Poverty to Vulnerability in Indian Rural States: An Asset‐Based Approach

Abstract

AbstractThe purpose of this study is to bring a new area of poverty measurement based on households' access to basic assets from across Indian States. In India, discussion on poverty is largely focused on the income/consumption expenditure–based measures. The major drawback of the income‐based measure of poverty is that it is unable to distinguish between the structural and stochastic nature of poverty. This article applies the asset‐based framework to poverty to find out the relation between structural and stochastic poverty. Further, the article incorporates the vulnerability measures of poverty to determine expected poverty, which allows decomposing expected poverty into expected structural chronic poverty, expected structural transient poverty, and expected stochastic transient poverty. The article has used the Indian Human Development Survey (IHDS) 2005. A three‐step feasible least square technique is applied to estimate the expected income and variance of income. We found that at the all‐India level, 12 percent of households are structural chronic poor, 26 percent of households are structural transient poor, 27 percent of households are stochastic transient poor, and the remaining 35 percent of households are stable non‐poor. At the State level, it is seen that Orissa experienced the highest structural chronic poverty, followed by Bihar and Uttar Pradesh in 2005. Additionally, it was found that structural transient poverty is highest in Madhya Pradesh, followed by Andhra Pradesh, Assam, and Bihar. Additionally, in Madhya Pradesh, followed by West Bengal, stochastic transient poverty is rather high. The results of the analysis suggested that India needs more directed policies to reduce poverty. Our results indicate the importance of asset formation for long‐term poverty reduction. There is a need for targeting policies towards the structural chronic poor, and structural transient poor, who need support in terms of institutional and infrastructural development, whereas stochastic transient poor households need social security or an unemployment scheme to smooth their standard of living.