An unnecessary controversy has been started by the release of the poverty estimates of 2009-10 by the planning commission. The controversy, which was entirely avoidable, was allowed to go on because of the poor handling of the issue by the planning commission. It is unfortunate that the planning commission was less than willing to own the Tendulkar committee report which was submitted in December 2009 and accepted by the commission in April 2010. On an issue which had already caught the imagination of middle class and activists after the furore last year, it should have been explained in a better way than the half-hearted attempt of passing the buck on the Tendulkar committee and eventually disowning it in favour of a new committee to be set-up by the planning commission.
While there may not be much merit in the arguments of those who have been criticising the poverty line for being too low on the basis of a per capita per day basis, their concerns remain valid. This is again entirely due to the double speak of the planning commission which has not shown clarity in making its stand clear on whether these poverty lines will be used for targeting of beneficiaries households or not. While the press release by Jairam Ramesh and Montek Ahluwalia on this matter in October 2011 was welcome step, even though under pressure from the Supreme Court and middle class outrage, the subsequent tabling of the National Food Security Bill in parliament also saw the return of these estimates as targeting tools.
The trust deficit which has arisen primarily because of the way planning commission has handled this issue is primarily the reason for the kind of reaction that we see in media some of which is not only misinformed but also borders on being ridiculous. It was clear to anybody who had read the planning commission affidavit and the press release that there was no lowering of poverty line. While Rs 32 per day for urban areas and Rs 26 per day for rural areas referred to June 2011, the current poverty lines at Rs 28 for urban areas and Rs 22 per day for rural areas refer to the year 2009-10. Finally, it must be made clear that there is nothing wrong with the Tendulkar poverty lines as long as it is used only as a statistical benchmark to track progress over time. At the same time, it must also be made clear that neither did Tendulkar committee recommend using the resultant poverty estimates for any targeting of beneficiaries nor was this ever recommended by any other committee set-up earlier to estimate poverty. To maintain the sanctity of poverty estimates, the least that was expected of planning commission was to maintain the distinction between use of poverty estimates as a tool of measuring progress over time and targeting of beneficiaries for social assistance programmes.
The Tendulkar committee was asked to arrive at a poverty line that corrected the limitations of existing poverty lines and make it comparable over time. To do this, the committee accepted the existing urban poverty line based on the Lakdawala committee in 2004-05 to anchor a new set of poverty lines across states. It only used new spatial price indices to update poverty lines across states and sectors (rural/urban). By this exercise, the urban all-India poverty line remained the same but the all-India rural poverty line was raised by 30%. To say if poverty lines are low or high, however, one needs a normative reference line. Frankly, there is no such reference norm available that is acceptable to everybody. This was accepted by the Tendulkar committee when it repeatedly said that the lines are arbitrary and are only meant to serve as a yardstick.
Having said this, let’s also compare it with other poverty lines. The weighted average of Tendulkar committee rural and urban poverty lines for 2004-05 turns out to be Rs. 16.25. This is only marginally lower than the Rs. 20 used by the Arjun Sengupta committee that claimed that 77% of Indians live under below this poverty line. But can one really say that Rs. 16.25 is low but Rs. 20 is adequate as a poverty line? The World Bank uses a poverty line of $1.25 per day in Purchasing Power Parity (PPP) terms. The current poverty line, as claimed by the Planning commission in its affidavit, is Rs. 26 for rural areas andRs. 32 for urban areas. The weighted average turns out to be Rs. 28 in 2009-10 prices. Using the current PPP exchange rate of Rs. 19 to a dollar, the Indian poverty line is higher than the World Bank poverty lines.
What about other countries and their poverty lines? Most developed countries don’t use an absolute poverty line but use a relative poverty line pegged at 60% of median income/expenditure. The current Indian poverty line mentioned by the Planning Commission is 97% of the median in rural areas and 69% of the median expenditure in urban areas. That is, the Indian poverty line is considerably higher than poverty lines used either in international comparisons or comparable poverty lines in other countries.
But does it then justify using these poverty lines to restrict benefits to the BPL households, particularly for basic rights such as food and health? The answer is an emphatic no. I have consistently argued for universal provisioning of these basic rights without recourse to any targeting.
The debate should not focus on what the poverty line is but on who is eligible for social benefits. On this issue there is wide ranging acceptance that this must be completely delinked from estimates of poverty based on expenditure norms. Poverty lines are benchmarks for policymakers and economists to understand how the country is progressing and cannot be used for inclusion and exclusion from government programmes.
