21 March 2012

It is all in the line, our poverty line

The poverty estimates for 2009-10 in India by the Planning Commission has pegged the per capita per day poverty lines at 28.65 rupees in urban areas and 22.43 rupees in rural areas. Comparable poverty lines for 2004-05 are 19.29 rupees and 14.89 rupees respectively (see a note on poverty estimates for 2004-05).

Compared to 2004-05, the poverty line of 2009-10 has increased by 48.5 per cent and 50.6 per cent in urban and rural areas respectively.  During the same period, the Consumer Price Index for Urban Non-manual Employees (CPI-NME) and Agricultural Labourers (CPI-AL) increased by 48.8 per cent and 54.9 per cent respectively, as indicated in Key Indicators of Household Consumer Expenditure in India 2009-10 (see Table T7, p.17). An independent calculation of the CPI for Industrial Workers (CPI-IW) indicates that between the financial years of 2004-05 and 2009-10 CPI-IW increased by 45.2 per cent. 

The 2004-05 estimates were updated to June 2001 in the Planning Commission's affidavit to the Supreme Court in October 2011 and pegged at 32 rupees and 26 rupees (rather, 32.16 rupees and 26.03 rupees) for urban and rural areas respectively. If 2009-10 estimates are used to update for June 2011 then an inflation accounted for by CPI-IW and CPI-AL indicates a poverty line of  32.25 rupees and 25.35 rupees for urban and rural areas respectively. Thus, the poverty line for rural, if not for urban, India indicates a decline when compared to the affidavit. 

These all may give the impression that we might be close at the urban level but miss the bus at the rural level.  However, a closer look at CPI-IW for food between the two financial years indicates an increase of 58.7 per cent. A relatively higher increase for food in CPI-AL is also expected.

The food price inflation in recent years is a known fact, but it has implications for the methodology used by the Planning Commission. At a given level of basket with food comprising a higher share, the poverty line should have increased more than the general price increase. If this has not happened then as per 2009-10 estimates from the consumption expenditure the price increase in non-food items was higher or something still remains unexplained - the calculation of the poverty line is a black box.

Further, at the actual expenditure there could be a shift in the consumption basket from food to non-food items and this would not be because of choice, but because of compulsions arising out of relative prices. The estimates given by the Planning Commission, who have already done the calculations, do not elaborate on this point. But, then they reiterate that it not about a point, it is a line.

This reminds me of a story. A well meaning ruler appointed 'accomplished' persons as advisers who articulated improving well-being through hard work, dedication and competition. The ruler was so convinced that people who were lazy, casual and non-performers (including the poor, the sick, and the old) were asked to improve, failing which they were banished from the kingdom. The latter was followed in letter and spirit by able and objective administrators who were not swayed by human emotions. Despite that, every time the ruler reviewed the situation there always existed a pool of poor and sick and some young people who looked old. To top it all they were losers and were the ones who could not make use of all the incentives given (in the form of subsidies and tax deductions among others) to succeed. No one could provide any answers.

The ruler was worried and would go into contemplative moods about what went wrong in banishing the lazy hares. Suddenly, one fine day (we will narrate the incident some other time) it chanced upon the ruler that competition by design has to have a winner and a looser. No matter what you do you cannot do away with the looser. Then how does the ruler showcase his achievements among the people and more so among the comity of nations. Reversing the policy of banishing 'lazy hares' or not incentivizing winners is not possible. Thus, the ruler after deliberation with thinkers agreed to take a middle position 'competition that is inclusive'. The change in the slogan was mere cosmetic and things continued as usual except for the fact that the non-performers were not banished. They were allowed to stay and some efforts were made to rehabilitate some of them and in some cases a policy of 'give them fish without teaching them how to catch' was also followed.

The combination of policies did not have the desired effect. Poverty did not get reduced. Good minds were put to work to arrive at a method of calculating poverty. The method did away with the baggage of calorie consumption instead of adding nutritional concerns. It was made robust enough for other minds to have difficulty in comprehending and their efforts in replicating it will only result in they loosing their minds (only Alexander can cut the Gordian knot). Thus, all eyes were on the method. And lo and behold, it showed results.  One has to concede that it is all in the line, our poverty line.

(Revised 21 March and 24 March 2012. Thanks to Mitali Chatterjee, Kinnary Desai and Smit Gade for comments). 

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