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Decline and fall of Indian poverty by Surjit S Bhalla

In this winter of gloom, doom and corruption, the government can bask in some warmth from data collected by its statistical agencies. (Alas, these agencies have yet to hire some basic data-processing capabilities from minor computer firms, let alone agencies like Infosys. Perhaps Nandan Nilekani can loan some programmers from the UID project.) So what is the issue, and what is the evidence?It was only a few months ago that the entire intelligentsia and its gatekeepers in our vibrant and loud press were talking about how vast tracts of land in India was occupied by the Maoists (a leading development-oriented NGO, which more than occasionally had to resort to killings to bring the plight of the poor to the attention of the elite).
 
Politicians vied with each other to differentiate the Maoists from other terrorist organisations. Meanwhile, the prestigious and respected National Advisory Council was busy manufacturing data and evidence to support the myth that development had failed to reach the poor. There has been a race to the bottom among these luminaries as to who could come up with a “better” statistic to worsen the picture of poverty alleviation in India.If ever my column title “No Proof Required” is applicable it is to the sorry state of affairs regarding discussion of poverty in India. Anything goes and went — especially after economic reforms were introduced in 1991. The poverty industry got a major boost to its market capitalisation as economists, particularly of the Left variety, vied for space and attention. Reforms could not possibly help the poor — they only made the rich richer and the poor poorer. We have all heard it before, ad nauseam.To come to the point: the long introduction was needed because the story is simple. So simple that it is difficult to write a full-fledged column, though details of an academic nature are available in the paper cited below. In India, the respected but painfully slow National Sample Survey Organisation (NSSO) collects data on households and in June 2010, completed the large sample survey for the period July 2009 to June 2010. Six months have passed and the last one heard was that they were still processing the data (hence the desperate cry to Nilekani for help). As a reference, it is important to note that when Arun Shourie was in charge, preliminary results were available six months later in December 2000. Clearly, we have regressed — statistical commission, please note.While there are still some economists, and policy-makers, who think that India is overheating with an 8.5-9 per cent GDP growth, the fact remains that for the last eight years, and including the crisis year of 2008-09, Indian GDP growth has averaged above 8 per cent! So what has happened to poverty alleviation over this period?Some evidence for what happened is available from the recently concluded Bihar elections. But some academics and psephologists argue that this was because of some ingenious and new caste combination that Nitish manufactured — didn’t you know, there has been no development in Bihar since the Congress was booted out of the state way back in 1991? Some other evidence is available from the NSS survey from July 2007 to June 2008. It was a “small sample survey” with 50,000 households rather than the regular 120,000 households, but still large enough for calculations of poverty. Results are presented for two poverty lines — the official Planning Commission and the new 20 per cent higher Tendulkar line. The results underline the dramatic improvement in poverty alleviation during the recent high growth period. Regardless of the poverty line used, or the region, poverty has declined at about three times the earlier pace. For the old official poverty line, the head count ratio of poverty declined by 0.9 per cent a year for the 22-year growth period of 1983 to 2004-05; in the subsequent three years, the rate of decline accelerated to 2.6 percentage points (ppt) per annum. For the higher Tendulkar poverty line, the rate of decline accelerated from -1 ppt a year to -3.3 ppt a year.The level of poverty indicated by the 2007-08 survey is 14 and 27 per cent, old and new lines respectively. To put these numbers in perspective, the Millennium Development Goals target of 15 per cent poor was to be reached by India in 2015. This suggests that the target was reached about a decade earlier. It needs to be emphasised that these poverty figures are as the raw figures indicate, that is, no adjustments have been made to the survey data. Indian NSS data are notorious for only capturing half of the per capita consumption that prevails in the country according to national accounts data. If adjustments are made, poverty will be considerably lower than even these low figures.Two conclusions follow. First, it is very likely that by the old definition of the poverty line, poverty in India is in single digits. Equally true that we should proceed towards substantially raising the poverty line, and do so on an objective rather than the convoluted manner of the Tendulkar report. My calculations are that the poverty line in India should be raised to about 30 per cent higher than the old poverty line, that is, the urban poverty line in 2010 should be Rs 1000 per capita per month and the rural poverty line should be Rs 650 per capita per month. This will yield the result that approximately 30 per cent of the population is poor in India. Still a large segment of the population and a reduction to zero that Indian policy should target — but without the chest-beating and the accompanying legislation of morality that the UPA seems to be so fond of.

The details are available in “Inclusive Growth in India: Myths and Evidence”, LSE India Observatory Project on growth and inclusion in India, forthcoming, www.oxusinvestments.com, The writer is chairman of Oxus Investments, an emerging market advisory and fund management firm