Indian Poverty Line or Starvation Line

Indian Poverty Line or Starvation Line

Planning Commission affidavit in the Supreme Court in the now famous Right to food case enumerating Poverty line of Rs 32 per person per day in urban areas and Rs 26 per person per day in rural areas created a huge uproar in the country. To most of the people the figures seem an onslaught on their commonsensical wisdom. But surprisingly even at these levels more than one-third (37.2 % to be exact) Indians are below the poverty line as accepted by the writer of the same report Mr. S.D. Tendulkar, on which the Planning Commission relied upon to come up with these figures. Even a rickshaw puller in New Delhi supporting a family of five won't be included in the ambit of abysmally low poverty line as he too earns more than Rs 160 (Rs 32*5) a day. If one narrates the poverty line figures to them their general response is, "Arey sahab ham garib nahi hai toh kaun hai!!!" (If we are not poor, than who is!!). Similar is the response of any housemaid in New Delhi whose husband too is likely to be employed. Statistical sophisticated tools employed by eminent economists working in planning commissions to decipher poverty line fail to come to terms with these pliant responses of the aam aadmi.

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Concept of Poverty Line

Poverty line is generally understood as the minimum level of income that is deemed necessary to achieve a minimally desired societal acceptable standard of living in a given country. It is worked out by finding the total cost of all the minimum essential resources that an average human being consumes in a given period of time. This approach is needs-based as minimum expenditure needed to maintain a tolerable life is considered. The threshold limit is made out by following two approaches- Absolute poverty and Relative poverty. A measure of absolute poverty quantifies the number of people below a fixed real poverty threshold. Such an absolute measure should look only at the individual's power to consume and it should be independent of any changes in income distribution. According to a UN declaration that resulted from the World Summit on Social Development in Copenhagen in 1995, absolute poverty is "a condition characterized by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information. It depends not only on income but also on access to services."  A measure of relative poverty defines "poverty" as being below some relative poverty threshold. For example, the statement that "households with an accumulated income less than 60% of the median equivalized household disposable income in a country are living in poverty" uses a relative measure. In this system, if everyone's real income in an economy increases, but the income distribution remains the same, then the rate of relative poverty will also remain the same.

Relative poverty measurements can sometimes produce odd or inconsistent results. For example, if the median household in a rich nation earns US$1 million each year, then a family that earns US$100,000 would be considered poor on the relative poverty scale, even though such a family could meet all of its basic needs and much more. At the other end of the scale, if the median household in a very poor nation earned only 50% of what it needs to buy food, then such person would not be considered poor on a relative poverty scale, even though the person is clearly poor on an absolute poverty scale being failing to achieve minimum essentials of life. Thus, measures of relative poverty almost work the same way as measuring income inequality.

Calorie basis of estimating poverty

In India, Poverty line has historically been measured using absolute measures. It is also scientifically more tenable as relative measure may sometimes produce odd results as brought out in the accompanying box. The basic condition to do however is that absolute measure should be reasonably updated with passage of time to make sure that the minimum needs are kept in accordance with prevailing societal acceptable levels. In India, this level was traditionally determined after initial tinkering based on the report of 'Task force on Minimum Needs and Effective Consumption Demand', an expert group of planning commission constituted in 1977. After the report, nutritional norm followed by Planning Commission till that time was crystallized as per the recommendation of the report at per capita daily intake of 2400 calories in rural areas and 2100 calories for urban areas. These calorie limits were than translated to 'food basket' which is needed to be consumed to ensure officially determined calorie intake. 'Food basket' in turn is converted to monetary equivalent to determine poverty threshold income. National Sample Survey Organization (NSSO) expenditure data was than utilized to determine the poverty levels prevailing on nation wide basis by estimating number of households in the country whose expenditure is lower than the cut-off poverty threshold level.

Critique of the methodology

Poverty level so determined tends to exclude even minimum expenditure on other essential elements for reasonable life like health, education and housing. Its essential to include health for estimating poverty line as healthy body is required to ensure the capacity for calorie or nutrition absorption in human. Without ensuring this the level achieved through translating calorie intake would remain illusory. Similarly, cost of a reasonable dwelling unit is essential to ensure minimum sanitation and access to services. It can be stated that the benchmark of minimum needs was grossly understated in India by excluding essentials like health and housing. Such practice resulted in gross understating of poverty line and consequently poverty levels prevailing in India over a long period of time resulting in complacency of some sought among policy makers.

