Wednesday, July 05, 2006

By Gyan Pathak

Elimination of poverty and hunger has lately been in focus in the Planning Commission and a working paper was also prepared by Arvind Virmani. It is declared in the document itself that the views expressed are of the author and not of the institution in which he works. However, it is noteworthy that this paper has got endorsement by the seal of the government on it and it is now available in the website of the Planning Commission.

The paper, in its introduction, accepts that there was widespread impression among the Indian intelligentsia, foreign scholars and residents of developed/rich countries that India's economic growth has not reduced poverty, that globalisation has worsened poverty and/or income distribution and there are 100 of millions of hungry people in India.

According to the paper, These arguments are buttressed by recourse to India's ranking on several social indicators. Esoteric debates about the comparability of survey data and gaps between NSS and NAS add to the confusion and allow ideologues to believe and assert whatever information suits the argument.

In this backdrop what are the basic facts about poverty, income distribution and hunger at an aggregate level? Nobody knows exactly. However, this paper reviews the available data and debates on this subject and comes to a common sense view. It then tries to link some of the outcomes to the policy framework and programs of the government.

CONSUMPTION DISTRIBUTION

One of the criteria of estimating poverty is based upon National Sample Surveys for consumption being conducted by NSSO since 1972 - 73. The paper says that the earlier surveys are not strictly comparable. However, the paper concludes on the basis of the results of these surveys that barring 1977 - 78 data, the rural income distribution has improved progressively from 1972-73 to 1999-2000 and this can be seen at every level. Thus for instance the share of the poorest 10%, which was 3.7% in 1972-73 increased to 3.8% by 1983, to 4.3% in 1987-8 to 1993-4 and to 4.4% in 1999-2000. It says that the consumption distribution has improved over the eighties and nineties.

POVERTY TRENDS

There are numerous controversies regarding the measurement of poverty. The most important one relates to the adjustment of individual consumption levels as derived from a survey, by the ratio of the per capita consumption from the National account statistics to the survey mean for the same item. Such an adjustment leaves the distribution of consumption unaffected while changing the calculated poverty rate.

Before 1993 such an adjustment was routinely made in calculating poverty rates, after 1993 it has been discontinued. The World Bank's Country Economic Memorandums for India however introduced the change in methodology.

The paper has tried its best to prove that the reduction of poverty is directly linked to the growth rate, on which the government is giving great emphasis.

It is another matter that the paper repeatedly talks about “growth rate” but it never mentions “equitable growth rate.” Obviously because growth rate of the poor are not at all comparable to the growth rate of the rich. Had it compared, it would have brought shame to the persons not giving sufficient attention to the deprived class.

POVERTY AND PER CAPITA CONSUMPTION

The paper says that we can also use the survey data to determine the relationship between the national poverty rate derived from the survey and the all average all India per capita GDP as calculated from the survey. This helps us skirt/avoid the controversies arising from the discrepancies between NSS and NAS consumption data and differing judgment about which is superior for what purpose.

The paper, brazenly says in its efforts to prove the government stand on poverty front that there is a linear relationship between aggregate poverty and average consumption. A one Rupee increase in average real monthly consumption expenditure raises 1% of the population above the poverty line. This implies that in India, given our democratic political system, in which the poor are fully represented, growth of aggregate income/consumption is a sufficient condition for the reduction of poverty.

The document clearly smacks political overtone while it says that the “poor are fully represented” in our political system. All of us know that it is factually wrong. Mostly the rich represent the poor in our legislatures. All the routes have been closed for a poor man or woman to enter the assemblies and the Parliament.

Poverty in 1999-2000

The most recent controversy regarding poverty estimates relates to the manner in which the data was collected in the 1999-2000 survey. Briefly there are three categories of goods in the consumption surveys: Food products that are purchased frequently (daily/weekly), semi-durable goods that are purchased with moderate frequency (monthly/quarterly) and durable goods that are purchased occasionally (annual/biannual or less). To obtain optimal recall it would be appear to be best to use the 7 day recall period for the first category, 30 day for the second and 365 day for the last. The National sample surveys have been rightly experimenting with these periods, but perhaps without giving due regard to the implications for comparability of poverty estimates over time.

In the 1999-2000 survey, for the first time the same set of households were asked to give their food consumption for 7 days and 30 days, thus making it non-comparable with earlier periods when only the 30 day question was asked. It was subsequently discovered that there was another source of non-comparability. The use of the 365 day recall period for a sub-set of commodities in 1999-2000, whereas the 30 day recall was used for these commodities earlier.

Different scholars have tried to make adjustments and re-calculate the poverty rate (Head count ratio), based on the official methodology. According to these the poverty rate was between 26.1% and 28.5% in India in 1999-2000.

