A Planning Commission panel, set up in 2006 to define a new poverty line, has run into an unexpected hurdle: it doesn’t find the data offered by the consumer-price indices good enough. No deadline has been set for the submission of the panel’s report.
The last estimate of the poverty line was undertaken in 1979, after six years of deliberation, and has since been periodically adjusted for inflation. Now, the Centre wants to revisit the definition of poverty, to both address the raft of controversies surrounding poverty data and to make it more contemporary—which could have a direct bearing on the government spending on social sector programmes; any substantial reduction in the poverty numbers could result in pruning of food subsidies and poverty-alleviation programmes.
Accordingly, the panel was tasked to address three issues: the rationale for a poverty line; the best way of estimating consumption data; and the basket of consumption items that would be included in estimating the poverty line.
Chairman of the committee Suresh D. Tendulkar said it was not possible for him to give a date for submitting the report because “there are problems with the price data”.
The government set up the committee last year to look at all poverty issues for two reasons. The precision of India’s poverty data had been questioned in several quarters.
For calculating the poverty line in the urban areas, the consumer price index for industrial workers (CPIIW) is used, while for the rural areas, the consumer-price indices for rural and agricultural labour are used. Tendulkar believes that these indices no longer represent the population adequately, or reflect the actual consumption pattern on the ground. CPIIW covers only 4% of the urban population. As a result, before looking at the entire gamut of issues that go into measuring poverty in India, the panel sees the need to revise the indices to make them more representative.
Income poverty is defined in India as the minimum subsistence income. The corresponding consumption levels are defined as 2,400 calories per person per day for rural areas and 2,100 per person per day for urban areas. The poverty line currently used was defined by the Y.K. Alagh (a former member of the commission) task force on minimum needs that submitted its report in 1979, as monthly percapita consumption below Rs49 in rural areas and Rs56.60 in urban areas at 1973 prices.
After adjusting for consumer price inflation, the headcount of Indians below the poverty line is currently estimated, depending on which of the two methods is used, at between 22% and 27% in 2004-05. That means, poverty has halved in the 57 years from 1951-52, the first year of the National Sample Survey (NSS), when the headcount ratio was 45%.
Using the World Bank-defined poverty line of $1-2 (Rs43-86) a day, a common globally accepted norm, the headcount ratio would be substantially higher at 36%.
The method of estimating poverty ratios underwent another revision in the nineties when the government-appointed expert group headed by D.T. Lakdawala recommended that national accounts consumption data no longer be used and only the NSS data be used. The national poverty line was dropped in favour of state-specific poverty lines, which were then recomputed from 1973-74 onwards.
That, according to Surjit S. Bhalla, president of consulting firm Oxus Research, who has independently estimated urban poverty ratio at less than 10% of the population using national accounts consumption data, is responsible for most of the confusion over poverty estimates since 1993-94, the first time the Lakdawala method was used.
“We must go back to the way poverty was calculated before the seventies. The fundamental problem is the NSS survey data on distribution of consumption, which captures only 48% of the consumption taking place in the country, but which is fully reflected in the National Accounts Statistics (NAS) data,” says Bhalla.
Pronab Sen, secretary to the ministry of planning and programme implementation and former advisor (perspective planning) of the Planning Commission, disagrees. “Even the Lakdawala committee was aware of discrepancies between the NAS data and NSS data. But it felt, rightly, that the poor never hide consumption data, only the rich do. In some areas, for instance, in the case of rent reporting, NSS give a fuller picture than NAS. The government is aware of the discrepancies, which is why it set up the Tendulkar committee last year,” he says.