Poverty and inequality
Please click here to access the key messages of the report entitled: Humanity divided: Confronting inequality in Developing Countries, UNDP (January, 2014).
According to the report entitled: From poverty to empowerment: India’s imperative for jobs, growth, and effective basic services (2014), produced by McKinsey Global Institute (MGI) (please click here to download the report):
• The Empowerment Line prepared by McKinsey Global Institute (MGI) reveals that 56 percent of India’s population lacks the means for a minimum acceptable standard of living
• Based on Empowerment Line, some 680 million Indians are deprived—more than 2.5 times the population of 270 million below the official poverty line. Overall, the Empowerment Line’s minimum standards of consumption are approximately 1.5 times higher than those implicit in the official poverty line. Consumption requirements for health (including drinking water and sanitation) and education are 5.5 and 3.8 times higher, respectively, reflecting the minimum cost of meeting these essential needs.
• India’s Empowerment Line stands at Rs. 1,336 per capita per month, or almost Rs. 6,700 for a family of five per month. As of 2012, the consumption levels of almost 680 million people across both urban and rural areas of the country fell short of this mark. This far outstrips the 270 million Indians below the official poverty line.
• At a more detailed level, the Empowerment Line is set some 38 percent higher for urban India than for rural India. Based on this benchmark, 171 million urban residents (or 44 percent of the urban population) were below the Empowerment Line, compared with 509 million rural residents (or 61 percent of the rural population).
• The Empowerment Gap, or the difference between each person’s current consumption and the levels called for in the Empowerment Line, is about Rs. 332,000 crore ($69 billion) per year, or 4 percent of GDP. This is seven times larger than the Rs. 50,000 crore ($10 billion) poverty gap (that is, the difference between the current consumption of India’s officially poor and the level implicit in the government’s poverty line).
• McKinsey Global Institute (MGI) has classified three segments of the population according to their depth of poverty. Some 57 million Indians are classified as “excluded”; they are the poorest of the poor, unable to afford minimal food, shelter, and fuel. An additional 210 million are impoverished”, with consumption above bare subsistence levels but still below the official poverty line. Just above the official poverty line, some 413 million Indians are “vulnerable”. They have only a tenuous grip on a better standard of living; shocks such as a lost job or a bout of illness can easily push them back into extreme poverty.
• Apart from income-based deprivation, India’s people also lack access to 46 percent of the basic services they require. Health care, clean drinking water, and sanitation-these basic services make up the largest share (39 percent) of the cumulative Empowerment Gap of Rs. 332,000 crore ($69 billion).
• In order to complement the Empowerment Line, McKinsey Global Institute (MGI) introduced a second parameter to measure this: the Access Deprivation Score (ADS), which captures the availability of basic services at the national, state, or even the district level. The ADS metric reveals that, on average, Indian households lack access to 46 percent of the basic services they need.
• Three-quarters of the reduction in the Empowerment Gap achieved from 2005 to 2012 was due to rising incomes, while one-quarter was due to increased government spending on basic services. The contribution of rising incomes could have been even higher, however, if India had created non-farm jobs at a faster pace and boosted agricultural productivity—and the recent economic slowdown has stalled further progress on these fronts.
• If India’s recent weak economic momentum persists in the coming decade, in what McKinsey Global Institute (MGI) has termed the “stalled reforms scenario”, some 470 million people, or 36 percent of India’s population, would remain below the Empowerment Line in 2022 and as much as 12 percent would remain below the official poverty line.
• India can bring more than 90 percent of its people above the Empowerment Line in just a decade by implementing inclusive reforms. The inclusive reforms scenario hinges on four key elements: a. Accelerating job creation; b. Raising farm productivity; c. Increasing public spending on basic services; and d. Making basic services more effective.
• Job growth in non-farm sectors combined with productivity growth in agriculture would directly contribute to lifting more than 400 million people above the Empowerment Line, or more than 70 percent of the total impact in the inclusive reforms scenario. India needs to create 115 million non-farm jobs through cross-cutting reforms and targeted public investment.