Vivek Kaul
Montek Singh Ahluwalia, the deputy chairman of the Planning Commission, has survived in the political and bureaucratic circles of Delhi for nearly three decades now. Given this it is safe to say that he has well honed survival instincts, which tell him when the tide is turning.
And when the tide is turning, it makes sense to change direction and flow with the tide rather than risk drowning. This is precisely what Ahluwalia did yesterday. As he remarked “As the country becomes richer and the per capita income goes up, there is need to redefine the poverty line. The latest numbers that planning commission have released, based on the Tendulkar Committee report, are absolutely rock-bottom numbers and gives us the number of poor who are actually the weakest group and therefore, should be the priority of the government.”
This is like a father disowning his son. The statement came after the latest set of poverty numbers were slammed by leaders across the political spectrum. The Congress party tried defending the numbers initially, but then did a volte face and has since come out all guns blazing against the current poverty line, which decides who is poor and who is not. The opposition parties from the left to the right have slammed the poverty line as well.
The current poverty line was decided by the report of the expert group to review methodology for estimation of poverty. The report was released in November 2009 (It is better known as the Tendulkar committee report). The report set the “the estimates of poverty…on private household consumer expenditure of Indian households.” The committee arrived at that numbers taking into account the expenditure on food, clothing, footwear, durables, education and health.
This line was an improvement on the earlier poverty line which only only took into account the expenditure required to consume an identified number of food calories. For rural India this number was 2,400 calories. For urban India this number was at 2,100 calories. Anyone consuming less than this was deemed to be poor.
The Tendulkar Committee changed this. “The expert group has also taken a conscious decision to move away from anchoring the poverty lines to a calorie intake norm,” its report said.
And there were reasons for doing so. There has been a long term trend of declining calorie consumption in both rural and urban areas. For urban India the consumption was at 1776 calories per day per person. And for rural India it stood at 1999 calories per day per person, observed the Tendulkar committee. In fact the calories being consumed in urban as well as rural area were higher than the revised calorie intake norm of 1770 calories per person per day specified by the Food and Agriculture Organisation(FAO) for India.
This specific point has come in for a lot of criticism, specially from those who lean towards the left. In a column in The Hindu, Utsa Patnaik of the Jawaharlal Nehru University writes “All official claims of low poverty level and poverty decline are quite spurious, solely the result of mistaken method. In reality, poverty is high and rising. By 2009-10, after meeting all essential non-food expenses (manufactured necessities, utilities, rent, transport, health, education), 75.5 per cent of rural persons could not consume enough food to give 2200 calories per day, while 73 per cent of all urban persons could not access 2100 calories per day. The comparable percentages for 2004-5 were 69.5 rural and 64.5 urban, so there has been a substantial poverty rise.”
But what this statement does not take into account is the fact that there is a long term trend of declining calorie consumption in both urban as well as rural India. This is something that Jagdish Bhagwati and Arvind Panagariya discuss in great detail in their book India’s Tryst with Destiny – Debunking Myths that Undermine Progress and Addressing New Challenges. “The long-term trend is one of declining calorie consumption in both rural and urban areas though the trend is steadier in rural rather than urban areas.”
And there are reasons for the declining trend in calorie consumption. As Bhagwati and Panagariya point out “For example, greater mechanization in agriculture, improved means of transportation and a shift away from physically challenging jobs may have reduced the need for physical activity. Likewise, better absorption of of food made possible by improved epidemiological environment (better child and adult health and better access to safe drinking water) may have lowered the needed calorie consumption to produce a given amount of energy.”
So saying that because the calorie consumption has gone down, hence India is poorer, is really not correct. Left leaning activists and economists have constantly pointed out that the decline in calorie consumption is an indication of increased hunger and malnutrition.
But there is enough evidence to prove the contrary. “When directly asked whether they had enough to eat everyday of the year, successive rounds of expenditure surveys of the NSSO (National Sample Survey Office) show increasing proportions of the respondents answering in the affirmative. In the 1983 expenditures survey, only 81.1 per cent of the respondents in the rural areas and 93.3 per cent in the urban areas stated that they had enough food everyday of the year. But by 2004-05, these percentages had risen to 97.4 per cent and 99.4 per cent,” write Bhagwati and Panagariya.
