The definition of poor is quite fuzzy because it can be looked at in different ways. There is a World Bank definition which says that anyone who earns less than $1.90 a day is poor. This would mean roughly ₹160 a day per head or ₹640 for a family of four. Considering that the MGNREGA wage is in a range of ₹221-357/day across States, which is given to one member of a household, this would be inadequate for a family.
There used to be a definition based on calories consumed, which could range from 2,100-2,400 per day for an individual based on residence in rural/urban areas. This was translated into monetary value using price deflators by the Planning Commission, which in 2014 arrived at a figure of ₹47 and ₹32 a day for urban and rural population, respectively, at 2011-12 prices. Since then there has been no official norm.
A criticism often levelled is that using calories or even nutrition to gauge poverty is inappropriate as one cannot live with just food and hence basic needs have to also be included when reckoning the same. This is pertinent because even if free rice/wheat is given, a person can be poor as one requires other ingredients for cooking as well as fuel, a house, etc. Also, to move out of this state of dependence, one requires minimum education to be in a position to get a job. Therefore, a larger definition is required.
This is where the multi-dimensional poverty index is relevant. Here the UNDP-OPHI (Oxford Poverty and Human Development Initiative) and NITI Aayog Surveys provide insights. Both the reports were released in the last few months and the latest period for which data is given is 2019-21. The former puts the poverty headcount at 16.4 per cent and NITI Aayog puts it at 15 per cent. The two studies make a comparison over time to show that the number of poor has come down sharply and that the proportion of population that comes under the category is low, at 15-16.5 per cent. However, anomalies surface when one looks at the different parameters that are listed under the multi-dimensional poverty index.
Ideally, the two should be synchronised, as the NITI Aayog report has these two agencies as collaborators. Yet there are differences with UNDP-OPHI having higher deprivation rates for most of them. For example, the proportion of population deprived of housing is 12 per cent for NITI Aayog against 13.6 per cent for UNDP-OPHI. Those deprived of fuel is 12.3 per cent against 13.9 per cent, water 2.2 per cent (2.7 per cent), electricity 1.8 per cent (2.1 per cent), sanitation 9.3 per cent (11.3 per cent), and so on. Their definitions for each parameter however tend to be congruent.
There is also the Global Hunger Report which was criticised quite harshly as it showed something quite different. India was ranked low down at 107, with the proportion of population being undernourished being 16.3 per cent as against 11.8 per cent by UNDP-Oxford and 11.9 per cent by NITI Aayog (criteria would vary based on internal definitions). The HDI showed 19.3 per cent of children being wasted (thin) and 35.5 per cent stunted (short).
Meanwhile, during the pandemic the government provided over 800 million people with free food on grounds of them being poor. This would mean that while the families may not have been poor in the multi-dimensional criteria, there was an aggressive policy adopted to ensure that every poor household had access to not just rice and wheat but also pulses. This means that the number of needy was still very high.
Now if these two points are combined — that is, 800 million people being needy and the fact that there has been a sharp improvement in access to fuel, electricity, water, sanitation, etc., due to various successful government policies — two implications emerge.
The first is that a lot has been accomplished by virtue of the government taking on the role of a welfare state. This is essential because waiting for individuals to have the ability to fend for themselves would have taken a long time. Therefore, providing free toilets, water, electricity, subsidised housing loans, etc., is essential for an economy like ours. The complexion of the budgets changes as they have to address these issues at both the Central and State levels. In the absence of such expenses which are also loosely called ‘freebies’ by the elites, conditions would have been adverse.
The second is that if we are to move away from this culture of freebies and subsidies there is need to create more jobs which can be done only in the private sector. For this to happen growth has to be sustained at high rates of 8 per cent plus for a prolonged period of time.
Expenditure of States
Against this background, the recent paper brought out by the RBI on expenditure of States needs to be viewed. While higher capex does have backward linkages as it creates demand for various industries, it is a slow process as has been seen.
Higher development expenditure, which includes economic, social and general services, has its set of conundrums. Higher expenditure on education and health would have salaries and pensions as a major component. The same holds for general expenditure which has allocations for law and order. Therefore, while it is commonplace to focus on the expenditure from the point of view of growth and fiscal discipline, the harsh fact is that without such freebies it may be difficult to keep a large part of the population in the non-poor echelon.
Ever since we have followed the FRBM (Fiscal Responsibility and Budget Management) norms of fiscal deficit being kept at 3 per cent for States (with relaxations over time based on the circumstances) and debt-GDP ratio at less than 25 per cent, the issue of quality of expenditure has been at the forefront. This has meant that ‘freebies’ have been scorned at. But given the level of deprivation in an emerging market, ‘freebies’ form an important form of redistribution. This can be in the form of free food which comes from the Centre or a NREGA scheme which provides sustenance to farmers. There are the myriads of State schemes on health and education which include the mid-day meal scheme which provides basic nutrition to the poor.
Hence ,the ideal situation is one where the State should focus on capex and improve the quality of expenditure. A balance has to be struck with supporting the poor with subsidies and ‘freebies’. The State governments also find it politically expedient to give free power to all or free transport for women on their transport services. A way out can be to cap all such expenses so that a balance is struck and States don’t go overboard.
The writer is Chief Economist, Bank of Baroda. Views are personal