Even in what has been accepted as poverty line in India (i.e. the calorie intake) the contentious issue always has been the methodology that has been adhered to estimate it. Initial level of monetary equivalent calculated was simply updated using annual Consumer Price Index (CPI) without keeping in mind the changing eating habits and without ensuring that nutritional level can be consumed at income level so arrived. As brought out by Utsa Patnaik in her paper, "Poverty and Neo-liberalism" that," On examining the actual estimation method officially followed, we find that the Planning Commission applied its own definition of poverty using the nutrition norm, only in one year, 1973-4, to the NSS consumption expenditure data to obtain the poverty line expenditure. For all subsequent years the nutrition norm has been treated as irrelevant for estimation and the method actually used has been to take 1973-4 as a base year and bring forward the poverty line for that year to more recent years by using a price index. The fact has been ignored that the use of price indices is always problematic when the quantity weights of the price index relate to a distant base year, and additionally the index itself is being applied to a fixed consumption basket relating to an increasingly distant base year for quantities consumed, then the method cannot capture many important structural changes leading to the actual increasingly higher cost of accessing nutrition." The result of this practice has been the extremely low and grossly unrealistic official poverty lines brought out by planning commission year on year. 'REPORT OF THE EXPERT GROUP TO REVIEW THE METHODOLOGY FOR ESTIMATION OF POVERTY' headed by S.R. Tendulkar too broadly accepted this criticism when in the report they stated that," The existing all-India rural and urban official poverty lines were originally defined in terms of per capita total consumer expenditure (PCTE) at 1973-74 market prices and adjusted over time and across states for changes in prices keeping unchanged the original 1973-74 rural and urban underlying all-India reference poverty line baskets (PLB) of goods and services."

Thus, three major criticisms of these poverty lines have been commonly aired. One, the consumption patterns underlying these poverty lines remained tied to those observed more than three decades ago in 1973-74 and hence had become outdated. Two, crude price adjustment through inflation indexes were leading to implausible results such as proportion of total urban population below poverty line being higher than its rural counterpart in certain major states. In particular, it was shown by Deaton that Consumer Price Index for Agricultural Labourers that was used for the rural population understated the price rise for the rural population and hence understated the extent of rural poverty. Three, the earlier poverty lines assumed that basic social services of health and education would be supplied by the state and hence, although private expenditure on education and health was covered in the base year 1973-74, it was dropped after that in an arbitrarily way.

S.D. Tendulkar report

S.D. Tendulkar paid attention to such criticism and devised a new methodology to estimate poverty lines in its report and to update them on yearly basis in a more plausible way. It also revised the poverty levels of 2004-05 which were based on flawed methodology. In comparison with the methodology for official poverty estimates in vogue, the S.D. Tendulakar report makes four significant improvements. First, the report suggested moving away from calorie anchor to test for the adequacy of actual food expenditure near the poverty line to ensure certain aggregate nutritional outcomes. Secondly, the report do not discriminate between the rural and the urban population and recommended to provide a uniform Poverty Line Basket (PLB) based on the latest available observed household consumption data to both the rural and the urban populations. This corrects for the outdated PLBs. Thirdly, the report suggests a price adjustment procedure by taking prevailing market prices that is predominantly based in the same data set that underlies the poverty estimation and hence corrects for the problems associated with externally generated and population-segment-specific price indices with out-dated price and weight base used so far in the official poverty estimation. Fourthly, the report suggest to incorporate an explicit provision in price indices for private expenditure on health and education which has been rising over time and test for their adequacy to ensure certain desirable educational and health outcomes.

Due to above changes the poverty lines were revised upwards resulting in reportage of higher prevalence of poverty level for 2004-05. The official estimates for overall poverty levels for the year were suggested to be revised upwards by about 10 percentage points to 37.2%. It was mainly on account of upward revision of rural poverty levels from 28.3% to 41.8%. The report accepts that the widely prevalent concerns on under-reporting of rural poverty levels are genuine. Such errors mainly occurred on account of wrong methodology followed for estimating rural poverty levels.

Flaw in SD Tendulkar methodology

The report though certainly brought out an improvement in prevalent methodology but it largely got a tepid response due to the fact that poverty lines of Rs 32 in urban areas and Rs 26 in rural areas were widely perceived to be too low. Abysmally low poverty line was largely due to the fact that calorie level requirements were reduced. On calorie requirement, the Report says: “…the revised minimum calorie norm for India recommended by the Food and Agricultural Organization (FAO) is currently around 1800 calories per capita per day, which is very close to the average calorie intake of those near the poverty line in urban areas (1776 calories per capita).” The Report though fails to bring out the fact that the standards for energy requirements released by the FAO are for ‘minimum dietary energy requirements’ or MDER for short. The MDER is defined as the amount of energy needed for light or sedentary activity which is not the case with toiling masses of India engaged as agricultural laborers and urban manual workers. The FAO Report also warns that in countries like India with a high prevalence of under nutrition, “a large proportion of the population consumes dietary energy levels close to the cut-off point, making MDER a highly sensitive parameter.” In matter of determining expenditure on education the report relies on median expenditure on education as the basis without determining whether it is adequate for ensuring reasonable educational attainments. In the background study undertaken for the expert group, Tilak argues in favour of arriving at a normative minimum desirable level of expenditure, or as a second-best strategy, using the average rather than median expenditure “to enable the poor to get meaningful and quality education.” Similar problems persist with determining expenditure on health as it fails to ensure adequate health provisions for poor.