A March 2013 report in The Mint also makes a similar point. “A February report of the National Sample Survey Office (NSSO) shows the proportion of people not getting two square meals a day dropped to about 1% in rural India and 0.4% in urban India in 2009-10.”
The malnutrition argument also doesn’t quite hold either. Interestingly, Bhagwati and Panagariya, cite research carried out by Angus Deaton and Jean Drèze. Drèze has been a long time collaborator of Amartya Sen. “Deaton and Drèze also analyse the data on the heights of different cohorts of men and women collected by the second and third rounds of National Family Health Survey and conclude that later-born adult men and women are taller. They calculate that the rate of increase of height is 0.56 centimetre per decade for men and 0.18 centimetre per decade for women. Thus, even if India continues to do poorly in international comparisons, all trends point to improving and not worsening adult nutrition,” write Bhagwati and Panagariya.
So there is enough evidence to suggest that calorie intake has been going down and it hasn’t led to greater malnutrition and hunger. Hence, criticism of the Tendulkar committee report on this point, doesn’t really hold.
Also it is important to remember that the Tendulkar committee made the poverty line multidimensional, by considering several other expenditures other than just food. An immediate impact of this was that the poverty ratio for 2004-05, went up from 27.5% to 37.2% of the total population. From that level the poverty ratio has come down to 21.9% in 2011-12.
But that doesn’t mean that there are no problems with the poverty line set by the Tendulkar committee. The committee set the consumption expenditure in order to avoid poverty at Rs 816 per person per month in the rural areas and Rs 1000 per person per month in the urban areas. For a family of five people, this amounts to Rs 4,080 per month in rural areas and Rs 5000 per month in urban areas.
This of course translates into an expenditure of around Rs 27 per day for rural areas and Rs 33 per day for urban areas, two numbers that have caused a lot of outrage over the last one week. There is no denying that the numbers are very low. In fact, within this cut off expenditure, one of the assumptions is a healthcare expenditure of less than Re 1 per day. As Harsh Mander, a former member of the National Advisory Council, put it in The Mint, this was “barely enough to buy an aspirin”.
Despite these points, the Tendulkar Committee poverty line is in line with the definition of poverty used by 189 members of the United Nations to set the first of eight Millennium Development Goals of halving global poverty between 1990 and 2015.
As T N Ninan wrote in the Business Standard “The definition of poverty used to set this goal is $1.25 per day. That would be about Rs 75 per day in a straight conversion to rupees at current exchange rates, but works out to about Rs 30 when you take purchasing power parity into account, as you are supposed to. As it happens, the Tendulkar line for rural areas in 2011-12 was Rs 27, and in urban areas Rs 33. So any criticism of the Tendulkar definition of extreme poverty runs smack into what is the internationally accepted definition.”
Also, the Congress party as well as the opposition parties which are criticising this formula now, could have first done so more than three years back in late 2009, when the report was first made public. But they chose to be quiet then.
Despite the problems that it has, what the Tendulkar committee poverty line measures is extreme poverty or what Ahluwalia refers to as “the weakest group” and which “should be the priority of the government”.
Raising this line would have its own set of problems, which this writer has pointed out in the past.
“For example, suppose we raise the rural poverty line to Rs 80 and the urban one to Rs 100 at 2009-10 prices. What would these lines imply?” ask Bhagwati and Panagariya.
This would designate 95% of the rural population and 85% of the urban population to be poor. And that does not help anybody, except those who repeatedly like to shout that “India is poor”. Yes, we all know India is a poor country, but then what’s new about that?
Increasing the cut off for poverty, would mean that scarce government resources will be spread over a larger set of population. As Bhagwati and Panagariya point out “With tax revenues still relatively modest, significant redistribution in favour of the destitute requires limiting such redistributions to the bottom 40 percent or so of the population. Spreading them thinly over a vast population will give too little to the destitute to make a major dent in poverty.”
So the more poor will lose out to the less poor.
Given this, it makes sense for India to have at least two poverty lines, one to tackle extreme poverty and one to measure ‘real’ poverty. The World Bank uses two poverty lines. One is the extreme poverty line, which is set at an expenditure of $1.25 per day. And another is a moderate poverty line which is set at $2 per day.
