Montek's 'redefine poverty' comment is like a father disowning his son
The statement came after the latest set of poverty numbers were slammed by leaders across the political spectrum.
Montek Singh Ahluwalia, the deputy chairman of the Planning Commission, has survived in the political and bureaucratic circles of Delhi for nearly three decades now. Given this it is safe to say that he has well honed survival instincts, which tell him when the tide is turning.
And when the tide is turning, it makes sense to change direction and flow with the tide rather than risk drowning. This is precisely what Ahluwalia did yesterday. As he remarked "As the country becomes richer and the per capita income goes up, there is need to redefine the poverty line. The latest numbers that planning commission have released, based on the Tendulkar Committee report, are absolutely rock-bottom numbers and gives us the number of poor who are actually the weakest group and therefore, should be the priority of the government."
This is like a father disowning his son. The statement came after the latest set of poverty numbers were slammed by leaders across the political spectrum. The Congress party tried defending the numbers initially, but then did a volte face and has since come out all guns blazing against the current poverty line, which decides who is poor and who is not. The opposition parties from the left to the right have slammed the poverty line as well.
The current poverty line was decided by the report of the expert group to review methodology for estimation of poverty. The report was released in November 2009 (It is better known as the Tendulkar committee report). The report set the "the estimates of poverty...on private household consumer expenditure of Indian households." The committee arrived at that numbers taking into account the expenditure on food, clothing, footwear, durables, education and health.
This line was an improvement on the earlier poverty line which only took into account the expenditure required to consume an identified number of food calories. For rural India this number was 2,400 calories. For urban India this number was at 2,100 calories. Anyone consuming less than this was deemed to be poor.
The Tendulkar Committee changed this. "The expert group has also taken a conscious decision to move away from anchoring the poverty lines to a calorie intake norm," its report said.
And there were reasons for doing so. There has been a long term trend of declining calorie consumption in both rural and urban areas. For urban India the consumption was at 1776 calories per day per person. And for rural India it stood at 1999 calories per day per person, observed the Tendulkar committee. In fact the calories being consumed in urban as well as rural area were higher than the revised calorie intake norm of 1770 calories per person per day specified by the Food and Agriculture Organisation(FAO) for India.
This specific point has come in for a lot of criticism, especially from those who lean towards the left. In a column in The Hindu, Utsa Patnaik of the Jawaharlal Nehru University writes "All official claims of low poverty level and poverty decline are quite spurious, solely the result of mistaken method. In reality, poverty is high and rising. By 2009-10, after meeting all essential non-food expenses (manufactured necessities, utilities, rent, transport, health, education), 75.5 percent of rural persons could not consume enough food to give 2200 calories per day, while 73 per cent of all urban persons could not access 2100 calories per day. The comparable percentages for 2004-5 were 69.5 rural and 64.5 urban, so there has been a substantial poverty rise."
But what this statement does not take into account is the fact that there is a long term trend of declining calorie consumption in both urban as well as rural India. This is something that Jagdish Bhagwati and Arvind Panagariya discuss in great detail in their book India's Tryst with Destiny - Debunking Myths that Undermine Progress and Addressing New Challenges. "The long-term trend is one of declining calorie consumption in both rural and urban areas though the trend is steadier in rural rather than urban areas."
And there are reasons for the declining trend in calorie consumption. As Bhagwati and Panagariya point out "For example, greater mechanization in agriculture, improved means of transportation and a shift away from physically challenging jobs may have reduced the need for physical activity. Likewise, better absorption of of food made possible by improved epidemiological environment (better child and adult health and better access to safe drinking water) may have lowered the needed calorie consumption to produce a given amount of energy."
So saying that because the calorie consumption has gone down, hence India is poorer, is really not correct. Left leaning activists and economists have constantly pointed out that the decline in calorie consumption is an indication of increased hunger and malnutrition.
But there is enough evidence to prove the contrary. "When directly asked whether they had enough to eat everyday of the year, successive rounds of expenditure surveys of the NSSO (National Sample Survey Office) show increasing proportions of the respondents answering in the affirmative. In the 1983 expenditures survey, only 81.1 percent of the respondents in the rural areas and 93.3 per cent in the urban areas stated that they had enough food everyday of the year. But by 2004-05, these percentages had risen to 97.4 percent and 99.4 percent," write Bhagwati and Panagariya.
A March 2013 report in The Mint also makes a similar point. "A February report of the National Sample Survey Office (NSSO) shows the proportion of people not getting two square meals a day dropped to about 1% in rural India and 0.4% in urban India in 2009-10."
