Poverty numbers are fine

The poverty ratio for India has declined from 45.3 per cent in 1993-94 to 21.9 per cent in 2011-12. The recent commentary both in the print and electronic media seems to be in denial of this decline.

A decline in poverty ratios in a pre-election year would have been a matter of joy, but not for the present government. The government is in a quandary on how to respond to the declining poverty numbers.

The government seems to be disappointed by the very low poverty numbers (just over one-fifth), when it is mooting the Food Security Bill (FSB) for two-thirds of the population.

The poverty numbers released in July 2013 raise serious questions on the need to expand the scope of the Food Bill. Some observers feel that extending coverage to two-thirds of the population would enable the better-off to corner the benefits earmarked for the extreme poor, given the social-cultural dynamics, their proximity to power, and more awareness.

Basis for Poverty Numbers

The poverty numbers have caused a flutter in the media, questioning the benchmark monthly per capita consumer expenditure (MPCE) used to differentiate the poor from the well-to-do.

The Planning Commission releases poverty estimates based on Large Sample Surveys on Household Consumer Expenditure conducted by the National Sample Survey Office (NSSO).

Generally, the large scale consumer expenditure surveys are conducted every fifth year. The last quinquennial survey (once in five years) was conducted in 2009-10.

However, since 2009-10 was not a normal year because of a severe drought, the NSSO repeated the large scale survey in 2011-12.

The 21.9 per cent poverty number is based on provisional estimates of household consumer expenditure obtained from sample survey undertaken during July 2011 and June 2012 covering 7,391 villages (59,070 sample households) in rural areas and 5,223 urban blocks (41,602 sample households) spread over almost all States and Union Territories in the country.The survey tries to ascertain the volume of consumption by asking respondents to recall spending on different goods and services.

As frequency of purchase depends on the nature of goods and services consumed, the reported MPCE is based on different recall periods. The MPCE is measured by capturing the spending on items such as clothing, bedding, footwear, education, medical (institutional) and durable goods over the last 365 days and spending on items such as food items, fuel and light, durable goods, conveyance, rents, toilet articles, non-institutional medical, paan , tobacco and intoxicants in the last 30 days.

This approach to elicit consumer expenditure is described as the ‘mixed reference period’ MPCE.

Missing the point

The MPCE, which defines the all-India poverty line, is Rs 816 for rural areas and Rs 1,000 for urban areas.

The rural and urban poverty lines show wide inter-State variation.

The range of the poverty line for rural areas across States is between Rs 695 for Orissa and Rs 1,301 for Puducherry. Similarly, for urban areas, the range is Rs 849 for Chhattisgarh and Rs 1,309 for Puducherry across States.

The expenditure sufficient to be above the poverty line is often expressed on a daily basis by arithmetically dividing the monthly expenditure by 30, which turns out to be Rs 27 for rural areas and Rs 33 for urban areas. Many commentators have questioned whether a person can lead a dignified life with a spending of Rs 27 per day.

However, it needs to be emphasised that conceptually, poverty line is defined in terms of per capita consumption expenditure on a monthly basis and not on a daily basis. The practice around the world is to define poverty lines in terms of a year or a month. The NSS surveys are the basis of measuring consumption poverty on a monthly basis, and that too at the household level, for a family of five. Consumer expenditure data when viewed on a daily basis for an individual misses the economies of scale and scope, which is relevant for a household over a month and certain categories of expenditure over a year.

Mixed Reference Period

Beyond the conceptual and technical aspects, the reasonableness of the MPCE defining the poverty line can also be ascertained by looking at the actual average MPCE of the entire sample.

The average monthly per capita rural expenditure in rural areas was Rs 1,287 and Rs 2,477 in urban areas.

The MPCE defining the poverty line was 63 per cent of this average in rural areas and 40 per cent in urban areas. Thus, the person classified as below the poverty line in rural areas was spending 63 per cent or less of the average monthly expenditure for the entire sample.

Similarly, a poor person in urban area spends below 40 per cent of the average monthly expenditure for the entire sample. This seems like a reasonable yardstick.

Contrary to popular perception, the consumption expenditure tracked for computing poverty does not consider only food items, but an entire gamut of food and non-food items.

Broadly, food items account for 52 per cent of the total monthly consumption expenditure in rural areas and 37 per cent in urban areas.

The rest is spent on a host of non-food items. Looking at the composition of expenditure, one may not feel comfortable with certain expenditures.

For instance, spending on house and garage rent, residential land rent and other consumer rent at around Rs 75 per year, and around Rs 50 in a year on items such as spectacles, torches, locks, umbrellas, raincoats, gas lighters, in rural areas appears too low.

Nonetheless, we must appreciate the fact that these are actual expenditures reported by households and recorded by NSSO.

Instead of attaching value judgments and questioning the reasonableness and adequacy of different expenditure categories, the emphasis should be on using the appropriate recall period and better designing of the questionnaires.

(The author is Professor in Economics and Acting Dean, Xavier Institute of Management, Bhubaneswar. Views are personal.)

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