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The poverty line debate

The Planning Commission’s poverty line affidavit — that a person spending Rs32 in a day is not poor — raised a storm. It’s time for a reality check. Kirit Parikh writes.

india Updated: Oct 02, 2011 01:11 IST

Planning Commission’s affidavit to the Supreme Court states that adjusting for inflation, the poverty line for an urban person is Rs 32.5 per day per person and for a rural person it is Rs 29.3 per day per person. This has raised an outcry in media and the urban middle class, who consider them outrageously low. Based on these poverty lines, Planning Commission estimates that there are 40.74 crore persons below the poverty line in 2010-11. For comparison the population of India in 1950-51 was 35.9 crores.

Why should one define a poverty line? This takes us back to the 2nd plan period when Ram Manohar Lohia raised the question in the parliament: who benefits from the development from five year plans? Jawaharlal Nehru recognised it as an important concern and set up a committee under P.C. Mahalanobis to inquire into levels of living. In that connection, a poverty line was defined based on total monthly expenditure that would provide intake of 2,400 calories per day per adult person in rural areas and 2,100 calories per day for an urban person. This resulted in poverty lines of Rs 16 per person per month for a rural person and Rs 20 per person per month for the urban person at 1960-61 prices.

This poverty line is being updated from time to time to account for change in prices. Also expert committees have been set up by the Planning Commission from time to time to revisit the poverty line. The latest expert group under the chairmanship of Prof Suresh Tendulkar gave its report in 2009. The Tendulkar Committee modified the basis of setting up a poverty line. It noted that when the poverty line was originally set up, expenditure on education and health were not included as they were expected to be provided free of cost by the government. The Tendulkar Committee considered calorie norm as an inadequate measure to determine poverty lines for a number of reasons.

First, although those near the poverty line in urban areas continue to afford the original calorie norm of 2,100 per capita per day, their actual observed calorie intake from the 61st round of NSS (2004-05) is 1776 calories per capita per day. This actual intake is very close to the revised calorie intake norm of 1,770 per capita per day recommended by Food and Agriculture Organisation. The actual observed calorie intake of those near the new poverty line in rural areas (1999 calories per capita) is higher than the FAO norm.

Second, the poor today spend significant amounts on health and education as these are not provided by the government as assumed in the 1960s. This is also because with improved incomes and awareness, health and education are perhaps valued and considered more attainable today than in the past. For a family of five, the new poverty lines in terms of monthly family income come to Rs 4,824 in urban areas and Rs 3,905 in rural areas and are nearly 50 times higher than the 1961 poverty lines.

Tendulkar Committee poverty lines are higher and give higher estimates of number of poor than earlier estimates. What is clear is that the percent of persons in poverty has come down by around 8 percentage points from 1993-94 to 2004-05 in either way of estimation. At 37.2% it still is at a level that should be of concern to all of us.

Defining a poverty line and estimating poverty serves more purposes. First, it helps compare how well we are doing over time and across states in the country. One has to recognise that any poverty line is subjective and arbitrary. There is no universally accepted definition of poverty line. However for assessing progress over time, it does not matter too much how this line is defined as long as it is consistently set over time. Thus, from this point of view, the outrage is misplaced.

Secondly, the poverty estimate is used to allocate resources across states. For this purpose also if the total available amount for distribution is fixed the actual levels of poverty lines do not matter much as long as they are consistently set across states.

The third use of the poverty estimates is to provide subsidised entitlements to the poor. It is here that the actual level of poverty line matters. It is difficult to argue that a family with an income of Rs 4,800 is poor and another one with an income of Rs 5,000 is not. In reality if the first family lives near the place of work and the second one far from it, the second may be poorer than the first one. Even with a calorie intake norm, it would be difficult to make individual comparison. A person consuming fewer calories than the norm may have a low metabolic rate. On the other hand a person consuming 3,000 calories may be undernourished if he is engaged in hard manual labour.

What the Planning Commission needs to do is to recognise that identifying individuals as poor is a difficult problem and cannot be done on the basis of a poverty line. Even a definition of poverty based on multiple characteristics would pose similar problems. We need to find more effective ways to reach the poor. May be it is easier to identify the rich and exclude them.

(The author is chairman, Integrated Research and Action for Development & former member, Planning Commission)