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The good news on poverty: looking under the hood of the Planning Commission numbers

By Varad Pande

How poor does one have to be to be classified as ‘poor’? And how does one assess whether the poor are actually doing better? These questions have created a storm in the political space in India in the last few days, ever since the Planning Commission’s released the revised poverty data for 2011-12. Politicians have outshouted each other on TV shows (and some have made silly statements that they have come to regret later!). The claim that the percentage of people below the poverty line has declined from 45.3% in 1993-94 to 21.9% in 2011-12, has been contested on the grounds that the so-called Tendulkar poverty line, is “too low”. The government is being accused of manipulating the numbers for political gains.

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Lost in the din of the political storm, is the fact is that the current controversy actually confuses different issues, and misses certain basic points. Let me start with two clarifications.

First, there is no doubt that the current Tendulkar poverty line, which is essentially based on an individual’s calorie consumption, takes a minimalist view of poverty, is flawed and needs to be updated. The importance of malnutrition (and its link with access to things like sanitation) is now well documented. The science of poverty estimation has progressed remarkably in the last few years. New indices, like the Multidimensional Poverty Index (MDI), inspired by Amartya Sen’s “capabilities approach”, have been developed, which emphasize the importance of access to health, education, water, sanitation, and asset ownership, in estimating poverty. Recognizing that the Tendulkar poverty line is indeed in need for a major upgrade the government set up the Rangarajan Committee in May 2012, which will submit its new methodology in mid-2014.

Second, the Tendulkar poverty line has a very specific purpose and does not claim to estimate the number of people living in poverty and has nothing to do with the entitlements of the poor under government programmes. It is little more than an academic line, used to track progress over time, and for international comparisons (because it is almost identical to the internationally accepted extreme poverty line of $1.25 a day, in PPP terms). The government realizes how “low” the Tendulkar line is, and therefore does not use this line for its welfare programmes. Today many large government schemes are universal, i.e., available to all, including MG-NREGA, NRHM, Mid-Day Meal, ICDS and SSA. Others, like the Food Security Ordnance, cover a much larger share (66%) of the population. In fact, apart from old-age pensions and IAY, no Central government scheme today relies on a BPL classification (and even here, we are moving away from the BPL classification). The Socio-Economic Caste Census, a gigantic exercise being undertaken across the country right now (results to be available by end of the year), will provide a robust basis for measuring the level of wellbeing and deprivation across India. Therefore, the Tendulkar poverty line is, and will remain, an academic line and the entitlements of the people for government schemes are completely delinked from it. This was clarified by the Planning Commission and Ministry of Rural Development in a joint statement in October 2011 itself.

Incidentally the debate between the ‘minimalists’ and ‘idealists’ on the poverty line is not limited to India. Today it is happening internationally in the ‘Post-2015’ discussions, which will essentially agree on a new set of goals to succeed the millennium development goals (MDGs) which expire in 2015. Some are strongly advocating a singular focus on the goal of eliminating “extreme” poverty, by the year 2030, which is defined as $1.25 per person per day. They argue that a clear focus on extreme poverty, where the ‘bottom billion’ of the world live, is essential if we are to make progress. Others, like Lant Pritchett of Harvard University, argue that we must aim at a much more ambitious poverty line on the grounds of basic fairness and to make sure that the next two billion poorest in the world, whose lives are not a bed of roses either, are not ignored. What we are seeing in India is an Indianised sensationalist version of this global debate!

Coming back to India, given the deficiencies of the Tendulkar poverty line, is there any good news in the Planning Commission numbers. Indeed, there appear to be several.

First, the overall conclusion that the decline in poverty has accelerated in the last 10 years is indeed robust. During the 11-year period 1993-94 to 2004-05, the average decline in the poverty ratio was 0.74 percentage points per year which accelerated to 2.18 percentage points per year during the 7-year period 2004-05 to 2011-12 – a three fold increase. What is more important is that this result holds whatever poverty line you take (Tendulkar or any higher line), and so it is independent of the current controversy of Rs 27 and Rs 33 (a little known fact buried towards the end of the Planning Commission Press Note). It seems that we have done a much better job of tackling poverty in the period 2004-2012 (almost 3 times as better), than in the preceding 11 years, irrespective of the current controversy.

Second, it is clear that the consumption of Indians in every income decile (poorest 10 per cent to the richest 10 per cent) has increased much more in the period 2004-12 than in 1993-2004. This means that Indians at every strata of the economic pyramid (not only the rich, as is often casually argued) are doing much better in 2004-12.

Third, the increase is consumption is particularly impressive (and equitable) in rural India, where, on average, the rate of increase in consumption expenditure has gone up almost 4 times in 2004-12, compared to 1993-2004, and this holds even for the poorest in the income distribution.

Attributing any of this good news causally to government policies is of course complex, but these results, which are independent of the Rs 27-33 controversy that has grabbed the headlines, do suggest that the ‘inclusive growth’ agenda seems to be working.

While it is clear that we need to do a much better job on measuring poverty, evidence suggests that in the last few years we have done a much better job fighting it.

Varad Pande is Officer on Special Duty to the Minister of Rural Development and an economist. The views expressed are personal.

Courtesy: www.ibnlive.in.com/

Read More : http://ibnlive.in.com/blogs/varadpande/3614/64748/the-good-news-on-poverty-looking-under-the-hood-of-the-planning-commission-numbers.html

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