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Resource centre on India's rural distress
 
 

The unsettled debate on Indian poverty by R Ramakumar

The Tendulkar Committee has pitched for a policy position that is stranded between the harsh realities of poverty and a fiscally conservative neo-liberal framework. 

The debate on the extent of poverty in India has been a matter of global interest in the recent years. The primary reason for the global interest in the debate is that the levels of poverty in India and China have come to exert significant influence over the trends in world poverty itself.

Within India too, there has been growing contestation around poverty estimates, particularly in the period of economic reforms. First, there are persistent disagreements among economists on whether the rate of poverty decline after economic reforms was slower than in the preceding period. Secondly, the shift to targeted, rather than universal, welfare schemes has witnessed the use of poverty estimates to decide on the number of households eligible to access these schemes. The report of the Expert Group on the estimation of poverty, chaired by Suresh Tendulkar, is the latest input to the “Great Indian Poverty Debate.”

In India, poverty is presently estimated by fixing a poverty line based on a differentiated calorie-norm. A task force of the Planning Commission in 1979 defined the poverty line as that per capita expenditure at which the average per capita per day calorie intake was 2400 calories in rural areas and 2100 calories in urban areas. Average per capita expenditures incurred by that population group in each State which consumed these quantities of calories, as per the 1973-74 survey of NSSO, were used as the poverty lines.

Based on the observed consumer behaviour in 1973-74, the poverty lines arrived at were Rs. 49.09 per capita per month in rural areas and Rs. 56.64 per capita per month in urban areas. These poverty lines were updated for the following years by simply accounting for changes in consumer price indices. Thus, the all-India poverty lines updated for 2004-05 were Rs. 356.30 in rural areas and Rs. 538.60 in urban areas, per capita per month. The shares of population below these poverty lines (the head count ratios; HCR) were estimated to be 28.7 per cent in rural areas and 25.9 per cent in urban areas.

These estimates of poverty threw up a number of controversies. First, it was argued that the poverty lines were extremely low in levels. An amount of Rs. 356.30 per month per person amounted to just Rs. 11.90 per day in rural areas, which was at best a destitute income. The fact that about one-fourth of India’s population did not incur even this level of expenditure was in itself instructive.

Secondly, the NSSO estimates were at great variance with the estimates of nutritional outcomes that other surveys like the National Family Health Survey (NFHS) provided. For instance, according to the NFHS-3, the share of underweight children (under 3 years) in rural India was 44 per cent in 2005-06.

Thirdly, there were major methodological problems in the choice of consumer price indices, continuously re-weighted keeping the 1973-74 consumption basket unchanged, to update the poverty lines over time. One striking absurdity that resulted was that in some States, urban poverty rates were estimated to be higher than the rural poverty rates.

The Tendulkar Committee has reviewed the present methodology for measuring poverty and suggested drastic changes for the future. It has recommended the abandoning of the calorie-norm for estimating the poverty line. Instead, the committee has recommended a new method where the present all-India urban poverty line is taken as the basis for estimating every other poverty line in the country. With the urban poverty line as the basis, the parity levels at the State-level for rural and urban areas are to be separately estimated using a typical purchasing power parity (PPP) method. Thus, the new State-level rural and urban poverty lines are to be at those levels at which the average national urban consumption levels can be attained.

The suggestion to use the all-India urban poverty line is justified on the basis of two independent validating reasons. First, the urban population that corresponded in 2004-05 to the poverty line expenditure consumed 1776 calories per capita per day, which was close to the calorie norm of 1800 calories per capita per day suggested for India by the Food and Agriculture Organisation (FAO). Secondly, the actual levels of urban per capita expenditure in 2004-05 were also sufficient to meet a defined “normative level of expenditure on education and health services.” It is thus postulated that the new poverty lines, fortuitously, meet not just food requirements, but also those of education and health that are important basic needs.

Using the above method, the new poverty lines for 2004-05 have been re-estimated by the committee as Rs. 446.68 for rural areas and Rs. 578.80 for urban areas (per capita per month). Further, the new HCRs for 2004-05 are estimated as 41.8 per cent in rural areas and 25.7 per cent in urban areas. These new estimates represent a significant upward revision of poverty in the rural areas, and a small downward revision of poverty in the urban areas. As per the new method, the total number of poor people in India has risen from about 403 million in 1993-94 to about 407 million in 2004-05.

Indeed, the new poverty estimates appear more realistic than the existing estimates. It is certain that the Tendulkar report would reopen the debate on the impact of reforms on poverty. At the same time, the new estimates would also help States expand their BPL coverage in the public distribution system (PDS) using food grains from the Central quota itself. On that count, the report is likely to be welcomed by State governments.

However, the report is unlikely to stem the deep dissatisfaction around the use of poverty estimates to “fix” eligibility in the access to welfare schemes. In important programmes like the PDS, the system of targeting remains firmly in place. As a result, large sections that require welfare assistance are likely to remain excluded from these programmes even if the new poverty estimates are considered.

Take an illustration: in per capita daily terms, the rural poverty line has been raised from Rs. 12 to Rs. 15 — a meagre upward revision. In the urban areas, the increase is from Rs 18 to Rs 19 per day. It is most revealing that even such a small upward revision of the poverty line could net in more than 100 million new persons as “poor.” In other words, poverty estimates are extremely sensitive to even minor changes in the poverty line.

Juxtapose this with the fact that 77 per cent of India’s population lived at an average monthly per capita consumption expenditure (MPCE) of Rs. 16 per day in 2004-05. If the average expenditure of 77 per cent of the population was Rs. 16 per day, there is likely to be a sizeable section of the population above the new poverty line of Rs. 15 per day in rural areas and Rs. 19 per day in urban areas. In a targeted system of welfare provision, these vulnerable sections of the population would remain excluded.

Errors of “wrong exclusion” in targeted programmes in India are due to the separation of the processes of (a) the estimation of the number of poor and (b) the identification of the poor. It is for the absence of a reliable and feasible method of combining estimation and identification that political and social movements have been demanding the universalisation of welfare schemes like the PDS. It is, thus, essential that sample-based poverty estimates from the NSS are not mechanically linked to the eligibility to access welfare programmes. In a country with such mass poverty as India, universalisation remains the most efficient tool for ensuring livelihood security.

A final issue with the report, of much long-term consequence, relates to the wisdom of abandoning the calorie norm. It is indeed true that the levels of calorie intakes are not well correlated with nutritional outcomes. However, abandoning the calorie norm altogether and taking solace from the fortuitous fact that calorie intakes appear adequate at the new poverty lines is an arbitrary proposition. It is unclear whether there is any basis, theoretical or empirical, for this relationship to hold true across time.

In sum, the Tendulkar Committee has pitched for a policy position that is stranded between the harsh realities of poverty in India and the fiscal conservativeness of a neo-liberal framework. The real challenge lies in preserving the positives from the report, and strongly persisting with the demand for a universal social security system.

(R. Ramakumar is Assistant Professor, Tata Institute of Social Sciences, Mumbai.)