associations and other
organizations are now involved in the attempt to change the
agrarian structure. Their approach to the rural conditions is
completely different from the approach adopted by the
government.82 Share-croppers in West Bengal, for example, are
known to be working under exploitative conditions and have
received little prosecution from the law.83 The peasant associations
have tried to prevent eviction of share croppers through political
pressure. However, it is difficult to assess the redistributive affects
of the forces thus operating. Then land is forcibly seized by a
party, it is not necessarily distributed to the landless poor. This
often transforms the conflict between the rich and the poor into a
conflict between rival political parties. But for our present purposes
we need not pursue it further.

Industrial Stagnation and Urban Poverty:

The growths of the industrial sector in India and the

consequent urbanization have not been successful in absorbing the
landless unemployed labourers in rural areas into urban
employment. While the towns have helped very little in
ameliorating rural poverty, poverty in urban areas has deepened
since the middle of the sixties. Moreover, the pattern of
industrialization in India has not been on the desired lines. The
stagnation in the industrial sector in recent years has been
explained in terms of perverse industrial development in a society
where extreme income inequality has made for a shrinking demand
base.

According to Dasgupta (1975), in a capitalistic society

investment and production decisions are taken by the capitalist
class, who are quite distinct from the class of labourers. The result
is an unduly high premium on the production of luxury goods
profitable to the capitalist and relative neglect of the mass
consumption goods required by the labourers. This has led to high
rates of growth, but this is also associated with distortion in the
pattern of production, consumption and distribution. Dasgupta
pleads for an end to the dichotomy that exists in the Capitalist
system and substitution of the present economy based on luxury by
one based on austerity.

Bagchi (1970) considers inequality in the distribution of

income as the basic constraint on the industrial development in
India. Inequality in income distribution is aggravated by the
process of growth for it is the private sector which owns the means
of production and thus appropriates the increments in income. The
Government is unable to exercise effective control over the
allocation of resources between (i) consumption and saving and (ii)
‘essential’ and ‘non-essential’ consumption. While the former is
reflected in the failure to mobilise domestic resources for
investment, the latter is revealed by the excessive importance of
luxury goods in industrial production. It is not possible for the
government to maintain a high rate of investment in the face of the
unequal income distribution and the demand pattern generated by
it.

While Bagchi puts emphasis on the overall inequality in

income distribution, Mitra (1977) argues that the redistribution of
income in favour of agriculture and against industry is a major
factor responsible for the deceleration in industrial development
since 1965-66. He has suggested that the shifting terms of trade
have been instrumental in reducing the real incomes of the majority
of the population in both the urban areas and the countryside. An
increase in food grain prices squeezed the non-food expenditure of
the urban as well as the rural poor, thus reducing the demand for
manufactured products. The result is the diminution of the demand
for mass consumption goods.84 But a question remains. What
about the demand of the rural rich who, according to Mitra, have
accumulated agricultural sector. It remains a puzzle and perhaps a
change in the preference pattern of the rich in rural areas can
generate demand for the manufactured items.

One interesting aspect of the pattern of consumer

expenditure has been revealed in the study of Sau (1974), who, on
the basis of NSS data, has shown that the percentage of per capita
consumer expenditure spent on industrial goods declined over the
period 1952-53 to 1964-65. He further finds that the decline is
much more pronounced in the case of the poorer sections of the
population.85

Demand for manufactured goods may be constrained by

stagnation in the agricultural sector, which has been emphasized by
Raj (1976). He has found that regions characterised by moderately
high and stable rates of agricultural growth have also experienced
high growth rates in industrilisation. Moreover, according to Raj, if
“agricultural output does not grow rapidly enough, or even if it does
grow a little faster but the increases in output are realized mainly in
the larger farms, this is likely to take place only alongside further
accentuation in the inequalities of income and wealth.” The logical
conclusion of this process is “ a pattern of industrial development
based on high rates of growth of demand for ‘luxury’ and ‘semi-
luxury’ products which may well come to be regarded as the only
way of maintaining a high rate of growth of output in this sector.”

