DRIVING INDIA FORWARDS: Poverty and inequality.

from Fund Strategy

Despite the strong growth in India's economy, a large proportion of its 1.1 billion population still lives in poverty. If this poverty line is measured on the basis of earning less than $1 a day, the World Bank's definition, 34.3% of India's population live beneath it, according to the 2007-08 Human Development Report (HDR). More than 80% of the population still lives on less than $2 a day.

The national poverty line, meanwhile, is defined as earning 450Rs (Indian rupees) a person a month. The HDR shows 28.6% of India's population lives below this threshold. The percentage in poverty, according to this definition, has declined from 55% in 1974 but the gap between the nation's richest and poorest continues to widen. The real debate is about whether poverty is declining despite this widening inequality.

TN Srinivasan, professor of economics at Yale, says consumption-based data suggests that inequality is rising across both regions and states in India. However, he says this is what would be expected when a relatively closed economy is opened to the world markets.

"When you open up an economy not all companies and regions can all take immediate advantage," he says. "Some develop faster than others, so regional inequality is to be suspected. The real question is are there processes in place to allow the laggards to catch up? This is where the political dimension comes in. Different states have more autonomy in the economic arena than was the case 30 years ago and these states watch each other and debate with each other as to how they can catch up."

The bigger problem according to Srinivasan is social inequality. This he says is a different matter altogether as it is a socially entrenched issue. "Groups in the lower end of the social ladder do find it harder to catch up," he says. "Changing this requires social and political policy. Yes, the lower-end groups will gain in terms of income on an absolute basis because of India's growth. In a relative sense they are not gaining so the inequality gaps continues to widen."