The recent poverty estimates published by the Planning Commission have reignited the debate on poverty estimates in India. The poverty numbers (http://bit.ly/13n71jb) based on National Sample Survey Office (NSSO) data showed that the proportion of poor in India had fallen 15 percentage points to 22% between 2004-05 and 2011-12. The unprecedented pace of decline in poverty sparked a furious debate on the veracity of the commission’s claims and the significance of the decline.
Here are some of the best pieces on the subject:
In an interview to economist Ashok Kotwal published in Mint, Pronab Sen, chairman of the National Statistical Commission, argues that the decline in poverty is real and resulted from growth acceleration, a shift in terms of trade towards agriculture, and increase in rural wages. He also provides a pathway for the future which might sustain the decline.
Harsh Mander, a right-to-food activist and a former member of the National Advisory Council argues that the poverty line is unacceptably low in India. “The assumption that it is all right for poor people to live on so little is the problem we have with the recent estimates of declining poverty,” writes Mander in this Mint opinion piece:
In an editorial, Mint dispels the popular myths surrounding the poverty debate in India, pointing out that the poverty decline will hold even if the poverty line is shifted upwards. The decline in poverty and the mitigation of certain inequalities are real although this owes more to growth rather than to the redistributive policies of the government.
Mint’s consulting editor Manas Chakravarty examines state level poverty estimates to find that average per capita income levels and poverty ratios are not perfectly correlated. State policies have had different impacts on poverty, even at the same levels of income.
Mint’s deputy managing editor, Anil Padmanabhan argues that the vested interests of the “anti-poverty industry” render them blind to the real improvement in poverty levels. He says that “Garibi Hatao”, a slogan coined by Indira Gandhi has been the propelling force behind the Congress’ success over the years, an ace up their sleeve that they are not yet ready to give up.
The origins of India’s poverty line lie in the seminal work of two economists, V N Dandekar and N Rath, who first established the consumption levels required to meet a minimum calorie norm of an average calorie norm of 2,250 calories per capita per day.
As the 1993 Planning Commission expert group on estimating poverty put it: “On the basis of National Sample Survey data on consumer expenditure, the study (by Dandekar and Rath) revealed that, in rural area, the households with an annual per capita expenditure of Rs. 170.80 (or equivalently Rs. 14.20 per capita per month) at the 1960-61 prices consumed on an average food with calorie equivalent of 2250 per capita per day together with such non- food items as they chose. The corresponding figures in the urban area were Rs.271.70 and Rs.22.60 at 1960-61 prices. In comparison with the recommendations of the Working Group (1962), the authors observed that the rural minimum determined by them was considerably below, while the urban minimum determined by them was a little above the level recommended by the Group. In view of this, they decided to revise the rural minimum slightly upwards to Rs. 180 per annum or Rs. 15 per month. Similarly, they rounded off the urban minimum to Rs.270 per annum or Rs.22.50 per month, both at 1960-61 prices.”
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In sum, Dandekar and Rath fixed a minimum consumption line in the seventies based on a calorie norm, and that line was used to define the poverty line for roughly two decades, after making adjustments for price changes for each Indian state. The numbers of poor below the state-specific poverty lines were then aggregated to arrive at the national poverty estimates. The expert group reported pointed out that expenses on necessaries such as education and health were excluded in such an approach but recommended that the existing methodology should be continued till minimum norms for non-food items are developed. The committee pointed out that the calorie-based poverty norms based on a fixed consumption basket was adequate for inter-temporal comparisons.
A major controversy on the poverty line arose after the 1999-2000 NSSO survey because of a change in the survey methodology of the NSSO, based on which official consumption and poverty numbers are estimated. Critics argued that due to a change in the recall period, the consumption figures and hence the poverty estimates of 1999-2000 were no longer comparable to earlier estimates. This put a big question mark on the data and on the extent of the poverty decline in the 1990s.
