Editorials, Uncategorized

Is India Ready For A Universal Basic Income Scheme?

Even after three decades of sustained economic growth and a proliferation of welfare schemes, roughly one in three Indians still live below the poverty line, according to the last report on poverty estimates submitted by the Rangarajan committee in 2014. While those estimates have been questioned, the fact remains that there is little dispute over the fact that too many Indians remain trapped in poverty.

  • There are hundreds of poverty alleviation programmes in India, from housing to food, from maternity benefits and child-welfare to old-age support. However, these schemes are beset with problems that limit their effectiveness.

 

Some of the problems faced by these schemes include:

  • Problem of eligibility: There are always inclusion and exclusion errors. Often, those who should not be getting a benefit, get it (inclusion errors), while those who should be getting it, don’t get it (exclusion errors).
  • Leakage problem: Problem of leakage, wastage, and corruption in the delivery process also affect many welfare schemes.
  • Implementation problem: There is no uniformity in implementation across states. This eats up considerable manpower and resources.
  • Subsidies problem: Some of these schemes involve subsidies that benefit the non-poor relatively more, since they consume more of the relevant good or the service. Power subsidy is the best example for this.

 

The persistence of poverty and significant leakages in welfare schemes that aim to alleviate it has prompted many academics and policymakers to explore more efficient alternatives to India’s creaky and leaky welfare architecture. One of the suggestions has been to move towards a “universal basic income”.

 

Universal Basic Income:

The idea is already gaining currency in the developed world, as fears of automation and consequent job losses have spurred thinkers in the West to devise ways wherein all individuals would be guaranteed some income.

 

What is Basic Income?

A basic income is an income unconditionally granted to all on an individual basis, without means test or work requirement. It is a form of minimum income guarantee that differs from those that now exist in various European countries in three important ways:

  1. It is being paid to individuals rather than households;
  2. It is paid irrespective of any income from other sources;
  3. It is paid without requiring the performance of any work or the willingness to accept a job if offered.

 

Background:

Although it has gained popularity in recent years, the idea itself is several centuries old. One of the earliest proponents of some form of basic income was Spanish philosopher Johannes Ludovicus Vives, who proposed that the government should ensure the minimum level of subsistence for all, but only to those who showed willingness to work. Thus, Vives’s idea of a basic income was not unconditional.

  • Subsequently, many other philosophers explored variants of the idea of basic income, not necessarily always drawing inspiration from or building upon previous work.
  • Thomas Paine, one of the US’s founding fathers, argued that every person was entitled to an equal basic endowment because “the earth, in its natural, uncultivated state was the common property of the human race”.
  • However, this concept of equal endowment was, in his view, somewhat violated by the system of landed property. Therefore, property owners ought to contribute to a fund that could be redistributed to everybody, including the rich and the poor, Paine wrote.
  • Years later, British philosopher and mathematician Bertrand Russell, in his 1918 book Roads to Freedom. Socialism, Anarchism and Syndicalism, argued that “a certain small income, sufficient for necessaries” should be unconditionally provided to all.

 

The universal basic income, as it is understood today, has three distinguishing characteristics:

  • First, it is universal and not targeted. In the Indian context, this makes sense because of the less-than-satisfactory experience with targeting welfare services. Apart from the standard arguments against targeting—that it often excludes a lot of the deserving households from receiving subsidies, people often fall in and out of poverty and therefore it becomes difficult to ascertain who are rightfully entitled to receive such benefits. Thus, a “universal” programme would not only be more appropriate, it will also reduce the burden of the bureaucracy in so far as it is engaged in identifying the deserving beneficiaries of any targeted programme.
  • The second feature of any proposed universal basic income scheme is cash transfer in lieu of in-kind transfer. There are standard arguments in favour of cash transfers over in-kind transfers (food stamps or grains provided through the Public Distribution System) as they are supposed to be much less market-distorting than in-kind transfers.
  • The third distinguishing feature is that it is unconditional. Cash transfers are not tied to exhibiting certain behaviour, and the people are free to spend the cash as they want. An example of conditional in-kind transfer in India would be the mid-day meal scheme, where the meal—an in-kind transfer—is conditional upon attending school.

 

Thus, the universal basic income seeks to provide unconditional cash to every individual, or household, and the individuals would be free to use the cash as per their discretion and spend according to their own preferences. Thus, the movement for a universal basic income has attracted support from both the left and right ends of the political spectrum.

 

What are the main arguments against a universal basic income?

