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"Poverty is underestimated"
Statistical methodology as practised in India is full of flaws and tends to underestimate the level of poverty in the country. Dr M H Suryanarayana, professor at the Indira Gandhi Institute of Development Research, Mumbai, expresses his views to Jayashree Jakhade of FE-Thinktank. Excerpts:
Is India better off today than in the pre-reforms era as far as poverty is concerned?
Answer to this question varies depending on how we define and measure poverty. Let us consider poverty as used in the literature on Indian planning. That is the inability or lack of purchasing power to buy a consumption bundle that could ensure a normative amount of calories. Measured in terms of this criterion, India does not seem to have achieved any reduction in the proportion of population living below the poverty line during the Nineties. This seems to be true particularly in rural India. This fact, in the context of a growing population, would mean an increase in the size (absolute number) of the poor population in India in spite of the fact that the growth process continues to be sustained at the pre-reform 1980-levels. Of course, one may get different results depending on the methodology used for estimating the incidence of poverty. Since the poor spend about two-thirds of their total consumer expenditure on foodgrains and derive about 85 per cent of their calorie requirement from cereals, let us examine their levels of living in terms of cereal consumption. Available estimates of per capita consumption of cereals for rural and urban all-India pertain to the years 1987-88 and 1993-94. Some noteworthy features are:
Cereal consumption declined for the all-India rural population as a whole by 7.39 per cent. This decline was accounted for by a reduction in the consumption of wheat (3.73 per cent) and other cereals (3.52 per cent). The decline in total cereal consumption for the poorest five decile groups was less than the average for the total population at the all-India level for the rural sector. Except the poorest decile group, all the remaining groups enjoyed a reasonably comfortable (by the modest Indian Council of Medical Research (ICMR) standard of 370 gm per person per day) level of cereal consumption. However, the picture for the rural sector varies considerably across states. The decline in percentage terms in the rural total cereal consumption was more than the all-India rural average in the states of Haryana, Maharashtra, Punjab, Rajasthan and UP and about the same as the all-India rural average reduction in the states of AP, Assam, Bihar and MP. The decline was one of the least, less than three per cent in the states of Kerala and West Bengal. In rural Orissa, there was even an increase in cereal consumption. The commodity-wise pattern of decline also varies across states. For instance, the decline in total cereal consumption was largely due to a decline in coarse cereal consumption in rural Andhra and in rice consumption in rural Bihar. The reduction in rural cereal consumption varies across groups across states. The rural poorest five decile groups experienced a percentage reduction larger than the average reduction for the total rural population in the states of AP, Haryana (except the poorest decile group) and Maharashtra. In Kerala and Tamil Nadu, the rural total cereal consumption declined. But, the poorest five decile groups enjoyed an increase in cereal consumption. The rural population of Orissa, except two richer decile groups, enjoyed an increase. But the cereal dominating the reduction varied across rural decile groups within a state and for the population as a whole across states. For instance, in rural Bihar coarse cereals accounted for bulk of the reduction in the cereal consumption of the poorest decile groups while for the rich, it was rice while in rural Andhra coarse cereals dominated the reduction for all classes. Most importantly, the magnitude of shortfall of cereal consumption according to the ICMR norm even for the rural poorest group is marginal and varies across states. Even the rural poorest ten per cent do not suffer from any shortfall in the states of Orissa, Rajasthan, UP and West Bengal. There is some shortfall for the rural poorest 20 per cent in Karnataka and MP, for the poorest 40 per cent in Maharashtra and Tamil Nadu, for the poorest 70 per cent in Punjab and the bottom 80 per cent in Kerala. Quantitative shortfall of cereal consumption for the poor in rural Punjab and rural Haryana need not cause much concern since it could be due to diversification of consumption patterns and these two states are surplus with respect to foodgrains. As regards the urban population, cereal consumption declined by five per cent, that is less than the reduction in the rural areas. Wheat and coarse cereals are the two cereals which accounted for a substantial part of this reduction. As in rural India, the decline in total cereal consumption for the seven poorest decile groups was less than that in the average urban cereal consumption. The level of cereal consumption was uniformly less than the ICMR norm for all the decile groups in urban India.Among the states, reduction in urban cereal consumption was more than the all-India urban average only in the states of Maharashtra, Punjab and Rajasthan. Reductions in cereal consumption across urban decile groups do not show such systematic pattern. The poorest five decile groups in urban Kerala and four decile groups in urban West Bengal enjoyed increases in cereal consumption.Cereal consumption falls short of the ICMR norm for the urban poorest decile groups in all the states except Orissa, for the bottom 20 per cent in MP and UP, for the bottom 40 per cent in AP, Karnataka, and Tamil Nadu, for the bottom 80 per cent and top 10 per cent in Haryana and for the entire population in Kerala, Maharashtra, Punjab and Tamil Nadu. Thus, it can be seen that the nature and quantum of deprivation defined in terms of cereal consumption varied across decile groups, between sectors and across states. Every year the government announces huge budgetary grants for social development. Despite this, why is the poverty level not coming down?
