Trouble with revising poverty lines

The focus of policymakers should be on accelerating the pace of poverty reduction and making it sustainable.

Photo: Indranil Bhoumik/Mint
Photo: Indranil Bhoumik/Mint

An objective analysis of India’s poverty estimates over the past few years has been shrouded by the din around the poverty line. In response to the criticism surrounding the Tendulkar poverty line, the Planning Commission set up an expert group headed by C. Rangarajan to review the methodology for measurement of poverty. The Rangarajan committee has pegged the new poverty line to monthly per capita consumption expenditure of Rs. 972 in rural areas and Rs. 1,407 in urban areas. This translates to daily per capita consumption expenditure of Rs. 32.4 in rural areas and Rs. 46.9 in urban areas. The panel estimates that 30.9% of the rural population and 26.4% of the urban population were poor as per the new poverty line in 2011-12. This is an upward revision from the earlier estimates based on Tendulkar poverty line that 25.7% of rural population and 13.7% of the urban population were poor in 2011-12.

While the Rangarajan committee computes higher poverty lines and consequently estimates higher levels of absolute poverty than the Tendulkar poverty line, what is striking is that the rates of poverty reduction obtained using these two poverty lines are roughly similar. As per the new poverty line, poverty ratio for India declined by 8.7 percentage points over this period, while it declined by 8.1 percentage points as per the Tendulkar poverty line. Similarly, the decline in rural and urban poverty ratios using the new and Tendular poverty line are fairly similar. That the new poverty lines, which are 19% and 41% higher in rural and urban areas respectively as compared to the Tendulkar poverty line, report roughly the same or even marginally higher rates of poverty reduction, both in terms of poverty ratio and the number of poor, makes it clear that the rapid poverty reduction observed over this period was not attributable to the fact that the Tendulkar poverty line was too low. The scathing criticism of the Tendulkar poverty line on these grounds was certainly uncalled for.

Of course, a three-year time period is too short to examine poverty reduction. Moreover 2009-10 was a drought year. However, since the Modified Mixed Recall Period consumption expenditure distribution is not available for the year 2004-05, poverty ratios for 2004-05 cannot be directly estimated as per the new poverty line. Thus, we cannot compare the poverty decline between 2004-05 and 2011-12 for the two poverty lines.

The public disenchantment with the poverty line is essentially a result of the fact that in a growing economy such as India poverty can no longer be understood merely by the lack of ability to afford minimum subsistence. The poverty lines, whether of Rs.32 or Rs.46 a day appear to be nothing more than a line of destitution or starvation. It seems insensitive to argue that a movement from below to above this artificially drawn line translates into an improvement in the material well-being of households. Poverty lines and measures in any given setting will be socially acceptable only if they accord well with prevailing ideas of what poverty means in that setting. Revising poverty lines on the basis of different methodologies will not put an end to the criticism surrounding them, as these lines are based on the concept of absolute poverty expressed in terms of basic subsistence, as opposed to the concept of relative poverty. Relative poverty acknowledges that the definition of poverty should move with the times and change with general living standards. However, poverty lines based on this concept will not allow us to track the proportion of poor over time.

From the perspective of policymakers and academics, the purpose of a poverty line is to monitor poverty reduction. Once the definition of the poverty line is set, it cannot keep changing except adjusting for inflation. The focus of policymakers, therefore, does not need to be on the level at which the poverty line is fixed, but how to accelerate the pace of poverty reduction and ensure that it is sustainable, and not simply a result of significant bunching i.e. a concentration of poor around the poverty line. In the event of bunching, even modest increases in income can pull large numbers of poor from below to above this line leading to rapid poverty decline. If the forces that pushed the poor above the poverty line are transitory, a large proportion of them could slip back into poverty if there is a sufficiently large negative shock. For poverty reduction to be sustainable, we need policies that range from creating more productive jobs, delivering better education and health services and basic infrastructure to protecting the vulnerable. These will make the growth process more inclusive and increase the growth elasticity of poverty. Importantly, while the link between growth and consumption poverty is rather direct, the relationship of growth with other dimensions of poverty such as malnutrition, sanitation or housing is far from being so. Hence, poverty reduction has to be strategized in a multi-dimensional framework.

Radhicka Kapoor is an economist at the Indian Council for Research on International Economic Relations (ICRIER).

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