The perverse industrial development creates its own

constraints and the opportunity of exports cannot solve the
problems of inadequate demand, which has been shown by Raj
(1976) and Bagchi [(1975; 1977)].86 Moreover, with the start of
the seventies the growth in agricultural sector began to slow down
for want of necessary institutional changes and this circumscribed
industrial growth in more than one way. Food priced began to rise
and necessary raw materials became scarce, which diminished the
support to industry. As the inter-sectoral terms of trade shifted in
favour of agriculture, and the support from the principal source of
industrial growth waned in course of time, industry faced a more
unfavorable situation for growth. The situation worsened with a
positive deceleration in the growth of public expenditure in India
helped redistribution of income against the poor.87 Even this,
coupled with a wide arrangement of subsidies, could not alleviate
the ills surrounding the industrial sector of the country.

The question of distribution has assumed importance in the

perspective of overall stagnation in industrial sector and the slowing
down of the growth of agricultural production. In this context the
comment of Leontieff (1973) on the economic performance of China
is worth mentioning.88 According to Leontieff, in China, in spite of
very poor per capita income compared to developed countries in the
west, “basic human needs absorb a fraction of the material costs
needed to satisfy the demands of the high and middle-income
groups in our industrilised, prosperous society, and general living
conditions for the average Chinese are decidedly better than those
of disadvantaged Americans at the bottom rung of our economic
ladder.” Though Leontieff compares Chinese economy with its
western counterpart, the question of fair distribution becomes
important in his discussion. In contrast, the production structure in
Indian industry has been oriented to elitist consumption and the
percentage of income going to non-productive consumption is also
high compared to even developed countries.89 This explains two
things simultaneously. First, it implies lower quantum of savings to
be realized for investment. Secondly, it perpetuates inequality in
income distribution. Such a situation is hardly conducive to the
eradication of poverty in a developing country.
 Chapter-5
Conclusion: The Anti-Poverty Programmes

In the concluding section we make a brief survey of the

programmes adopted in India to launch a direct attack on poverty
in the rural areas. Here, we restrict our discussion to the
programmes initiated at different levels of government, thus
excluding programmes sponsored by voluntary organisations, some
individuals and political parties. We feel that the present discussion
will be sufficient to enable us to bring out the basic issues involved
in all rural development programmes.

Regarding the programmes, three types of approaches can be

distinguished according to the nature of the sponsoring authorities
and these will be taken up in turn. The first approach is concerned
with the programmes taken up by the Central Government and
these are integrated with the overall planning process in the
country. The second approach covers some programmes sponsored
by some state governments at the regional level. The third
approach is related with such programmes as are initiated at the
official level by individual officers of the government.

The Fifth Five Year Plan aimed at eradication of poverty along

with reduction of inequality.90 The major instrument of the
programme, as delineated in the Plan document and subsequent
policy announcement, was the generation of employment
opportunities. This was based on two policy approaches and these
were: (i) improvements of the value and productivity of the existing
assets of the households, and (ii) transfer of assets to poorer
households. Since the removal of poverty means increase in the
income of the households to a certain minimum level and since the
average daily wage in the rural areas is not high enough,91 policies
were oriented to supplement this wage income by income from
assets through increase in productivity. Hence the necessity for
special programmes was felt to improve productivity of the existing
assets of the weaker sections and to improve the level of assets
through transfer of such assets in their favour.

Rural assets are of two kinds: land and non-land assets.

Regarding land, it was expected that land reforms would augment
the size of holding of the marginal farmers. The productivity of
these holding was to be raised by increased provisions of
agricultural inputs at concessional rates. Regarding the formation
and improvement of non-land assets some special programmes
were initiated in rural areas, viz. Small Farmers’ Development
Agency [SFDA], Scheme for Marginal Farmers and Agricultural
Labourers [MFAL], Crash Scheme for Rural Employment [CSRE] etc.

