Know where to draw the line
India's official poverty line — a vital economic statistic — is threatening to snowball into a major political controversy in an election year. Political parties are busy quibbling over the details of defining a poverty line amid a welter of protests from social activists who are accusing it of abdicating its responsibility.
Economists set a poverty line to fix 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, the national poverty line has been fixed at Rs 27.2 a day for country dwellers and Rs 33.3 for those residing in cities.
The 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 total population — that live below the poverty line.
This implies a 15-percentage-point drop in India's poverty levels since 2004-05 — an enviable political record that the UPA government appears to be keen on pressing home in the run-up to the polls.
The million dollar question, however, is: how does one define the poverty line in India, in which old yardsticks may not hold good, either in terms of the food that money can buy, or in terms of defining who the poor are?
Do these statistics accurately measure what poverty is, and what is the next step in poverty reduction for middle-income countries like India? One of the primary objectives of poverty estimates is to provide subsidised entitlements to the poor to address concerns of equity.
And by keeping the poverty line low, is the government denying that India continues to remain a very poor country despite being a major emerging economy? For, it is difficult to argue that a family of five members with an income of Rs 5,000 is poor and another one with an income of Rs 5,200 is not.
For India's policy-makers, varying estimates of poverty muddy the picture as do a perverse fiscal incentive of claiming inflated incidence. The World Bank reckons more than 400 million Indians live on less than $1.25 a day. Beyond the debate on the ideal definition of the poverty line is also a larger question of inequality.
It is important to be careful not to mix up the two notions. Poverty is an economic construct, while inequality is a largely sociological construct. Inequality in India, estimated by the two most common measures — the Ginni co-efficient and quintile income ratio — is lower than most countries.
Reducing the number of poor is a necessary condition to reducing inequality, regardless of how the threshold income is defined.