Poverty or richness line?

S. Murlidharan | Updated on: Oct 02, 2011

The Planning Commission's affidavit to the Supreme Court to the effect that the Tendulkar Committee had, way back in 2005, fixed the poverty threshold at an income of Rs 32 or less per day in the urban areas, with the comparable figure for the rural areas being Rs 26, has at once become the butt of jokes and a subject of intense debate, besides stirring up the hornet's nest.

Laughable as the figures might be in the present context, even figures such as Rs 100 or Rs 150 per day, being bandied about as the bare minimum income required to eke out a bootstrap living as it were in cities such as Delhi, gloss over the moot question — for what family size?

Indeed, when income estimates are made so as to bestow entitlements from Governmental funds, the number of mouths to be fed becomes an extremely important issue. Unfortunately, it does not figure in any of the governmental schemes or calculations, at least explicitly and transparently.

Malaysia imposes personal income tax after factoring in the number of dependants the taxpayer has to fend for and support. Some countries factor this in indirectly by allowing the joint filing of income-tax returns by spouses.

A foolproof Adhaar card might, perhaps, herald the beginning of a similar effort in India. Be that as it may, even in the US where poverty is rearing its ugly head, there are two sets of figures — $11,000 or so per annum for a single person and $24,000 or so for up to four persons or more — so as to be ineligible for various entitlements such as food stamps and healthcare.

Target richness

The former Planning Commission member Kirit Parikh came up with a novel suggestion in ‘We the People', the NDTV programme aired on Sunday, September 25, 2011, the long and short of which was that the policymakers should give up their obsession with estimating poverty and, instead, target richness — those who make the grade as rich should be kept away from various entitlements such as a food subsidy.

There are States in India such as Tamil Nadu, Chhattisgarh and Orissa that have embraced the idea of universal access to subsidised food so as to steer clear of the messy APL-BPL debate, the daunting task of carrying out the classification on the ground, and the even more daunting task of preventing leakage of food items meant for the poor to the black market.

Anecdotal evidence shows that the leakage in Tamil Nadu has come down to a relatively low level of 4 per cent and that 70 per cent of the well-to-do do not claim their entitlements — maybe because it is infra dig or out of a genuine concern for the poor — ever since subsidised food was made universal. But this by itself does not make Mr Parikh's suggestion workable. For one, identifying the rich is also beset with problems. Suppose all income taxpayers are ipso facto assumed to be rich, then the Government would be guilty of not only once again ignoring the number of mouths to be fed, but also of throwing open the various governmental entitlements to a vast mass of people, thus, making them unwieldy, unaffordable and potentially bankrupting.

The Eurozone's experience

The Eurozone is paying a heavy price for fiscal profligacy on the back of the unsustainable welfare schemes that the Governments have been operating. True, tax rates are high in many of these countries, but then high tax rates by themselves do not translate into high tax collections. In any case, tax collections have never been found to be enough to bankroll gargantuan welfare schemes. So much so, many of the Governments in the region have had to grin and bear it and ultimately stand perilously close to bankruptcy, that has the grim potential of wrecking the whole Euro initiative.

Whether the Government should go by the poverty line or the richness line would become largely irrelevant when employment opportunities increase and agriculture becomes an attractive avocation. Cynics would be quick to dub this as wishful thinking, a pipedream. But then, universal free healthcare, a universal food subsidy and universal free education are equally utopian given the grim possibility of Governments undertaking such gargantuan schemes, especially in a populous country like India, going bankrupt though admittedly there are no indications at present that the Indian Government is about to plunge headlong into such a politically alluring but economically disastrous course.

Targeted subsidies

Till we attain the ideal of universal employment, targeted subsidies, howsoever problematic, have to be the order of the day. On the issue of the best way of targeting — actual delivery of the goods and services as under the extant public distribution system or through food stamps or education stamps or through cash transfers — well, the jury is still out.

Whatever the mode, the Governments should not spread themselves thin, which is bound to happen if the richness line instead of the poverty line is drawn, because whatever the criteria of adjudging richness, the size of the rich in India is most certainly likely to be minuscule. In its wake, the size of the entitlement seekers would increase manifold, with its cataclysmic potential to wreck public finances sooner than later.

(The author is a Delhi-based Chartered Accountant.)

Published on October 02, 2011
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