In an influential 2002 Economic and Political Weekly research article, economists Angus Deaton and Jean Dreze presented new estimates based on alternative methodologies that finally sealed the debate by showing that the poverty decline was indeed real. The results were more or less consistent with official reports that reflected a decline in poverty and a significant rise in per capita expenditure. “The poverty estimates are broadly consistent with independent evidence on per capita expenditure, state domestic product and real agricultural wages,” the duo reported.
A subsequent article by Deaton and Valerie Kozel that summarized the debate pointed out that a key reason for the controversy was political. The decision on whether to use a shorter or longer recall period (a shorter period tends to inflate the reported consumption numbers while a longer period tends to lead to underestimation) should have been left to statisticians but was politicized. The article concluded that although poverty fell in the 1990’s, the extent of the decline in rural areas might have been overstated by official numbers.
The economics profession has come to increasingly rely on multi-dimensional poverty estimates rather than on those based solely on income, or on calorie based norms. A recent study by Sabina Alkire and Suman Seth for Oxford Poverty and Human Development Initiative (OPHI) explains the difference between reductions in income poverty and multidimensional poverty. India’s multidimensional poverty decreased faster than income poverty in the span between 1999 and 2006, their study finds, providing a break-up of groups in which the decline has taken place.
As fallout of the debate on poverty in India, a committee headed by the economist Suresh Tendulkar was appointed to fix new poverty lines for India. The Tendulkar committee report, published in late 2009, for the first time expanded the scope of poverty norms by including expenses on health and education. Tendulkar’s results however relied on average calorie intake based on actual consumption figures reported by the NSSO, which turned out lower than the normative estimates that were used earlier.
So, even after including expenses on education and health, Tendulkar’s revised numbers were roughly similar to the old urban poverty line (and higher than the old rural poverty line), after adjusting for inflation. Tendulkar justified this by arguing that the consensus within the profession suggested that the old urban poverty line gave a far more accurate picture than the old rural poverty line did. As a result of the Tendulkar committee report, the overall poverty ratio rose by 10 percentage points to 37% for 2004-05, compared to the earlier methodology.
Tendulkar’s report was criticized by some economists such as Madhura Swaminathan for under-estimating the expenses on health and education and for bringing down the minimum calorie norms.
The popular criticism, chiefly from right to food activists and opportunistic politicians, however lacked nuance, and arose for completely different reasons. Tendulkar set the poverty line at Rs.4, 824 per month for a family of five in urban areas and Rs.3, 905 per month in rural areas. This boiled down to Rs 32.16 per day per capita in urban and Rs 26.03 in the rural areas. The daily estimates were deemed too low for a fast-growing economy such as India by critics. The government was forced to appoint another committee headed by C Rangarajan to revisit this issue.
The Rangarajan committee is yet to submit its report but as T N Ninan points out in the Business Standard, there is nothing to prevent critics from pointing out that even that poverty line is too low. Ninan argues that the Tendulkar poverty line is very close to the internationally accepted poverty line of $1.25 per day in purchasing power parity terms.
In a recent editorial, the Economic and Political Weekly points out that the poverty decline post 2004 seems to have been faster than earlier. But it finds fault with the Planning Commission’s decision to link official schemes with the poverty numbers. It points to a recent example of estimating caps based on the poverty numbers and informing states how many they should therefore exclude from entitlements under the National Food Security Ordinance. “A large part of the responsibility for general scepticism on poverty reduction must be laid at the door of the Planning Commission, which in recent years has shown a great deal of immaturity on this matter.”
While there seems to be a broad consensus among economists on the faster decline in poverty in recent years, there is far less consensus on the reasons for it. Economist Bhaskar Dutta points out that the evidence so far is not clear on whether trickle down effects of growth or state-led redistributive policies caused the rapid poverty reduction. Dutta stresses that a number of factors appear equally likely to have contributed to the decline in poverty numbers.