What Causes Poverty?

Poverty is explained by individual circumstances and/or characteristics of poor people. Some examples are –

  • (i)low levels of education and skills
  • (ii) infirmity, ill-health, sickness
  • (iii) discrimination

These can be caused as a result of –

  • (i) social, economic and political inequality
  • (ii) social exclusion
  • (iii) unemployment
  • (iv) indebtedness
  • (v) unequal distribution of wealth

Aggregate poverty is just the sum of individual poverty.

Poverty is also explained by general, economy-wide problems, such as –

  • (i) low capital formation
  • (ii) lack of infrastructure
  • (iii) lack of demand
  • (iv) pressure of population
  • (v) lack of social/welfare nets

Although the final impact of the British rule on Indian living standards is still being debated, there is no doubt that there was a substantial negative impact on the Indian economy and standard of living of the people. There was substantial de-industrialisation in India under the British rule. Imports of manufactured cotton cloth from Lancashire in England displaced much local production, and India reverted to being an exporter of cotton yarn, not cloth.

As over 70 per cent of Indians were engaged in agriculture throughout the British Raj period, the impact on that sector was more important on living standards than anything else. British policies involved sharply raising rural taxes that enabled merchants and moneylenders to become large landowners. Under the British, India began to export food grains and, as a result, as many as 26 million people died in famines between 1875 and 1900.

Britain’s main goals from the Raj were to provide a market for British exports, to have India service its debt payments to Britain, and for India to provide manpower for the British imperial armies.

The British Raj impoverished millions of people in India. Our natural resources were plundered, our industries worked to produce goods at low prices for the British and our food grains were exported. Many died due to famine and hunger. In 1857-58, anger at the overthrow of many local leaders, extremely high taxes imposed on peasants, and other resentments boiled over in a revolt against British rule by the sepoys, Indian troops commanded by the British.

Even today agriculture is the principal means of livelihood and land is the primary asset of rural people; ownership of land is an important determinant of material well-being and those who own some land have a better chance to improve their living conditions.

Since independence, the government has attempted to redistribute land and has taken land from those who have large amounts to distribute it to those who do not have any land, but work on the land as wage labourers. However, this move was successful only to a limited extent as large sections of agricultural workers were not able to farm the small holdings that they now possessed as they did not have either money (assets) or skills to make the land productive and the land holdings were too small to be viable.

A large section of the rural poor in India are the small farmers. The land that they have is, in general, less fertile and dependent on rains. Their survival depends on subsistence crops and sometimes on livestock. With the rapid growth of population and without alternative sources of employment, the per-head availability of land for cultivation has steadily declined leading to fragmentation of land holdings. The income from these small land holdings is not sufficient to meet the family’s basic requirements.

You must have heard about farmers committing suicide due to their inability to pay back the loans that they have taken for cultivation and other domestic needs as their crops have failed due to drought or other natural calamities (see Box ‘Distress Among Cotton Farmers’ below).

The scheduled castes and scheduled tribes are not able to participate in the emerging employment opportunities in different sectors of the urban and rural economy as they do not have the necessary knowledge and skills to do so.

The urban poor in India are largely the overflow of the rural poor who migrate to urban areas in search of employment and a livelihood. Industrialisation has not been able to absorb all these people. Most of the urban poor are either unemployed or intermittently employed as casual labourers. Casual labourers are among the most vulnerable in society as they have no job security, no assets, limited skills, sparse opportunities and no surplus to sustain them.

Poverty is, therefore, also closely related to nature of employment. Unemployment or under employment and the casual and intermittent nature of work in both rural and urban areas that compels indebtedness, in turn, reinforces poverty. Indebtedness is one of the significant factors of poverty.

A steep rise in the price of food grains and other essential goods, at a rate higher than the price of luxury goods, further intensifies the hardship and deprivation of lower-income groups. The unequal distribution of income and assets has also led to the persistence of poverty in India.

All this has created two distinct groups in society: those who posses the means of production and earn good incomes and those who have only their labour to trade for survival. Over the years, the gap between the rich and the poor in India has widened. Poverty is a multi-dimensional challenge for India that needs to be addressed on a war footing.

Distress Among Cotton Farmers

Many small land owning farmers and farming households and weavers are descending into poverty due to globalisation related shock and lack of perceived income earning opportunities in relatively well performing states in India. Where households have been able to sell assets, or borrow, or generate income from alternative employment opportunities, the impact of such shocks may be transient. However, if the household has no assets to sell or no access to credit, or is able to borrow only at exploitative rates of interest and gets into a severe debt trap, the shocks can have long duration ramification in terms of pushing households below the poverty line. The worst form of this crisis is suicides. The count reached 3,000 in Andhra Pradesh alone and is rising. In December 2005, the Maharashtra government admitted that over 1,000 farmers have committed suicides in the state since 2001.

India has the largest area under cotton cultivation in the world covering 8,300 hectares in 2002–03. The low yield of 300 kg per hectare pushes it into third position in production. High production costs, low and unstable yields, decline in world prices, global glut in production due to subsidies by the U.S.A. and other countries, and opening up of the domestic market due to globalisation have increased the exposure of farmers and led to agrarian distress and suicides especially in the cotton belt of Andhra Pradesh and Maharashtra. The issue is not one of profits and higher returns but that of the livelihood and survival of millions of small and marginal farmers who are dependent on agriculture.

Scholars cite several factors that have led farmers to commit suicides –

  • (i) the shift from traditional farming to the farming of high yielding commercial crops without adequate technical support combined with withdrawal of the state in the area of agricultural extension services in providing counselling on farm technologies, problems faced, immediate remedial steps and lack of timely advice to farmers
  • (ii) decline in public investment in agriculture in the last two decades
  • (iii) low rates of germination of seeds provided by large global firms, spurious seeds and pesticides by private agents
  • (iv) crop failure, pest attack and drought
  • (v) debt at very high interest rate of 36 per cent to 120 per cent from private money lenders
  • (vi) cheap imports leading to decline in pricing and profits
  • (vii) lack of access to water for crops which forced the farmers to borrow money at exorbitant rates of interest to sink bore-wells that failed.

Sources: Excerpted from A.K. Mehta and Sourabh Ghosh assited by Ritu Elwadhi, “Globalisation, Loss of Livelihoods and Entry into Poverty,” Alternative Economic Survey, India 2004-2005, Alternative Survey Group, Daanish Books, Delhi 2005 and P. Sainath, The swelling ‘Register of Deaths’, The Hindu, 29 December 2005.


Bibliography : NCERT – Indian Economic Development



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