Opinion The poor we shall always have with us?

A poverty line serves various purposes,but the most important is to define the haves and the have-nots in terms of government redistributive programmes. The government taxes the rich in order to develop infrastructure (including health and education),pay for defence and law and order,and redistribute to the poor and needy. The poverty line is a convenient way to identify the beneficiaries of government redistributive programmes. More than convenient,it is necessary to reduce (and avoid) corruption in the administration of these programmes.

But no indicator,or poverty line,can be perfect. There will be two types of errors — the poverty line may not identify someone who is “genuinely” poor (genuine as defined say by the present masters of the definition of the poor — the NAC,Aruna Roy,and so on),and the poverty line may identify someone as poor when that person is manifestly not poor. Policymakers around the world,for a century if not more,have recognised that these leakages are present. In no country I know of has there been a debate on the magnitude of the poverty line after the line has been decided upon by the government. Before the line is constructed,there should be,and there is,a lot of debate. But never after — except in a country like India.

What does deserve intense discussion is the meaning of the poverty line. Does the line capture a “minimum” standard of living? The way the line has been bandied about by the critics reveals more about these dignitaries than anything constructive about the best method of helping the poor. We,the fortunate us who are not poor,should remember that the poverty line construct is not meant to help us,or make us look more concerned about the poor than our neighbours. It is meant to help the poor,period. The poverty line should be meaningful,and not yield outrageous results. For example,the much-bandied-about poverty line constructed by the late Arjun Sengupta (and supported by the NAC) had 78 per cent of the Indian population as absolutely poor and deserving of government subsidies. No society has ever deemed it desirable to define the bottom 80 per cent as absolutely poor (not even in the Stone Age) but I guess there is no reason why India,and the NAC,cannot decide to be the first.

More sensible societies have figured out only two methods of defining the poor — either through an absolute poverty line like India,or a relative poverty line,that is,an income level which is some fraction of the median income level. The fraction that countries choose is a level that,given their distribution of income,yields a relative poverty level that is in the neighbourhood of 25 per cent of the population.

The World Bank also got into the act of defining absolute poverty in the 1970s,and has endeavoured to define a line that is comparable across societies and time. Its latest effort at an international poverty line is,when adjusted for purchasing power parity,$1.25 a day in 2005 prices. Translated to 2010,this poverty line for India is an average level of Rs 24 a day. In other words,the Indian poverty line is some 20-25 per cent higher than what the World Bank considers as the absolute poverty line.

Some more evidence that the Indian poverty line is a very reasonable poverty line,given India’s overall standard of living as indicated by the NSS surveys,is that it asserts that a third of the population is poor. More important is the ratio of consumption of the average non-poor to the poverty line as revealed by the NSS surveys. This average was just Rs 44 per person per day in rural areas and Rs 80 in urban areas in 2009-10. In urban areas,these average consumption levels include all the TV anchors,the entire Parliament,and obviously all the NAC members. Unless one is living in a pure dictatorship of the like the world has never seen (remember that inequality was more severe in communist regimes where the politburo members and their ilk slept peacefully while the masses went hungry),strict equality in consumption is neither desirable nor achievable.

As often stated in this space before,the NSS captures less than half of the “actual” consumption. It misses out a large part of the consumption of both the non-poor and the poor. Assume for a moment that the new socio-economic census authorised by the Congress government does a better job of tabulating consumption than that achieved by the NSS surveys (quite likely). Would the Congress,the NAC,and the BJP then accept that less than a third of the population is poor and that we should spend less on poverty removal? And that too in a major election year with UP elections as the major prize? Don’t count on it — honesty has never been a consideration for politicians,or in-the-name-of-the-poor intellectuals and practitioners.

The writer is chairman of Oxus Investments,an emerging market advisory and fund management firm