  • It would reduce the motivation for work and might encourage people to live off assured cash transfers.
  • It is simply unaffordable. As it is estimated paying a basic income equivalent to the poverty line, to each and every adult in India, would entail a cost of 11% of GDP, which is way above the 4.2% of GDP that the government currently spends on explicit subsidies. (Explicit subsidies mean the subsidy cost under the Public Distribution System, fertilizers, railways, electricity, sugar, LPG, kerosene and water).
  • It is also argued that unconditional cash transfers might raise wages due to the decline in the supply of casual labourers.
  • There is also question of whether a shift towards it should be a substitute for all existing subsidies or whether it should complement the existing ones.

 

In discussing the merits and demerits of the UBI or any other development policy, it is important to avoid some standard pitfalls.

  • First, all policies have some pros and cons, and so just picking a problem with or highlighting a nice feature of a particular policy is not good enough. That traps us in an elusive search for “win-win” policies. The focus should be on relative costs and benefits of different policies.
  • Second, one size does not fit all. We should be open to the possibility that different policies could work well in different contexts. Cash transfers only make sense if you have ready access to markets, which is not true if you live in remote rural areas in which we have to rely on in-kind transfers.
  • Third, there is no magic pill that will cure all problems. Different policies are needed to address different problems. So yes, a UBI or a cash transfer as envisaged by JAM or the MGNREGA will provide some relief to the poor, but will not provide a long-term solution to the problem of poverty. For that one needs investment in health, education, and skill-formation to enable the poor to take advantage of growth opportunities, and investing in infrastructure and regulatory conditions to facilitate private investment for employment generation.

 

Way ahead:

While some of the challenges of implementing a basic income can be met with the better use of technology and an expansion in banking services, the challenge of affordability remains. How far existing welfare schemes can be trimmed without hurting the poor, and how much public resources can be saved to implement the scheme remains an open question.

  • The required budgetary resources could be raised by trimming the implicit and explicit subsidies to the rich (often in the form of tax breaks or subsidies given to goods largely consumed by the relatively well-off), or by raising additional taxes by improving property tax collections (currently extremely low).

 

Conclusion:

Few regard UBI as a simple and potentially comprehensive antidote to poverty. It is also viewed as a means to demolish complex welfare bureaucracies while recognizing the need for some social transfer obligations in a way that doesn’t weaken incentives significantly

GS-2, Uncategorized

Poverty Line in India: Its Meaning, Concept and Evolution

It should be noted that ‘determination of poverty line’ and ‘identifications of poor/beneficiary’ are almost different things. Poverty line is (was) determined by Planning Commission on the basis of data provided by ‘National Sample Statistical Organization’ (NSSO). NSSO conducts a survey at 5 year interval of a mere sample to capture consumption patterns of various sections of society. It is taken care that sample size represents character of the Nation (or a state) as a whole. This gives us data about various classes of consumption in the sample size. (For e.g. say how many people out of sample size consume what food? how many calories/nutrients they get, what is there expenditure on food and nonfood items? What people eat most within food – cereals, pulses, fruits? What are the patterns? And so on). This is goldmine of information that planning commission seeks.

Planning Commission quantifies (in terms of money) Calorific/Nutritional needs for a basic minimum living by taking an ideal ‘poverty line basket’. This ideal basket includes food and nonfood items which are recommended by expert groups (among other things) which are constituted from time to time (NSSO job is only to collect data and patterns). So we’ll have a monetary figure (Rs16/25/32 etc.) which that expert panel considers benchmark ‘poverty line’. Then this poverty line is adopted by Planning Commission. For determination of this figure, reliance is obviously placed on data provided by NSSO.

Now we have, poverty line figure based on a minor sample and we need to determine number of poor in the country i.e. people whose consumption expenditure is below this poverty line. For this ratio of ‘poor to the total sample size’ is replicated on total population of the country. For e.g. If Survey Sample Size was of 200000 households and 50000 households are found to be consuming below the poverty line figure, then 25 % of total population of country will be considered below poverty line.

As we can see in given course of ‘determination of poverty line’ and estimation of ‘number of poor’ there is no identification of particular households. ‘Number of poor below poverty line’ in this sense is just a tool to measure effectiveness of government policies and make interstate, International or temporal comparisons. Other product of this exercise is ‘poverty line’ and it might be (or not) be used for actual identification of poor/beneficiaries.

