Poverty in Emerging Economies

Where Is the Bedrock of Poverty?

Is gender inequality the bedrock and the key to achieving sustainable development? It is imperative to improve the participation of women in day-to-day decision-making. As far as the financial inclusion of the poor is concerned, there is a presence of gender inequalities. From the literature analysis, it becomes apparent that approximately 40% of poor women do not have any access to financial services. And 20% of the female population do not have any access to bank accounts. It is imperative to make women aware of their fundamental rights. There is a need to develop gender-friendly goals to develop smart products and services that cater to the unique needs of women. Information asymmetry is one of the major challenges faced by women in India. Women in rural India do not have any information about the financial products and services available in the market. Organisations must undertake capacity-building initiatives such as training and skill-building initiatives to facilitate women's empowerment. In different parts of the nation, the women members face difficulty accessing financial services. In most households, the women members report crimes inflicted upon them as domestic violence or lack of autonomy. Women generally do not have access to financial resources and depend on their parents, households, friends and informal networks to access finances and funds. There is a need to make changes in the regulations and laws and make them women-friendly. In most cases, the women depend on their husbands to access money and economic resources. The members of big traditional families are generally more inclined to have a male child than a female child. Over time, women in India are repeatedly being afflicted with various crimes such as poverty, rape, and attempts to demand dowry. The major reason behind these increasing social problems is the presence of disparities and the presence of a patriarchal system of governance. In patriarchal societies, there is a need to promote the equitable distribution of resources by providing them access to equitable opportunities. The Indian Government has undertaken various schemes and initiatives, including Government transfers and social welfare schemes such as the Sukanya Smridhi scheme to promote the empowerment of the girl child and promote the holistic development of women. Women need to be empowered by promoting autonomy in financial planning and decision-making. Within the social context of a village, the women members lack access to any physical collateral, which prevents them from accessing formal credit. Moreover, the extant literature highlights that women with higher levels of financial literacy can better manage their households and stand up for women's rights in the family. They can better fight the menace of domestic violence and promote harmony among family members. Attaining gender equality is one of the sustainable development goals, and gender equality further leads to economic growth. Various studies establish that a higher education level among women leads to lower inequalities and poverty. Women's economic and social independence leads to the reduction of economic inequality and higher employment opportunities. One of the major reasons for poverty among the people at the lower levels is the lack of women's empowerment. The levels of social exclusion are extremely high among the women members due to the lower level of education and various forms of behavioural and cultural biases. Various strands of literature define women's empowerment as gaining control over their lives by accessing choices in the strategic context. In this regard, it is essential to understand how access to financial services impacts women's lives at the bottom of the pyramid. One such initiative is the unique group lending initiative started by NABARD in 1992. This initiative provides access to financial services to the poor people at the bottom of the pyramid. In accessing the loans from the self-help group, the members need not have access to the physical collateral or any information about the poor. A homogenous set of people from a common background or geography generally forms these groups. These members already have information about each other and thus provide a guarantee. Through social capital, the poor members of the group get access to financial services in the form of loans and credit. Thus, the self-help groups ensure access to financial services for women in the unorganised sector. Individual-level factors impact poverty, including education, income, access to financial resources, ownership of assets, family demographics and psychographics. Similarly, macroeconomic factors such as climate change, economic resources, governance and availability of clean water and sanitation impact poverty. Besides the individual-level factors, various other contextual factors, such as the level of crimes, climate change, environmental quality and socio-economic infrastructure, impact the country's poverty levels. The existing studies have cited various elements that are important for fighting poverty. These factors include education and training, resilience to climate change, economic resources and basic needs, financial support, governance and social support.

