CONTROVERSIES RELATING TO DETERMINATION OF POVERTY LINE

Pranab Mahay B.A.LLB (H), 4th Year Roll No. - 00216503809

Statistics can abet illusions unless properly understood and used, and the current heated debates in India about the poverty line reflect a lack of understanding of the meaning and purpose of this term. Let us first consider Indias poverty line. A poverty line has a number of uses. First, it defines a certain minimum consumption basket. When India was very poor, this minimum was specified in terms of the food necessary for survival, with the poverty line representing the income required after adjusting for inflation to be able to afford a daily energy consumption of 21002400 calories. Second, it can also define a minimum socially acceptable standard of living. This is a relative concept, rising with a societys general standard of living; for example, the poverty line is higher in more affluent countries. The current international standard is US$1.25 per day, adjusted for the purchasing power of the particular local currency. In India, as per capita incomes have increased, there has been a rise in the socially acceptable minimum standard of living and the Tendulkar Committee recalculated the poverty line to include a basic level of shelter, clothing and medical expenditure. The Indian governments recent poverty measure estimated that Rs32 per day, per person in urban areas and Rs26 in rural areas is sufficient to reach this new minimum standard, after correcting for inflation. These values are quite close to the Indian rupees purchasing power parity compared to the US dollar. Third, a poverty line measures how many people rise above it over a period of time. For this purpose, the definition of the poverty line should not change across the two points of time being compared. Based on this, Indias Planning Commission correctly used the Tendulkar Committees definition to estimate that the poverty ratio registered a decline from 37.2 per cent in 200405 to 29.8 per cent in 200910. A higher poverty line may have yielded a larger percentage of poor, but would still have shown a decline over time. Fourth, a poverty line may be used as an entitlement for government programs that deliver the above types of support. Since those hovering just above a minimum standard also stand the risk of being pushed below it, entitlements should be made available for a larger percentage of Indians. The error that the Planning Commission made, however, was in framing its expenditure calculations. The Planning Commission used the norm of expenditure per person, per day, whereas Indians largely think in terms of monthly family budgets. Now, these numbers look and feel really small. But in reality, they are not. Why? Because firstly, these are numbers on a per person per day basis. Most goods are

bought on this basis. Translated to an average family size of 5 people in the urban areas, and 5.5 in rural, this amounts to Rs4800 per month or Rs55200 per annum in urban areas and Rs4,300 per month or Rs 51500 per annum (approx.) in rural areas. These suddenly dont look so small. How exactly are these numbers arrived at? The measure was developed in the early 1970s, when a group of experts decided the appropriate line would be set according to the average monthly consumption expenditure of households whose members consumed (per capita) 2,400 calories of food per day in rural India and 2,100 calories per day in urban India. Subsequently, the poverty line has simply been updated using consumer price indices. These numbers now have little to do with actual calorie consumption because food consumption patterns have changed. However, the use of that line has been defended by official sources who have argued that, at that level of expenditure, families could afford to buy minimum food and have simply chosen not to. Of course, this begs the question of whether it is really choice or the urgent need to consume other items (energy, healthcare and so on) that determine patterns of spending. Nevertheless, it is precisely this line (annually updated by consumer price indices) that has been used to describe the extent of poverty in India for decades. This was roughly similar to the World Bank's estimate of $1 a day (now $1.25 a day) per person, not at nominal exchange rates, but at purchasing power parity (PPP) exchange rates. In recent times, various committees led by economists have come up with different ways to measure the extent of poverty. The official line delivers a poverty rate of around 32% of the population. A committee under Suresh Tendulkar estimated it at 37%, while another led by NC Saxena said 50%, and in 2007 the Arjun Sengupta commission identified 77% of Indians as "poor and vulnerable". The World Bank's PPP estimate of Indian poverty was higher than 40% in 2005, while the Asian Development Bank arrived at almost 50%. The UNDP's Multidimensional Poverty Index finds the proportion of the poor to be higher than 55%. The other reason for the chorus of criticism against the Planning Commissions estimate is that socially acceptable standards of living have gone up in a more affluent India. The poor should be able to not only afford facilities that help them to rise above poverty, but also avoid the shocks that push them below the poverty line. This can be achieved through training and education for their children, and various types of insurance cover, including medical. One important reason why these numbers are not as bad as they first look is that the poor have traditionally enjoyed a lot of subsidized items that covers a large part of their lives. Lets not forget that much of the expenditure that a poor family incurs in India is on items that are significantly subsidized by the government. Whether its the LPG or kerosene for cooking; the school for the children; the food grains from the PDS system; the health facilities; all are hugely subsidized. Rice is sold at some Rs11 per kg, wheat at some Rs8.5 per kg, Palmolein oil at Rs26 a litre and daal at some Rs26 a kg. Kerosene is sold at some Rs9.5 per litre. School education is totally free as is medical treatment at a government health center.

