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The great Indian poverty debate-Mythili Bhusnurmath

The great poverty debate has been re-ignited, pitting liberal, pro-market economists against left-of-centre economists of the JNU genre.

Is the Tendulkar Committee's poverty line - expenditure of 32 a day in urban areas and 26 in rural areas -an affront to the poor, an estimate that could only have been made by a committee whose members had never known a day's poverty themselves? Or is it a realistic estimate of what it takes an individual to keep body and soul together in India?

In his inimitable style, well-known columnist Swaminathan Aiyar has argued that the amount is enough and more to get an average Indian his daily dal-roti. But is it really enough? Faced with the howls of outrage at what is admittedly a sad commentary of the state of the nation and its people, the government has resorted to a familiar ploy. It has appointed another committee to arrive at a 'correct' poverty line.

But any estimate of the poverty line that, in turn, determines how many Indians live in poverty is bound to be contentious; especially when so many entitlements are linked to poverty. The problem, as the epochal 2010 paper by Martin Ravallion points out, is that there is no easy definition of poverty.

Ravallion defines the poverty line is the amount of money an individual needs to achieve the minimum level of 'welfare' not to be deemed 'poor'. The problem is that the 'minimum level of welfare' is itself open to interpretation. He distinguishes between absolute and relative lines of poverty.

Absolute lines aim to measure the cost of certain 'basic needs,' that are often interpreted as physiological minima for human survival; nutritional requirements for good health and normal activity levels are widely used to anchor absolute lines.

By contrast, relative lines do not claim to represent physiological minima and are instead (typically) set at a constant proportion of current mean income or consumption. Absolute lines are common in developing countries while relative lines tend to dominate in developed countries.

To the extent that there is a reasonably well-defined concept of what 'poverty' means in a given country, the parameters of the objective poverty line can be chosen appropriately.

It is estimating the country's underlying social subjective poverty line that is more difficult, though there is a reasonably close correspondence between subjective and objective poverty lines.

Ravallion found national poverty lines vary enormously across the world, and they reveal a marked economic gradient.

The poorest 15 countries (in terms of private consumption per capita) have an average line of $1.25 per person per day, while the average is $25 a day for the richest 15 countries. Not surprisingly, poverty line rose with mean consumption in developed countries.

But equally surprisingly, absolute poverty lines in developing countries also showed a pronounced gradient amongst all but the poorest countries.

Evidently, the set of commodities that are deemed to be necessary to attain basic (personal and social) needs varies systematically with the level of economic development. Welfare, Ravallion argues, depends on both personal consumption and consumption relative to the mean. The weight on relative consumption increases with mean consumption. Hence as mean consumption increases, so does the poverty line. In other words, as countries progress economically the minimum required to keep them out of poverty also rises.

He, therefore, estimated that to be not considered poor in the world as a whole, a person needs to have attained both a minimum level of consumption-around $1.25 a day at 2005 purchasing power parity-and have enough to cover certain socially-determined needs, which are always positive but rise by $1 for every extra $3 of mean consumption.

Based on the above definition, about half the population of the developing world in 2005 was poor and about half of the people lived under $1.25 a day.

As with the debate that is raging now Ravallion's estimates created a furore! Clearly, there is no such thing as an 'acceptable' poverty line, partly because acceptance of poverty troubles all of us at some level or other.

(World Bank Policy Research Working Paper April 2010 : Poverty lines across the world, Martin Ravallion)