Moving past calories to define poverty: Financial Express 30th March 2012

The concept of a poverty line and the resultant headcount of the number of poor has created a furor because it comes at a time when inflation rate is high and the norm for classification has been lowered by around R4/day. Given that the World Bank has shown declining trends in China, Latin America and Africa, it is tempting to depict similar pictures in India, considering that we have long taken pride in being the second-fastest growing economy in the world, where the fortune is building at the bottom of the pyramid. But, when we see starvation deaths, debt-related suicides and high levels of malnourishment, it is hard to accept this shining story even though these are exceptions rather than a general observation. There is now debate on whether we can use a daily criteria, and one is always concerned about what goes into this number, considering that the price both a loaf of bread and one kilogramme of potatoes is R28. Is this then a fair assessment of the poverty norm?

We need to be clear about what the purpose of talking about the poverty line is. If it is to score political brownie points, or to vindicate the economic policies that have been pursued, then there could be some academic backing when the calorie criterion is used. While the calorie concept does give out an odd number, it can theoretically be defended depending on how we define poverty. This is both an advantage and disadvantage of any economic concept once the assumptions are defined, as there will always be a strong justification for the result. However, if it is to be used for invoking certain social development programmes, then we seriously need to reconsider the definition as the present version could be redefined as a ‘starvation’ line rather than a ‘poverty line’.

Globally, the World Bank uses the norm of $1.25/day (on a PPP basis), which is around R62.50 and another version of $2, which is R100 at the present exchange rate. Quite clearly, the basis is different and looks at the concept of human degradation in various ways. However, if the same is adjusted for PPP, then the number comes closer to what the Planning Commission is talking about as our own GDP would be around a third of the PPP number. When we combine this controversy with some other data on human conditions, such as malnutrition or the Human Development Index (HDI), we get a different picture.

The solution is to get out of this calculation of poverty on the basis of the present calorie criteria and look at gradations of the quality of life. Calories can keep one medically alive but may not allow you to go beyond basic existence. When the concept was introduced by the Planning Commission, it may have had relevance, but given that the country has progressed, especially since the nineties, and there has been a sea change in the quality of life of the upper echelons, it is but natural that when we think of any inclusion, the aim must be to inculcate a broader concept of sustenance.

Instead of calling it a poverty criterion, we should move to defining people who are below a certain income level just like how NCAER classifies households under different income criteria. Again, households are preferable to individuals and a longer time-frame, like a month or year appears pragmatic.

These income levels should be defined in different ways. There should be basic food criteria where the average consumption basket for a family of four should be used to compute what is required to remain out of hunger. This is more akin to what is being used today and is theoretical in nature because merely assigning a value to a calorie-related quantity of food is looking at procurement rather than delivery. The second level should include certain other necessities, such as fuel, clothing and shelter. This would be required to ensure that the first criterion can actually be consumed by the household. This cannot be done for individuals. The third level would go ahead and include the cost of other services such as education, health and social services such as water, sanitation, etc. Here, too, there would be a downward bias given that the cost of public services is far less than that of the private sector, with also a lower quality.

These two concepts can then be mapped with the targeting of any social programme. The food criteria can be used for mapping the public distribution system when working on the implementation of the Food Security Bill. The second can be mapped to an employment scheme such as MGNREGA, where incomes have to be enhanced to enable people to have a more respectable living. The last can be linked to communities when deciding on allocations in the Union and state budgets.

While it is true that the Planning Commission concept of poverty tends to look absurd, the premise used is the one to be changed, rather than the method of arrival of the number. Ideally, if these three criterions are used and the comparable numbers provided along with the World Bank number, they would be easier to digest.