Ministry of Rural Development is conducting BPL census for ‘Rural poor’ since 1992 on the basis on which rural poor are actually identified. In case of urban poor there no uniform mechanism in place and State governments/ UT admin. adopts their own methodology for identification. Having said this, relevance of identification on basis of poverty line is doubtful these days. It is widely accepted that poverty is multidimensional and different schemes of government should either be universal, or their beneficiaries should differ as per matter of scheme. For example MGNREGA is universal (now focus is on 250 backward districts). Food Security Act covers two-third population which is far more than BPL population. Indira Awas Yojna is for homeless (not for BPL), Sarva Shiksha Abhiyan or RTE are universal. However, many benefits from the government are still exclusively for BPL card holder such as free gas connection or kerosene oil.

Notwithstanding all this, poverty line and estimate of population will still be needed to measure and compare effect of policies of various national and state governments. Presumptions on which this line can be made are many and it is herculean task in continent type country like India. There is always fear of exclusion of deserving ones and inclusion of undeserving ones.

Poverty is a state of deprivation of people or society, in which they are not able to meet their basic needs such as food, clothing and shelter. In all this they have low capacity to deal with Socio-economic and environmental exigencies. This definition however can be contested for it doesn’t include education, healthcare and decent standard of living or dignified life. But it could be agreed upon that former are immediate needs and will be preferred by any deprived person. For e.g., India in initial decades after independence was severely short of food grains and that prompted government to invest in agriculture which resulted in green revolution. At that time investment in social infrastructure was negligible and now that India has achieved self-sufficiency, focus has shifted to Health and education.

There are many challenges in marking a poverty line, such as determining components of poverty line basket. There are price differentials (of constituents of basket) which vary from state to state and period to period. Further, consumption patterns, nutritional needs and prices of components keep on changing as per dynamics of macro economy and demography.

Let’s take up and discuss some issues relevant to poverty line –

Absolute poverty vs Relative poverty

Almost all underdeveloped and developing countries prefer targeting Absolute poverty. Under absolute poverty certain minimum basic standards of living are defined and people living below these standards are termed in policy as poor or below poverty line. This is done by determining a poverty line basket and calculating monetary figure of that basket (as in India), which varies across countries.

In contrast relative poverty is measured in relation to rich people of the country. In this method certain percentage of economically bottom population is always considered below poverty line. In these countries BPL people may have all basic amenities and reasonable standard of living, but as their incomes are far below national per capita income they get support of government.

Argument that India should focus on absolute poverty need no further elaboration, given such low consumption of vast part of population which NSSO and various other studies reveal.

Poverty line basket

Determining composition of the basket is among most debated part of the issue. To make a living people consume innumerable items. Apart from food; housing, fuel, health, education, communication, conveyance, entertainment/recreations are the things which are important. But whether they should be included or not, if so their weights in basket, whether health should get preference over housing, or whether reasonable expenditure on recreation be included in basket etc. are toughest questions to be answered. Problem is that these are qualitative aspects, which are needed to be quantified.

Further, consumption varies as per age groups, occupation, regions, cultures and gender. This variation is hard to capture.

Over the last decade consumption by Indians has risen constantly and share of food in total consumption has fallen. Also, within food share of calorie rich cereals have fallen and Share of proteins, fat, nutrient rich items like pulses, milk, fruit has risen.

Historically focus of India’s poverty like basket policy has been on consumption of calories which was first adopted in 1970’s on recommendation Algah committee. It was believed that 2400 kcal in rural areas and 2100 Kcal in urban areas was sufficient to give good nutritious health to citizens. In this sense, number or percentage of people below poverty line and those of under or malnutritioned people, should be roughly same. But it is known that undernutrition is more rampant and widespread than poverty and outscores ratio of BPL people by huge margin. This forced our policy makers to look for other determinants of nutritional status and they found that pre natal/birth health of mother, post natal care of babies, Sanitation, open defecation, health and educational infrastructure has decisive impact on nutritional status of people. Lack (or presence) of many these things has pushed significant number of people towards undernutrition, even when they consumed more than needed calories. These issues were taken into account by Tendulkar committee to some extent. (More on this later)

Reference period

During the survey NSSO workers will ask certain questions to households. Period covered by these questions is called reference period. Care has to be taken that this period is representative of general pattern of consumption. If we take ‘Poverty line Basket’ it will cover food and nonfood items. In case of food, expenditure is routine and a month’s consumption can give us data which represents general pattern. If we take consumption pattern of Nonfood item such as clothes or footwear, we find that in a normal household, these are once or twice in year expenditure. If we take reference period 30 days for these products we’ll find in majority of household no expenditure at all. So reference period should be different for different category of items.

