Poverty is traditionally defined as the state or condition in which a person or a community lacks the financial or physical resources to maintain a minimum standard of living. India, in particular, occupies an essential spotlight in the poverty alleviation arena since a third of her population faces extreme impoverishment. The COVID-19 pandemic exacerbated these figures even further. Over the last few decades, poverty reduction has been given the utmost importance, and its eradication is an essential component of achieving sustainable development. Innovative and compelling policies and strategies have been devised all over the world. Despite the noble efforts undertaken, some of these policies failed to uplift the Indian poor. However, the Indian government spends a massive amount of money every year administering and implementing anti-poverty reforms. Thus, it is evident that our understanding of this phenomenon is not very accurate. So, where are we going wrong?
To answer that, we must understand what the term 'poor' means. The poor is a category that has been established based on external physical characteristics. So often, when economists and policymakers are challenged to identify those who are poor, they are forced to make arbitrary choices in choosing what indicators accurately reflect their impoverished nature. Some of the most common indicators are wealth, per capita income/consumption, health and education, et cetera.
Corruption and leakages:
The first and perhaps the most significant issue behind India's poverty alleviation programs is corruption and leakages. Greedy government officials and intermediaries often take advantage of the facilities and schemes provided to the poor. Research has also shown that accountability mechanisms are not functioning correctly. For example, the infamous Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is infiltrated with several counts of corruption and atrocities via incomplete day cards, delay/ reduction in wage payments, and more.
Targeted programs and their political economy:
Many poverty alleviation programs specify target audiences. These are individuals and groups whom policymakers intend to make beneficiaries of the said program. However, identifying targeted groups is both problematic and costly in India. Typically, policymakers establish specific parameters to be fulfilled in identifying and helping the beneficiaries, but the chances of missing out on a portion of these targeted individuals are still significant. The possibility of schemes being misused and exploited by those who are not its intended beneficiaries of it in the first place also persist. For example: in India, over 90% of the agricultural land is owned and partly cultivated by less than 10% of the rural population. This small fraction is termed 'farmers' while the remaining 90% are poor labourers. Although the government has allocated land for these labourers and other production subsidies, factors like small landholdings, limited water resources, lousy soil, changing climate, and lack of access to formal credit prevent them from utilising the land entirely. Usually, such subsidies, when implemented, make their way only to the large farmers in rural areas while the poorest of the poor are left with nothing.
The political economy of targeted schemes is somewhat tricky because some targeted schemes typically end up being wound down, or beneficiaries of these schemes are unaware of their inclusion and hence cannot demand their quotas, or the scheme's benefits dwindle due to inflation. As Amartya Sen, an Indian economist, once claimed, benefits that go only to the poor are often poor benefits. For example, the Indira Gandhi National Old Age Pension Scheme (IGNOAPS), popularly known as the National Social Assistance Program (NSAP), provides a pension of rupees 200 per month to all citizens aged 65 and above. However, a staple of 200 rupees per month is not sufficient for senior citizens to have a decent standard of living. The Centre fixed this rate partly because it anticipated the state governments to add on to this amount. However, there is a substantial difference in terms of the amount added in various states. Thus, in some states, the old-age pension is Rs. 1500 while it remains Rs. 200 in the others. This rate has also not been subject to change for a considerable period. Such figures must be altered frequently with changes in price indices like the Consumer Price Index to account for inflation and a rise in living costs to be effective and sustainable in the long run. A common issue among several targeted programs is their isolated functioning. There has been no systematic attempt to identify and quantify areas facing poverty, determine and address their needs, and push them above the poverty margin. Sound targeted programs incentivise the poor to work harder by providing them with access to resources instead of only giving socio-economic or monetary benefits and protection. It allows them to help push them far away from the poverty line and on the path towards prosperity. Targeted programs must also be well-equipped with robust accountability mechanisms, clearly defined targeted audiences and consistent evaluations to ensure long-term returns from it. A key ingredient for the success of such programs is good governance.
Good governance:
Good governance is essential to build sensitive and inclusive institutions that uplift the poor. Unfortunately, good governance has become rare, be it in the rural or urban political scene. Policies and programs need to be subject to rigorous assessment and evaluation to ensure long-term efficacy and sustainability. However, the absence of good governance has also demolished accountability and transparency mechanisms. The process of identifying the poor must be well-structured with participatory identification as well to ensure the impoverished, differently-abled, tribal, and other marginalised individuals reap benefits from these institutions. The political spectrum still lacks adequate representation of such persons. Without representatives, the political system continues to remain ignorant of the interests and concerns of marginalised communities. So the process of identifying the poor is rather arbitrary and overlooks women, lower castes, disabled persons, LGBTQIA+ persons, and more. The absence of solid representation exacerbates the impoverishment of individuals from marginalised and disadvantaged groups, both in urban and rural settings. They also face several social, political and economic barriers that disincentivise them from active political participation.
