The politics of poverty has trumped the economics of poverty. The Centre was expecting praise for the sharp decline in India’s poverty. But social activists and the middle class were shocked that the poverty numbers had been fixed at such absurdly low levels.
The states and others benefiting from poverty-related entitlements felt that these benefits could wane. On top of it all there is also the issue of human dignity. Any attempt to fix the poverty line at levels that common sense suggests would not enable dignified living is repugnant to our moral values.
Do we have any universally accepted definition of poverty? How do we define a poor person, which, in any case, is a relative expression? The rationale of all economic strategy is to bring down the number of people who by a given yardstick are categorised as poor to become at least less poor.
The present controversy erupted after the latest numbers released by the Planning Commission of India suggested a sharp decline in poverty. The new estimate suggests that 137 million people (15% of the population) have lifted themselves out of poverty between 2004-05 and 2011-12.
The current estimates are based on the Tendulkar panel methodology that fixes Rs 27.2 of daily spent for rural population and Rs 33.3 for those residing in cities as the poverty line.
This implies, for a family of five, the all-India poverty line in terms of consumption expenditure would amount to about Rs 4,080 per month in the rural areas and Rs 5,000 per month in the urban areas.
Thus there were 269.8 million people or 21.9% of India’s population which lived below the poverty line in 2011-12 as compared to 37.2% or 407.1 million in 2004-05.
Critics have questioned the sharp decline in poverty levels both on account of high food inflation and issues of human dignity. However, the poverty line has found support from those who argue that it mirrors the World Bank’s definition of poverty of $1.25 per-day based on Purchasing Power Parity.
Poverty means different things in different countries, depending on the definition of the poverty line. Several countries in Europe adopt a method under which a family with a net income of less than 60% of the average income is considered poor.
This implies an increase in the income of the richer class will automatically set the poverty line higher with the increase in the national average income.
In the US, the poverty line represents the basic cost of food for a family multiplied by three and the threshold level is routinely adjusted for inflation. South Africa has three poverty lines: food poverty line, lower bound and upper bound.
Likewise, in most African countries, the poverty line is defined by the citizens’ ability to spend.
The earliest effort to estimate poverty in India was by Dadabhai Naoroji who estimated a subsistence-based poverty line at 1867-68 prices ranging from R16 to R35 per capita per year.
Post independence, a working group of eminent economists recommended in 1962 that the national minimum for each household should be not less than R100 per month in rural areas and Rs 125 for urban areas at 1960-61 prices.
India’s first official poverty line was fixed in 1978 by a task force led by YK Alagh. The panel defined the poverty line as per-capita expenditure level to meet the per capita calorie requirement of 2,400 kcal in the rural areas and 2,100 kcal in urban areas.
The Lakdawala Committee (1993) continued the practice of defining poverty in terms of per capita expenditure corresponding to calorie requirements, but the price index was changed from an all-India price index to state-specific ones.
The Tendulkar committee (2005) moved away from the pure calorie norm to provide a uniform ‘poverty line basket’ to both the rural and urban population. The government recently constituted one more expert group headed by C Rangarajan to re-examine the methodology for fixing a poverty line and estimating the incidence of poverty in the country.
Notwithstanding several expert committees, the definition of poverty in India remains elusive and debatable. So what are the unsettled issues? First, poverty estimation does not consider the multi-dimensional nature of poverty.
It fails to capture multiple deprivations including nutrition, health, sanitation and drinking water. A multidimensional poverty index would be morally more acceptable and consistent with human dignity, but suffers from the risk of subjectivity as it is difficult to agree on weights to be assigned to the different dimensions.
Second, the dichotomy of sharply falling poverty rates in the years of slow growth is not explained by the present index. The previous year for which a comparable estimate based on the Tendulkar methodology is available is 2009-10. In that year, the incidence of poverty was reported at 29.8%, reflecting a decline of 7.4 percentage points compared to 2004-05.
A further 8% reduction in poverty levels over the next two years, coinciding with a fall in GDP growth rate, raises concerns about the linkage between poverty reduction and economic growth. The other side of the argument is that 2009-10 was a drought year, with real consumption, which has not been accepted as the base for updating the National Accounts Statistics.
Third is the disconnect between falling poverty and the index of social wellbeing. The progress achieved in terms of the social indicators such as literacy, enrolment ratio, infant mortality and malnutrition do not tally with the poverty reduction record that the commission’s methodology yields. This trend points at a strong disconnect between economic and social wellbeing that requires appropriate policy responses.
Fourth, the Below Poverty Line as a measure has serious limitations on account of inclusion and exclusion errors. While Planning Commission-derived poverty lines have been all important in the past for deciding entitlements, their inappropriateness today is questionable since the government itself is moving away from this approach.
The most recent example is the proposed National Food Security Act. If only 21.9% of India’s population is poor, then it is difficult for the government to justify distributing heavily subsidised rice and wheat to nearly 67% of India’s population.
Fifth is the question of faster decline in poverty numbers in times of high food inflation. The Tendulkar method follows the price data from NSS surveys rather than the Consumer Price Index (CPI) price data.
It uses the median price obtained from the NSS consumption expenditure survey for each state, thereby ignoring the price fluctuations captured through the CPI relevant for a consumer. The very rapid exit from poverty in a short period of time also suggests that there are large numbers of people still quite close to the line who may slip back into poverty on account of the high food inflation.
Finally, the absolute level of poverty continues to be worrisome. Despite the 15% decline in poverty achieved during the seven year period between 2004-05 and 2011-12 more than 270 million people in India still remain below the poverty line, the highest in the world. However, there is satisfaction that decline in poverty levels have been much faster in some of the backward states such as Bihar, Odisha, Rajasthan and Madhya Pradesh.
The roots of poverty and deprivation are deeply entrenched in both politics and economics of poverty. The methodology to define poverty, their actual state-wise computation and administration, need an independent assessment.
The Planning Commission presents a statistical trend and that trend suggests a sharp decline. It does purport to be a comprehensive definition of poverty. A life with dignity is what should ultimately measure our success. And that still looks a long way away.
NK Singh is a Rajya Sabha member and a former revenue secretary
The views expressed by the author are personal