Economist Devinder Sharma in a column in the Rajasthan Patrika writes about the South African experience. South Africa has three poverty lines. The first is the food line with a cut off expenditure of Rs 1841 per month. Then comes the middle poverty line at Rs 2,445. And the upper poverty line at Rs 3484.
India needs something along these lines. Dumping the Tendulkar committee poverty line does not serve much purpose. It should continue to help target the “extreme poor”, whose number has gone down over the years.
But when it comes to measuring real “poverty” India does need a higher cut off. World bank’s moderate poverty line of $2 per day, adjusted for purchasing power parity, would be a good bet to start with. Of course the risk here is that the politicians can make the upper poverty line, the real poverty line, and start distributing “freebies” on the basis of that, making it a fiscally disastrous proposition for the government. Remember, the food security scheme?
The article originally appeared on www.firstpost.com on July 30, 2013 under a different headline
(Vivek Kaul is a writer. He tweets @kaul_vivek)
Poverty Line
Needed: A new poverty line which shows 67% of the country is poor
Vivek Kaul
The Congress party after claiming that its social policies over the last nine years had helped bring down poverty in the country, now seems to have done a volte face.
Data released by the Planning Commission on July 22, 2013, suggested that poverty in India had declined from 37.2% in 2004-05 to 21.9% by 2011-12. Several spokespersons of the Congress party led United Progressive Alliance(UPA) were quick to claim credit, and attributed this to several social sector programmes that the party had launched during its tenure.
A poverty line separates the poor section of the population from the non poor section. Those below the poverty line are deemed to be poor and those who are above it are deemed to be not poor. And what exactly is a poverty line? As S Subramanian writes in The Poverty Line “A poverty line is identified in monetary units as the level of income or consumption expenditure required in order to avoid poverty.”
The consumption expenditure in order to avoid poverty is set at Rs 816 per person per month in the rural areas and Rs 1000 per person per month in the urban areas. For a family of five people, this amounts to Rs 4,080 per month in rural areas and Rs 5000 per month in urban areas.
These numbers were set by the report of the expert group to review methodology for estimation of poverty. The report was released in November 2009 (It is better known as the Tendulkar committee report).
The committee arrived at that numbers taking into account the expenditure on food, clothing, footwear, durables, education and health. “Actual private expenditures reported by households near the new poverty lines on these items were found to be adequate at the all‐India level in both the rural and the urban areas and for most of the states,” the report said.
Interestingly, the Tendulkar committee poverty line was an improvement on the earlier poverty line which only took into account the expenditure required to consume an identified number of food calories. For rural India this number was 2,400 calories. For urban India this number was at 2,100 calories. Anyone consuming less than this was deemed to be poor.
The Tendulkar committee made the poverty line multidimensional, by considering several other expenditures other than just food. An immediate impact of this was that the poverty ratio for 2004-05, went up from 27.5% to 37.2% of the total population. From that level the poverty ratio has come down to 21.9% in 2011-12.
So prima facie this sounds good. The trouble crops up when Rs 816/Rs 1000 per month is converted into expenditure per day. Assuming 30 days in a month, this expenditure comes to Rs 27.5 per day for the rural areas and Rs 33.33 for urban areas. Hence, anyone whose expenditure per day is less than these amounts is categorised as poor.
Having already linked the reduction in poverty to the social sector schemes launched by the government, the Congress spokespersons had to defend the Rs 27-33 per day expenditure cut off for poverty.
“Even today in Mumbai city, I can have a full meal at Rs 12. No no not vada paav. So much of rice, dal sambhar and with that some vegetables are also mixed ,” film star turned politician Raj Babbar told reporters.
Rasheed Masood, a Congress leader from Delhi, went a step further and said “You can eat a meal in Delhi in Rs 5 I don’t know about Mumbai. You can get a meal for Rs 5 near Jama Masjid.”
Farooq Abdullah of the National Congress, a constituent of the UPA, said that even Re 1 was enough to satisfy hunger. “If you want, you can fill your stomach for Re 1 or Rs 100, depending on what you want to eat,” Abdullah said.