Income based poverty line vs consumption based poverty line

We have seen that NSSO captures consumption expenditure which used by Planning commission to determine poverty line. An alternative way of calculation of poverty line can be one based on Income of the population. But till now all committees have favored consumption based poverty line due to following factors –

  1. Huge majority of population has irregular income, most of them are in informal sector which consists of self-employed people, daily wage laborers etc. Income of this group is highly variable both temporally and spatially, while consumption pattern are comparatively much stable.
  2. Even in case of regular wage earners, there are additional side incomes in many cases, which is difficult to take into account.
  3. For e.g. MGNREGA provides employment for about 100 days, for rest of the time too people will earn something.
  4. NSSO’s sample based surveys use a ‘reference period’ (say 30 days). They will ask households under survey about their consumption in last 30 days. This they will take a representative of general consumption of that household. This is not possible in case of income.

So we can conclude that in absence of reliable data Income based approach can’t be relied upon.

Now we’ll see evolution of poverty line in India in Its current form. A working/expert group recommends a particular poverty line which attracts intense debate and criticism. After this new Expert group is appointed. This group has to convert results of past years by the previous methodologies into those by new methodologies, sometimes using old base year, as per data available with NSSO. This is essential so as to make poverty line and population BPL comparable. This is a bit confusing as there is no consistency and new data keep coming. We just need to have basic idea of evolution and most of the figures or data can be ignored. It is given just for an idea of patterns.

One of the earliest estimations of poverty was done by Dadabhai Naoroji in his book, ‘Poverty and the Un-British Rule in India’.  He formulated a poverty line ranging from Rs 16 to Rs 35 per capita per year, based on 1867-68 prices.  The poverty line proposed by him was based on the cost of a ‘subsistence diet’ consisting of ‘rice or flour, dhal, mutton, vegetables, ghee, vegetable oil and salt’.

Next, in 1938, the National Planning Committee (NPC) estimated a poverty line ranging from Rs 15 to Rs 20 per capita per month.  Like the earlier method, the NPC also formulated its poverty line based on ‘a minimum standard of living perspective in which nutritional requirements are implicit’.  In 1944, the authors of the ‘Bombay Plan’ suggested a poverty line of Rs 75 per capita per year.

Working Group of planning commission, 1962

This was first crated by planning commission to determine desirable minimum level of expenditure required to make a living.

  1. Recommended ‘national minimum consumption expenditure’ for a household of 5

    Rural – Rs 100/ month (Rs 20/ Person)

    Urban – Rs 125/ month (Rs 25/ Person)

  2. It excluded Health and educational expenditure on assuming that it is provided by state.
  3. Used recommendation on ‘Balanced diet’ by Indian council of Medical Research.

Task force of 1979, under Algah

Poverty line of 1962 was used during 1960’s and 1970’s at both National and state level. But it attracted intense debate for its low figures. In response taskforce under Dr. Y.K. Algah was created to revisit poverty line.

  1. Average calorie requirements‘ were estimated, separately for the
    all -India rural and urban areas on the recommendation of Nutrition Expert Group. This resulted in different ‘Poverty line basket’ for urban and rural areas. The estimated calorie norm was 2400 kcal per capita per day in rural areas and 2100 kcal per capita per day in urban areas.
  2. Now these calorie requirements needs some ‘monetary value’ which can be determined by ascertaining ‘quantity’ of consumption and ‘prices/value’ of that quantity. Data relating to quantity and value was provided by NSSO survey.
  3. It was estimated that, on an average, consumer expenditure (food and non-food) of Rs.49.09 per capita per month was associated with a calorie intake of 2400 per capita per day in rural areas and Rs.56.64 per capita per month with a calorie intake of 2100 per day in urban areas. This ‘Monthly Per Capita Expenditure’ was termed as poverty line. This poverty line was used for upcoming years after
    adjusting for rise in prices.

     

    (Please note that till now difference was mode only in Rural and Urban poverty line and there are only All India rural and urban poverty lines. But next Expert Group will recommend ‘state specific poverty line’)

Expert group 1993 (Lakdawala)

This panel didn’t redefine poverty line and retained mechanism defined by Algah expert group.

  1. Instead it disaggregated ‘All India poverty line’ to ‘State specific Poverty Line’ (using Fisher index) for base year 1973-74.
  2. For latter periods these ‘Rural and Urban Poverty lines of states’ were updated by taking into account

    a)’Consumer Price Index- Agricultural Labor’ for ‘Rural state specific poverty line ‘ and

    b)’CPI- Industrial workers’ for ‘Urban state specific poverty line’.

  3. Then All India poverty Ratio (rural and urban) was derived through ‘population based weighted average’ of poverty ratios of various states.