Poverty persists even after huge budgetary grants for social development because of many reasons. Some of them are:
Symptomatic treatment of economic problems is one reason. The nature, magnitude and severity of poverty vary across regions depending on the structural features of the region. Causes too vary; solutions should vary accordingly. But, most often policy choices and resource allocations for different schemes are made on an ad hoc basis with little appreciation of the relevant parameters and binding constraints.Inequitous allocation of such grants across regions and states. It is not necessary that resources for poverty alleviation are allocated in the most efficient way. For example, consider BIMARU (Bihar, MP, Rajsthan and UP) states. Their share in benefits of programmes like the PDS is disproportionately less than their share in total poverty in the country.Even in a given region, resources are not well-targeted to the poorest of the poor. It is the better-off sections who seem to benefit from the various poverty alleviation programmes such as PDS, IRDP and the rural work schemes. What in your view is the realistic estimate of poverty, both urban and rural?
In a developing economy such as India, which is undergoing structural changes, poverty ratios obtained with simple price adjustments will not bring about real changes in the extent of poverty across space and over time. In addition, there is also the question as to how reliable is the data set as a measure of the underlying consumption or income distribution. It is quite likely that the available National Sample Survey estimates of consumption distribution for the Nineties provide reliable estimates of the underlying population distribution. Hence, if we were to define a poverty line for the new base year 1993-94, corresponding to the same norm of 2,400 calories in rural and 2,100 calories in the urban areas, then the poverty ratios would be 75 per cent for rural all-India and 54 per cent for urban all-India. Do you feel that poverty levels are being underestimated?
Yes, poverty is underestimated. There are many reasons for this. They are largely methodological in nature. One major reason is the way the poverty lines are price-adjusted to take into account changes in prices. The base year-weighted deflators are used which do not take into consideration the changes in cereal consumption patterns. Relative prices are not considered while forming the price index and items which are less relevant are taken into account. Even the poor substitute cereals for different varieties which do not reflect in the price index changes. Unless and until absolute price changes are considered, we will not get a realistic picture. Thus, poverty will remain underestimated as long as necessary corrections for changes in the consumption basket and absolute price levels are not made. The reality is that both incidence and severity of poverty have increased, but they are not recorded in the conventional estimates. What needs to be done to alleviate poverty?
Though there are poverty programmes, much remains to be done on the poverty-identification and measurement fronts. Cost-effectiveness can be achieved either by maximising benefits to the poor for a given budgetary cost or by minimising the cost subject to a poverty alleviation target. One approach is to achieve cost-effectiveness by better targeting of programmes. Put differently, coverage of the poor should be maximised and leakages of benefits to the non-poorshould be minimised. Identifying the poor for targeting purposes by means-test is administratively costly. For, people have an incentive to under-report incomes so as to secure more benefits than they are eligible for.
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