Shall we rejoice poor economics?
30 July 2013 8:43 PM GMT
Politicians have a way of trivialising even the most serious issues. Immediately after the latest estimate of poverty was released by the government earlier this week, tongues started wagging not about the major insights thrown up by the figures but about how much was needed to buy a meal in different parts of the country. The buyers were the politicians, who, by all admission, would never take a meal that they claimed were available for Rs 5 or Rs 15.
However, clamour started and the one-upmanship went out of control. In the end, it turned out to be a ridiculous show of ignorance.
The estimates showed that the number of poor in the country was going down, whatever measure was adopted for it. At the current threshold income levels of Rs 4,080 per month in rural and Rs 5,000 in urban areas, 22 per cent of India’s population were poor. That is, 22 per cent of the population had income lower than these levels. On the same measure, 37 per cent of population was under this level of income in 2004-05. That is something to rejoice.
But in absolute numbers, close to 300 million people, out of a population of over 1.2 billion, still remain below poverty line today.
Thus, that is something to worry about. The question is how to lift them out of poverty as fast as possible. It is for the sake of finding the policy actions for faster poverty alleviation that we must study the poverty trends and relate these to various policy measures and broad developments in the economy.
The presumption is that faster growth leads to faster poverty eradication. But is that so? Economists have raised objections over such a view. They point out that if growth results in disproportionate growth of wealth in the hands of the few, then fruits of growth will not percolate down to alleviate poverty. Fewer people at the bottom rung will get more income and thus fewer will emerge out of the poverty trap.
These groups of economists would argue for state intervention in redistribution or social sector dole-outs to bridge the gap between those who are below poverty line and those above. India has been following such a course of action for decades since Independence. The results have been that poverty had turned out to be stubborn and fell marginally.
On the other hand, faster growth in the last decade has been found to have coincided with faster pace of poverty alleviation. Poverty numbers have shrunk the fastest in the years when India has grown fastest at above 8.5 per cent to 9 per cent in the years between 2003-04 and 2010-11. If this is not mere coincidence and we find a real link between the two, then the surest way of poverty eradication will be by encouraging overall growth of the economy than by handing out doles to the poor through government sponsored schemes.
In fact, the controversy over poverty should have been around these issues rather than whether Rs 5 can buy a meal or not. The strategy for poverty eradication based on rigorous analysis of the cause and effect of different models of developments (namely, growth and poverty numbers or outlays on anti-poverty programmes like MNREGA and trends in poverty reduction) should be the subject for examination.
A related issue for examination could of course be whether the income threshold applied for poverty estimate are realistic. This is where the Rs 5 meal question becomes relevant. Not by politicians asserting what kind of meal available for what price, but by examining the methodology for computation of the income threshold. There has been some discussion and debate of this nature among economists though. But that remained limited to their esoteric circles.
So the issue is how do you arrive at an income figure for the poor man -- should it be set at levels where a poor man can just survive? A lot of such exercises have been done in India which gives valuable insights. Suresh Tendulkar’s work on these issues is well know internationally. The current income thresholds have been computed on the basis of the Tendulkar norms.
However, Tendulkar norms are not exactly at subsistence level. It also includes some other expenses like elementary education and healthcare.
Earlier than Tendulkar norms, Yoginder Alagh, a former member of Planning Commission, had also done work of this nature and his norms were earlier used for poverty estimation. Another eminent economist who had made major contribution towards this thinking was through a collaboration of Professors Dandekar and Rath. All these contributions were used at different times for computation of the income threshold for poverty estimates at different times.
It has to be however admitted that all these norms have now become outdated. We need to have fresh look at the basic minimum needs of a typical poor man and quantify that to become a meaningful cardinal number to be used for poverty calculation. Earlier the norms were based on calorie consumption. That is, on the basis of a minimal level of food consumption.
There could be sometimes ridiculous results from such an approach. Banana is considered best wholesome food. Thus, a human being taking a certain number of bananas can live fairly well and yet his food consumption bill should not add up to much. Such calculations based on international comparisons have been done by a young economist – Abhijit V Banerjee – who has become famous globally for his path-breaking work on poverty.
Obviously, someone, however poor, cannot be expected to survive on banana only. A balanced diet on the basis of calorie value of foods is taken as a measure for computing the minimal income required for a poor man. This is then aggregated for a family of five and then the family income is arrived at.
An approach of this kind has been adopted for fixing the income levels for poverty estimates in India. Now with development, we are demanding that food is not the only criteria, healthcare, sanitation, education and nature of dwelling houses should be factored in for poverty estimation.
That is good. The more you include in poverty calculation the higher would be the norms for calculation of poverty and therefore more people can be covered under anti-poverty programmes or government help. HowÂever, such an approach can backfire.
If you spread your net too far then you might not end up identifying and helping those who need help most. That is, if too many are categorised as poor and all of them get the same help then the poorest of the poor will get less attention. Therefore, the norms should not be put too high either to really attack poverty at its worst.