Hence ‘poverty line’ of India is converted in to ‘state poverty lines’ while ‘poverty ratios’ of states were aggregated to ‘All India poverty ratio’

Note- Poverty line is based on consumption expenditure which gets affected by Inflation. So, for latter years poverty lines are increased using CPI-AL/IW. They won’t calculate new poverty line every year. (CPI-AL doesn’t include housing component, but CPI-IW includes it.)

Group was able to give State Specific poverty lines of only 18 states as in other states adequate data was not available. For these (remaining) states poverty line was determined by equating them with one of the 18 states on basis of Physical Contiguity and similarity of economic profile of those states.

This Mechanism was adopted by planning commission and was used till 2011, when recommendations of Tendulkar expert group were adopted.

Expert Group 2005 (Tendulkar)

Largely it adopted same poverty line (Lakdawala) and major departures were –

  1. It adopted ‘Mixed Reference Period‘ in place of ‘Uniform reference period

    During previous methodologies, a ‘uniform reference period’ was used that included 30 days just before the survey for all food and nonfood items. But Tendulkar group changed ‘reference period’ to past one year for 5 nonfood items viz., clothing, footwear, durable goods, education and institutional medical expenses. For other items 30 days reference period was retained. This is called ‘Mixed reference period’

  2. Further, it recommended a shift away from basing the Poverty Line basket (PLB) in caloric intake and towards target nutritional outcomes.
  3. It called for an explicit provision in the Poverty Line Basket to account for private expenditure in health and education.
  4. 1st point under Algah committee mentions that it adopted separate PLB for Urban and rural areas. But Tendulkar committee ended this practice by using a uniform basket (for both rural and urban) based on previous urban poverty line basket.

    These changes were made for base year 2004-05 and ahead. These rendered past poverty lines incomparable with new ones as they were based on URP and Separate baskets for rural and urban India.

  5. Poverty line was in form of ‘Rs per capita per month’

National poverty lines (in Rs per capita per month) for the years 2004-05, 2009-10 and 2011-12

Year Rural Urban
2004-05 446.7 578.8
2009-10 672.8 859.6
2011-12 816.0 1000.0

These expenditure as per expert group was sufficient to cover food and nonfood expenditure, including that on health and education. This created furore in public and government was forced to appoint a new expert group under Dr. Rangarajan.

It is often said that Tendulkar Poverty line is equivalent to World Bank’s $1 or $1.25 in PPP terms. This purely incidental and poverty line calculated by Tendulkar had nothing to do with World Bank methodologies. But government often defended poverty line claiming that it is as per global standards.

Expert group, 2012 (Rangarajan)

Expert group submitted its report in 2014 giving ‘per capita monthly expenditure’ as Rs. 972 in rural areas and Rs. 1407 in urban areas as poverty line. It preferred to use ‘Monthly expenditure of Household of five’ for the poverty line purpose which came out to be Rs 4860 in rural areas and Rs. 7035 in urban areas. It argued that considering expenditure of household is more appropriate than that of individuals. Living together brings down expenditure and as expenses such as house rent, electricity etc. gets divided into 5 members.

Other major recommendations were –

  1. It reverted to old system of separate poverty line baskets for Rural and urban areas, which was unified by Tendulkar group.
  2. Instead of ‘Mixed reference Period’ it recommended ‘Modified Mixed reference period’ in which reference periods for different items were taken as –
    1. 365-days for clothing, footwear, education, institutional medical care, and durable goods,
    2. 7-days for edible oil, egg, fish and meat, vegetables, fruits, spices, beverages, refreshments, processed food, pan, tobacco and intoxicants, and
    3. 30-days for the remaining food items, fuel and light, miscellaneous goods and services including non-institutional medical; rents and taxes.
  3. Report says that poverty line should be based on
    1. Certain normative levels of ‘adequate nourishment’ plus clothing, house rent, conveyance, education And
    2. A behaviorally determined level of other non-food expenses.

      Normative means – what is ideal and desirable?

      Behavioral Means – What people use or consume as per general behavior

  4. For normative levels of adequate nutrition – average requirements of calories, proteins and fats based on ICMR norms, differentiated by age, gender and activity for all-India rural and urban regions is considered.
    1. Calories requirement – 2090 kcal in urban areas and 2155 Kcal in rural areas
    2. Proteins – for rural areas 48 gm and for urban areas 50 gm
    3. Fat – for urban areas 28 gm and for rural areas 26 gm

      Normative levels for fat and protein have been introduced for the first time and those for calories are reduces from earlier standards of 2100 kcal and 2400 kcal for urban and rural areas respectively. This was in lines with recommendations of Indian Council of medical research. It was found by council that due to change in lifestyle, more automation in industries, growing use of automobiles etc. minimum calorific consumptions required has fallen.