The illusion of microfinance:
When Mohammad Yunus founded the Grameen Banks in Bangladesh in 1976, governments and policymakers welcomed microfinance institutions to eradicate extreme poverty. Microfinance rose to popularity over the last few decades because of its design: small loans, usually those less than US$100, are given and are usually meant for supporting small and micro-businesses. Loans are usually made to individuals but are guaranteed by groups that can demonstrate their capacity to repay. Most microcredit borrowers repay loans from income received at regular jobs or from grants provided by governments for self-help programs. Such loans are promptly repaid, even despite astronomical interest rates, because it creates an expectation in the minds of the poor for more microloans in the future. Microcredit lenders are not concerned about what the borrowers do with their loans.
Moreover, some microloans make borrowers eligible for government grants (whose amounts and features vary across India's states). The borrower will then use this free money to repay the third microloan (if taken). In short, the borrower is debt-free, the microcredit middle-man witnesses high returns and the government's grant does not generate productivity or reduce poverty. In short, it is merely a far-fetched way to offer someone free money.
Today, some for-profit funds and supposedly not-for-profit organisations market microcredit lending in developing countries and even offer advertised returns on investment. Not surprisingly, the middle-men — commercial banks and loan facilitators — gain the most from the distribution of funds to intermediaries and their loan rates. Commercial banks in India, for example, receive funds for microcredit programs from the government-run National Bank for Agricultural and Rural Development (NABARD) at 5% to 6%. These funds are lent to microcredit intermediaries at more grassroot levels at 10% to 12%, who, in turn, lend at 24% to 36% to the final borrower. Most poor people are not educated enough to realise how high the rate of interest is. They are relieved to have someone lend money to them to help them deal with any personal or financial obligations they may have. Microfinance, if made effective, can reduce poverty, but it is only of the several measures to do so. Without adjustments, this is a failed tactic, for it assumes that the problem of poverty is that of lending only. The present microcredit system in India offers no sustainable credit opportunities or development benefits to the poor, making microfinance a mere mirage in India's path toward poverty alleviation. A study conducted by the George Foundation of over 50 microcredit schemes in over 17 villages in South India found that less than 5% of beneficiaries begin microbusiness of their own. In the long run, only 2% continue their business beyond the first three years. Very few individuals in each village can succeed in business because they possess either the knowledge or skills.
Budgetary limitations:
Due to budget constraints, governments at the Central and State level cannot spend enough on the programs, thus withholding the impact these programs could have on the Indian economy and poverty. However, many programs demand intensive funds and resources to obtain optimum gains, pushing policymakers into a rather uncomfortable, paradoxical situation. Moreover, the allocation of funds among the alleviation programs also varies from state to state. This disparity persists due to delay in the transfer of funds from the Central to the State governments. Unifying regional disparities could help strengthen the attack against poverty.
The limited role played by NGOs and advocacy groups:
Non-governmental organisations occupy a pivotal role in poverty alleviation at the grassroots. Unfortunately, many of these groups face crippling funds, corrupt intermediaries and a multitude of other obstacles. NGOs in India are not involved in any significant developmental schemes independently due to budgetary constraints. They are forced to take on the government, foreign-assisted or other schemes often formulated and specified by planners and developmental agencies. These schemes do not give NGOs the freedom and flexibility to make their own decisions as they see fit in the implementation process. Thus, project proposals are prepared to reflect the requirements set by these planners in terms of methodology and outcomes. If they develop new ideas, they face issues, such as, and are not restricted to, the lack of funding, administrative barrier via permits and more. Stuck in an administrative rut, NGOs are helpless since they can either help implement government policies, including the economically unsound ones or face barriers while attempting to implement their interventions. Their grassroot involvement is minimal due to the growing focus on preparing reports for planners instead of analysing what benefits the poor.
Economics and poverty:
A fundamental error that has failed these policies lies in the fact that they are not of sound economic nature. Involving literature on the dynamics of chronic poverty and their authors can combat this issue. Those who formulate strategies to fight poverty must be adept at understanding critical economic principles and have an acute understanding of poverty dynamics in the targeted region, visualise its long-term impact, and be mindful of cost-effectiveness. Only when policymakers consider the socio-economic, psychological and political background of the target audience can policies be genuinely inclusive of and uplifting for the poor. Many of the policies did not consider the factors mentioned above while planning, which lowered their efficacy.
Poverty is multi-dimensional. Combatting poverty is no easy task. There is no one solution for the problem of poverty, making the fight against it that much harder. Poverty manifests in different forms in different places. Poverty is also a reflection of the region's social or political landscape. Likewise, different regions would require different interventions to fight poverty. Poverty is also intergenerational. So many who are poor now could pass on their impoverishment to the succeeding generation, which only magnifies the extent of the issue. Policymakers and governments at the state and Central levels failed to acknowledge the different dynamics of poverty, thus reducing the scope and possible consequences of the policy.
To alleviate poverty, policymakers and political parties must make sincere efforts to understand the lives of the poor instead of just appearing to help them at the time of elections to garner support and create a vote bank. This socio-economic pathogen of poverty is potent enough to suck the life out of the Indian economic machine and ruin us all, but are we going to let it?
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