Illustration: Jayachandran/Mint
Illustration: Jayachandran/Mint

The myths around poverty in India

The decline in poverty is real. There's no point in questioning the evidence

The level of poverty and the rate of its decline are two of the most important yardsticks by which any modern democracy measures its progress. Hence, it is natural to see a spirited debate on the latest poverty numbers estimated by the Planning Commission, which show a sharp decline in poverty levels in recent years.

However, as is the case with many other critical issues in India the debate on the poverty seems to be generating more heat than light. The debate has assumed a sharp edge partly because of the unprecedented scale of the decline in poverty levels. Between 2004-05 and 2011-12, a net of 137 million people or 15% of the population lifted themselves out of poverty, the commission estimated, bringing down the national poverty rate to 22%.

It is important to take stock of these numbers by dispelling some of the myths surrounding the poverty debate.

The first myth is that the devil lies in the methodology. Several politicians cutting across party lines seem to suggest that it is the “absurd" poverty line recommended by the late economist Suresh Tendulkar that has inflated the decline in poverty levels.

In reality, the committee led by Tendulkar had only expanded the scope of the poverty line. It is because of his recommendations that nearly 10% of the population in 2004-05, who were not considered poor under the earlier definition, came to be considered as poor. Second, changing the poverty line now will change the poverty levels but will not affect greatly the pace of the decline.

The second myth, propounded by a smaller but shriller set of naysayers, is that the National Sample Survey Office (NSSO) data on which the poverty estimates are based, are fudged. In their support, they point to the sharp differences in the NSSO figures for 2009-10 and 2011-12.

These criticisms tend to overlook the fact that India faced a drought, and witnessed a severe credit crunch in 2009-10, and the sharp rise since then is because of a low base. NSSO’s data quality may have declined over the past three decades but it provides detailed primary data and is quite transparent in that sense. Apart from Bihar and Andhra Pradesh, where the poverty decline is too sharp even by national standards, the data for other states can be taken at its face value.

The third myth is that inequality has been exacerbated even if poverty has declined. Inequality in India operates along four key axes: income, caste, gender and region. The evidence over the past few years suggests a gradual decline in inequality along each of these axes apart from gender. The latest NSSO figures, for instance, show that the growth in consumption expenditure (a proxy for income) has been far more evenly spread in the seven years between 2004-05 and 2011-12 than in the past decades. Also, even though this period saw much higher growth in urban incomes and consumption, rural consumption kept pace. Rural consumption expenditure grew at an average annual pace of 3.3% in the latter period as compared with an anaemic annual pace of 0.8% in the 18-year-period between 1993-94 and 2004-05 (at constant 1987-88 prices). Notwithstanding the curious poverty figures for two major states, the decline in poverty in the recent past has been far more widespread across Indian states than ever before. There are no extreme outliers any more when it comes to poverty ratios. Further, the spike in farm wages in the past few years after years of stagnation has meant that landless labourers at the bottom of the pyramid, belonging mostly to lower castes, have benefited the most from the rural boom.

Does this mean that the economic policies of the United Progressive Alliance (UPA) government have succeeded? That is another myth being propounded by the government’s spokespersons.

The evidence so far suggests that the pull-up effect of growth has been far more efficient in raising incomes than the welfare schemes of the government. For instance, the push provided by the construction boom over the past decade has raised farm wages much more than the Mahatma Gandhi National Rural Employment Guarantee Act, as economist and chairman of the committee of agricultural costs and prices, Ashok Gulati points out in his writings.

In fact, the UPA’s excessive reliance on doles and subsidies rather than on investments in public goods has only stoked the fires of inflation, raising deficits, and slowing growth. The UPA inherited stable finances and witnessed a global boom in its early years. It missed that opportunity to build the base for a sustained attack on poverty.

Given the slowdown in the growth engine and the fall in public resources, India has now run out of ammunition to fight poverty with the same vigour as before. Neither growth nor inclusion will be easy now.

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