Impact of Socio-Cultural Factors

Social exclusion is a mechanism or process by which specific communities and people are excluded and disadvantaged due to the discrimination they face in terms of gender, race, religion, caste, age, etc. In a society, the rules govern the behaviour of the community members. Through a process of negotiation, these rules and laws become customs. These customs govern the behaviour of individuals and give rise to the social attitudes and values in a particular society. The state then enforces these laws in the form of constitutional mandates. However, in some cases, the loopholes in the existing laws lead to discrimination and exclusion of certain groups. A straightforward example of social exclusion is discrimination among the members of society based on their place of domicile or birth. There is no mechanism to control the exploitation of the discriminated group. Poverty is a complex problem with multiple dimensions. Various socio-cultural factors such as religion, custom, family background, norms and values impact the poverty level in emerging economies. The social environment of a person has a profound impact on the economic prosperity and wellness of a person. Besides, the economic definition of poverty means an individual living at less than $1.90 to $3 a day. But poverty can also be defined as societal poverty. Societal poverty implies the ill-treatment of an individual at the hands of state agencies and society. The primary research highlights that people who lack access to financial resources are at risk of cultural exclusion. India is a diverse nation with people from diverse social backgrounds living together. Various negative cultural factors, such as prevalent customs, traditions and casteism, lead to vulnerability and increased poverty among the people at the bottom of the pyramid. Looking through the lens of social stratification of society, poverty is most prevalent among the economically disadvantaged sections of society, including people from scheduled castes and tribes. Minority communities are excluded from participation in economic activities and social activities. This discrimination and social exclusion lead to the problem of the vicious trap of poverty. Social exclusion leads to the denial of fundamental human rights among the members of society. Through the lens of entitlement theory, poor people are excluded, marginalised and relegated from participation in social activities. Social exclusion leads to exclusion from the right to life of dignity. It also leads to various discriminatory forces such as racism, casteism and unenforced civil rights. Different authors propagate that the lack of distributional rights is at the heart of the prevalence of poverty. India is a diverse country with multiple cultures and customs. Poverty is the cause and consequence of social exclusion. Customs have a significant role in impacting the economic and social well-being of the nation's diaspora.

Thus, though poverty in developing countries such as India has declined in absolute terms, in cultural terms, or in terms of exclusion, poverty has increased. This is adequately reflected in the increasing social crimes like dowry deaths, suicides due to higher debt levels, and social ostracisation. Social inequalities in society have increased manifold. Greek historian Aristotle has defined poverty as the inability to undertake significant economic activities. Further, Adam Smith has described poverty as the inability to face the public without shame. Most of the seminal literature on poverty has highlighted the relevance of customs and traditions in determining the economic status of the members of society. Thus, practices have a significant role in determining a country's economic status.

Within the Indian constitution, the fundamental right to equality is enshrined as a basic right, and theoretically, the caste system has been completely abolished. However, the ground reality is very different. Until recently, the caste system classified millions of people as untouchables and Harijans as outcastes. The people from the lower classes are denied work and access to basic amenities such as drinking water and shops, leading to economic inequalities and extenuating poverty. In a developing economy, within the theoretical framework of a financial system based on a rhetoric of equality, the rich and poor compete for limited economic resources. Due to the existing social setup with vast social inequalities, the wealthy class dominates and claims ownership of natural resources leading to the social exclusion of the poor. Thus, the neoclassical theories of a free-market economy do not apply to developing nations fraught with inequalities. Poverty in poor economies is a product of market failure due to the existing social pressures, norms and cultures. The media and other international agencies and institutions have undertaken many social movements to subvert the perils of caste-based discrimination and the subjugation of fundamental rights. An example of such a celluloid movement is Dalit cinema in India, which has been operating since the 1960s. These movies lead to a public debate about the social realities existing among the poorest sections of society. The entire film genre is dedicated to the cause of the oppressed and poor, who struggle hard to make a living. Popular cinema, since the 1950s, has made a subtle effort to give voice to the struggles of the poor sections of society.

Inequality and Relational Poverty

Relational poverty refers to a phenomenon when poor people are unable to participate in society or community. Much to the dismay, before the coming of Indian cinema and in the pre-independence era, the scenario in terms of class stratification was highly pathetic. Indus valley civilisation that existed 2,500 years ago is a testimony to the social stratification within the society. India is a diverse country with a rich culture, with a diverse history of rulers and kingdoms. Aryans from Central Asia introduced the caste system in India to control their vast kingdom in Southeast Asia. The narratives and chronicles from the Gupta Empire to the rule of Harshvardhan Raya in Southern India tell tales of how our holy scriptures granted a divine right to the ruling class and the priest class to control the general population through class stratification. Vedic scriptures, including the four Vedas, Upanishads and Bhagavad Gita, elucidate the existence of various courses and thousands of castes. Ancient Hindu manuscripts such as Vedas and Puranas, dating around 1700–1100 bce, mention caste distinctions. From 200 bce to 200 ce, Bhagavad Gita highlighted the importance of caste in India. The Laws of Manu and Manu Smriti highlighted the significance of the Varna System. The scriptures propagated the origin of humankind from the body parts of an Adipurush.