That brings us to the first point. Whatever norms you are adopting or whatever measures you are following, if you apply one single norm then poverty is falling. Secondly, it has fallen sharpest in the last one decade. There is something to rejoice there.
However, clamour started and the one-upmanship went out of control. In the end, it turned out to be a ridiculous show of ignorance.
The estimates showed that the number of poor in the country was going down, whatever measure was adopted for it. At the current threshold income levels of Rs 4,080 per month in rural and Rs 5,000 in urban areas, 22 per cent of India’s population were poor. That is, 22 per cent of the population had income lower than these levels. On the same measure, 37 per cent of population was under this level of income in 2004-05. That is something to rejoice.
But in absolute numbers, close to 300 million people, out of a population of over 1.2 billion, still remain below poverty line today.
Thus, that is something to worry about. The question is how to lift them out of poverty as fast as possible. It is for the sake of finding the policy actions for faster poverty alleviation that we must study the poverty trends and relate these to various policy measures and broad developments in the economy.
The presumption is that faster growth leads to faster poverty eradication. But is that so? Economists have raised objections over such a view. They point out that if growth results in disproportionate growth of wealth in the hands of the few, then fruits of growth will not percolate down to alleviate poverty. Fewer people at the bottom rung will get more income and thus fewer will emerge out of the poverty trap.
These groups of economists would argue for state intervention in redistribution or social sector dole-outs to bridge the gap between those who are below poverty line and those above. India has been following such a course of action for decades since Independence. The results have been that poverty had turned out to be stubborn and fell marginally.
On the other hand, faster growth in the last decade has been found to have coincided with faster pace of poverty alleviation. Poverty numbers have shrunk the fastest in the years when India has grown fastest at above 8.5 per cent to 9 per cent in the years between 2003-04 and 2010-11. If this is not mere coincidence and we find a real link between the two, then the surest way of poverty eradication will be by encouraging overall growth of the economy than by handing out doles to the poor through government sponsored schemes.
In fact, the controversy over poverty should have been around these issues rather than whether Rs 5 can buy a meal or not. The strategy for poverty eradication based on rigorous analysis of the cause and effect of different models of developments (namely, growth and poverty numbers or outlays on anti-poverty programmes like MNREGA and trends in poverty reduction) should be the subject for examination.
A related issue for examination could of course be whether the income threshold applied for poverty estimate are realistic. This is where the Rs 5 meal question becomes relevant. Not by politicians asserting what kind of meal available for what price, but by examining the methodology for computation of the income threshold. There has been some discussion and debate of this nature among economists though. But that remained limited to their esoteric circles.
So the issue is how do you arrive at an income figure for the poor man -- should it be set at levels where a poor man can just survive? A lot of such exercises have been done in India which gives valuable insights. Suresh Tendulkar’s work on these issues is well know internationally. The current income thresholds have been computed on the basis of the Tendulkar norms.
However, Tendulkar norms are not exactly at subsistence level. It also includes some other expenses like elementary education and healthcare.
Earlier than Tendulkar norms, Yoginder Alagh, a former member of Planning Commission, had also done work of this nature and his norms were earlier used for poverty estimation. Another eminent economist who had made major contribution towards this thinking was through a collaboration of Professors Dandekar and Rath. All these contributions were used at different times for computation of the income threshold for poverty estimates at different times.
It has to be however admitted that all these norms have now become outdated. We need to have fresh look at the basic minimum needs of a typical poor man and quantify that to become a meaningful cardinal number to be used for poverty calculation. Earlier the norms were based on calorie consumption. That is, on the basis of a minimal level of food consumption.
There could be sometimes ridiculous results from such an approach. Banana is considered best wholesome food. Thus, a human being taking a certain number of bananas can live fairly well and yet his food consumption bill should not add up to much. Such calculations based on international comparisons have been done by a young economist – Abhijit V Banerjee – who has become famous globally for his path-breaking work on poverty.
Obviously, someone, however poor, cannot be expected to survive on banana only. A balanced diet on the basis of calorie value of foods is taken as a measure for computing the minimal income required for a poor man. This is then aggregated for a family of five and then the family income is arrived at.
An approach of this kind has been adopted for fixing the income levels for poverty estimates in India. Now with development, we are demanding that food is not the only criteria, healthcare, sanitation, education and nature of dwelling houses should be factored in for poverty estimation.
That is good. The more you include in poverty calculation the higher would be the norms for calculation of poverty and therefore more people can be covered under anti-poverty programmes or government help. HowÂever, such an approach can backfire.
If you spread your net too far then you might not end up identifying and helping those who need help most. That is, if too many are categorised as poor and all of them get the same help then the poorest of the poor will get less attention. Therefore, the norms should not be put too high either to really attack poverty at its worst.
That brings us to the first point. Whatever norms you are adopting or whatever measures you are following, if you apply one single norm then poverty is falling. Secondly, it has fallen sharpest in the last one decade. There is something to rejoice there.
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