The SFDA and MFAL Schemes, which were initiated towards

the end of 1969-70 started functioning effectively from 1971-72.
In both the cases, the sanctioned amount could not be utilised fully
and in 1971-72, only a very small percentage of total allocation
could be utilized.92 The CSRE was announced towards the end of
1970-71 and by November, 1971 employment generation was to
the extent of 87.6 lakh man-days at the cost of Rs.3.1Crores.93
Though the full impact of these programmes on the rural poor is yet
to be assessed, some observations are in order regarding the
potentialities of the programmes.

The benefit of any asset improvement programme can accrue

only to those who have the particular asset in question. Whether
we consider households which operate no land or only land holdings
in the size classes above zero but below 1025 acres, the number of
cows and she-buffaloes per 100 households who operate either zero
land or only holdings or less than 0.5 acres and between 30-40 per
cent of the households who operate holdings of between 0.5 and
1.24 acres, have no cows or she-buffaloes.94 Obviously, they cannot
benefit from any programme for improving the breed of milch cattle
and realize the income thereof.

The problem of the extreme inadequacy of the asset bas has

restricted the usefulness of the poverty eradication programme.
This has induced the policy makers to adopt the second issue, i.e.,
the programme of asset transfer to the poor households in rural
India. Under the SFDA, the MFAL and such other programmes
distribution of milch animals and other animals such as pigs, sheep,
goat etc. has been taken up. These programmes do not actually
contemplate transfer of these assets to the poor households. They
only provide a subsidy and that is at the rate of 25 per cent for
small farmers and 33.33 per cent for marginal farmers. This
subsidy is not payable directly to the potential beneficiary to
acquire the assets. Hence, the subsidy will become available only
to those who have access to institutional credit. But in the rural
structure institutional credit plays the minimum role. It is reported
that in the case of all rural households whose assets are less than
Rs.1,000, less than 3 per cent reported any borrowing from
institutional sources. Such households constituted nearly 20 per
cent of all rural households.95 In this perspective programmes of
assets transfer can be expected to have only a limited effect on the
income level of the poor in rural areas.

This analysis suggests that, in the context of orgainsed

experiment to uplift the condition of the poor, programmes for
actual transfer of assets are a pre-requisite for using asset
improvement and fuller utilisation of labour power as mechanism
for creating an income earning potential. Only under these
conditions can the poor be expected to raise their income and
consumption level above the poverty line.
The overall poverty situation in the country has led to the
adoption of some other programmes at micro-levels in different
regions of the country apart from the centrally planned ones as
described above. This leads us to the programmes covered by the
second approach. In the middle of 1960’s, some agricultural
programmes were launched in some states, which were associated
with the New Strategy in agriculture, viz., Rural Works Programme
[RWP], Intensive Agricultural District Programme [IADP],
Integrated Area Development Scheme [IAD] etc. In July 1969, the
Maharashtra Government introduced a Pilot Employment Guarantee
Scheme in some IAD blocks. The objective was to guarantee
employment to agricultural labourers who needed it. Though well-
conceived and meticulously formulated, these schemes suffered
from a big gap between programmes planning and execution.
Moreover, the organisational weakness of the programme had
caused diversion of funds to the benefit of large farmers; whereas
special programme for the benefit of agricultural labourers
remained on paper only.96

The third approach to the problem of poverty covers those

programmes which were initiated by the bureaucrats. These were
isolated micro-experiments. An analysis of these will reveal some
important characteristics of Indian socio-economic structure. The
District Collector of Warangal (Andhra Pradesh) helped the
formation of a Co-operative by the today tappers. This was an
attempt to prevent the powerful zamindar of the region who
appropriated the surplus by coercively purchasing the monopoly
tapping rights from the government and then by reselling this right
at higher rent to the individual tappers.97 When the tappers
formed the Co-operative and obtained the tapping rights with the
help of the Collector, they could increases their income
considerably. Similar experiments were conducted by the District
Collector of Nellore, who induced the peasants in the region to
adopt joint Co-operative farming by forming Co-operative
societies.98
Both Warangal and Nellore, to follow Popper,99 were
experiments in ‘ piecemeal social engineering’, at least in the fact
that the basic thinking was done by the basic thinking was done by
the elite bureaucracy. Once initiated, it was imperative that the
involvement of people in the region should be total. Only then
would they be in a position to sustain the movement.

