It is now official. It has the imprimatur of both the Planning Commission chairman,Montek Ahluwalia,and the lead poverty member in the Commission,Abhijit Sen: India has a new Hindu constant.
For the last almost 30 years (January 1983 to July 2010),it hasnt mattered which political party was in power,or which economic reforms or growth had taken place,or whether there was a drought or a bountiful year,or whether there were economists or ideologues in the Planning Commission. It also did not matter that you raised or lowered the poverty line,or how much grain rotted in the godowns. It also has not mattered whether Indians were killing less or more girls before they were born.
It also has not mattered how much money was being spent to alleviate poverty,or whether anti-poverty programs existed,or how many new ones remained to be invented. It has not mattered whether the economy grew at 4 per cent per annum,or 6 per cent,or 9 per cent. What is this constant even more remarkable than gravity? It is the rate at which the head count ratio of poverty declines in India 1,yes only 1,percentage point decline in poverty per year. (Corresponding to this is a related constant average real per capita expenditure grows at 1.4 per cent per annum.)
Somebody should take credit for the discovery of this most constant of constants. I will call it the Hindu constant,Mark II. As some of you might recall,Raj Krishna discovered that for the three decades post independence,the Indian economy grew at an average rate of 3.5 per cent per annum the Hindu constant Mark I. But this average varied with the weather,exports,and other economic variables. What is remarkable about the poverty constant is that it does not vary with anything.
Stated differently,I want to assert that my constant is much more of a constant than Raj Krishnas. It is as constant as the Northern star/ Of whose true-fixd and resting quality/ There is no fellow in the firmament. The constancy of the Northern star is given to us by God and Shakespeare. The poverty constant is given to us by woman the world wide constituency of those interested in keeping poverty high for the country while profiting from its apparent lack of demise. The poverty constant is mandated to stay constant; how this mandate is carried out is conjectured upon below.
Pick a time-period over the last 30 years,pick a poverty line,the result stays the same. In 1983,there were 59 per cent and 43 per cent poor (new Tendulkar and old poverty line,respectively). The Abhijit Sen computations just out for 2009/10 32 per cent poor according to the new line,and 16 per cent poor,old line. The latter number has not been released,presumably because the Indian government does not want to achieve the Millennium Development Goals some six years before the official date of 2015. In 2004-05,the poverty numbers were 37 and 22 per cent,respectively. So 30 years or 5 years,the mandarins say the same only 1 percentage point poor decline per year. Period.
How is the execution of the poverty constant carried out? It is seemingly complicated,but ever so simple. In order to understand the enormity of the constant (or the statistical jugglery?) one needs to recap the method of computation of the head count ratio of poverty.
Every five years,the prestigious National Sample Survey Organisation (NSSO) of India conducts a survey of some 125,000 households. Expenditures on each item are recorded separately. Few survey organisations still obtain an estimate of household expenditure on salt. But the NSSO feels it owes to the salt history of India to keep recording it till eternity or till it is 1/100,000th of consumption expenditure for the poorest,whichever comes later.
The varied households live in varied states,in urban and rural areas,undergo radically different rates of growth of jobs and income,and face different prices of goods. The Planning Commission computes a poverty line for each state and subdivision,adjusting for the differential rates of inflation.
Detailed expenditures are gathered from each household; detailed price indices are computed; detailed weights are assigned. Yet,the end result is always,always,the same. Real expenditures grow by 1.4 per cent a year,and poverty declines by 1 percentage point a year. Why do the surveys?
Okay,okay,how is it done? By making sure that average consumption grows by only 1.4 per cent a year and adjustments around this number are made to keep the rate of poverty decline constant! Never mind the consequences in particular,as the table shows,Indian surveys are capturing less and less of average consumption as revealed by the national accounts. In the world history of gathering consumption data,the new Indian low record of 43 per cent has only been exceeded twice Philippines in 1990 (38.1 per cent) and Indonesia (36.8 per cent) in the hyper inflation year of 1999.
These records have effects on estimates of the pace of poverty decline. Note that nominal expenditures grew by only 13 per cent between 2007-08 and 2009-10. Given inflation of about 20 per cent between the two years,this means that according to the NSSO (and the Planning Commission) real average expenditures (not just the 30 per cent poor but the 70 per cent non-poor as well) declined by 7 per cent.
Let me repeat: real average consumption which accounts for 65 per cent of the economy,declined by 7 per cent in just two years,2008-09 and 2009-10. This is a larger decline than ever recorded in peacetime in any country post-World War II,and higher than the average rate of decline in the Great Depression! But dont tell the NSSO,or the Planning Commission,or Dr Abhijit Sen that.
The writer is chairman of Oxus Investments,an emerging market advisory and fund management firm