But this controversy has robbed the country of the more important debate on what happened to poverty between 2004-05 and 2009-10, which was not only a period of acceleration of growth rates of the country as a whole but also saw exceptional changes in the performance of the state governments. While some of the hitherto poor states such as Bihar and Uttar Pradesh saw acceleration in growth rates with Bihar achieving the distinction of second fastest growing state, it was also the period of states reforming the delivery of public services notably Public Distribution System (PDS). This is also the period when issues such as impact of MGNREGA on poverty should have been evaluated based on concrete data. But that requires that the poverty estimates are comparable for all the years for which the estimates are available, namely 1993-94, 2004-05 and 2009-10.
Unfortunately, one has to admit that once again the planning commission has been less than honest in releasing the poverty estimates. While the poverty lines are correct and according to the methodology suggested by the Tendulkar committee (with minor tinkering such as the way PDS items are treated), the estimates released by the planning commission are not comparable to the previous estimates released by the Tendulkar committee. It appears that in its eagerness to claim higher poverty reduction and success of the previous government, the planning commission may have chosen wrong estimates of poverty and thereby sacrificed comparability of the poverty estimates.
Why are these estimates not comparable? These estimates are not comparable simply because the measure of consumption expenditure on which these correct poverty lines were applied to obtain the poverty estimates are not the same. The difference arises because of inclusion of a small but controversial inclusion of expenditure of the government on Mid-Day-Meal (MDM) as part of household expenditure. The additional item of expenditure (item code 302) in the consumption expenditure schedule in the 2009-10 consumption survey includes the imputed value of cooked meals received by the household as assistance or from other sources. So far, the NSSO has not included this item of expenditure in any of the previous quinquennial consumption surveys including the 1993-94 and 2004-05 surveys.
The inclusion of such items which are provided by the government may itself be controversial. It also raises questions on whether such imputation be also done for other benefits that the households receive such as free text books, school uniforms, subsidised food and so on (LPG, Colour TVs and laptops in some states) as part of private expenditure by households. while some of these issues need clarity as measures of private household expenditure, it does have the impact that measured poverty is lower after inclusion of imputed expenditure on MDM and other cooked meals received free of cost at the cost of government exchequer. While the expenditure may be a small component of total expenditure of households, it does have significant impact on poverty estimates because most of these consumptions are by the poor households who send their children to government schools.
Most of this was known to the planning commission and the best way to take care of this problem of comparability was to calculate poverty estimates on consumption expenditure comparable to 2004-05 by excluding this item of expenditure. After exclusion of this item from the total consumption expenditure of households, the actual poverty estimate is 35.2% in rural areas, 21.5% in urban areas and 31.5% for all India as against the reported planning commission estimate of 33.3%, 20.9% and 29.9% for rural, urban and all India. That is, the real decline in poverty during 2004-05 and 2009-10 is only 6.63, 4.3 and 5.7 percentage points in rural, urban and all India as against reported estimates of 8.0, 4.8 and 7.4 percentage points by the planning commission. the inescapable conclusion even after this correction does remain that poverty has declined faster than it was declining in the previous period even though the extent of decline may have been overestimated by the planning commission.
It also implies that the total number of poor in the country in 2009-10 was 373 million, 18 million more than the reported estimate of 355 million for the country as a whole. That is, the number of poor people declined not by 52 million as reported by planning commission but only by 34 million. While the planning commission may have earned kudos by showing 33% higher poverty reduction by using non-comparable estimates of consumption expenditure, it has vitiated the poverty estimates thereby raising question marks on the comparison over time which is the primary reason for using these poverty estimates. These not only affect the all India estimates but also the comparison of states with reported decline in poverty in some of the southern states where the MDM functions much better being lower than what is reported by the planning commission. as the planning commission has repeatedly argued that the only purpose of these poverty estimates is to understand what factors work for poverty reduction and evaluate macro policies in terms of their efficacy in reducing poverty, the least that was expected was an honest reporting of facts to facilitate such an exercise rather than use inflated estimates to show higher poverty reduction.
Since the estimates have been released recently and are still being debated in public domain, it is expected that the planning commission will clarify the matter and make available the comparable estimates at the earliest. It is not only important for a correct assessment of what happened to poverty over a period of very high growth, it is also important if there has to be a meaningful exercise, academic and otherwise, on what caused this poverty reduction which remains uncontested even though the actual extent of it may need to be corrected.