It is high time that we make a close scrutiny of the three

types of programmes described above. All these programmes are
at the micro-level, as these are meant for solving the problem of
poverty and these arouse the consciousness of the people regarding
the surrounding economic environment. But overall economic
development demands the linking up of all such micro-programmes,
which is an essential task before the country. There are many ways
in which macro changes initiated at the Centre can influence social
conditions at the village level. Changes in the planning procedures,
investment allocation towards the development of a new social and
economic structure, generation of employment opportunities etc.,
influence the conditions of existence at the grassroots level.

The different micro programmes which recognise absolute

poverty and aim at reducing such poverty suffer from two major
deficiencies. First, these programmes are based on the view that
poverty can be removed by some piecemeal methods. But the
roots of poverty lie in the skewed distribution of ownership of the
means of production. This aspect of the problem has generally
been overlooked in the micro programmes. It has to be recognised
that some change in the structures of the distribution of assets is
required for any success in the poverty removal programmes.

Secondly, these programmes are etilist in character in the

sense that these are imposed on the rural economy by the urban
elite groups or the government. The participation of the poor in
these programmes is minimal. Unless the poor themselves are
mobilized for the effective implementation of these programmes,
one essential requirement of the success of such programmes will
be lacking.
 NOTES

1. Fourth-Five-Year Plan – A Draft Outline, p.36.

Planning Commission, Government of India.
Draft Fifth-Five-Year Plan 1974-79, Vol.1, p.6.
According to the Draft:
“The existence of poverty is incompatible with the vision of
an advanced, prosperous, democratic, egalitarian and just
society implied in the concept of a socialist pattern of
development.” (p.6).

2. See Bardhan (1970), Dandekar and Rath (1971), Minhas

(1970), Ojha (1970) and Vaidyanathan (1974).

3. See Sen (1973. 1976).

4. On the concepts of poverty in absolute and relative senses,

there exists a large literature, see Townsend (1970), Rowntree
(1941), Rein (1970), Smolonsky (1966) and Titmuss (1962).
Fowntree defines poverty in absolute sense as follows:

“My primary poverty line represented the minimum sum on

whic physical efficiency could be maintained. It was a standard
of bare subsistence rather than living,” (pp. 102-103).

Again, Townsend defines poverty very broadly as inequalities

in the distribution of five resources, including income, capital
assets, occupational fringe benefits, current public services and
current private services.
He suggests that “needs which are unmet, can be defined
satisfactorily only in terms relative to the society in which they
are found.” He does not accept the distinction between
‘absolute’ and ‘relative’ poverty or between ‘basic’ and ‘cultural’
 needs, because he argues that the “needs which are believed
to be basic or absolute can be shown to be relative.” Here, he
suggests that “Poverty must be regarded as a general form of
relative deprivation which is the effect of the maldistribution of
resources”, and “that section of the population whose resources
are so depressed from the mean as to be deprived of enjoying
the benefits and participating in the activities which are
customary in that society can by said to be in poverty.”

5. P.P.D., Planning Commission (1974).

6. Sen (1973), (1976).

7. Such normative approach to the measurement of income

distribution has been developed by Atkinson (1970), Tinbergen
(1970) and Bentzel (1970).