Untouchables, or the Dalits in Hindu society, were considered the most menial and lowest category of human beings. They were out-casted from Indian culture and were not allowed to be part of the social system. These members of society were involved in menial jobs like scavenging animal carcasses, leather work, or killing pests. Despite the historical glories of a golden age, after annexation to the British Empire, the gory realities of class stratification emerged as extreme subjugation of the marginalised sections and minorities. The advent of the British empire in 1757 with the establishment of British rule under administrators like Job Charnock, who adopted Indian customs and exploited the Indian social fabric of caste stratification, laid to extreme exploitation of the marginalised (Riser, 2009). It is the cradle of Asian culture and religions such as Hinduism, Sikhism and Islam and adopted multiple faiths like Christianity. Our nation has acceptance and tolerance for various beliefs and traditions. This diversity has led to social equality and the demolition of the ivory towers of the upper caste. Still, the communal strifes and conflicts pose significant hindrances to the country's development. The testimony to the contribution of cultural and subjective norms to the level of poverty in the country is the plight of tribes in India.

Though most social researchers believe that the lack of capabilities is the cause of poverty, the fact is that deprivation is the cause of failure and social exclusion. As aptly described by the Noble Prize-winning economist Amartya Sen, the notion of capabilities is individualistic and negates the social context of poverty. In an emerging economy with myriad inequalities, poverty is a product of social exclusion and deprivation. The central point to be noted here is that every kind of deprivation is not exclusion. Exclusion emerges from the problem of relatedness. When individuals are not permitted to relate to others, it leads to poverty. This is generally in the form of denial to let an individual participate in community activities. In a culturally diverse nation like India, which is the cradle of civilisation, the marginalised communities generally comprise cults and people who have been practicing a particular form of art for centuries. These people earn their livelihoods from family art or practice like sculpture making, weaving, beads work, handicrafts, snake charmers, etc. In modern society, the state's rules govern day-to-day life through customs and norms. But the implementation of these norms in the form of legal acts leads to the loss of cultural rights for these tribes, leading to social exclusion and accentuating poverty among the members of these groups. One such example is the Qalandar community of Karnataka. The members of this community make their living from the rearing of snakes and animal shows. However, despite such acceptance, they are subjected to harassment and lack opportunities to make a living by practicing art. Modern society tortures and discriminates against the legal existence of these communities, leading to large-scale poverty among people. This is also called the constitutive relevance of social exclusion.

Similarly, the Kalbelias or Jogi Nath, the snake charmer community of Rajasthan, live in the hamlets far away from the mainstream. The outsiders are not allowed to visit these hamlets and villages. In the Bejati village in Uttarakhand, caste discrimination is prevalent in this hamlet. The untouchables in this village mainly pursue traditional and artisanal work, which comprises vocations such as Ordh, Lohar, Tamta, Dholi, etc. They are not allowed to enter and have meals with the upper-class members in their villages and hamlets. The paradox of this community is that they have peacefully accepted the mandate and customs prevailing in an unjust society. Without Government support in the form of quotas in jobs and Government transfers, they are unwilling to fight for their rights. This further leads to poverty and misery in this community. Similarly, in the Attappady tribal block of Kerala state, the Adiya and Paniya tribe in the Wayanad district face abject poverty and a lack of dignified life. Attappady is one of the most culturally diverse districts, home to 27,121 tribes, out of which Irula is the most prominent tribe, followed by the Muduga and Kurumba groups. 25% of the tribal households live below the poverty line in abject poverty, and a vast majority do not even hold a ration card. Many of the kiths and kins of the fisherfolk community suffer from wasting, stunting and malnourishment. Thus, considering the social fabric of a diverse country like India, the problem of poverty is multidimensional. Cultural and subjective norms have a significant impact on the level of poverty in a particular community. These people who belong to small communities or in occupations that are looked down upon or frowned upon generally face a lot of humiliation and exclusion at the hands of state and institutional machinery. This is a form of constitutive relevance ¹ of social exclusion. This is constitutive relevance as it restricts the capability of specific individuals to participate in day-to-day activities. Inherently, it is highly inhuman and immoral.

