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august 17, 2013

The Problems with the Poverty Numbers


The Planning Commission continues to court controversy with its estimates on poverty.

he Planning Commission has once again tied itself in knots by releasing poverty estimates for 2011-12 even before the storm over the 2009-10 numbers has died down. The new estimates show an all-India fall of 7.9 percentage points over two years compared to the 7 percentage point decline over ve years between 2004-05 and 2009-10. According to the Planning Commission, the poverty headcount ratio in 2011-12 was 25.7% in rural areas, 13.7% in urban and 21.9% for the country as a whole, as against 33.8%, 20.9% and 29.8%, respectively, in 2009-10. The pace of the recent decline has surprised many, especially since it has taken place at a time when the concern has been about a deceleration in the Indian economy. The timing of the press release on the 2011-12 estimates just before the general elections next year has been seen as a political ploy of the ruling combine. A large part of the responsibility for general scepticism on poverty reduction must be laid at the door of the Planning Commission, which in recent years has shown a great deal of immaturity on this matter. It was wrong for the Planning Commission to implead itself in 2011 on a Supreme Court matter regarding caps set on how many people could be treated as below the poverty line (BPL) for the public distribution system (PDS) and other schemes. And since then it has repeatedly shown incompetence in not fully and properly explaining who are entitled to all such schemes and how this relates to the arcane issues of norms and methodology that govern the estimation of poverty. All that it has done so far is to appoint another committee to look at the poverty methodology and while this new committee is still deliberating the issue, the Planning Commission has been quick to release numbers based on the Tendulkar methodology, obviously because they look so good. Doubts regarding the poverty statistics now extend far beyond the right to food activists who grabbed the headlines by branding the 2009-10 poverty lines as an unbelievable Rs 22 a day. Instead of sticking to a 2011 decision to delink identication of the poor to be covered by government schemes from the ofcial estimates of poverty, the Planning Commission has continued on its original sin by, for instance, estimating caps based on the poverty numbers and informing states how many they should therefore exclude from entitlements under the National Food Security Ordinance. What all this has missed is analyses. It is well known that 2009-10 was the worst drought in 37 years and that is why another fullsample survey was conducted by the National Sample Survey
EPW

Ofce (NSSO) in 2011-12, ahead of the usual ve-year interval. The impact of recovery from the drought is evident on even a preliminary reading of the new numbers. Of the six top major states ranked by poverty reduction between 2009-10 and 2011-12, ve (Bihar, Rajasthan, Chhattisgarh, Haryana and Uttar Pradesh) recorded an even sharper agricultural output growth than the high nationwide increase of about 12% during this brief period. The issue then really is of the pace of poverty reduction between 2004-05 and 2011-12, rather than between 2009-10 and 2011-12. Compared to estimates of poverty at 41.8% for rural, 25.7% for urban and 37.2% for all India in 2004-05, the new Planning Commission estimates suggest an annual decline of 2.2% per annum between 2004-05 and 2011-12. These are certainly higher than the average rate of poverty reduction during the earlier period (1993-94 to 2004-05). At least four well-known important correlates of poverty suggest that this rate of reduction in poverty may not be out of place. First, the rate of growth of per capita income from 2004-05 to 2011-12 has been 6.9%, compared to 4.4% between 1993-94 and 2004-05. Second, real wages of casual workers have increased at 6.5% per annum between 2004-05 and 2011-12 as against 3.1% per annum between 1993-94 and 2004-05. Third, agricultural output between 2004-05 and 2011-12 has grown at 3.9% per annum as against 2.5% per annum between 1993-94 and 2004-05. Finally, there has certainly been a step-up in public expenditure including transfers under the Mahatma Gandhi National Rural Employment Guarantee Act and PDS. Given the estimates of elasticity of poverty reduction to these correlates, the reduction in poverty does appear consistent with evidence on other aspects of growth and public policy. However, there are valid concerns regarding aspects of the estimation of poverty which need to be addressed if the credibility of these numbers is to be restored. A part of this has to do with the frequent changes in concepts and reference periods for collecting consumption expenditure data. For example, the 2009-10 and 2011-12 survey rounds have three different estimates of consumption expenditure depending on the choice of recall period of the respondent. Along with this there are conceptual issues such as the treatment of free transfers of goods and services which have a bearing on what constitutes consumption expenditure. In particular, the issue of imputation of free transfers such as mid-day meals had already been raised in the case of the 2009-10 estimates and an even more incongruous matter 7

Economic & Political Weekly

august 17, 2013

vol xlviII no 33

EDITORIALS

might relate to valuation of free foodgrains provided under the PDS. The usual practice by the NSSO is to value PDS grain at PDS prices unless these are given free, latter being valued at market prices. This has repercussions for poverty estimates in Tamil Nadu where PDS rice costs Re 1 a kg in 2009 but was free in 2012, thus placing a question mark on the actual reduction in poverty in the state. There are other substantial issues that need more analysis than what has been attempted so far. One example is the fact

that the period of rapid poverty reduction has also coincided with the period of slowest growth in employment. Another is that ination has been much more in these years than before. Since wages have grown rapidly, those actually employed did probably share some of the fruits of higher overall growth, but what of those unemployed or no longer in the labour force? Perhaps it is time that poverty measures are used for analysis of the drivers of change rather than just measure how many persons are poor.

august 17, 2013

vol xlviII no 33

EPW

Economic & Political Weekly

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