  5. Poverty line by the group is also based on Independent survey conducted by ‘Center for monitoring Indian Economy’ (CMIE). The results under this survey are remarkably close to those we get through NSSO survey. Confirming adequacy of NSSO data and group’s methodologies. CMIE considers maximum income required to meet consumption expenses of a household. If Income is above consumption expenses then household is above poverty line otherwise (if not able to save anything) it is below poverty line. CMIE conducted survey on 150000 households.
  6. Again National Urban and Rural poverty lines were converted to State specific poverty lines by using Fisher Index. This gave us poverty ‘ratios’ in states and state’s poverty ratios was weighted average of rural and urban state poverty ratios.

     

    As per these estimates the 30.9% of the rural population and 26.4% of the urban population was below the poverty line in 2011-12. The all-India ratio was 29.5%. In rural India, 260.5 million individuals were below poverty and in urban India 102.5 million were under poverty. Totally, 363 million were below poverty in 2011-12. It also noted that there was substantial drop in poverty ratio from 2009 levels.

World Bank’s Poverty line

The approach of poverty estimation by the World Bank is similar to that employed in India and in most of the developing countries. The World Bank estimates of poverty are based on the poverty line of US $1.25 per person per day measured at 2005 international price and adjusted to local currency using PPP (Purchasing Power Parity).

The international poverty line is worked out as the average of national poverty lines in poorest fifteen countries (in terms of consumption per capita). For this world bank runs as ‘International Comparison Program’.

Al this is essential for making International comparisons. Further, performance of a country on this front is major criteria for eligibility or other terms and condition for Loans. But it is not of much relevance for domestic policy making as it fails to provide variation within a country, region, society etc. Domestic poverty line in contrast tries to capture all local variations such as Inter-state or Rural-urban.

Asian Development Bank too has its own poverty line which is currently at $ 1.51 per person per day.

Identification of Poor/Beneficiaries

The Ministry of Rural Development has conducted a BPL Census in 1992, 1997, 2002, and 2011 to identify poor households. The BPL Census is used to target families for assistance through various schemes of the central government. The 2011 BPL Census is being conducted along with a caste census, and is dubbed the Socio-Economic & Caste Census (SECC) 2011. It is being conducted by Ministry of Rural Development with partnership of states. As it has been mentioned earlier that previous census were only for rural poor, but this is first time that a comprehensive census will include both urban and rural poor. As the name suggest it will be surveying households to collect a number of socio-economic indicators such as literacy, housing, assets and caste.

The entire exercise will be paperless, done on handheld electronic device (tablet PC). This will drastically reduce data entry errors and discretion. Census is still underway, and you can see work done so far
here.

It attempts to minimize inclusion and exclusion errors. For this it uses certain indicators which automatically exclude or include households. For example if a household have 4 wheeler vehicle, it will be automatically excluded or if a household is homeless or there is no working age and physically capable member in household, it will get automatically excluded.

Questions

  1. Comment on various issues involved in determination of poverty line in India. (200 words)
  2. In modern times it is widely accepted that poverty is multidimensional and no one criteria can be used by policy makers. Under these circumstances what is relevance of poverty line? (200 Words)
  3. Why Rangarajan expert group was appointed? Discuss major recommendations of this Group.
  4. How beneficiaries of various government schemes are identified and what role does poverty line plays in this? (200 words)
  5. Comment on global poverty lines determined by International Agencies. Discuss its relevance in domestic context of a country? (200 words)
GS-3, Social Empowerment, Uncategorized

The measure of poverty

Recently, the government released data from the Socio-Economic Caste Census (SECC) 2011. There has been comment that hereafter, we need not have consumption-based poverty estimates using NSS (National Sample Surveys) data. It is thought that

SECC data will alone be enough to estimate poverty and deprivation. Here, we briefly examine the differences between the two and clarify that NSS consumption-based poverty estimates are still relevant. SECC-based estimates are important, but no substitutes for NSS-based poverty ratios.

In India, we have a long history of studies on the measurement of poverty. The methodology for the estimation of poverty used by the erstwhile Planning Commission was based on recommendations made by various expert groups. In June 2012, the government of India appointed an expert group (with C. Rangarajan as chairman) to take a fresh look at the methodology for the measurement of poverty.