8. For detailed analysis see Sen (1973), pp. 24-46.

9. Pifou (1912), p. 24.

10. Sen (1973), p. 29.

11. Roy, Chakraborti and Laha (1959).

12. Atkinson (1970): Vol.2.

13. A welfare function is concave if the weighted average of social

welfare levels from two income distribution x1 and x2 is less
than or equal to the social welfare of the weighted average of
the two distributions, when same weights are used; that is
[t.f(x1) + (l-t) f (x2)] f[tx1 + (l-t)x2]
For any t,
A welfare function is quasi-concave when the minimum of the
two social welfare levels from x1 and x2 respectively is less
 than or equal to the social welfare of the weighted average of
the two distribution. When the weak inequality ( ) is replaced
by strict inequality ( ), the function is strictly quasi-concave,
that is
Min [f(x1), f(x2)] f[tx1 + (l-t)x2]
For any t,
See Sen (1973), p. 52.

14. Dasgupta, Sen and Starrett: (1973), pp. 180-187.

These authors have generalized the result of Atkinson (1970) in
situations where size of population varies in two countries.
See again, Sen (1973), pp. 48-50.

15. Sen (1976).

16. Atkinson (1970).

17. See Atkinson (1970), Newbery (1970), Dasgupta, Sen and

Starret (1973).
Atkinson points out certain in egalitarian features of Gini
Coefficient and Newbery (1970) buttresses the criticism by
demonstrating that the Gini ordering over income distribution is
not implied by any additive social welfare function when the
individual utility function is strictly concave. Dasgupta, Sen
and Starret (1973) demonstrate that the Gini ranking cannot
be reflected by any group welfare function if it is strictly quasi-
concave on individual incomes. Moreover, they maintain that
the problem with the Gini Co-efficient is that the marginal
social rate of substitution between income accruing to
individual (j-l) is simply j/(j-l), and is thus independent of the
actual income differences between them. As a measure of
inequality this feature may well be unpalatable to some.
18. See Sen (1973), p.34.

19. Atkinson (1970), Atkinson (1975).

20. A value of the Index I, say 0.12, means that the same level of
social welfare could be reached with only 88 per cent [i.e. 1.00
– 0.12 = 0.88] of the present total income. Alternatively, the
gain from redistribution to bring about equality would be
equivalent to raising total income by 12 per cent.

21. Bentzel (1970).

22. Iyenger (1978), p. 297.

23. Sen (1973), (1976).

24. Sen (1976).

The income gap g1 of any individual I is the difference between
the poverty line z and his income yi
gi = z – yi
The poverty gap measure is normalized by Sen into a per-
person
percentage gap I*

Where S(Z) is the set of the poor. This I* is called the “income
gap ratio.”

25. Dadabhai Naoroji read a paper “Poverty in India” in 1876

before the Bombay Branch of East India Association in which he
worked out the per capita output of India.
Naroji, D. (1888), Rao, V.K.R.V. (1939), Ganguly (1965),
Maddision (1970), Marx (1943) and Dharampal (1971).
Maddison was critical about the Indian authors’ position on
 Poverty during the British rule. He questioned the claim of‘
some Indian nationalist historians that the Moghul period was a
golden age’. He quoted Abdul Fazl to show the example of
poverty in Orissa and Bengal. But the contrary view was
provided by Dharampal (1971).

26. Bardhan (1974) and Dandekar and Rath (1971).

Some studies [Kansal (1968), Radhakrishnan, Srinivasan and
Vaidyanathan (1974)] have compared for selected items the
NSS consumption estimates for individual commodities and
commodity flow estimates from official output data. There are
significant differences of coverage, differences in classification
and differences in valuation between the two sets of figures.

27. Bardhan (1970) and Minhas (1970) described in detail the use
of alternative price deflators.

28. Mahalanobis, P.C. (1962).

29. Mahalanobis, Op.cit.

30. Atkinson (1970), p. 191.

31. R.B.I. Bulletin, Supplement, October 1977.

Percentage of literacy in India was 33.8 in 1971 (Census).

