Another poverty line, a new controversy: Here's a formula to fix the problem

So now India has one more poverty line. The latest one, based on the formula worked out by an expert group led by C. Rangarajan, should make the poverty industry happier than the earlier formula worked out by a similar expert group headed by Suresh Tendulkar in 2009. After all, it does show a higher proportion of poor people than the latter did.

The poverty line based on the Tendulkar formula had come under attack across the spectrum because, according to it, only those spending less than Rs 1,000 a month on a certain basket of goods and services in urban areas and Rs 816 a month in rural areas would be considered poor. This was broken down into a per day expenditure of Rs 33 and Rs 27 and generated much outrage. Such are the dangers of oversimplification of complex formulae.

The public relations disaster that followed led to the previous government setting up the Rangarajan Committee to rework the formula. This was the first time a new expert group had been set up within two years of an earlier one. All previous committees had at least a decade’s gap between them.

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So how has the Rangarajan formula got more poor than the Tendulkar formula did? Simply by correcting what it sees are some flaws in the Tendulkar formula, which had introduced some changes in the poverty estimation formula used by the earlier Lakdawala committee.

•It used a single basket of goods - the urban poverty line basket - for both rural and urban poverty. Earlier, separate baskets were used.
•It discarded an estimation based purely on calorie consumption.
•It incorporated private expenditure on health and education in poverty estimates

The Rangarajan Committee has not made any drastic departure from this; but has only tweaked it a bit and also taken into account households’ ability to save. It goes back to the calorie consumption based estimation and believes that the poverty line should be based on “certain normative levels of adequate nourishment, clothing, house rent, conveyance and education, and a behaviorally determined level of other non-food expenses”. On this basis, it has worked out a monthly per capita consumption expenditure of Rs 972 (Rs 32 a day) in rural areas and Rs 1,407 in urban areas (Rs 47 a day).

Quite overlooking the fact that this is actually a household monthly consumption broken up into per capita per day, there will once again be much uproar over how this makes a mockery of the plight of the poor. Which raises the question - should this be how poverty is estimated?

The Rangarajan Committee has gone back to the basic needs approach but one would have thought that it would have come up with an entirely different way of estimating poverty. It is quite obvious now that this approach is never going to satisfy everyone. Someone or the other will always find the poverty line drawn too low. So should we still follow this absolute poverty line approach? Or should it be a relative poverty line, as TN Ninan pitched for in this piece in Business Standard .

Ninan suggests that the poverty line should be a certain percent of the average levels of income in a country. In the United States it is 40 percent and in Europe it is 60 percent. Since India is a poorer country, he suggests adopting the 60 percent of average income as the cut off. This will push up the poverty line much higher.

But Pronab Sen, chairman of the National Statistical Commission, feels India needs an absolute measure of poverty as well because of the government’s welfare obligations. What he suggests is a combination of the relative and absolute measures. So a poverty line would be set as a percentage of the median income in a particular year. This becomes a kind of basic needs standard. This will then be linked to inflation every subsequent year. So while the poverty line will rise as national incomes rise (as Ninan suggests) the indexing to inflation will ensure that poor families do not lose out in real terms.

Since no one is ever satisfied with the poverty levels using the absolute measure, perhaps this compromise formula could help. But are the politicians listening?

Seetha is a senior journalist and author