The poverty numbers

There has been much outrage in the press and in the news channels about the figure of Rs. 26 per day – the level of consumption that defines a person as poor in an Indian village. The Poverty Line is a strange beast. Everyone knows poverty when they see it, but apparently no one can agree on an income level below which an Indian should be classified as poor. The reason for this is that we are looking for a ‘right’ answer to the question, which is the wrong way of going about it. There is no switch that, when turned on, objectively classifies a household as poor. There are different levels of deprivation, and different sides of the debate have differing intuitions about the level of deprivation at which a household becomes poor. Much of the outrage over the figure comes from the fact that our intuition about what constitutes poverty has changed.

My uncle started his career in Bombay’s weather office in the mid-1970s. He was single and lived alone then, but he would send part of his salary home to his family. Towards the end of the month, his money would run out, and in the last few days of the month, he’d be able to cook and eat only one meal a day. Then, as now, if you were a graduate and you were earning an entry level salary in a government firm, you were middle-class – lower middle-class to be sure, but middle-class nonetheless. When did you last hear of a middle-class person lacking for food in India? But that’s how things were in the 1970s, and my uncle’s situation wouldn’t excite comment then. One can only imagine the situation of the others who were poorer than my uncle.

This is the background to the question of where to draw the appropriate poverty line. The National Sample Survey Organization (NSSO) has the difficult job of collecting data about an economy that is largely informal and undocumented. It last arrived at a poverty line in 1973-74 when India was much poorer than it is now. How does one estimate the income of the poor, when they have uncertain, intermittent and variable incomes? If one surveys a poor household and asks them how much they earned in the past year, there is very little chance of receiving a reasonably accurate answer, even if the respondents attempt to provide one in good faith. The approach the NSSO took, then, was to ask about consumption. The survey asked the respondent families what items they bought or procured in a previous “recall” period. The items that were asked about formed the consumption basket, and out of this consumption basket, the food items were used to draw the poverty line. In other words, if a family had the means to consume 2,400 calories or more of food per person per day (2,100 calories in cities), it was above the poverty line.

Why the focus on food? The obvious reason is that food, being a basic need, provides a common minimum reference to use across the population. The assumption is that while people differ in their need for luxuries, their basic necessities are the same. A commonly heard criticism of the current poverty line is that it is more of a destitution line. There is a lot of truth in this argument, but the reason for this is that when it was drawn, the focus needed to be on the truly destitute. But that was not the entire reason – other basic necessities like medical needs and primary education were left out the basket, because in the Socialist mindset that characterised the 70s, the assumption was that these would be provided for by the State.

That was not the only quirk in the calculation. In all subsequent surveys, the consumption basket of the poor as determined by the 1973-74 survey was used, scaled up by the Consumer Price Index to arrive at the poverty line figure. This figure was then compared with the actual rupee values for consumption as reported by the respondents in that survey to determine the number of the poor. For example, the consumption basket of 1973-74, at 2004-2005 prices according to the rural Consumer Price Index, was worth Rs356 per person per month. Any household which claimed to spend less than this amount was classified as poor, regardless of what they actually spent it on.

This approach had the effect of ignoring the actual consumption basket of the poor in favour of the reference basket as determined in 1973. This would not matter much if the assumption referred to earlier had held — that food being a basic necessity, the consumption pattern at that level of deprivation would not change much. But this assumption turns out to be invalid in three crucial ways.

Firstly, food is now a lower proportion of expenditure for the poor. Secondly, they have been consuming different kinds of food – less cereal and more of vegetables and animal protein. Finally, they have been consuming fewer calories than the 2,400 and 2,100 that the survey of 1973 indicated.

This last fact has been latched on to by the critics of India’s poverty programs to claim that the lot of the poor has gotten worse over time. But if that is the case, what accounts for the fact that the poor are shifting to richer food, and for the fact that they are spending less of their income on food? If revealed preference is anything to go by, the poor are voluntarily consuming many fewer calories than the proper average statistics have laid down for their guidance. Professor Angus Deaton of Princeton University, who has probably done more work to understand the than any other person on earth, has, in a 2008 paper, considered various alternative explanations for this quirk — rising prices of food, falling real incomes, the possibility that rising prices of non-food items were forcing the poor to cut down on food — and discarded all but the one indicated by the revealed preference argument, though he was careful to specify that more corroborative evidence was needed to support this one.