32. Sukhatme (1965).

33. F.A.O. (1973).

34. Consumption of food grains increases from the poorest to the

relatively better-off expenditure brackets and this occurs much
more rapidly in rural areas than in the urban areas.
Table: Per Capita Daily Consumption of Food Grains and substitutes
at Consumption Levels below the average: (1960-61)

Monthly per capita

Per Capita Daily Consumption of Food grains
expenditure
and substitutes (grams)
(Rs.)
Rural Urban
0-8 356 332
8 - 11 480 377
11 - 13 560 388
13 - 15 616 412
15 - 18 625 418
18 - 21 675 445
21 - 24 705 485
24 - 28 690 506
Source: Dandekar and Rath (1971): p.6.
Table abridged

The per capita daily consumption of food grains and substitutes

in rural area reaches 616 grams for households with per capita
monthly expenditure of Rs.13-15. If one gram of food grains
and substitute gives 3.3 Calories, then 2033 Calories can be
obtained from 616 grams of food grains. According to the
estimate of Dandekar and Rath, this takes up nearly 60 per
cent of total consumption expenditure of these households.
They spend another 20 per cent on other items of food which
together give another 200 calories per day. Thus the entire
food at this level gives about 2250 calories per capita per day.
Thus in 1960-61, a monthly expenditure of Rs.13-15 was
essential to give a diet adequate at least in respect of calories.
As the urban households spend less on food than their rural
counterpart, they derive proportionately more calories from
food other than food grains and substitutes. The NSS data
suggest that the urban household secure the minimum calories
 requirement of 2250 at levels where their consumption of food
grains and substitute reaches 490 grams per person per day.

35. Bardhan (1973)

Table: Cost of Minimum diet for the month for an Individual

Consuming the items as in Column (1) on Daily Basis
Daily Cost of Diet over a month
1968-69 1960-61
(Rs.) (Rs.)
(1)
(2) (3)
Cereals 15 0z. 10.80 5.20
Pulses 3 0z. 3.35 1.51
Milk 4 0z 3.16 1.58
Gur 1.5 0z 2.06 0.72
Edible oil 1.25 0z 5.06 2.86
Total: 24.43 11.87
Source: Bardhan (1973)

Assuming that an average person is usually equal to 0.81 adult

unit, the minimum diet for an average person in rural India
costs Rs.19.79 per month in 1968-69 and Rs.9.61 per month in
1960-61. From NSS data it is seen that in 1960-61 total per
capita expenditure for the expenditure group which has roughly
an amount of food expenditure equal to the minimum diet
above was 46 per cent above that on cereals, pulses, milk,
sugar and gur and edible oil taken together; in 12968-69 the
former was 42 per cent above the latter. As proper norms for
non-food items are not available, these percentages are used
to obtain the blown-up estimates of per capita expenditure
bases on the cost of minimum diet. Thus the estimated rural
minimum level of living was Rs.14.00 in 1960-61 and Rs.28.00
in 1968-69.
36. Rudra, A. in Bardhan and Srinivasan (eds) (1974).

37. Minhas, B. (1970).

38. Tewari, S.G. (1968).

39. The estimated of Minhas is based on data from Second and

Third Agricultural Labour Enquiry conducted in the 11th, 12th
and 18th rounds of NSS. The numbers of 1960-61 are based
on crude guess work and rough interpolation. [Minhas (1970):
Appendix]

40. Ojha, P.D. (1970).

41. NSS, 16th round, July 1960 to Aug. 1961.

42. Data from NSS, 13th round, covering the period September
1957 to May 1958 suggest that the per capita intake of calories
for the lowest 20 per cent of Indian population is about 40 per
cent less than the All India average. The corresponding
percentage for protein is 38 per cent less, for fat 58 per cent
less (roughly). The study of Chatterjee, Sarkar and Paul
(1971) reveals that the concentration Co-efficient for calories
was 0.175 for the above period, for protein it was 0.187 and
for fat 0.288.

