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Asset Poverty in Rural India

Swati Dutta - September 2012

In order to formulate policy to target the correctly identified rural poor in India, focus on an income poverty measure alone is insufficient. The purpose of this study is to study a new area of poverty measurement based on a data which gives a household’s access to basic assets. The study, carried out for the Indian States, has used as secondary data provided by the Demographic and Health Survey (DHS) for the time periods of 1992, 1998 and 2005. In order to construct the asset index the technique of multiple correspondence analysis is used. A discussion of trends in asset poverty in various States in India follows together with the policies they need to follow depending on their state of poverty.

Measuring Poverty

Poverty is usually measured in terms of income or consumption expenditure. The main reason for selecting income as one of the indicators of poverty is that it gives a target certain standard of living. Moreover information on income is easily available and we can readily calculate the number of people whose standard of living is below a pre- determined level of income. However this does not tell us anything about who the poor are, why they are poor and whether their situation will improve in the long run. In India a major policy objectives towards poverty relief has been to cater to the consumption needs of the poor and not necessarily to enable them to get out of poverty. This type of benefit merely addresses certain aspects of a social and economic problem like a natural disaster, an unexpected negative income shock, or economic stagnation. It is focused only on the consequences of poverty, but not the root causes of the poverty.

However, if a household faces any temporary income shock then if they forced their children to withdraw from school they thereafter permanently hamper human capital formation. If human capital formation is affected in the first stages of life it will affect the ability to build financial capital and physical capital. Therefore a poor person also needs insurance against certain types of shocks which affects basic asset formation.

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