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LATEST NEWS UPDATES | Imagine a poverty line-Surjit S Bhalla

Imagine a poverty line-Surjit S Bhalla

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published Published on Apr 14, 2012   modified Modified on Apr 14, 2012

No matter where you draw the line, the fall in poverty is greater in high GDP growth years
 
Some plain facts and some ugly truths. The plain fact is that poverty in India has declined at a rapid pace during the UPA years post 2004. An ugly truth. When the Planning Commission released the estimates of poverty in India, on the basis of the household survey conducted by the NSS in 2009-10, the findings were met by the most illiterate response on the part of the politicians, media, and glitterati. Poverty figures have been published by all governments — Congress, Third Front, NDA and UPA — on a regular basis for the last 20 odd years. The poverty line has increased in real terms over this period. So why the incredibly outrageous reaction?

Because all of us have learnt, often with sadness, that you can throw anything, and I mean anything, at the UPA and it will stick. And the thrower of the mud will be a hero on TV, and will lead groupies on Twitter. An overnight rock star, and for doing nothing — indeed, for doing something incredibly stupid. As for example claiming that all natural resources should be auctioned. Or that coal permits, given without auction, have a corruption stream exceeding Rs 10.6 lakh crore when the real figure is about Rs 0.6 lakh crore. Or that the government has reduced the poverty line in order to show that there are less poor in the country than conventionally thought.

There is an additional reason for the sticking filthy mud. It is because the UPA is a party divided, with several of its leading members articulating the same mud. It was Sonia Gandhi’s own NAC staff who first opined that the Rs 32 per capita per day poverty line was too little. This line contains a third of the population, and several with-it glitterati calculated that this would not get you a 2 km taxi ride, so how could one survive? With such a low poverty line, starvation was obviously just around the corner.

Now to establishing the basic fact that no matter what the poverty line, considerable progress has been made towards poverty reduction in the UPA years. The reduction has come about because of rapid growth. One can, and should, question whether the UPA has introduced even a single policy that has helped the economy to move towards an 8 per cent plus growth since 2002. But that is not the purpose of this article. Per capita income in the bad 2011 year ($1552) was more than three times the level of income in 2002 ($491). Did this extra growth lead to extra poverty decline — yes. Imagine any poverty line and the answer is still yes.

Especially for the benefit of all politicians, Congress and opposition, and the learned Twitting glitterati, the table below reports on poverty according to six poverty lines. The poverty lines are based on the figures for 1983. According to the Tendulkar Poverty Line, nearly 60 per cent of the population was poor in that year. The poverty thresholds have been chosen such that, by definition, the fraction of the population poor in 1983 ranges from 50 to 90 per cent. For example, at a poverty line of Rs 44.2 per capita per day, fully 90 per cent of the population was poor in 1983, that is, 90 per cent of the population in India lived below the expenditure on the price of half a pomegranate in New Delhi.

Also documented in the table is the average per year decline in the poverty levels for two time-periods: the good growth period 1983 to 2004-05 (21.5 years) and the excellent five-year growth period, 2004-05 to 2009-10. For each poverty line and period, two rates of decline are reported — the conventional arithmetic decline and the more accurate logarithmic decline. (The latter implicitly adjusts for the fact that it is more difficult, and takes higher average growth, to reduce poverty from 10 to 5 per cent than from 50 to 45 per cent).

According to Dreze-Sen, India’s poverty line of Rs 32 (urban areas) or Rs 23.2 (for all India) is ridiculously low because it allows for only 1 kg of rice and a bus ride for only three stops. However, this very low poverty line counted amongst its citizens 70 per cent of the total population in 1983, nut only 30 per cent in 2009-10. In terms of speed of decline for this poverty line, for the first period, poverty declined at the (log) rate of 0.7 percentage points a year; for the second high growth rate period, poverty declined at the much faster rate of 1.5 percentage points a year.

One additional point. In the period 1983-93, sample surveys in India accounted for an average of 70 per cent of the consumption as reported by the national accounts. In the last five years, this ratio has averaged only 47 per cent. that is. more than half of the consumption in 2004-2009 did not accrue to anybody, rich or poor. Assume for a moment that, in reality, the surveys were able to capture the same low 70 per cent of national account expenditures as they did during 1983-1993. What would poverty be according to the different poverty lines — that is reported in the row labelled “2009-10 — adjusted”. The 90 per cent poor in 1983 would be 41 per cent poor today; according to the Tendulkar line, poverty in India would only be 5 per cent, rather than the officially reported 30 per cent.

Additional proof of the importance of measuring survey expenditures “accurately” is indicated in the last row. This row tabulates the poverty levels according to a separate NSS survey conducted in 2009-10. This survey (2009-10 — II) had the same sample size, sampling frame etc. as the regular consumer expenditure survey. The only difference — some selected perishable food items were canvassed on a seven and not a 30 day recall basis. Just this difference in in data collection results in the survey to national accounts ratio to increase to 50.5 per cent from 46.5 per cent. And this 4 percentage point “correction” reduces poverty in India, no matter how measured, by 6 to 9 percentage points.

Poverty lines were invented for making appropriate policies to alleviate poverty. In India, by missing out more than half of the consumption, survey measures understate the poverty line and overstate poverty. A final example: in 2004-05, India’s per capita income was about 40 per cent higher than Pakistan. Inequality, as measured by the Gini, was also near identical. But the poverty level in India, for the same World Bank $1.25 a day poverty line, at 36.2 per cent was 16 percentage points higher than Pakistan. How is this possible? Because while national accounts data suggest a 40 per cent higher per capita income for India, survey means indicated that average per capita consumption in India was lower by 15 per cent!

Maybe our politicians should begin to explain as to how we have such greater amounts of poverty than Pakistan.

The writer is chairman of Oxus Investments,, an emerging market advisory firm

The Indian Express, 14 April, 2012, http://www.indianexpress.com/news/imagine-a-poverty-line/936470/0

Tagged with: Poverty bpl



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