How does India estimate its poor?

The purpose of this one is not to take any sides in the ongoing debate over the (ill) famed Rs. 26 (and subsequently lowered to 22 point something) poverty line. I just intend here to present in simple words the poverty estimation procedure in India to everybody so that (s)he can form an informed opinion on the matter.

Since professor Ahluwalia has time and again tried to deflect the blame on late professor Tendulkar (who recommended the current poverty line) I think the most appropriate place to begin would be the Tendulkar Poverty Line. Then we will briefly go into its merits and demerits.

How did Tendulkar come up with that Rs. 26 line?

Ok, initially in India the poverty line was 2400 kcal (kilo calories – a measure of energy) in rural areas and 2200 kcal in urban areas. This means that if your expenditure is such that you buy enough food which gives you more than this amount of calories, you are not poor. They have a list of amount of calories one kg of rice, wheat, bajra etc. gives. An agency called NSSO conducts surveys (every 5 years) in which they ask people how much they spent and on what (in last ‘few’ days). From this data you can find out how many people were able to buy that minimum nutrition or more and those who couldn’t are your poor. So (roughly) what Planning Commission did was it took 1973-74 NSSO data, arranged the expenditure (from lowest to highest), took the cutoff which met the 2400 kcal criteria and saw what items the person consumed. The basket of these items became the Poverty Line Basket (PLB) and it remained the same till Prof Tendulkar.

Now comes Prof. Tendulkar. Following is what he did:

1. Change in poverty line basket (PLB): He said (perhaps rightly) that the Poverty Line Basket is too old. While economy has grown, the consumption basket of poor has remained unchanged from 1973-74! So let us use the basket as revealed by the 2004-05 data (this was the year of the latest survey Prof. Tendulkar had).

2. Departure from calorie based poverty line: Then he argued that the nutritional status based on NSSO data set didn’t correlate well with the nutritional outcomes of more specialized surveys (for instance if the malnutrition survey reveals that 42% population is suffering from malnutrition then logically they ought to be poor so NSSO data should capture them as poor. But it didn’t.). Also the new consumption basket of poor in 2004-05 was no more dominated by food items. It includes manufactured goods, education, fuel, rent etc. as well. So calorie approach is not suitable. (Now comes the most controversial part!)

3. Continuity with earlier poverty line: He makes a subjective decision and says, “There was lot of controversy over rural poverty line of 2004-05 (which was given by the earlier method). But there was less controversy over urban poverty line. So in the new approach, I am going to keep the urban poverty line same and change only the rural line accordingly.” This means that if earlier urban poverty line said 25.7% of urban people were poor, the new line would also keep 25.7% of urban people as poor. But note the Poverty Line Baskets have changed (earlier line used 1973-74 basket and the new line uses 2004-05 basket). We already have the basket for 1973-74. We need to find out the corresponding basket for 2004-05 which leaves 25.7% urban people as poor. The committee decided to arrange expenditure data (of 2004-05) of urban consumers in ascending order and found the basket which corresponded to 25.7% poor. Thus urban poverty was kept same. Next, for rural poverty, the same urban basket (2004-05) was used since it was believed that urban consumption basket is superior to the rural basket (i.e. urbanites consume more lavishly than rural people) .

4. Updating poverty line after 2004-05: In the years when NSSO conducts the survey again (2009-10, 2014-15, 2019-20) prices per unit can be calculated from NSSO data itself (it contains total quantity consumed as well as total expenditure on it. So divide them to get unit prices). Such prices can be applied on same basket to arrive at new poverty lines. In years when there is no NSSO data, use disaggregated inflation indices (if lets say inflation index tells us wheat prices have gone up by 10% and weight of wheat in poverty line basket (not the inflation index basket!) was 50% then multiply 10% by 50%).

Why what Prof. Tendulkar did was not all bad?

1. We have a Public Distribution System (PDS): Rs. 26 sounds ridiculous, can’t deny that. I don’t know probably it can’t even buy 1 kg of wheat (apologies, I really don’t know and I may be ridiculously wrong here)? Prof. Ahluwalia is supposed to know it however and its his duty not to make such ridiculous mistakes. But wait… what if the poor get wheat at Rs. 2 per kg, what if their children study in a school which charges only Rs. 10 per month and what if the fuel they use is not the Rs. 361 per cylinder LPG but is free of cost wood or Rs. 2 per litre kerosene? If that is so, their expenditure data itself will show lower expenses! (He will say I spent Rs. 20 per on wheat, Rs. 5 on sugar, Rs. 15 on fuel per month and was able to buy enough food to give me 2400 kcal. I am not poor.) In India PDS gives cheap stuff and if 25.7% of urbanites make use of PDS, their expenditure will rank as the lowest 25.7% and the poverty line so fixed will be (ridiculously according to most of us) low – no one can deny it. Perfectly acceptable, can’t blame Prof. Tendulkar or Prof. Ahluwalia. Where is the problem? We will cover in the next section.

2. If its low its not his fault: I can’t think of any way Prof. Tendulkar tried to lower the poverty line. One (livable) argument I can think – he used same urban and rural poverty baskets, urban baskets may contain stuff like fuel and rent which is free of cost in villages and hence village poverty line may come lower. But remember he decided to keep the number of urban poor as same from earlier poverty line? So this means that if the earlier poverty line underestimated poverty than that error would be propagated in Prof. Tendulkar’s line as well. So while one can’t fault him for “keeping the line so low” one can definitely fault him for not using the opportunity to correct “all errors” in the earlier line. (I haven’t been able to go through the earlier methodologies so far, if anything interesting comes up will post it here.)

3. As a sanity check, Prof. Tendulkar worked out hoe many calories these new lines correspond to? He found its 1776 kcal in urban areas which is close to what Food and Agriculture Organization (UNO agency) has recommended for India (1770 kcal). So its ok.

What were the bad things Prof. Tendulkar did?

1. Question of how to account for cheap PDS stuff: As we discussed earlier that if lets say the state is giving cheap food then expenditure data for people who are covered will show that a lower expenditure is sufficient to get adequate nutrition. But this is very harsh on people who get excluded! Because they don’t buy wheat @ Rs. 2 per kg, they have to buy it @ Rs. 26 per kg (?). Given the state of errors and corruption in public distribution system, this error is a serious error.
2. Change in baskets / consumption patterns: Prof. Tendulkar said if people are consuming less food in 2004-05 then we should respect their choice. Fine, but a part of this change is non voluntary as disguised employment and unemployment will lead to less demand for calories. But the less calorie intake in such a situation doesn’t reduce the poverty!

3. FAO argument: I personally think FAO argument was most ridiculous (close to a fraud). FAO norms he mentioned correspond to that of sedentary work for a 50 kg man and a 45 kg woman. Poor don’t do sedentary work (meaning office work – sitting idle). If instead we take norms for moderate work it is some 500 kcal higher and if we take heavy work it is 1200 kcal higher. For a 60 kg man doing moderate work average requirement is 2800 kcal and for heavy work it is 3500 kcal (according to FAO only). Poor people lift loads they don’t type on a computer.

Hope the above helps!