The Rangarajan expert group has gone back to the idea of separate poverty line baskets for rural and urban areas, unlike the Tendulkar Committee, which took urban poverty as a given and used it as the common basket for rural and urban households. In defining the consumption basket separating the poor from the rest, the new expert group took the view that it should contain a food component that satisfied certain minimum nutrition requirements, as well as some normative level of consumption expenditure for essential non-food item groups (education, clothing, conveyance and house rent) besides a residual set of behaviourally determined non-food expenditure. The introduction of norms for certain kinds of non-food expenditures is an innovation. In the absence of any other normative criteria, the median fractile class expenditures were treated as the norm.

Based on the analysis presented in the expert group report, monthly per capita consumption expenditure of Rs 972 in rural areas and Rs 1,407 in urban areas is treated as the poverty line at the all-India level. Assuming five members for a family, this will imply a monthly per household expenditure of Rs 4,860 in rural areas and Rs 7,035 in urban areas. The expert group estimates that 30.9 per cent of the rural population and 26.4 per cent of the urban population were below the poverty line in 2011-12. The all-India ratio was 29.5 per cent.

Poverty estimates provide the proportion and size of the poor population and their spread across states and broad regions. But they cannot be used for identification of the individual poor, which is necessary to ensure that the benefits of programmes and schemes reach only the deserving and targeted group.

After the release of the SECC estimates, some commented that earlier targeted programmes were designed based on sample surveys and the SECC was an innovation. This is not true. Previously, too, for identification of the poor, BPL (below poverty line) censuses were conducted.

The first two BPL censuses (conducted in 1992 and 1997) yielded an estimate of the percentage and number of poor households at the village, block, district and state levels, and the beneficiaries in these programmes were chosen by state governments depending
on their position on the BPL list. The third BPL census was conducted in 2002. It did not identify the number of poor households straightaway or estimate their numbers, as in the previous two censuses. Instead, it ranked households within the village in terms of their socio-economic status, based on 13 indicators reflecting the levels of living and quality of life. SECC 2011 is thus part of this continuing process.

According to the SECC data, 8.69 crore out of all rural households have one of the seven deprivations. In other words, 48.5 per cent of all rural households suffer from at least one of seven deprivations. Thirty per cent of households suffer from two deprivations while 13 per cent have three. Only 0.01 per cent households suffer from all deprivations. The automatically included contributed 0.92 per cent of the total rural households. Information on urban households is not yet publicly available.

The rural poverty ratio estimated by the expert group based on NSS data was around 30.9 per cent in 2011-12. This is almost equal to households with two deprivations, plus the automatically included. However, NSS-based estimates are per capita, while the SECC data refer to households. A look at seven deprivations shows that they are not deprivations in the conventional sense of deprived of income, health and education, etc. Therefore, the question is whether the SECC data is appropriate for estimating poverty ratios. For example, it is true that landless households deriving a major part of their income from manual labour constitute the largest number of under-deprivation households. It is not clear whether landlessness (or manual labour) can be sufficient to conclude they are suffering from poverty. Over time, landlessness will increase and people will diversify their income with a rise in non-agricultural activities and migration. In the same way, some of the other criteria are not clear indicators of poverty.

What is the rationale for having poverty estimates based on consumption estimates? First, in the minds of most people, being rich or poor is associated with levels of income. The various non-income indicators of poverty are in fact reflections of inadequate income. Defining poverty in terms of income or in the absence of such data in terms of expenditure seems more appropriate, and it is this method that is followed in most countries.

Second, historically, the number of identified poor based on successive BPL censuses in rural areas has differed widely from the measured poverty. For example, the percentage of households identified as poor in the first BPL census in 1992 was nearly twice the poverty ratio estimated by the Planning Commission. Usually, the poor households identified through these censuses contain a mix of poor and non-poor, for which there could be several reasons. One of the main reasons behind such a mix-up is the fact that people know beforehand that the census is going to decide the status of the household as poor or non-poor, and therefore its entitlement.

Third, the deprivation criteria by themselves do not indicate the level of poverty.

A judgement has to be made as to whether the number of deprivations taken together constitute a measure of poverty. This can be highly subjective.

What is the purpose of NSS consumption-based estimates if they are not used for the allocation of funds and capping beneficiaries under government programmes? These poverty ratios would be used basically to assess the changes in poverty at national and state levels, or at the district level. This will be useful for creating appropriate policies. For example, one can examine changes in poverty in different phases of the post-reform period to understand what impact anti-poverty programmes, in conjunction with growth, have had on poverty.

To conclude, SECC and NSS data-based estimates have different purposes.

The SECC would be important for the identification of beneficiaries of programmes while NSS-based estimates would be useful for assessing changes in levels of living at the macro level over time.

