Just what is poverty, really?

Though the government has said the number of poor will no longer be determined only by the Tendulkar poverty line, the affidavit filed by the Planning Commission in the Supreme Court, on the question of what constitutes the poor, has once again brought to the forefront the highly contentious issue of poverty estimation. The commission, on the basis of the Tendulkar Committee report adjusting for inflation, has stated that only those individuals spending less than R781 and R965 per month in rural and urban areas, respectively, are deemed to be poor. Following this submission, both the government and the commission have come under scathing attack from all corners for ?fixing? such a low poverty line and thus ?underestimating? the actual number of poor in an attempt to reduce its subsidy bill.

As a substantial portion of government expenditure is directed towards alleviating the deplorable condition of the poor and, given its political connotations, correctly assessing and identifying the poor is crucial. This entails a detailed understanding of not only the very basis of poverty estimation in India but also the other intertwined issues that have further complicated matters.

The first issue concerns the NSSO consumption expenditure surveys, which form the basis of poverty estimation in India. These surveys have been routinely criticised for underestimating consumption expenditure when compared to the figures arrived at from the National Account Statistics. The magnitude of underestimation, according to some is, as high as 50%. Although the extent of underestimation is more likely to be higher at the top end of the distribution, needless to say, underestimation at the lower end of the distribution will lead to higher poverty numbers.

The second issue centres on the estimation of the poverty line itself. Many criticise the existing poverty line for failing to preserve the original calorie norms, i.e. 2,400 in rural areas and 2,100 in urban areas. In this respect, it must be pointed out that the calorie norms were used ?only as a peg? to derive MPCE norms with which to measure consumption poverty (Towards New Poverty Lines for India, Himanshu). Additionally, although the actual calorie intake around the poverty line was well below the norm in 1999-2000, the calorie norms could have been met in most states without reducing non-food expenditures (Pronab Sen, 2005). In other words, if those around the poverty line had spent the same amount on food but consumed a more cereal-intensive diet, they would have met the calorie norms.

With regard to the issue of the portion allocated towards health and education, it was originally assumed that these services would be provided by the state. However, the pathetic condition of state healthcare and education facilities implies that the poor have to turn to private providers, often at prices in multiples of what was allocated originally. Thus, whether or not the poverty line needs to be revised upwards should depend on the actual cost incurred by the poor in meeting a predetermined basic basket. However, determining this basic consumption basket is itself subjective and, thus, controversial.

It needs to be pointed out that although the Planning Commission provides estimates of the number of poor, the actual identification of the poor, for the purpose of determining who the intended recipients of government subsidies and programmes are, is done by the ministry of rural development through the BPL census, which adopts a completely different set of methodologies and definitions. The Planning Commission?s estimates based on the poverty line are simply used to cap the numbers arrived at from the BPL census.

In such a scenario, is capping the BPL numbers a legitimate exercise or is it simply to limit government expenditure on the poor and thus an attempt to reduce its subsidy bill? The divergence of views on this becomes apparent when one examines the proposed beneficiaries of the Right to Food, as its coverage extends far beyond those who are currently identified as poor.

If one adheres to the commonly held assumption that the poor consume all that they earn (taking the all-India poverty line as the weighted average of rural and urban poverty lines), this corresponds to individuals in the fourth decile, with an average per capita monthly income of R516. A substantial segment of the ?poor? (individuals in the first four deciles) are either illiterate or have studied only up to the primary level. They are mostly engaged in agriculture, casual labour or are self-employed. The data corroborates the commonly held perception that a rise in education levels translates to individuals moving up the distribution. We thus find a higher presence of those who have completed high school and graduates at the top end of the distribution. We also find the share of regular salaried employment rising as we move to the top end of the distribution. This does lend credence to view that in the fight against poverty, the role of education cannot be stressed enough. While, other immediate benefits do need to be provided by the government, improving access to quality education needs to be topmost priority of the government.

While the furore over the adequacy of the current poverty line has reignited the poverty debate, with many questioning whether the current definition of who constitutes the poor needs to be revisited or not, it is important to note that while the Planning Commission figures quoted in the media are at the all-India level, there are significant differences in the rural and urban poverty lines at the state level. For example, the poverty line (2004-05 prices) for Delhi (urban) stands at R642.5 while that for Bihar (urban) is R526. Even if we take the all-India poverty line of R965 and R781 (adjusting for inflation) in urban and rural areas, respectively, assuming a family size of five, that translates to an annual household consumption expenditure of R57,900 and R46,860. Assuming that the poor have access to an efficient functioning PDS, which supplies them cereals at much lower prices, and have access to proper healthcare facilities and well-run government schools which charge a pittance, isn?t this then a valid estimate to define the poor?

The crux of the problem lies in the inability of the government to efficiently manage the PDS system and provide quality healthcare and educational facilities. The glaring inadequacy of the poverty line is apparent as the poor have to spend more on the basic consumption basket than what policymakers had envisioned.

The underlying rationale for poverty estimation is to determine who requires government support. However, our inability to accurately estimate and identify the poor implies that many of them are actually excluded from the system. Thus, given the problems with estimation and identification, does it not make sense to revisit the concept of universalisation? The success of PDS in states where targeting has been abandoned in favour of universalisation does seem to strengthen its case. Although the implications of adopting such a policy at the national level on state finances need to be worked out, it does do away with the whole problem of identifying the poor.

But going back to the basic issue of who constitutes the poor, certain basic questions need to be addressed. How does one define poverty? Is poverty an absolute or relative concept? If we are to continue with the conventional process of poverty estimation, instead of estimating the basic consumption basket which is subjective and thus controversial, should we move towards adopting a poverty line which is relative to the median income/expenditure level of the country? This will ensure that the poverty line and thus who constitutes the poor is revised upwards every year instead of the current system of it just being adjusted according to the cost of living.

Or should we start looking at poverty in a more holistic manner? Instead of estimating how much an individual needs to meet his basic needs, isn?t it more humane to adopt a multi-dimensional approach to the issue and move towards addressing and thus identifying the basic living standards of society? This implies that in addition to an individual?s purchasing power, should not various other indicators such?household asset ownership, access to drinking water, sanitation facilities, health facilities, etc, be incorporated to create a holistic index in order to determine who the poor really are?

While the last decade has seen spectacular growth, many cast aspersions on it, questioning its inclusiveness. While nobody can deny that poverty, as is currently measured, has reduced, it needs to be pointed out that wasteful government expenditure, leakages in the system and the inability of the state machinery to efficiently discharge its duties has resulted in India?s ranking actually slipping on several social indicators in the global context. We are, thus, in the unenviable position of high growth and falling development indicators. Although even the Tendulkar committee report acknowledges the multi-dimensional nature of poverty, it falls back on the conventional approach of poverty estimation and fails to come up, or at least suggest, an alternative, more holistic definition which can be effectively used for poverty estimation.

Rajesh Shukla is director, NCAER-CMCR. Ishan Bakshi is consultant, NCAER-CMCR