From penury to affluence

The Congress manifesto for 2019 elections announced with elan an ambitious Nyuntam Aay Yojana (NYAY) that guarantees a cash transfer of Rs 72,000 a year to the poorest 20 per cent of the families without compromising fiscal prudence. This is inspired by Rawlsian difference principle that “...social and economic inequalities are to be arranged so that they are... to the greatest benefit of the least advantaged”. 

The spate of recent commentary is largely ill-informed, hostile, and ideological, and occasionally favourable but with serious fiscal concerns. Some are even concerned about its perverse incentives such as discouraging job search. Apart from the mistaken concern for perverse incentives (lump sum transfers do not affect the labour-leisure choice), what the commentary lacks is solid empirical evidence one way or another. In a previous comment, we sought to fill this gap and offer insights into targeting of NYAY and how state environment matters. 

Here we focus on income mobility-from the poorest to moderately better-off and (relatively) affluent over the period 2005-12, based on a detailed analysis of India Human Development Survey 2015. This is the only nationwide panel survey of income distribution. Three income categories are constructed: poorest in 2005 (≤20 per cent in terms of per capita income) who remained poorest in 2012; poorest in 2005 who moved up into the next higher income category (21 per cent-≤50 per cent) or moderately better –off, and the highest (>50 per cent) or relatively affluent.

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Let us first consider salient facts of income mobility of households during this period. 34.50 per cent of the poorest in 2005 remained poorest in 2012, while a little over 37.5 per cent moved up into the category of moderately better-off and about 28 per cent into relatively affluent. Besides, per capita incomes rose markedly. The poorest who remained poorest recorded an increase of 1.35 times; the larger category of the poorest saw a markedly higher increase of 2.9 times; the moderately better-off doubled their income; in sharp contrast, the relatively affluent experienced the lowest increase of 1.06 times. Thus there was considerable upward income mobility-from a state of penury to affluence.

Now let us examine the factors underlying the upward income mobility of the poorest, based on a state-of-art econometric model. 

Poorest in the general category of castes were less likely than OBCs to move up into moderately better-off during 2005-11. In sharp contrast, they were more likely to be among (relatively) affluent. SCs did not show any upward movement. However, STs were less likely to move up the income ladder. 

Illiterate poorest were more likely than those with middle level education to move up into moderately better-off but less likely to be (relatively) affluent during this period. Those with some education (one-five years of education) were more likely to be moderately better-off but less likely to be affluent. Matriculates were less likely to be moderately better-off but more likely to be (relatively) affluent. Some of these results are seemingly implausible as educational attainments denote highest level of an adult in the household.

Occupations of the poorest reveal  an interesting contrast. Labour households displayed a lower probability of moving up into moderately better-off but a higher probability of becoming (relatively) affluent. A similar pattern of income mobility is observed among artisanal households, those in organised business, salaried and others. Arguably, this could be due to the low threshold of (relative) affluence (that is, above the median income). 

Poorest in 2005 exhibited a higher probability of becoming moderately better-off but a lower probability of moving up into (relatively) affluent relative to not- poor who remained not-poor. 

State environment in terms of affluence (that is, NSDP per capita) and inequality a la Piketty (that is, share of top 1 per cent of state income distribution) reveals an interesting contrast. State affluence is associated with a lower probability of poorest becoming moderately better-off but a higher probability of being (relatively) affluent compared with not-poor who remained not-poor. The pattern is reversed with higher inequality’s positive association with poorest becoming better-off but a negative association with becoming (relatively) affluent.

While NYAY is a first important step towards justice to the most deprived, much more is needed to enable a transition from penury to affluence in terms of investment in education, overcoming of caste barriers against advancement of the poorest (that is, exclusion of STs from the mainstream of economic activities), occupational diversification, state affluence, and curbing of income inequality drastically. 

In conclusion, from penury to affluence is far from a fairy tale, as the poorest could be enabled to do much better.
/> Kulkarni is lecturer in Sociology, University of Pennsylvania, USA;  Gaiha is (Hon.) professorial research fellow, Global Development Institute, University of Manchester