Need for estimating poverty levels

As the preamble of Indian constitution begun with the call to constitute the nation as socialist, secular democratic republic with the goal of achieving the economic, social and political justice, it becomes even more important to determine reasonably the prevailing poverty levels so that government can implement its welfarist agenda fairly. The egalitarian social agenda enshrined in the constitution needs that government carries on with its mission of ensuring redistributive justice on priority basis. Prevailing poverty levels than become significant inputs in determining appropriate policy framework needed to achieve the same. Poverty-Alleviation programs such as Antyodaya Anna Yojana (AAY), Swaranjanti Gram Swarojagar Yojana (SGSY), Indira Awas Yojna (IAY), Swarna Jayanti Shahari Rozgar Yojnana, National Rural Health Mission and MNERAGA etc needs identification of poor as they are primary beneficiaries under such programs. Poverty estimation also assists in determining the quantum of funds to be allocated to such programs so that these programs can have desired impact. Estimation error in determining poor households can be of two types- Exclusion error and Inclusion error. Exclusion error occurs in case deserving persons are wrongly excluded. Inclusion error occurs when non deserving households are wrongly included. Exclusion error is by there very nature more painstaking as poor already under duress tends to be also excluded from welfare benefits under such poverty alleviation programs. Identification of poor households after establishing fair poverty lines should ideally be left to local democratic institutions like Panchayats and Municipalities so that such exercise is more responsive to prevailing realities at grass root level. 

Poverty level and Food Security  

The issue of food security is organically linked with poverty level as nutrition continues to be a key indicator in identifying poor. Due to under estimation of poverty in the country, targeted Public distribution system (PDS) in vogue through Antyodaya Anna Yojana (AAY) as largely failed to ensure food security in India as evidenced by the fact that country languishes at lowly 67^th position on Global Hunger Index. It is also manifested through the 'Economic Survey 2009-10' observation in the chapter titled “Human Development, Poverty and Public Programmes”. Quoting a report by the committee constituted by the Ministry of Rural Development, it said that the calorie consumption of the bottom 50 per cent of the population had been consistently decreasing since 1987. Problematic and persistent issues with identification and quantum of poverty levels prevalent in the country have not left much option but to move away from targeted PDS. Draft food security bill attempts to achieve this by de linking Below poverty Line (BPL) households from those entitled to food entitlements under the bill but in an half hearted way as it too restrict the priority households to only 46 percent households. Such households will be identified through the socio-economic and caste census currently underway in the country. Still, this number is much less than the Arjun Sen Gupta committee observation that 77 percent of people in the country survive on less than Rs 20 per day in 2004-05. Even if food entitlements are de linked with BPL through universalization of PDS as suggested by eminent economist Jean Drez than also identification of BPL households will be required for implementing government programs in other sectors like health, education and housing.

Way Out

For achieving much needed improvement in data collection on poverty, effective steps need to be devised at two levels. First: At the macro-level for overall determination of poverty level prevailing throughout the country and second, the inclusion of only deserving person in the Below Poverty Line (BPL) list. Thus errors of both wrong inclusion and exclusion need to be curbed. Capacity building through effective training mechanism is required for bureaucracy at cutting edge level who is the first one to collect data at the grass root level. Panchayats and municipalities need to be effectively involved in the process of data collection for strengthening local democracy as well as to curb tendency of wrong exclusion. Gram Sabhas need to be strengthened as an institution to make sure that the social elites in rural areas don’t hijack public sector entitlements made for the purpose of poverty-elimination. At macro level, poverty and other economic estimates from different sources need to be collaborated and reconciled by the Planning Commission for the purpose of consistency of data through different avenues. It will especially prevent the exercise on poverty estimation being treated on stand alone basis resulting in absurd figures of poverty lines. Poverty estimates also need to be linked with sample data for employment generation in the unorganized sector, national income statistics, NSSO data etc for internal validity and consistency. The Planning Commission can play a pioneering role in the same by becoming an effective linkage mechanism among different central government ministries, State government machinery, statistical institutions, and international bodies like the UNDP, World Bank and such organizations involved in data collection which would assist in estimating reasonably accurate poverty level’s prevailing in the country.

Concluding remarks

Thus, to reach the goal of inclusive growth, India needs to develop its statistical capacities for effective data estimation on poverty levels for augmenting its capacity to develop effective policy and delivery mechanism for poverty elimination to ensure its rightful place among developed countries by 2020 as envisaged by the former Indian President Dr. Abdul Kalam in India vision-2020.

By Saurabh Naruka