Don’t rubbish the poverty criterion, Financial Express 22nd October 2011

Government bashing is easy because every action of it can be questioned as there are multiple ways of looking at issues. The Budget and monetary policies are two statements that always have critiques, depending on how we want them to be structured. The latest controversy for the government is the poverty line. Who is poor in India? This is relevant from the point of view of coverage under various government schemes as well as economic surveys of the government where we get to know how the country has progressed.

The definition of people who are poor is nebulous. In India, we follow the nutrition criteria and the cut-off of R32 a day in urban areas has come under sharp criticism. There is a World Bank definition of $1 a day or $1.25 a day at PPP (purchasing power parity). Based on these numbers, everyone has their own estimate of the number of poor. The Indian definition has less poor as the national poverty line is 28.6% compared with 41.5% for the World Bank (Economic Survey 2010-11). Then there is the Tendulkar Committee Report and the one from the Planning Commission that arrive at different cut-offs—poverty levels based on the Tendulkar committee (from where the R32 cut-off comes) are 37.2% in 2004-05. Finally, there was the Arjun Sengupta Report that created a stir as it spoke of 77% being poor based on a R20 cut-off, which included some basic services, too (2004-05).

The important thing is what we take into account when calculating who is poor. Should it be only food intake or even other amenities like housing, clothing, education etc? Hence, it becomes a challenge for the evaluator. It is, thus, necessary to upfront define what we mean by a poverty line. Once we move away from basic food, then it becomes difficult to work out costs on shelter or clothing, as they vary substantially across the country depending on the region or state. To take this issue sequentially, let us look at what is required for an individual family to just about live with no luxury of any sort to remain at the fringe of survival. The accompanying Table calculates the cost of various items that are necessary going by prices in Delhi for September 2011 as provided by the ministry of consumer affairs. A family of four is considered here.

The Table shows that at current prices, a family earning R3,800 a month is the basic amount that is required for survival in terms of food. This allows for the concept of tea being consumed regularly for the family and limited variety as well as quantity of vegetables in the form of potatoes and absence of any meat/fish. This amount can rise to, say, R4,000 in case of price aberrations. The cut-off of R32 a day comes close to this amount, because for a family of four, total expenditure is R3,840. Here again, we are assuming that all four are working. Therefore, an evaluator should be asking a question to a household of four members whether or not they earn R3,800 a month. If they do, then this will address the issue of basic food consumption and nothing more.

Thus, there is some merit in the cut-off of R32 a day in case we are talking of only food, with the assumption that facilities like water supply, education and health are taken care of by public systems. This leaves the issue of certain capital costs such as clothing, shelter, transport and maybe a minimum amount of utensils and cosmetics like soap/toothpaste that are required. Here one can impute a rental value of R1,000 in a distant suburb in an urban area and another R300 for electricity, and R700 for transport and other miscellaneous expenditure. Adding the two, a sum of R6,000 a month can be the cut-off for one on the precipice for absolute deprivation. This amount comes within the range of $1-1.25 a day, which works out to R6,000-7,500 per annum. The present amount of R3,800 a month would hold for a just about basic existence with support from public systems that may not exist.

So, how do we look at these numbers? First, let us not just condemn the government’s number of R32 a day per person. There is some sense in it and it is a good cut-off for the government to consider for BPL (below poverty line) supply of foodgrains or any other anti-poverty programme. In fact, the MGNREGA also assures a minimum wage of R100 a day, which covers one member of a family for a fixed number of days, and which assumes that the person’s other requirements are being addressed by the existing systems. Second, the criteria for defining poor should be made broader. It would be transparent to have two poverty lines—one of ‘absolute deprivation’ and the other defining the ‘margin of respectability’. As can be seen, even with R7,500 per month or $1.25 a day, the standard of living is still sub-optimal when compared with the level of living of the poor in other countries. The Centre’s aim must be to tackle deprivation while the state should look for means to improve the respectability of the community through effective supply programmes of health, education, clothing and affordable shelter.

Therefore, while one may still be critical of whether these numbers are adequate to keep a family actually alive, given that the poor in, say, a developed country like the US (family income of R22,350 per annum) is affluent compared to the Indian counterpart, let us not just criticise the government for such an estimate. Alternatives can be worked out and we can reach a consensus.