Image: World Bank

The variance between the consumption basket of 1973 and what the poor actually consumed had another consequence: the price index derived from the official basket grew much more slowly than a price index constructed out of the actual basket. This is because the price of food has gone up much less than that of other items, and within food items, cereal is less expensive than eggs or chicken. If these prices had been taken into account, the price index would have gone up more, the poverty line would have consequently been higher, resulting in a larger number of people below it. Prof. Deaton has done work to quantify this, and according to his calculations, using an updated index would have resulted in a poverty ratio of 30% in 2004-5, nearly 3 percentage points higher than the official number.

But should this have been done? The answer cuts to the heart of the purpose of the poverty line. The poverty line has two purposes – one is to measure how well economic policy has achieved its purpose, and the other is to determine who are currently poor, so that they can be helped. The two purposes are often antithetical. To achieve the first purpose, we need to use a constant basis for comparison. To achieve the second, our standard needs to evolve based on what we currently consider valid. Proponents of the first purpose would argue that if a poor person of 1973 were to be transported to 2004 and provided with an income of Rs.350 per month, he would find himself improved in circumstances – and this is the fact that should matter when it comes to determining the poverty line. The proponent of the second view would argue that to determine who should currently be helped by anti-poverty programmes, we should use the current consumption of people to determine who is poor.

There is no right answer to this conundrum. One solution is to regularly update the poverty line basket, but to do so transparently, so that we know what has changed. This is what was attempted by the Tendulkar committee in 2009, and which has led to the figure of Rs26 a day. It made a few significant changes to the way poverty was calculated. It abandoned the calorie count method in favour of a poverty line basket that now included medical expenses and primary schooling, thereby recognizing what successive surveys had ignored – that even the poorest turn to the private sector for their health and children’s schooling. It abandoned the 1973 consumer price index weights in favour of what a price index constructed out of NSS data. And based on all this, it constructed a new poverty line which counts 36% of the country as poor as against 28% according the earlier calculation. It is important to note that except in certain minor senses, this is not a ‘correction.’ It is more an acknowledgement that India is a richer country now, and its standard of what constitutes poverty has evolved. Also, the committee recalculated the 1993 poverty numbers according the new standard, and the poverty rate turned out to be 46% – in other words, even after updating the standard for poverty, we find that there has been significant reduction during the economic reform period.

It is the Tendulkar committee number that has come under fire in the latest round of rabble rousing.
The issue has been framed rather cleverly – 32 rupees a day is a number that will tug at our heart strings. But it is 32 rupees, per person, per day. If you translate that number to per household per month it amounts to Rs5,760 per month for a household of six people.

It is no one’s case that one can live comfortably with that income. The business newspaper Mint ran a story that profiled families just above the poverty line, aiming to show how bad their lives were. Crucially, the concerns of these families were things like sending children to a good school and owning a modest home, things middle-class readers can relate to. Is that poverty? Perhaps it is, but it is different from the kind of poverty that hit the headlines in 1987, about the woman in Kalahandi who had to sell her daughter so that the rest of the family could get something to eat.

It has been reflexively assumed in the debates that it is humane to raise the poverty line, so that fewer people are denied access to government services for the poor. It is not clear why this assumption is valid. Raising the poverty line will give rise to a version of the searching-under-the-streetlight problem. The problem is this:

A cop finds a drunk man in a parking lot late at night, searching the ground under the only street light in that parking lot. He asks what the guy is doing, and the drunk replies that he dropped his car keys and is looking for them. Asked where he was when he dropped the keys, the drunk waves towards a car in the darkness. Asked why he’s searching under the street light, he says that if the keys are actually over in the darkness, he’d never find them anyway.

Applied to poverty, this approach turns into the “Studying Rural Poverty in Thane District” phenomenon. I used to note that there was a disproportionately large number of studies, news reports, and so forth on poverty among the Warlis of Thane. It occurred to me that the reason for this is that Thane is the closest one can encounter rural poverty if one sets off from Mumbai. And because many NGOs, schools of social work and reporters are based in Mumbai, the Warlis are a convenient subject for field trips, project work and news reports.

If you raise the poverty line, it will be easier to encounter the poor, and it will be that much easier to ignore the destitute.

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