Impact of Financial Inclusion

One of the studies by the Asian Development Bank found that it’s mostly the low-income and micro-sector enterprises that cannot afford and thus are financially excluded. The disadvantaged members of society or the members who lack access to financial services due to the lack of collateral and information about the creditworthiness of the poor are unable to participate in the functioning of the economy. The United States brought forward the notion of financial inclusion in 2005. The year 2005 was declared the International Year of Financial Inclusion. Reserve Bank of India (RBI), in April 2005, defined financial inclusion as a policy measure to ensure access to financial services for the poor. Most of the financial literature highlights the cost of poverty that the poor impose on society. This cost is mainly in the form of social costs and underdevelopment, and retardation of economic growth. Financial inclusion enables poor people to participate in economic and financial decision-making regarding consumption and investments. Financial inclusion ensures access, availability and usage of financial services for the poor. Most of the financial exclusion in the underdeveloped world is primarily involuntary, as the members of the society do not have access to financial services due to the lack of financial infrastructure, financial income, resources and capabilities, and market failures, including imperfections. Many earlier studies have looked into the dimension of financial inclusion and poverty Burgess and Pande (2005) found that expanding the rural financial infrastructure through bank branches helps reduce poverty and income inequalities in the economy. Mainly, the opening up of bank branches in rural regions helps to reduce poverty. Thus, most financial literature has consensus that financial development through financial inclusion reduces poverty and leads to economic growth. Various approaches to measuring poverty are given by Ruggeri Laderchi et al. (2003), including the participatory, social exclusion, capability and monetary approaches. Moreover, various financial techniques highlight that financial development and inclusion help increase the capacity to absorb financial shocks, smooth consumption and invest in health and education.

Various studies highlight that financial inclusion helps reduce income inequality in low-income countries by ensuring the equitable distribution of resources. Similarly Brune et al. (2011) finds that financial access through universal bank accounts reduces poverty among poor nationals. Honohan (2008) has highlighted that income inequalities and social underdevelopment lowers financial access and lead to poverty. Thus, many studies emphasise that financial exclusion leads to poverty. Usha Tharot report in 2007 has highlighted the role of banks and formal financial institutions, like Post Offices, in promoting financial inclusion among the poor. According to the literature, financial inclusion leads to access to financial resources, thus reducing inequalities, promoting savings among the poor and promoting economic growth.

Without access to financial services, poor people often resort to accessing finance from informal channels such as money lenders and shopkeepers. Besides the lack of financial infrastructure, the lack of financial literacy is the other reason for the financial exclusion of the poor. Many models and measurement techniques measure the poverty ratio as a function of financial inclusion and deepening. Endogenous growth theory highlights how financial development leads to a higher level of economic growth in the country. Approximately 734 million people live in extreme poverty, and they do not have access to financial services. Also, these people do not have the required level of financial literacy to access financial services. Thus, various supply-side and demand-side challenges inhibit access to financial services for the poor. Most unbanked people suffer from different demand-side challenges, including psychological barriers and exclusion, and condition exclusion, which includes the lack of financial literacy and education. Despite having access to financial infrastructure, in terms of access to financial services, many individuals in India cannot use financial services due to a lack of financial literacy. Most of these studies using various techniques highlight that financial inclusion leads to a reduction in income inequalities. Financial inclusion enables poor people to access financial credit, avail of investment opportunities and earn income through the promotion of savings among the poor. Thus, most of the literature and studies highlight that financial inclusion helps reduce inequalities, broaden access to credit, nurture entrepreneurial activities, and increase consumption and investment activities among the poor members of society. Through the various Government schemes such as subsidies and government transfers, financial inclusion helps to reduce the inequalities among the poor and thus reduce poverty. Financial inclusion benefits the poor people of rural society, particularly the young and the women. Financial deepening and financial inclusion through financial inclusion have a far-reaching impact on the development of the economy. One such scheme that has led to financial development through financial inclusion is (Pradhan Mantri Jan Dhan Yojana). This scheme has led to the universal bank opening under this scheme. This financial development and inclusion help to reduce socio-economic risk by promoting equitable distribution of resources and promoting the outreach of financial services to the poor. Financial inclusion helps poor women break the vicious cycle of poverty by promoting higher returns on investment.