Well, we now have an estimate of just how much the subsidies are. By the Governments calculations, the subsidies which will now be given in the form of cash amount to Rs35000 per family per annum. Until now, the poor were getting this in a non-cash form and hence this was not getting counted. In reality, the poor were being defined as someone earning approx. Rs50,000 per annum and getting subsidies of Rs 35000 per annum a total of a healthy Rs85,000 per annum or Rs7000 per month. Now, by any yardstick, thats a decent sum to use to define the poverty level. It is relevant to do this math here so that people understand that ours is not an unfair definition of poverty. Even the UN has defined poverty at a level of $1.25 per person per day measured in PPP terms (the $ adjusted for price differences between countries). That translates to just Rs 23 per day or Rs 42,000 per annum. Were way above that UN definition. Since the mid-1990s, various government schemes have differentiated between the categories of "Below Poverty Line" (BPL) and "Above Poverty Line"(APL), and it was announced that a whole range of subsidized goods and services - from cheaper food grain in the public distribution system to subsidized healthcare to access to funds for basic housing would only be available to BPL households. Since India has a federal system, state governments are in charge of delivery of all these goods and services, and they have to decide which households are most in need through surveys. In fact, many state governments have taken a more realistic view of the people in need and issued "BPL" cards to many more households than those recognized according to the official poverty line. In some southern states, for example, significantly more than two-thirds of rural households have BPL cards. But the central government allocates resources (both money and food grain) to the states on the basis of the national poverty estimates taken from the national sample survey, which is based on the official poverty line. State governments that provide these goods and services to additional households have to finance the extra ones themselves. As they have faced hard budget constraints, this has become increasingly difficult. That is why the poverty numbers are such a bone of contention. In this context, the only sensible thing for the government to do would be to separate the basic entitlements of the people, especially food, from such controversial numbers. This is the basic proposal of a statement signed by more than 30 leading economists, including two former state finance ministers and many senior economists who have worked with the government in different capacities. The statement is worth quoting in full: We do not consider the official national poverty lines set by the planning commission, at 32 and 26 rupees per capita per day for urban and rural areas respectively, to be acceptable benchmarks to measure the extent of poverty in India. In any case, irrespective of the methodology we adopt to measure poverty, the number of poor and hungry people in the country remains unacceptably large. While academic debates can continue on the appropriate measure of poverty in India, its extent and whether it is decreasing over time, we strongly believe that it is unacceptable and counterproductive to link the official poverty estimates to basic entitlements of the people, especially access to food. Official surveys of nutritional intakes and outcomes indicate that undernutrition is much more widespread than income poverty, however defined. It is also widely recognized that the targeted public distribution

system (PDS) introduced since 1997 has done more harm than good by creating divisions even among the poor and has led to massive errors of exclusion. Recent evidence clearly establishes that states which have moved towards near universalization of the PDS have performed much better in increasing offtake and reducing leakages. Restoring the universal PDS appears to us as the best way forward in combating hunger and poverty. This is not only feasible within the available fiscal space of the Union government but must be a policy priority in the backdrop of high and persistent food price inflation. Following the controversy, the government has now declared that it will take into account multiple dimensions of deprivation for arriving at specific entitlements that rural households will receive, and that the current poverty estimates based on these declared numbers will not be used to impose any ceilings on the number of households to be included in different government programmes and schemes. We still have to see how this will play out, but here is a first step in the right direction.