Poverty – A State of Mind or Expense of Rs.32 Per Day

TIR, Rushiraj Patel, 2 September 2014: After three long decades, a single party has been able to form the majority government in Indian Parliament.  The man at the helm of their campaign – our Prime Minister Narendra Modi in his maiden address in the Parliament said, “The government belongs to the poor people of the country. We are custodian of people’s hope. Government should be for the poor. If we do not work for the poor, the people will never pardon us.”

But, which poor is Mr. Modi talking about?

Surprisingly, 67 years post-independence; the uproar has largely been over the measures of identifying poor rather than efforts to resolve the poverty problem. This is understandable given that in order to solve the bottleneck in a certain production design, you have to find the bottleneck first.

From being called “a state of the mind” to being defined mathematically 32 Rs. per day in villages and 47 Rs. per day in cities – no definition has been defined as appropriate by the Indian masses. Presumably, Bollywood has given the most acceptable definition till date; a man with basic necessities of Roti, Kapda & Makaan fulfilled shall be defined as ‘not poor’.

Surely, on a superficial look – one feels that the uproar is quite justifiable. But first, we need to understand the existing methodology of identifying poor set by Rangarajan Committee recently.

The Rangarajan panel considers people living on less than Rs. 32 a day in rural areas and Rs. 47 a day in urban areas, as poor. The outcome surprisingly is nearly equal to Global Poverty Line $1.25 per day per person set by World Bank on PPP basis. But, this numeric outreach has actually come from just a slight modification of the Tendulkar methodology.

“We have separated measuring indicators for rural and urban rather than just a mere price difference, as it was earlier. Secondly, we have included fats and proteins in addition to calories. Thirdly, I think for the first time, certain normative requirements with respect to non-food consumption expenditures were introduced”, as described by Mr. Rangarajan.

Stark Difference from Reality

Mr. Rangarajan has insisted on putting it monthly and at household level rather than dissecting it into per day per person angle. Quite understandable, not only because when you survey – you survey a household and not each & every member of the family – but also because he wants us to also lend him the benefit of the basic microeconomic concept of “economics of scale”. Moreover, he has discounted all the additional benefits given to them in the form of let’s say Indira Aawas Yojana or Mid-day Meal or PDS or others, which might hike up the 32 Rs. limit.

Also, his committee can’t get a hold over the accuracy of data of consumption expenditure being provided by the people – especially in a country where less than 3% of the population file Income Tax returns.

Given that Indians are mocked for their ability to make savings – the committee might think it is possible for them to make ends meet and manage in as less as possible – no doubt the number is low.

For an instance, a police constable earns, on an average 8000 Rs. While the maximum salary for a government peon hardly reaches 8000 – both of whose figures remarkably come close to the urban poverty limit.  And there would be at least thousands of such constables and peons where they are the sole earning source of their household.

So, the government that advocates this poverty line itself doesn’t manage to pay people enough beyond the poverty line it itself demarcates.

So, now the question is – where lies the ideal limit?

For arguments’ sake, let’s set the bar as Rs. 100 per day – which means 15,000 Rs. per month – then it means that there would be a need to make extra monetary provisions for the additional gamut of people that shall now fall in the BPL.

Will the damage to exchequer be passed on to the so-called middle class taxpayers making commodities etc. more expensive? But, then it would eventually lead to people just near the line being pushed below the line and getting trapped in the circle of entitlements as it is happening with caste-based reservations.

What is the justifiable limit then?

The Other Way

Probably, it is time for Mr. Rangarajan and his committee to roll up their sleeves and work around with a different methodology rather than tweaking an existing and already heavily criticized Tendulkar methodology.

They need to understand that poverty is a complex phenomenon and could not be captured by a single dimension like consumption expenditure basket, especially when the poor themselves define their poverty issues in multiple dimensions of issues related to health, education and standard of living.

Interestingly, such a method exists which is called Multi – Dimensional Poverty Index (MPI) and Rangarajan Committee has reckoned about it in their report but neglected it because they were unable to combine them with consumption expenditure surveys.

Let’s have a peek into what is MPI?

MPI uses the same 3 broad dimensions as HDI does namely Health, Education and Standard of living. MPI, unlike HDI, uses more than 1 indicator for each dimension of poverty to capture the problem in a better way.  Not just this, MPI requires all of its data to come from a single survey rather than a conglomeration of several surveys, which is the way Rangarajan committee proceeds, yielding such controversial figures to demarcate poverty.

Definitely, MPI also has its limitations that the weightage given to each parameter under its three dimensions is debatable – indeed it shall be – but then, formation of such an esteemed committee is to solve such value judgment questions rather than tweaking an existing methodology.

The committee should look forward to providing more important and relevant information to policy makers to achieve their poverty reductions target and define poverty in a more acceptable fashion. After having a lot of hue and cry over similar shoddy figures, while in opposition, it would be interesting to see as to how Narendra Modi government reacts to this report.