China nearly doubled its rural poverty threshold last week, in a move that will make an estimated 130 million people (or nearly one-tenth of its total population) eligible for various social support schemes funded by the government. China has now tweaked its poverty line for the fourth time in four years. Poverty lines are not set in stone. They have to be regularly changed.
This development comes just as the raucous debate on the Indian poverty line has died down. The Planning Commission had come under intense fire after it told the Supreme Court that only someone spending less than Rs 32 a day in urban areas or Rs 26 a day in the rural areas lives below the poverty line. The Chinese decision to raise their rural poverty line is both a lesson in how a decision is communicated as well as a good time to check the validity of the Indian poverty line.
The Chinese have raised their rural poverty line to 2,600 yuan a year, or 6.3 yuan a day. That is close to the global benchmark set by the World Bank: $1.25 per day based on 2005 purchasing power parity dollars.
The first lesson is the way the Chinese political leadership has communicated its decision. It did not offer a daily spending threshold, but an annual one. That was one big tactical mistake by the Indian government. Popular reaction would have been different in case the poverty line had been defined as annual spending of Rs 11,680 per capita or perhaps Rs 58,400 per family of five (as governments in many rich countries calculate). Behavioural economists would define this as a framing problem.
A more important learning is that the Indian poverty line is already close to the World Bank figure of $1.25 a day. The Chinese had a ridiculously low poverty line, and are only now coming close to the globally accepted benchmark. India looks far better in comparison.
But we still lag other countries in the region. Research by Terry McKinley of the School of Oriental and African Studies in London shows that the poverty lines in Pakistan and Vietnam are 25% of their per capita gross domestic product. Some other Asian countries are even higher: Cambodia (50%), Mongolia (35%) and Bangladesh (40%). The Indian urban poverty line is around 20% and the rural poverty line is around 15% of India’s per capita income at current prices in 2010-11. It should be higher.
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