Of course these gentlemen were trying to justify the unjustifiable. Rs 27-33 per day expenditure as a cut off for poverty is too low. But the argument is not as simple as that. As we saw the current poverty line is an improvement on the earlier line. There has been a lot of criticism of the late Suresh Tendulkar, who headed the committee that redefined the poverty line. As T N Ninan wrote in the Business Standard “The late Suresh Tendulkar, who redefined the line some years ago, has come in for unfair criticism – because he actually raised the poverty line substantially. The result was that what was 27 per cent poor in 2004-05 under the old definition became 37 per cent using Tendulkar’s definition.”
The simple solution it seems is to increase the poverty line. But as this writer explained earlier, increasing the poverty line has its own serious repercussions.
Also, even if we were to increase the poverty line, the percentage of decline of in poverty will remain the same. As Pronab Sen, chairman of the National Statistical Commission, told Outlook “even if we double the norm from Rs 33 for urban poor and Rs 28 for rural poor, the percentage of people below poverty line may double but the percentage of decline in poverty will remain roughly the same.”
Economist Bhaskar Dutta wrote something along similar lines in a column in The Indian Express. “the dramatic reduction in poverty according to the Planning Commission estimate also guarantees that there would be a sizeable reduction even if the poverty line were set a higher level.”
And this fall in poverty, irrespective of where we set the poverty line at, has been substantial. As Swaminathan Aiyar wrote in The Times of India “India has just reduced its number of poor from 407 million to 269 million, a fall of 138 million in seven years between 2004-05 and 2011-12 . This is faster than China’s poverty reduction rate at a comparable stage of development, though for a much shorter period.”
Instead of trying to make these slightly nuanced points the Congress party got stuck with justifying the poverty line cut off. The trouble was that it couldn’t go on and on about the “poverty has come down message”, simply because through the food security ordinance the party plans to distribute heavily subsided(almost free) rice and wheat to nearly 82 crore people or around 67% of the country’s population.
If the poverty has actually come down then the garibi hatao politics that the Congress party has been successfully peddling for nearly four decades, wouldn’t find any resonance any more. It would hit at the heart of the business model of the Congress party.
Hence, the party has done a quick volte face on the poverty line and is now vociferously criticising it. “If the Plan panel said those who live above Rs 5,000 a month are not at poverty line, obviously there is something wrong with the definition of poverty in this country. How can anybody live at Rs 5,000?” union minister Kapil Sibal asked at a public function.
The Congress general secretary, Digivijaya Singh, was also critical of the poverty line. “I have always failed to understand the Planning Commission criteria for fixing poverty line. It is too abstract can’t be same for all areas,” he tweeted.
Rajeev Shukla, Minister of State for Parliamentary Affairs, also joined his senior colleagues in criticising the poverty line. In fact, he went a step further and totally disowned it. “I want to demolish this myth that the poverty line has been fixed by the government. Government has not fixed any poverty line. This recommendation has been made by an expert panel headed by Mr. Tendulkar. This is a report of the Tendulkar Committee which has been put forward by the Planning Commission. Neither the Government has accepted it nor has it fixed it,” he said.
So, does Mr Shukla mean that the Planning Commission is different from the government and is not a part of the government? I guess some history is in order here. The website of the Planning Commission clearly points out that “The Planning Commission was set up by a Resolution of the Government of India in March 1950 in pursuance of declared objectives of the Government to promote a rapid rise in the standard of living of the people by efficient exploitation of the resources of the country, increasing production and offering opportunities to all for employment in the service of the community.”
Over and above this the Planning Commission is headed by the Prime Minister, who currently happens to be Manmohan Singh. So how can the Planning Commission be different from the government? Manmohan Singh as always has been made the scapegoat by the Congress party here as well.
Meanwhile, there is another committee at work with the brief to come up with a new better poverty line. This line will be needed to justify the massive food security scheme. If only 21.9% of India’s population is poor, then its difficult for the government to justify distributing heavily subsidised rice and wheat to nearly 67% of India’s population.
So what is needed is a new poverty line which shows that 67% of India’s population is actually poor. As Aiyar put it in his column “The government found it difficult to say this was good politics even if it was bad economics. Instead, it appointed the Rangarajan Committee to devise a higher poverty line.”