HUNGER

The FAO defines about 19% of the people in developing countries (828 million) as hungry, while the proportion of Hungry in S. Asia is asserted to be about 20% (254 million). The World food programme on the other hand claims that nearly 50% of the hungry in the World live in India and 35% (350 million) are food insecure.

The paper raised question on these data. Recall, it says, that 26.1% to 28.5% of the population has been found to be poor in 1999-2000, where the former is the official figure. What are the facts about hunger?

NSS 38 round in 1983 as well as the NSS 50th (1993-94) and NSS 55th round (1999-2000) had a question on hunger that allows a direct answer to this question. The NSS questions on hunger are, (a) Do all members of your household get two square meal/enough food everyday, (b) If not, then during which calendar months did you or other members of the household not have enough food everyday? The number of months indicated by the household is recorded.

The proportion of households that were hungry during any part of the year, by this definition (the authentic voice of the poor in India, the paper claims) was 15.7% in 1983, 4.5% in 1993-4 and 2.1% 1999-2000. In terms of individuals (assuming that every person in the household was hungry), we estimate that the number of hungry people declined from 15.1% of total population (101 mil.) in 1983 to 4.4% of population (37 mi.) in 1993-4 and further to 2% of the population (18.5 mi.) in 1999-2000.

The paper differentiates between the term 'poor', 'very poor' or 'hungry'. It says that the very poor and hungry people must lie below poverty line. Thus the hunger ratio must be lower that the poverty ratio. The ratio of very poor/hungry to the poor may in general decline, stay constant or rise, depending on the distribution of consumption in the lower half of the distribution. In 1983 an estimated 33.9% i.e. more that 1/3rd of the poor were hungry at some point of the year. This proportion declined to 12.2% in 1993-4 and further to below 7.7% in 1999-2000.

Thus, it says, not only has poverty declined over the 1980s and 1990s, but the proportion of the poor who are hungry has also declined. This is precisely what we would expect given that the consumption distribution has consistently improved for the bottom 40% of the population. That 18.5 million people went hungry and 260 million people were still poor half a century after Independence is matter of great sadness for the nation. Do we need to exaggerate/ magnify the problem to convince ourselves of its seriousness or to gather the will to solve it?

POVERTY ELIMINATION

What is the cost of eliminating poverty and hunger in India? That of course depends on the extent of poverty, which is currently mired in academic debates about the measurement of poverty, the working paper says.

There is, however, universal agreement that in the years from 1993-94 to 1999-2000 the poverty rate (HCR) was between 25% and 35%. We can therefore skirt the esoteric debate about the precise change in poverty between 1993-4 and 1999-2000 and its level in either year by considering three numbers. For each of these years we order the households/person by consumption level and identify the ones which are 25%, 30% and 35% from the bottom. That is we identify in each year the consumption level of the person(s) who would be just at the poverty line if the poverty rate was 25%, 30% and 35% respectively. Then we calculate the income transfer needed for every body below that level to be brought up to the level.

The paper argues that in 1999-2000 the total subsidies provided by the Central government were Rs. 25,690 crore of which Rs. 22,680 crore were for food and fertiliser. During the same year the Central and State governments together spent another Rs. 28,080 crore on 'Rural development (RD),' 'Welfare of SC, ST & OBCs and 'Social Security and Welfare.' Either of these was sufficient to bring all the poor to the consumption level of the person/household at the 30% level. Given that poverty was between 26.1% and 28.6% either of these if transferred directly to the poor and disadvantaged (SC, ST, handicapped, old, poor farmers) would have eliminated poverty. Together these subsidies and poverty alleviation expenditures (Rs. 53,770 crore) would have been sufficient to eliminate poverty in 1999-2000, even if administrative costs and leakages used up half the allocation (and the small fraction of RD expenditures on water supply were excluded).

Income transfer

The paper proposes direct fund transfer to the poor, by setting up an Indian version using a modern smart card system that delivers cash and/or subsidies to the poor based on their entitlements as per specified parameters and norms. Such a smart card could be programmed with identity (photo & biometric fingerprint), and have information on social (SC/ST) and personal/household characteristics. Each person/ households' entitlements could be in the form of specified subsidies for the purchase of a set of items. These subsidies would have to be collected by the provider of the specified service from the government through the smart card system just as is done currently in a credit card system. Alternatively all these entitlements could be calculated and consolidated into a single cash value to be delivered to the beneficiary every month at his residential address, through the smart card system. The entitled person would pay the difference between the market price and the subsidy directly to the private or public entity supplying the goods or services. It also proposes to set up a regulatory authority to monitor the Poverty Eliminating System. (EOM)