43. We find from NSS 18th round (February 1963 to January 1964)
data that urban price level was, on the whole, 15 per cent
above the rural price level for the general population. This
differential is 11 or 12 per cent for cereals and cereals
substitute, 14 per cent for other food items, 13 per cent for all
food items and nearly 26 per cent for the non-food items.
 Chatterjee and Bhattacharya in Bardhan and Srinivasan (des)
(1974).

44. Dandekar and Rath – (1971).

45. Fourth Five-Year Plan, 1969-70.

46. Bardhan, P.K. in Bardhan and Srinivasan (eds) (1974).

47. Radhakrishnan, Srinivasan and Vaidyananthan in Bardhan and

Srinivasan (eds) (1974).

48. Rudra, A. in Rao, C.R. (ed): (1974), p. 138.

The underestimation in the NSS estimate of the consumption

pattern of the poorer section of the population than the
average consumption pattern. This is seen in the lower in the
lower figures for the estimates of the consumption items of the
rich. Estimates of the purchases of gadgets and other durable
consumer goods based on the NSS data are seen to be
underestimates when compared with the corresponding supply
figures based on production and import statistics. As the
income distribution is highly skewed, the probability is
extremely high that the upper tail area representing the richer
sections of the population will remain unrepresented in the
sample.

49. Vaidyananthan, A. (1974a) in Bardhan and Srinivasan (eds)

Vaidyanathan (1974b) in Mitra, A. (ed) (1974).

50. Bardhan, P.K. (1970), (1971) and (1973).

51. Mukherjee and others (1974).

52. Bhatty, I.Z. in Bardhan and Srinivasan (eds) (1974).

53. Panikar, P.G.K. (1972).

54. Rajaraman, Indira (1975).

55. Bardhan, P.K. (1970a)

Bardhan finds that the “green revolution” has brought
prosperity in Punjab but that is true only for a handsome few
i.e., big Punjab but that is true only for a handsome few i.e.,
big peasants. It is seen that technological improvement in
agriculture has not been associated with diminution of rural
poverty as inequality in income distribution perpetuates. See
Mitra, A. (1977), p.144.

56. Hanumappa, H.G. (1978).

57. Centre of Development Studies, (1975).

58. Kuznets, S. (1966)

There exists a downward bias in the estimation of National

income as production for own consumption is not properly
represented. Kuznets makes an approximate estimate of the
extent of exaggeration in the national income accounts in the
developed country. Assuming that the net missing output in
the developing country would be a quarter of the total product
of the agricultural sector, and this, in turn, represents about 40
per cent of output in such countries, Kuznets concludes that
their telative per capita income should be raised by roughly
one-tenth.
59. David, P.A. (1972) and Usher, D. (1966), pp. 10-11 as cited in
Thirlwall (1972), p.26.
It is held that the exchange rates do not adequately represent
goods and services which are not exchanged internationally,
even if these reflect the relative prices of goods entering into
 foreign trade. In fact, real income per head in developing
countries is much higher compared with America than is
suggested by estimates obtained simply by converting per
capital-incomes into dollars at the official exchange rate (Usher
1966).

60. Kuznets (1963).

61. Morgan (1953).

Morgan shows greater inequality in Ceylon and Puerto-Rico

than in USA and UK. He generalizes his conclusion as follows:
“………that it will be found ………. that income distribution in
‘under-developed’ economies, by size, by occupations and by
national groups, is more unequal than in developed economies.
The persisting cause is immobility in the wildest sense: High
incomes, and surplus in general, are less subject to erosion in a
traditional than in a commercial industrial society.”

62. NCAER (1962).

63. Here the implication is that the cumulative frequency

distribution of incomes, when drawn on double-logarithmic
paper, follows the path of a reasonably straight line for income
above the mode.

64. The index number of wholesale prices in 1959 was 128.4 for
food articles (1953-100), 121.0 for industrial raw materials,
118.2 for semi-manufactures, 105.3 for manufactures and
117.3 for all commodities.
Source: Office of the Economic Adviser to the Government of
India.

