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Mainstream, Vol XLV No 44

Poverty in India

Monday 22 October 2007, by Kripa Shankar


India inherited a colonial structure created by the British to perpetuate their rule and exploit the native land and its people. The zamindars were created to extract the rural surplus and to act as a bulwark of foreign rulers in the countryside. The prices of agricultural commodities were depressed to provide cheap foodgrains and other raw materials. The peasants were alienated from land as they were unable to pay the land revenue. The traders would also extract the surplus by buying at very low prices at the time of the harvest. The peasantry was forced to borrow for sheer survival and traders and others intensified the process of land alienation as the borrowers were hardly in a position to repay the debts.

Freedom brought some change but the colonial structure remained intact. Intermediaries were abolished but it did not mean any change in the power structure as land continued to be concentrated in a few hands. Ceiling measures did not result in any redistribution. An idea of land concentration can be had from the NSS’ 61st round in 2003. It has found that the bottom 51 per cent of the rural households had holdings of less than 0.2 hectare and they accounted for only two per cent of the land. It found that 60 per cent of the households had holdings of less than 0.4 ha and 80 per cent of the households had holdings of less than one ha. On the other hand, the top one per cent accounted for 15 per cent of the land. In such an oppressive structure the poor can hardly find any space to grow. Sixty per cent of the rural households with less than 0.4 ha can earn about Rs 12,000 from agriculture, about Rs 2000 from the livestock and wage labour may add Rs 4000. By no stretch of imagination such households can be said to be above the poverty line.

In any case the need is to provide additional wage employment to such persons preferably within the rural areas. Even higher productivity in agriculture cannot benefit them much because of their very low land holding.

In the past in the process of industrialisation the rural labour found increasing employment in the secondary sector with the result that there was a drastic fall in the number of persons depending on agriculture. In the developed countries only two-to-three per cent of the labour force is employed in agriculture as against 66 per cent in India. Technological progress has foreclosed this option. At present despite our industrial growth rate of more than 10 per cent, the labour force in the organised manufacturing sector is declining by over two lakhs per year. People are being drawn to the urban areas in the informal sector due to the faster growth in urban incomes contributing little to the productive base.

The challenge is: can this labour be absorbed in more productive work, preferably in the rural areas? If there is vast unutilised labour in the rural areas, there is equally vast unutilised resources also and the question is: how to put this labour in improving, reclaiming and regenerating these resources? Take the case of land. India has about 40 million ha of land which lies unutilised. Just as we have a regular army on which the annual expenditure is over Rs one lakh crore, a land army on contract basis can also be raised for utilising this land which will contribute enormously to the national wealth unlike the former. The Planning Commission has estimated that it will cost Rs 6000 per ha to develop such land on the watershed basis. It will be an ongoing process and can take care of the entire unemployed and unemployed rural labour force. But this is not on the agenda of the government as there is no provision for the same in the Budget.

Dredging of river beds is also highly desirable as over the years rivers have silted thus increasing the fury of floods. It is strange that ever since planning began, dredging of river beds has not been considered as a worthwhile activity and hence no allocation for it has ever been made.

Or take the case of rainwater conservation which is most crucial for agricultural growth as the bulk of the land has no irrigation facility. Two-thirds of the rainwater goes waste. If the same could be conserved in a network of check dams, bundies, ponds, dug wells, contour bunds etc. throughout the length and breadth of the country, almost every field can be provided with irrigation at a very low cost. At present rainwater is allowed to flow to the rivers and then brought back through canals at a huge cost. Conserving rainwater through watershed development is highly labour intensive and will provide jobs to millions of rural poor within the rural areas. This has not found favour with the government and only a token sum of Rs 1000 crores has been provided in the Central Budget of 2007-08 towards Integrated Watershed Development. The National Rural Employment Guarantee Scheme could as well be geared towards watershed development but the allocation for it at Rs 12,000 crores is less than two per cent of the total Budget.

All this requires massive resources but the government is lukewarm towards it. The tax-GDP ratio at 11 per cent is one of the lowest. It is two- to-three times higher in developed countries and one-and-a-half to two times in East Asian countries. Besides there are exemptions galore which, according to Budget 2007-08, resulted in a loss of Rs 235,191 crores to the exchequer in 2006-07. If the exemptions are withdrawn, budgetary expenditure on agriculture and allied activities, irrigation and water resources rural development including rural employment, land improvement and watershed development can be raised five fold. A free crop insurance scheme can be implemented to remove the blot of farmers’ suicides. Likewise a strong cooperative marketing network could be organised with rural godowns in every village so that agricultural prices may be determined by the producers themselves rather than by traders. This single step will go a long way in raising the income of the farming community. But the political leadership wants that agricultural prices should be kept low to finance industrialisation.1

The banking system should come to the aid of rural sector whereas it is acting as an instrument of transferring rural savings to metropolitan centres. Annually a sum of more than Rs 1,00,000 crores is being siphoned off from the rural bank branches to the urban and metropolitan centres. Likewise nearly a total of Rs 2 lakh crores is being siphoned off from the semi-urban branches. If bank loans could be had as easily and as instantly without the guarantor or security, the rural people can avail of it. It is a blot on the banking system that people are forced to borrow from private moneylenders at a to seven times higher interest rate. If the farmers’ loan is guaranteed by the government, the banks will have no difficulty in lending to the farmers. The Central Government has guaranteed the loans worth more than Rs 1,00,000 crores of bigger entities and can also guarantee the loan of farmers. The National Commission on Farmers has recommended that bank loan to farmers should be provided at an interest rate of four per cent. The government can implement it by suitably raising the amount of interest subsidy to the banks. This will raise investment in the rural areas that accounts for only four per cent of the total investment.

Apart from the quantum, the quality of government spending is also crucial. Why is the large spending not reflected in increased production and welfare? The Central and State governments spend close to Rs 1,00,000 crores annually on agriculture and allied activities, irrigation, rural development etc. but production of foodgrain is stagnating around 209 million tonnes and is lower than what it was six years back. Likewise the annual irrigation budget of Rs 25,000 crores does not result in additional irrigation. The gross area irrigated under foodgrains is stagnating around 52 million ha and is marginally lower than what it was five years back. The bureaucracy which executes is not accountable and there is no transparency. Consequently there are large leakages.

The only remedy is that developmental activities at the village level should be devolved to the village community. It will generate people’s enthusiasm and break their inertia and also put an end to the leakage and waste. The 73rd Constitutional Amendment 1992 under Section 243 G enjoins that 29 developmental activities should rest with the Panchayat and that

the Legislature of a State may by law endow the Panchayats with such power and authority as may be necessary to enable them to function as institutions of self-government…

There being a strong nexus between the bureaucracy and the political leadership on account of vested interests, no State Government is willing to devolve any power to the Panchayats or function in this direction.


1. A recent instance is the decision of the government to import five million tonnes of wheat at a price of Rs 1300 per quintal rather than pay more than Rs 850 per quintal to its own farmers. Likewise when it procures foodgrains the price covers only the cost of production and does not allow any profit margin. Farmers sell to the FCI because the traders do not pay even that price. Recently the National Commission on Farmers under the chairpersonship of Dr M.S. Swaminathan recommended that the government should procure at a price higher by 50 per cent over the cost of production to give them some profit margin. This has been rejected by the government.

The author is a Fellow, G. B. Pant Social Science Institute, Allahabad. He can be contacted at

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