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Why refining formulas for counting the poor matter

The number of urban poor who get State benefits may come down by more than half, if the NDA government accepts a new methodology. But the NDA is not the first government to try this route to improve its development record.

analysis Updated: Oct 12, 2017 11:15 IST
Bibek Debroy,Ministry of Housing and Urban Poverty Alleviation,poverty
The formulae to calculate poverty is incomprehensible to the public because there is an excessive reliance on sophisticated statistical methods to define an imaginary line, which divides the poor and non-poor and often is the basis for including or excluding one from being targeted for welfare benefits. (Sushil Kumar/HT PHOTO)

The invisible hand of economists often --- and repeatedly --- has decided who the poor in India are. The latest being the committee set up in January by the ministry of housing and urban poverty alleviation (MoHUPA), headed by economist Bibek Debroy, which has recommended a different methodology for ascertaining which households would be automatically included or excluded for certain welfare benefits in urban areas.

The committee was set up to refine the earlier method recommended by another economist SR Hashim in 2011, to calculate poverty figures from the Socio-Economic and Caste Census. The previous method used three criterion to count the poor - some households would be included automatically, some households would be excluded automatically and all households would be ranked based on a scoring index.

If the government accepts the methodology recommended by the Debroy panel, then the urban households eligible for “automatic inclusion” in government-funded welfare schemes will come down substantially. The Hashim committee formula was similarly resulting in counting substantially lesser number of rural households eligible for automatic inclusion.

Who is eligible for State benefits

The formulae to calculate poverty is incomprehensible to the public because there is an excessive reliance on sophisticated statistical methods to define an imaginary line, which divides the poor and non-poor and often is the basis for including or excluding one from being targeted for welfare benefits.

Poverty in India has officially been calculated on information collected from households on asset ownership, consumption spending, type of housing and access to electricity, water etc. This is then used to derive a poverty figure, which in simple terms means that one has to identify a cut-off criterion – this is the poverty line that differentiates the poor from the non-poor. The problem starts when one ties this calculation to eligibility for welfare benefits. Successive governments often use these figures as a report card of their regime’s performance.

So the households availing of these benefits can then become a proxy of how many poor households are there – this is often the economist’s sleight of hand.

First, households don’t self select themselves for these benefits rather it is the economist’s criteria that are used to ascertain who is eligible. Second, from these criteria comes out a figure or a target number of households for availing a certain benefit. So eligible households are beneficiaries and beneficiaries are an indicator of vulnerability. Hence, eligibility defines vulnerability of the population.

This method of identifying the poor achieves three results for most governments: First, is to say that it has reduced poverty faster.

Second, the government of the day can claim that it has reached its targets faster by demonstrating that it has reached out to a larger percentage of the poor even if the actual number of beneficiaries remains the same (i.e. including the excluded in less time).

And most important, the government can claim that the earlier regime had more poor people.

Let’s say, there are 20 households, which are identified to be poor by one formula and so the policy measure is to provide housing to these 20.

If one manages to provide housing to 10 households in one year, then it could be claimed that I have met 50% of my targets or conversely I have reduced poverty by half!

Now, suppose the previous formula shows 40 households as below poverty and I manage to provide the same in one year, i.e. housing to 10 households – the reduction would be only 25%.

All that is needed then, is to refine the methodology.

Kaustav Banerjee is an economist who teaches at the Centre for the Study of Discrimination and Exclusion, JNU

The views expressed are personal

First Published: Oct 12, 2017 11:15 IST