65. Vaidyanathan, A. in Bardhan and Srinivasan (eds) (1974).

66. This is shown in the table below (Swamy, 1967).
Sources of Increase in inequality in the Size Distribution: All
India 1951-52 – 1959-60

Source Percentage Share

1. Intra-Sectoral Inequalilty 15.40
Rural 0.00
Urban 15.40
2. Inter-Sectoral Inequality 47.50
3. Sectoral Weights 37.10
Total Increase 100

67. Vaidyanathan (1974), Table 13.

For each year, three estimates are given; two for sub-samples
and one is the combined estimates of the two. Here the
combined estimates are considered.

68. In the literature dealing with the duality of the developing

countries with a modern exchange sector and an indigenous
subsistence sector it is assumed that supply of labour in the
subsistence sector is unlimited with wage rate often below the
subsistence level. Thus a decrease in the number of workers
as a result of migration to modern sector would not lower the
average product of labour and might even raise it.
See, for example, Lewis, A (1954), Dixit, A. (1970), (1971),
Fei, J.C.H. and Ranis, G. (1964) (1966) and Jorgenson (1967).

69. Betielle, A. (1969), Gough, E.K. (1955).

70. Betielle (1965).

71. Betielle (1966).

72. Divatia, V.V. (1976), p.20.

73. Pathak, Ganapathy and Sarma (1977).
According to these authors:
“The basic pattern of asset-holding ……... has not undergone
any significant change as judged by the assets distribution on
June 30,1971. If it all, the share of top asset-holding has
registered varying increases in most of the states resulting in
marginally higher magnitudes of oveall inequality” (p.517).

74. Shah, C.H. (1976), p.76.

75. A number of studies have supported this view; viz, Hanumantha

Rao (1976), and Laxminarayan and Tyagi (1976).

76. Saini, G.R. (1976), pp. A.17-22

Bardhan, P.K. (1974), pp. 301-307.

77. Rao, C.H.H. (1975).

78. Dantwala, M.L. (1976), pp.49-50.

79. Economic Survey, 1975-76, p.8.

80. Shettty, S.L. (1973), p.210.

81. NSS (1976), p.53.

82. ‘Introduction’ by Almond in Almond and Coleman (eds) (1960).

83. Bau, S.K. and Bhattacharyya, S.K. (1963).

84. Mitra, A. (1977), p. 144.

85. Sau, R. (1974), pp. 144.

86. Bagchi, A.K. (1975), pp. 157-164.

 Bagchi (1977), pp. 219-224.

87. Gupta, A.P. (1977).

88. Leontief, W. (1973), p. 78.

89. Mukherjee (1969).

This study reveals that, in India, the share of wages and salaries
were lower than poorest countries covered by Kuznets (1959),
while the share of the unincorporated business enterprises is
considerably higher. The share of income from asset is higher
than the average for poorer countries, (pp.266-67).

90. Draft Fifth Five Year Plan: Part I, p.32.

91. NSS 25th Round Survey of the weaker section of rural

population (1970-71) give the daily wage at Rs.2.03 per person
at 1970-71 prices.

92. Economic Survey, 1971-72, pp. 19-22.

Margin, July 1975.

93. Ibid, pp.23-24.

94. NSS, No. 215, 26th Round, July 1971 – September 1972: Table
on land-holding, All India, February, 1976.

95. R.B.I. – All India Debt and Investment Survey 1971-72:

Statistical Tables Relating to Cash Dues outstanding against
rural households as on 30th June, 1971 (1976).

96. Page, V.S. (1970), pp. 160-166.

Jakhade and Joshi (1970).
Gaikward (1971) quoted in Dantwala: p.53.
97. V. Rajan: 1978.

98. Maharaj and Iyer (1977) as quoted in Sethi (1978), pp. 1307-
1316.

99. Popper, Karl: Open Society and its Enemies,

Vol.II (Routledge and Kegan Paul, London, 1952).
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