The article originally appeared on www.firstpost.com on July 29, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)
Why does UPA want to feed 67% if only 21% of India is poor?
Vivek Kaul
Poverty in India has fallen between 2004-05 and 2011-12, or so suggests data recently released by the Planning Commission. The poverty ratio was 37.2% in 2004-05 and fell to 21.9% by 2011-12.
The Congress led United Progressive Alliance(UPA) has been quick to claim credit for this fall in poverty. The opposition parties from the left and the right have slammed the government, and questioned the numbers put out by the Planning Commission.
So who is right on this occasion? The government? Or the opposition? Before we get around to answering these questions, it is first important to understand how the Planning Commission decides who is poor and who is not.
A poverty line separates the poor section of the population from the non poor section. Those below the poverty line are deemed to be poor and those above it are deemed to be not poor. And what exactly is a poverty line? As S Subramanian writes in The Poverty Line “A poverty line is identified in monetary units as the level of income or consumption expenditure required in order to avoid poverty.”
So how is the level of income or consumption expenditure required in order to avoid poverty decided on? An essential criterion for avoiding poverty is the availability of adequate nutrition, writes Subramanian. Hence, a calorie norm is identified. The amount of money required to consume the identified number of food calories becomes the cut off point, or the poverty line. Those who consume less than that are deemed to be poor.
This criteria was first clearly addressed by the Indian planners in 1979 in a Planning Commission Report of the Task Force of Minimum Needs and Effective Consumption Demand. As Subramanian writes “In identifying consumption expenditure poverty norms for India, the Task Force employed a nutritional norm of 2,435 (rounded off to 2,400) kilocalories per person per day in rural areas, and a norm of 2,095 calories (rounded off to 2,100) kilocalories per person per day in the urban areas. These were average figures based on calorie allowances recommended by a Nutrition Expert Group in 1968…The Task Force was able to come up with an ‘average’ requirement of calories for what one might call a ‘representative’ Indian, in each of the rural and urban areas of the country.”
So what does this mean? It means that anyone in rural India consuming less than 2,400 kilocalories per day was deemed to be poor. For urban India this number was at 2,100 kilocalories. Through a statistical regression the total expenditure necessary to consume either 2,400 kilocalories or 2,100 kilocalories was estimated.
The Tendulkar Committee formula, a new formula to estimate the poverty line, came into effect in 2009. This formula, other than considering the expenditure on food, also took expenses on education, health and clothing into account.
When Professor Suresh Tendulkar changed the formula he argued that the old formula did not take into account the fact that calorie intake had dropped to 1770 kilocalories in urban areas. Despite this change the influence of the old calorie norm on the new formula is considerable, feel experts.
And how much is the expenditure as per the Tendulkar Committee formula ? As the Press Note on Poverty Estimates, 2011-12, released by the Planning Commission points out “for rural areas the national poverty line…is estimated at Rs. 816 per capita per month and Rs. 1,000 per capita per month in urban areas. Thus, 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 rural areas and Rs. 5,000 per month in urban areas.”
Assuming 30 days in a month, this expenditure comes to Rs 27.5 per day for the rural areas and Rs 33.33 for urban areas. Hence, anyone whose expenditure per day is less than these amounts is categorised as poor.
How adequate is this poverty line of Rs 27.5-Rs 33.33 per day? If one were to believe film star turned Congress politician Raj Babbar, this amount is more than enough. “Even today in Mumbai city, I can have a full meal at Rs 12. No no not vada paav. So much of rice, dal sambhar and with that some vegetables are also mixed ,” he told reporters today (i.e. July 25, 2013).
Of course, this clearly proves that Mr Babbar has not stepped onto the streets of Mumbai for a very long time. His days of struggle in the film industry having been long over.
Even if we believe that one can get a meal for Rs 12 in Mumbai, eating is not the only expenditure that a man needs to incur in order to survive.
Given this, it is easy to prove that the poverty line in India has been set at a very low level. There have been a spate of comments criticising this. Shivraj Singh Chouhan, the Chief Minister of Madhya Pradesh called the Planning Commission figures a cruel joke on the poor. “I would like to ask the Prime Minister and Congress president whether they could have their meal in just Rs 32(if one divides Rs 1000 by 31 days, it comes to Rs 32.25),” Chouhan said.
