Besides measuring poverty, India should not overlook inequality

  • Hindustan Times
  • Updated: Oct 05, 2015 23:27 IST
Different countries have different methods of defining the threshold income, depending on local socio-economic conditions (HT File Photo)

For policymakers, it would be heartening to note that India had the lowest poverty rates among countries that housed a large number of poor people.

The bad news, however, is that India also accounted for the largest number of poor people in any country in 2012, a latest World Bank report has said. While varying estimates of poverty muddy the picture, as does a perverse fiscal incentive for states of claiming inflated incidence, India should not miss the larger issue of inequality.

Economists set a poverty line, or a threshold income, to get a headcount of poor people in a country. Households earning below the threshold, or the poverty line, are considered poor.

Different countries have different methods of defining the threshold income, depending on local socio-economic conditions. In India, a couple of years ago, the national poverty line was fixed at Rs 27.2 a day for rural dwellers and Rs 33.3 for those residing in cities. The erstwhile Planning Commission’s estimates, based on the Tendulkar Committee methodology, show that there were 269.7 million people in India — or 21.9% of the population — that live below the poverty line. According to a study by a panel headed by C Rangarajan, former chairman of the prime minister’s Economic Advisory Council, there were 363 million people, or 29.5% of India’s 1.2 billion people, who lived in poverty in 2011-12.

The Rangarajan panel considers people living on less than Rs 32 a day in rural areas and Rs 47 a day in urban areas as poor. This World Bank report uses an updated international poverty line of $1.90 a day, incorporating differences in the cost of living across countries as well as country-level living standards data. The new projections suggest that there are 231.3 million poor people in South Asia, down from 309.2 million in 2012. Going by the size, it is only logical to assume that the bulk of these people are living in India.

One of the primary objectives of poverty estimates is to provide subsidised entitlements to the poor. The question is: How does one define the poverty line in India in which old yardsticks may not hold good, either in terms of buying food or defining the poor? Do these statistics accurately measure poverty, and what is the next step in poverty reduction for middle-income countries like India?

Just as a way of an example, it is difficult to argue that a family of five members with an income, of say, Rs 5,000 is poor and another with an income of Rs 5,200 is not. It appears certain that the focus should now shift to reducing inequality. Absolute poverty is an economic concept, but inequality is a sociological construct. On the development priority scale, reducing inequality should be accorded as much priority as clocking higher national income or GDP growth. In the final analysis, it would be foolhardy to ignore that yesterday’s luxuries are today’s necessities.

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