INDIA: Re-estimating poverty

by C. P. Chandrasekhar

The incidence of poverty we are now being officially told is much higher than the government has been claiming thus far. The Suresh Tendulkar Committee set up by the Planning Commission has argued that a little more than 37 per cent of Indians live in poverty as compared with the officially estimated 27.5 per cent. The new figure is bound to further stretch the tiresome debate on poverty, in which the issues involved have been clear for some time now. From a political economy perspective the more interesting question relates to the motivation behind the government’s decision to revise its poverty estimate, especially since it has been maximising the political mileage it gets from the decline in poverty incidence indicated by estimates based on the current methodology.

A favourable answer would attribute the revision to the recognition that the earlier method was delivering faulty figures. In the never-ending dispute on the extent of poverty in the country, it has been increasingly accepted that the official estimates were erring on the lower side. There were indeed a few who used the National Accounts Statistics to argue that the National Sample Survey figures on expenditure tended to underestimate consumption and overestimate poverty in the country. But they were an unrecognised minority. For the rest, the problem was that the NSS figures on calorific intake per person, on which poverty estimates were ostensibly anchored, pointed to a significantly higher proportion of poverty then the estimates obtained by adjusting for inflation a set of 1973-74 nominal expenditure figures that were seen as adequate to deliver an average per capita per day calorie intake of 2400 calories in rural areas and 2100 calories in urban areas. Some analysts attempted to explain away the low calorific intake of those seen as being above the “poverty line” by arguing that actually needed nutritional requirements and changing consumption desires were responsible for the divergence.

However, these attempts at obfuscating the issue were challenged by the fact that the nominal expenditure of those who were seen as being at or below the poverty line was embarrassingly low in the rural areas, where it stood at Rs.356.30 per month or around Rs. 12 per day in 2004-05. What is more, the National Commission on Enterprises in the Unorganized Sector pointed out that going by consumer expenditure data 78 per cent of Indians were forced to manage with Rs. 20 or less per day—an expenditure figure which to many was low enough to identify three-fourths of the population as living in poverty.

Whether the Tendulkar Committee was expressly set up to deal with this anomaly or not, it was clear from the outset that it could not go with the low figures of poverty incidence that the government had been citing routinely for the last decade or more. But the Committee was walking a tight rope, since the options in terms of method and sources of data were indeed limited. If it opted for a method which used the direct calorie intake figures available from the NSS reports on consumer expenditure, the proportion of the population below the poverty line would have risen sharply at least in some states, inviting criticism from those who would use the sheer size of the increase to question its validity. On the other hand, if it anchored its estimates on the 1973-74 poverty lines and merely played with the conventionally-used price indices it would be stuck with embarrassingly low poverty incidence estimates.

In the circumstances the Committee has chosen a clever route to a compromise figure. It has accepted the currently prevailing nominal poverty line figure for urban areas on two grounds: first, that it permits in practice a calorific intake per person of around 1775 calories, which though below the 2100 calories urban norm, is close to the FAO calorific norm of 1800; and, second, that the nominal poverty line permits in addition to this a reasonable degree of expenditure on education and health and allows for a better definition of an above-poverty consumption basket.

Having thus defended the nominal 2004-05 poverty line for urban areas, the Committee has decided to use this nominal figure as the anchor for estimating a rural poverty line. This it does by arriving at a purchasing power parity (PPP) equivalent of this figure for rural areas, or a nominal expenditure figure that would allow the same basket to be consumed in rural areas after taking account of rural-urban price differentials. The net result of these exercises is a new set of poverty lines for 2004-05—Rs 446.68 for rural areas and Rs 578.80 for urban areas per capita per month—and a new set of poverty incidence figures that are more or less the same for 2004-05 in urban areas but higher at 41.8 per cent as compared with 28.7 per cent in rural areas.

These figures perhaps sound more “reasonable” in terms of magnitude, even though they are derived from an ostensibly “estimated” but unanchored nominal poverty line for urban areas for 2004-05. But the government appears to be accepting them without much protest. The reason appears to lie somewhere else. Poverty incidence figures matter now not merely because they reveal how many are marginalised in an India seen as “emerging” onto the world stage. They also matter because they provide the numbers of people to whom government schemes of various kinds aimed at addressing the worst forms of deprivation are to be “targeted”. Most social protection and poverty alleviation schemes are directed at the below the poverty line (BPOL) population, in a misguided effort at obtaining more bang for the rupee. If targeting is in fashion, a reasonable estimate of those who deserve the benefit of these schemes is necessary. That was what the earlier poverty estimate was not providing. Moreover, if the number of those targeted is kept small because of an inappropriate poverty incidence estimate, the social legitimacy the government seeks through these schemes would not be garnered. In practice therefore the numbers identified as BPL were much higher than those seen as below the poverty line as per the official poverty incidence figures. In fact, a report prepared by former Planning Commission member N.C. Saxena at the behest of the Rural Development ministry argued that the proportion of the population below the poverty line should be closer to 50 per cent, without specifying a clear method to arrive at that figure. This arbitrariness was obviously discomfiting. It also opened doors to poverty incidence figures that would require budgetary outlays for targeted schemes that would trouble a fiscally conservative government. Thus, since it has managed to legitimise targeting, a method that delivers a middling poverty figure suits the government. It also deals with the embarrassment of those who have to compute and put out poverty incidence figures. The result is a cosy convergence in which the poor are by no means left any better