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A glance at poverty in Nepal

So, today is the Blog Action Day. This year’s topic is poverty. Here is my blog post about poverty in Nepal.

Nepal, which has a per capita GDP of US $470 (2007/08), has seen witnessed impressive progress in poverty reduction in the last decade. According to NLSS II, the headcount poverty rate declined from 42% to 31% between 1995/96 and 2003/04, urban poverty declined from 22% to 10%, and rural poverty declined from 43% to 35%. One of the major challenges for policymakers now is to make sure that villages are not left behind in the process of growth and development. Proportionally, the benefits of improvement in GDP growth rate has gone to the urban folks while the village folks, who are the ones reeling under poverty and hunger, are left behind. Adverse production season and global rise in commodity prices has put more than 25 districts under the radar of acute food shortage, according to the WFP.

The bad news: inequality increased—Gini coefficient shoot up from 34.2 to 41.1

Reasons for decrease in poverty, according to the WB, are:

Remittances: A significant increase in remittances propped up consumption. The proportion of households receiving remittances increased to 32% in FY03/04 from from 24 percent in FY95/96. In 2004, about 1 million Nepalese worked abroad, primarily in India, the Gulf and East Asian countries. Also, the average real remittance amount has risen by more than 80% .

Farm wages: After improving productivity and tightening the labor market, agricultural wages increased by about 25% in real terms over ten years. Increased demand, coupled with improved connectivity and better access to markets, stimulated entrepreneurial activities and allowed for non-agricultural wages and incomes to increase.

Urbanization: Increased urbanization moved workers from low productivity jobs in rural areas to higher productivity jobs in urban areas.

Fertility: The decline in fertility (starting in the 1980s) reduced the household size and the dependency ratio.

According to the Nepal Living Standard Survey II (NLSS II), self-reported welfare has improved across all types of consumption over the last eight years. If we assign households reporting "less than
adequate" consumption as self-reported “poor”, such subjective poverty has decreased substantively from 1995/96 to 2003/04. In this period, inadequacy in food consumption has declined by 21 percentage points, housing by 23, clothing by 22, health care by 31, and schooling by 24 percentage points. Inadequacy in total income, however, shows a slight decline from an already very high rate in
NLSS I.

Description	Survey Year	Survey Year
% of HH reporting “less than adequate”	1995/96	2003/04
Food consumption	50.9	31.2
Housing	64.1	40.6
Clothing	57.6	35.6
Healthcare	58.7	28.3
Schooling	45.4	21.4
Total income	72.6	67.0

 

Increase in remittances is one of the main factors that led to such a progress in poverty reduction. Inward remittance flows amounted to 18% of GDP in 2006 (US$ 1453 million in 2006). Emigrants constituted 2.8% of the population in 2005. Usually, youths from poor households go abroad to do labor work and send money back directly to their families. Unlike foreign aid or investment plans (where money gets filtered among different strata of the bureaucracy, leaving a gap between what is initially allocated and what is delivered on ground during implementation), remittances are sent directly to households, which, in turn, is used to fulfill consumption needs. It might be surprising to note that reduction in poverty level in Nepal has little to do with meager economic growth rate and the rate of expansion of the manufacturing sector (see the figure below).

Agricultural productivity and the level of inflow of remittances are the two most important variables of the poverty function in Nepal. As money gets into household’s hand readily from these two variables, they use extra income in consumption. It is hardly surprising that there has been a booming demand for consumer products, especially those made in and imported from China. People buy cheap Chinese products ranging from TVs to fancy cloths and bikes (yes, they do…leading to horrible traffic congestion!). Earlier, we used to joke:  Material standard of living has leapfrogged real standard of living because of the influx of Chinese goods in the market. Well, who cares as long as people have money to spend on them!