This is something that Praful Patel of the Nationalist Congress Party, which is a part of the UPA, agreed with. “The ceiling set by them (Planning Commission) is totally wrong. In today’s time, Commission should set a new ceiling keeping in mind inflation and high cost of living. We do not agree with this data,” Patel said. Brinda Karat of the CPI(M) said that the Planning Commission figures were “dubious” and “discredited” and added “salt to the wounds of the poor”. Similar reactions came in from other political parties as well.
So, the poverty line in India is at a very low level and hence needs to be increased is a conclusion that can be easily drawn from. As N.C. Saxena, member of the National Advisory Council, who headed a Planning Commission panel on poverty told The Hindu “the narrow definition of poverty we have been using, where the line is really what I call a ‘kutta-billi’ line; only cats and dogs can survive on it.”
But raising the poverty line is not simple and has serious implications. As Jagdish Bhagwati and Arvind Panagariya write in India’s Tryst with Destiny “While reasonable people may differ on whether it is reasonable to further raise the poverty line, the subject is far more complex than commonly appreciated.”
And why is that the case? “The dilemma in raising the poverty lines is best brought out by considering the implications of poverty lines that are significantly higher than those currently in use and are advocated by many of the current critics of the Planning Commission. Thus, for example, suppose we raise the rural poverty line to Rs 80 and the urban one to Rs 100 at 2009-10 prices. What would these lines imply?” ask Bhagwati and Panagariya.
This would designate 95% of the rural population and 85% of the urban population to be poor. The impact of this would be that the money that the government spends to tackle poverty would be spread over a much larger number of people and thus would have less impact in tackling poverty. As Bhagwati and Panagariya point out “With tax revenues still relatively modest, significant redistribution in favour of the destitute requires limiting such redistributions to the bottom 40 percent or so of the population. Spreading them thinly over a vast population will give too little to the destitute to make a major dent in poverty.”
Lets understand this through an example. Let us say there are 100 people. Of this 20 are deemed to be poor. The government decides to spend Rs 100 to help them. Hence, on an average each one of them benefits to the extent of Rs 5.
Now lets the definition of poverty is changed and 90 out of 100 people, are deemed to be poor. The government still spends Rs 100 on them. The benefit per person comes down to a much lower Rs 1.11 (Rs 100/90). Hence, the more poor lose out at the cost of the less poor.
In fact, this is not the first time such a situation has arisen. In 1962, the Perspective Planning Department (PPD) of the Planning Commission had discussed a similar dilemma. As Subramanian writes partly quoting a PPD document “’The balanced diet recommended by the Nutrition Advisory Committee together with a modest standard of consumption for other items would cost approximately Rs 35 per head (per month). But at present less than 20% of our population can afford it’…The implication is quite clear. A poverty line of Rs 35 per person per month would have plunged 80 per cent of the Indian population into poverty: wiser counsel advocated a more modest norm of Rs 20 per person per month.” This brought down the poverty rate to 60%.
Hence, there is no point in pushing up the poverty line without having the resources to tackle it. If resources are limited they should be deployed to help those who need it the most.
But the Congress led UPA government has done exactly the opposite by getting the President to sign on the Food Security Ordinance. The food security scheme aims at providing subsidised rice and wheat to nearly 82 crore Indians or 67% of the total population.
This effectively means that the government thinks that 67% of the Indian population is poor and cannot afford to buy rice and wheat at market rates. But as per the current poverty line only 21.9% of the population is not getting adequate nutrition. So which is the right number? 21.9% or 67%? The Congress led UPA government needs to answer that question.
It seems the government is working on a new poverty line to justify the massive expenditure that it will incur on the Food Security scheme. As The Hindu reports “economists advising the Ministry of Rural Development have told The Hindu that the exclusion criteria to be derived from the ongoing Socio-Economic and Caste Census are likely to leave out the top 35 per cent of the population while the bottom 65 per cent will be considered below poverty line.”
Meanwhile, it will claim that the poverty has come down on the basis of the current poverty line and numbers put out by the Planning Commission because of the social programmes it has launched over the last few years.
As the old saying goes “heads I win, tails you lose”.
The article originally appeared on www.firstpost.com on July 25, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)