Getting behind poverty numbers

Written by Madan Sabnavis | Updated: Aug 12 2013, 06:33am hrs
The recently-released data on poverty is quite interesting. The poverty ratio as measured by the Tendulkar methodology has come down to 21.9% in 2011-12 from 37.2% in 2004-05. This is certainly a major achievement. There can be debate about whether the criteria used is right or wrong, as the average monthly expenditure (which is the route chosen here) has been pegged to R816 per month in rural areas and R1,000 in urban areas. But, in economics, once we define a criteria and stick to it, there is nothing amiss as long as we are using the same yardstick at two periods of time. At a broader level, one can ask whether anyone can actually live on an income of R26-27 a day, which is a third of what the World Bank would define as a poor person based on $1.25 a day, which comes to around R78 based on exchange rate of 2011-12 But, even so, the fact that the level of deprivation has come down based on certain criteria is a good sign.

In the current context, two questions arise. The first is when we are going for food security, we are covering around 70% of the population, and while it has been admitted that the aim is not to cover just the poor but also the not so poor, the difference in numbers is quite large. The Food Security Bill (FSB) makes sense if we link it to the $2 a day criteria of the World Bank, which, by the 2010 estimate, comes close to the number of 800 million population. The conundrum is that if the government gives importance to the Tendulkar poverty ratio, it would actually be opening the door for controversy because by these criteria we have only 269 million poor people in India and, by covering 800 million under FSB, we could be overdoing it. Alternatively, we should not pay heed to the Tendulkar criteria and use it more as a theoretical reference point as it cannot really be linked to the actions of the government.

The second contextual issue raised is how has this number come down sharply from 407 million in 2004-05 to 269 million in 2011-12, while it remained flat between 1993-94 and 2004-05 (404 million in 1993-94) Of late, there has been a war of words, which is quite typical in the context of economists, between Sen and Dreze at one end and Bhagwati and Panagariya at the other. The former have been stressing on tackling poverty directly through schemes and measures which include things like the MGNREGA while the latter have followed the capitalist model of growth from above which will trickle down. Now, if poverty has come down so drastically in the last 7 years, is it due to high growth or direct intervention

GDP growth was 8.5% in the period 2005-06 and 2011-12 while in the preceding 7 years or the period from 1993-94, it was around 6.2-6.4%. But under the UPA government, we have had the largely successful MGNREGA programme, which has provided about R25-30,000 crore on an annual basis to the rural families, which has also helped to push up the average wage in the country for unskilled labour from R60 to R130 per day. Thus, it looks that both the factors have been at play; but given that rural poverty has fallen sharply (by 110 million while that in urban by 28 million) and most of the growth has been urban-centric, one may tend to support Sen and Dreze here. Any way, such data is a scoring point for the present government as it shows improvement in poverty numbers.

The other interesting takeaway from the poverty data is the spread of this ratio across states (the smaller states of north-east are ignored as they tend to have extreme numbers due to their small size). The lowest poverty rates are in states like Andhra Pradesh, Himachal, Delhi, Kerala, Tamil Nadu, Punjab, etc. Andhra is significant because it is also a large state with a ratio of just 9.2%. Rajasthan, once a part of BIMARU states, does very well with 14.7%.

The unsatisfactory numbers come from the usual suspects who are also large like Chhattisgarh (39.9%), Bihar, Jharkhand, MP, Orissa and UP. The surprise package here is Karnataka that has a high rate of 20.9% considering it is one of the better performing states in other respects. Quite clearly, action needs to be taken here to lower these numbers not just from the point of view of alleviating the condition of the poor but also because it has other social consequences, which include the birth of extremist activity that is also visible in some of these states. Overall, there are 10 states that have higher poverty ratios than the national average. States such as Maharashtra, Gujarat and West Bengal have a median level ratio of 15-20%.

These high numbers are also reflected in the rural poverty ratios in these states with Chhattisgarh and Jharkhand crossing 40% followed by Bihar, UP, MP and Orissa. Maharashtra also comes quite high with 24.5%. Urban poverty ratios are also higher in these states though Maharashtra does well with 9.1 (13.7% for the country).

Some thoughts pop up when looking at these distribution numbers. First, our poverty alleviation programmes should probably begin from the states that have higher numbers so that we are able to address their concerns and lower this rate. Second, at the political level, the state governments in power must divert more funds from their budgets for such programmes to supplement the efforts of the Centre. Third, given the wide scale disparity across states, there could be two repercussions. The first is migration to the better performing states and the second is the threat of insurgency given our experiences from the past. Fourth, we need to draw lessons from what states like Andhra have done to bring down this number as given the size, the progress has been remarkable. The same holds for Tamil Nadu. There is, hence, hope for the food security programme as these two states are definitely the success stories for PDS. Last, while it is nice to have these numbers down, the next line of action must be to sustain the same and push these households on to the next step of the consumption ladder. That would be a real achievement.

The author is chief economist, CARE Ratings. Views are personal