What Causes Poverty?

The causes of poverty lie in the institutional and social factors that mark the life of the poor. The poor are deprived of quality education and unable to acquire skills that fetch better incomes; access to health care is denied to them; and they are the main victims of caste, religious and other discriminatory practices. These conditions can result from (i) social, economic and political inequality, (ii) social exclusion, (iii) unemployment, (iv) indebtedness and (v) unequal distribution of wealth.

The British rule and Indian poverty. Although the final impact of British rule on Indian living standards is still debated, there was a substantial negative impact on the Indian economy. There was substantial de-industrialisation — imports of manufactured cotton cloth from Lancashire displaced local production and India reverted to exporting cotton yarn, not cloth. As over 70 per cent of Indians were engaged in agriculture, British policies that sharply raised rural taxes (letting merchants and moneylenders become large landowners) and forced the export of food grains hit living standards hardest — as many as 26 million people died in famines between 1875 and 1900. Britain's main goals were to provide a market for British exports, to have India service its debt payments to Britain, and to provide manpower for the British imperial armies. The Raj impoverished millions.

Land and the rural poor

Even today, agriculture is the principal livelihood and land the primary asset of rural people; owning some land gives a better chance to improve living conditions. Since Independence the government has attempted land redistribution — taking land from those with large holdings to give to landless wage labourers — but this succeeded only to a limited extent: many recipients could not farm their small holdings for want of money (assets) or skills, the holdings were too small to be viable, and most states failed to implement redistribution policies.

A large section of the rural poor are small farmers whose land is generally less fertile and rain-dependent; their survival depends on subsistence crops and sometimes livestock. With rapid population growth and no alternative employment, the per-head availability of cultivable land has steadily declined, leading to the fragmentation of landholdings, and the income from these small holdings is not enough to meet a family's basic needs. This distress is behind the tragedy of farmers committing suicide when crops fail and loans cannot be repaid (Box 4.3). Most members of the scheduled castes and scheduled tribes, lacking the necessary knowledge and skills, are unable to participate in emerging employment opportunities.

Box 4.3: Distress Among Cotton Farmers

Many small land-owning farmers, farming households and weavers descended into poverty due to globalisation-related shocks and a lack of income-earning opportunities. Where a household could sell assets, borrow, or find alternative income, the impact was transient; but where it had no assets, no access to credit, or could borrow only at exploitative rates, the shock pushed it below the poverty line — the worst form being suicide (the count reached 3,000 in Andhra Pradesh alone; in December 2005 the Maharashtra government admitted over 1,000 farmer suicides in the state since 2001). India has the largest area under cotton cultivation in the world, but a low yield pushed it to third in production. High production costs, low and unstable yields, falling world prices, a global glut due to subsidies by the U.S.A. and other countries, and the opening up of the domestic market increased farmers' exposure and led to agrarian distress, especially in the cotton belts of Andhra Pradesh and Maharashtra. Scholars cite the shift to high-yielding commercial crops without technical support, declining public investment in agriculture, spurious seeds and pesticides, crop failure and drought, debt at interest rates of 36–120 per cent from private moneylenders, cheap imports, and lack of water forcing farmers to borrow for failed borewells.

Employment and the urban poor …