The malnutrition argument also doesn't quite hold either. Interestingly, Bhagwati and Panagariya, cite research carried out by Angus Deaton and Jean Drze. Drze has been a long time collaborator of Amartya Sen. "Deaton and Drze also analyse the data on the heights of different cohorts of men and women collected by the second and third rounds of National Family Health Survey and conclude that later-born adult men and women are taller. They calculate that the rate of increase of height is 0.56 centimetre per decade for men and 0.18 centimetre per decade for women. Thus, even if India continues to do poorly in international comparisons, all trends point to improving and not worsening adult nutrition," write Bhagwati and Panagariya.
So there is enough evidence to suggest that calorie intake has been going down and it hasn't led to greater malnutrition and hunger. Hence, criticism of the Tendulkar committee report on this point, doesn't really hold. Also it is important to remember that the Tendulkar committee made the poverty line multidimensional, by considering several other expenditures other than just food. An immediate impact of this was that the poverty ratio for 2004-05, went up from 27.5% to 37.2% of the total population. From that level the poverty ratio has come down to 21.9% in 2011-12.
But that doesn't mean that there are no problems with the poverty line set by the Tendulkar committee. The committee set the consumption expenditure in order to avoid poverty at Rs 816 per person per month in the rural areas and Rs 1,000 per person per month in the urban areas. For a family of 5 , this amounts to Rs 4,080 per month in rural areas and Rs 5,000 per month in urban areas.
This of course translates into an expenditure of around Rs 27 per day for rural areas and Rs 33 per day for urban areas, two numbers that have caused a lot of outrage over the last one week. There is no denying that the numbers are very low. In fact, within this cut off expenditure, one of the assumptions is a healthcare expenditure of less than Re 1 per day. As Harsh Mander, a former member of the National Advisory Council, put it in The Mint, this was "barely enough to buy an aspirin".
Despite these points, the Tendulkar Committee poverty line is in line with the definition of poverty used by 189 members of the United Nations to set the first of eight Millennium Development Goals of halving global poverty between 1990 and 2015.
As T N Ninan wrote in the Business Standard "The definition of poverty used to set this goal is $1.25 per day. That would be about Rs 75 per day in a straight conversion to rupees at current exchange rates, but works out to about Rs 30 when you take purchasing power parity into account, as you are supposed to. As it happens, the Tendulkar line for rural areas in 2011-12 was Rs 27, and in urban areas Rs 33. So any criticism of the Tendulkar definition of extreme poverty runs smack into what is the internationally accepted definition."
Also, the Congress party as well as the opposition parties which are criticising this formula now, could have first done so more than three years back in late 2009, when the report was first made public. But they chose to be quiet then. Despite the problems that it has, what the Tendulkar committee poverty line measures is extreme poverty or what Ahluwalia refers to as "the weakest group" and which "should be the priority of the government". Raising this line would have its own set of problems, which this writer has pointed out in the past.
"For example, suppose we raise the rural poverty line to Rs 80 and the urban one to Rs 100 at 2009-10 prices. What would these lines imply?" ask Bhagwati and Panagariya. This would designate 95% of the rural population and 85% of the urban population to be poor. And that does not help anybody, except those who repeatedly like to shout that "India is poor". Yes, we all know India is a poor country, but then what's new about that?
Increasing the cut off for poverty, would mean that scarce government resources will be spread over a larger set of population. As Bhagwati and Panagariya point out "With tax revenues still relatively modest, significant redistribution in favour of the destitute requires limiting such redistributions to the bottom 40 percent or so of the population. Spreading them thinly over a vast population will give too little to the destitute to make a major dent in poverty."
So the more poor will lose out to the less poor.
Given this, it makes sense for India to have at least two poverty lines, one to tackle extreme poverty and one to measure 'real' poverty. The World Bank uses two poverty lines. One is the extreme poverty line, which is set at an expenditure of $1.25 per day. And another is a moderate poverty line which is set at $2 per day.
Economist Devinder Sharma in a column in the Rajasthan Patrika writes about the South African experience. South Africa has three poverty lines. The first is the food line with a cut off expenditure of Rs 1841 per month. Then comes the middle poverty line at Rs 2,445. And the upper poverty line at Rs 3484.
India needs something along these lines. Dumping the Tendulkar committee poverty line does not serve much purpose. It should continue to help target the "extreme poor", whose number has gone down over the years.
But when it comes to measuring real "poverty" India does need a higher cut off. World bank's moderate poverty line of $2 per day, adjusted for purchasing power parity, would be a good bet to start with. Of course the risk here is that the politicians can make the upper poverty line, the real poverty line, and start distributing "freebies" on the basis of that, making it a fiscally disastrous proposition for the government. Remember, the food security scheme?
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