The Trade-Off Between Profitability and Social Objectives – Mission Drift

In the 1960s, for the first time, the Indian state introduced the concept of financial inclusion. Until the 1990s, most financial initiatives aimed at providing microfinance to the poor were subsidy-based. However, in the 1990s, after the liberalisation of the economy, emphasis was paid to promoting sustainable finance. The focus of microfinance is fast shifting from subsidised microfinance to the market provision of finance to the poor. The literature highlights the dual mission of financial institutions, which includes achieving the goal of financial sustainability and achieving higher profits and return on investment (ROI). The roots of the concept of mission drift lie in two approaches to financial inclusion: the ‘financial system’ and the poverty lending programme. The financial systems approach emphasises large-scale outreach to the economically active poor – borrowers who can repay microloans from household and enterprise income streams and savers. It focuses on institutional self-sufficiency (Robinson & World Bank, 2001). The financial system approach mainly aims at building financial intermediation for the poor without financial support or subsidy. At the same time, the poverty lending approach concentrates on reducing poverty by providing access to concessional and subsidised credit for the poor. This credit is offered to poor borrowers at extremely lower rates of interest. The major objective of this approach is to enhance the well-being of the poor by providing monetary and social support. The Grameen Bank, run by Mohammad Yunus, has propagated this approach. Most banks and financial institutions do not find it worthy of lending to the poorer sections of society due to the lack of adequate profits. Thus, most formal and microfinance institutions face a trade-off between the outreach of microfinance to the poorest of the poor and financial sustainability through sufficient profits and returns on investment. One of the fundamental poverty/sustainability questions is whether services can be delivered at an affordable cost to clients. Case studies and community studies highlight the importance of cost structures and delivery methodologies of microfinance institution.

This form of poverty exists when the members of society are financially excluded. This is the case of instrumental relevance, as it restricts the ability of the individual to participate. A case in point is the exclusion of the members of society from participating in the credit markets, which reduces the capacity of the members to take advantage of the additional economic opportunities. India is an agricultural nation, with the majority of the people in rural India depending on agriculture for their livelihood. These people lack collateral, and banks and financial institutions do not have any information about the creditworthiness of the poor. This leads to financial exclusion and thus leads to loss of livelihood and abject poverty among the poor. Not only are these farmers excluded from credit markets, but the existing regulatory laws, such as APMC (Agricultural Produce Mandi Act), do not enable these farmers to access free markets for their agricultural produce. The farmers in India are generally marginalised, and their land holdings are tiny. They suffer from information asymmetry and do not have any information about the market prices prevailing in the agricultural markets. They suffer financial exclusion, as they cannot access free markets and depend on the commission agents to sell their agricultural produce. This exclusion is also instrumental as it excludes the farmers from getting a fair price for their agricultural produce. This exclusion prevents poor farmers from taking advantage of income-earning opportunities. The exclusion of this form, where the loopholes in the existing regulations avoid an individual from participating in financial decisions and processes, is mainly passive. Only 1/3rd of the farmers have access to the agricultural markets, and only 65% have access to institutional credit. Most of the time, the agricultural markets lack the infrastructure facilities such as warehouses to store agricultural produce. This leads to chronic poverty and retards economic growth and economic development.

Digitisation and Modernisation of the Ghazipur Mandi

The Ghazipur flower market is famous for the sale of its beautiful flowers. This market is set for modernisation to provide a platform for farmers to sell their agricultural produce at a fair price. With the digitisation of the agricultural markets, the auction process has been automated. Electric and digital boards have been installed in all the Mandis to ensure the right price for agricultural produce. Further, the Delhi Government is planning the expansion of the infrastructure through the establishment of cold storage and a warehouse to facilitate the sale and purchase of agricultural produce. This modernisation of markets will facilitate the provision of fair market prices to all the farmers for their produce. Despite all the efforts, the poor farmers must sell their agricultural produce through the commission agents. They are able to get fair prices due to the digitisation of the markets and the electronic display of the prevailing market prices. There is some hope that the digitisation of markets might eliminate the presence of intermediaries. These farmers are small farmers, and they are unable to get access to credit due to the lack of collateral. The banks and financial institutions do not have information about the creditworthiness of the poor. Fig. 2 provides the primary classification of the different forms of social exclusions that lead to the problem of poverty. A social exclusion with constitutive relevance is inherently bad and negative and leads to poverty. A case in point is caste discrimination, the denial of certain social classes from visiting the well and public places. And the instrumental relevance has consequences that are not bad but have effects, such as a lack of access to credit markets (Fig. 3).

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Fig. 2.

Factors Impacting the Level of Poverty.

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Fig. 3.

Sources of Poverty.