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Misinterpretation of poverty numbers

The National Commission for Enterprises in the Unorganized Sector didn’t start it,but it was responsible for a factoid being quoted widely. “At the end of 2004-05,about 836 million or 77 per cent of the population was living below Rs 20 per day.”

Written by Bibek Debroy | New Delhi |
April 29, 2009 4:00:21 pm

The National Commission for Enterprises in the Unorganized Sector didn’t start it,but it was responsible for a factoid being quoted widely. “At the end of 2004-05,about 836 million or 77 per cent of the population was living below Rs 20 per day.”

This is from the Commission’s report on the unorganized sector,and uses data from the last NSS large sample,that is,2004-05. Alternatively,from UNDP’s Human Development Report,80.4% of the Indian population lives below $2 a day. This HDR figure is for 1990 to 2005,not for 2004-05 alone.

Essentially,across all such reports,the data source is identical,household surveys through NSS. What differs is the poverty line — indigenous,$1 per day,$1.25 per day,$2 per day,$2.50 per day and so on.

Now,there are issues of NSS data being on consumer expenditure,not income,and gaps between aggregate consumption expenditure obtained through household surveys and through national accounts. Leaving those issues aside,whenever people quote figures citing 75% (or whatever the number is) of India’s population is below $2 per day,the suggestion is that this is obscene and is a distribution issue. How can India be shining if 75% is living below $2 a day,an internationally accepted poverty line?

Let’s pause for a moment to reflect. $2 a day means $720 a year per capita. Ignoring the PPP (purchasing power parity conversion issue),India’s per capita income is now around $1,000 a year. This is income,while $720 is annual per capita consumption expenditure.

The point is simple. This is not a distribution issue at all,as it is commonly projected to be.

Let’s suppose income is equally distributed,so that everyone has the same income. Then per capita per day,$1,000 a year will mean $2.73,perilously close to poverty levels. There certainly is a poverty issue,but that’s a low productivity issue. Per capita income is nothing but average productivity of a country,for its working age population.

Yes,there is a subsidy issue for those who are old and disabled. But for those who are at a working age,the problem is low productivity and low-quality employment,compounded by low work-participation rates for women. High productivity requires transition to better quality employment,and that requires state intervention.

However,state intervention doesn’t mean simplistic transfers from rich to poor.

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