Tuesday, September 9, 2014

Today's Editorial 09 September 2014

   Can poverty ever be abolished?

Source: By Meghnad Desai: The Financial Express
The poor, as the Bible tells us, are always with us. Here we are 150 years since the Victorians discovered the problem of poverty, which, they believed, could be eliminated—we are still measuring poverty, urging ourselves to eradicate it and devising policies to do so effectively. India has had an ongoing National Sample Survey of family expenditure wherein there is a poverty level based on a calorific count standard (later augmented by Suresh Tendulkar) which gives us the head count of poverty. Yet every time the poverty standard is published in terms of rupees per capita per day, there is a storm in the media and people appear to be shocked at how low that number is. Despite careful and continuous measurement which tells us that the headcount may now be down to below 22%, people in public life resist the conclusion. Estimates of poverty rate in India can range from 22% up to 80% depending on whether you take Tendulkar (29.8% in 2009, 21.9% in 2013), World Bank (32.7% in 2009) or Arjun Sengupta (77%) as you’re measuring rod.

The World Bank tells us that if we fix $5 as our standard, then 96% will qualify as below the poverty line. In its recent report, the Asian Development Bank (ADB) concluded that poverty in Asia has been underestimated. The real poverty line, according to the report, is not $1.25 PPP but $1.51 PPP, which takes the poverty rate from 20.7% to 30.5% for 2010. If you give more weightage to food as against non-food prices while constructing the poverty line, there are extra 141 million poor. If you adjust the poverty standard for vulnerability, you add another 11.9 percentage points and 418 million. Adding all these factors, Asia’s poverty rate goes up to 49.5%—1.75 billion people. The poverty line is income-elastic; as per capita income rises, so does the poverty line. In any society, where the poverty line is income-elastic, it would be difficult to reduce the poverty count, much less abolish poverty altogether.

It may also be argued that the issue here is not that of poverty but of inequality. A society with a lower degree of income inequality may end up with a lower headcount than another even at the same per capita income. Indeed, the European Union defines poverty in terms of people below 60% of median income and extremely poor if below 40%.

The non-abolition of poverty is not bad news. It is good news because it reflects our ambition that the poorest among us get a growth dividend as we do who are above the poverty line. Maybe we should track the poverty numbers under each generation’s definition going back to what we wanted to achieve in the previous generation. We can then ask whether we have succeeded not by our standards but by the last generation’s. It may be (and I am only guessing) that by the Dandekar/Rath standard of R15 per month per capita as of 1971, poverty headcount is less than 10%.

Even so, a sharp upward revision as the one proposed by the ADB in its latest report is disconcerting. Has poverty gone up in Asia over the last two or three decades of historically high growth rate or has only our poverty line? Should the ADB not have asked the question I put above in reverse? Was poverty in Asia higher on the triple standard now introduced—basic plus higher weightage for food prices plus an insistence on low vulnerability—50 years ago than it is now?

The ADB standard then says in terms of the original Roosevelt norm that for a household to be classified as non-poor it must have a level of income/expenditure high enough to accommodate all shocks (the ADB press release lists “natural disasters, financial crises, illness or other negative shocks”) which can be reasonably anticipated. To define the poverty level as the ADB wants to do, imply that to be non-poor, an individual or a family or a household must have a permanent income above a certain level defined by consumption needs under all possible conditions of uncertainty.

Another way to put it is that the ADB finds the median income as the poverty line since half the Asia’s population is below it. If that is the case, perhaps the ADB should move to median income as the cut-off line of poverty as of now just as the European Union sets 60% of median income as its benchmark. But is it reasonable to set the poverty standard which is something of a minimum at that level?

The problem of measuring poverty must not become an obstacle in doing something about it. If we had sustained growth of employment for the millions trapped in low productivity jobs, we could get them a livelihood which will protect them from poverty. That is all we need.


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