– See more at: http://indianexpress.com/article/opinion/columns/the-measure-of-poverty/#sthash.0oTZbV3S.dpuf

Editorials, GS-3, Uncategorized

How to measure poverty

What Panagariya suggested

  • Tendulkar committee’s report should be accepted for poverty estimation for estimation of economic performance
  • Socio-economic indicators should be used for determining the entitlement for benefits

Tendulkar Committee

  • Tendulkar committee was based on calorie consumption(based on Alagh poverty line)
  • It suggested that the expenditure required to meet this goal should be the poverty line for both rural and, of course, urban areas
  • Tendulkar report shifted the emphasis from calories to food demand, but Alagh report focused on on foodgrains, with price elasticities calculated separately for the rich and the poor, leading to dual pricing
  • Tendulkar committee report assumed that basic needs will be provided by the states (basic needs such as social services of health and education)

Previous committees:

Y K Alagh Committee

  • Till 1979, the approach to estimate poverty was traditional i.e. lack of income.
  • It was later decided to measure poverty precisely as starvation i.e. in terms of how much people eat.
  • This approach was first of all adopted by the YK Alagh Committee’s recommendation in 1979 whereby, the people consuming less than 2100 calories in the urban areas or less than 2400 calories in the rural areas are poor.
  • The logic behind the discrimination between rural and urban areas was that the rural people do more physical work. Moreover, an implicit assumption was that the states would take care of the health and education of the people.
  • Thus, YK Alagh eventually defined the first poverty line in India.

Lakdawala Formula

  • Till as recently as 2011, the official poverty lines were based entirely on the recommendations of the Lakdawala Committee of 1993.
  • This poverty line was set such that anyone above them would be able to afford 2400 and 2100 calories worth of consumption in rural and urban areas respectively in addition to clothing and shelter.
  • These calorie consumptions were derived from YK Alagh committee only.
  • According to the Lakdawala Committee, a poor is one who cannot meet these average energy requirements. However, Lakdawala formula was different in the following respects in comparison to the previous models:
  • In the earlier estimates, both health and education were excluded because they were expected to be provided by the states. This committee defined poverty line on the basis of household per capita consumption expenditure. The committee used CPI-IL (Consumer Price Index for Industrial Laborers) and CPI- AL (Consumer Price Index for Agricultural Laborers) for estimation of the poverty line.
  • The method of calculating poverty included first estimating the per capita household expenditure at which the average energy norm is met, and then, with that expenditure as the poverty line, defining as poor as all persons who live in households with per capita expenditures below the estimated value.
  • The fallout of the Lakdawala formula was that number of people below the poverty line got almost double. The number of people below the poverty line was 16 per cent of the population in 1993-94. Under the Lakdawala calculation, it became 36.3 per cent.
GS-1, GS-2, Social Issue, Uncategorized

Splendid decade, human development in India

  1. India’s ranking on Human Development Index (HDI) rose by a notch in 2014 — to 130 th  from 131st a year earlier.
  2. With a score of 0.609 on HDI, India stands well below the average score of 0.630 for countries in the medium human development group.
  3. But it is marginally above the South Asian countries’ average score of 0.607. India stands higher than neighbours Bangladesh and Pakistan but lower than countries like Namibia, Guatemala and Tajikistan, even Iraq.human-development-index-diagram-1024gii20componentsgiinew-picturemdpi
  4. After adjusting for inequality, India’s HDI for 2014 falls from 0.609 to 0.435, indicating a loss of almost 29 per cent due to inequality in the distribution of the HDI dimension indices.
  5. life expectancy at birth in India has over the past decade risen from 64.5 years (in 2005) to 68 years in 2014.
  6. mean years of schooling have increased from 4.8 to 5.4 over the same period
  7. During these 10 years, per-capita incomes in India have risen significantly, from $3239 to $5497 (at 2011 purchasing-power parity).
  8. On the gender development index (GDI), with a value of 0.795, India ranks behind Bangladesh (0.917), Namibia, Guatemala, even Tajikistan
  9. On the gender inequality index (GII), India fares poorly in 2014, standing 130th among 155 countries, well behind Bangladesh and Pakistan, which are ranked 111 th  and 121 st , respectively.
  10. 12.2 per cent of Parliament seats are held by females. The comparable proportion is 20 per cent for Bangladesh, and 19.7 per cent for Pakistan.
  11. only 27 per cent of adult women have achieved education up to at least the secondary level.
  12. Compared with India’s 190, MMR for both Pakistan and Bangladesh is lower at 170.
  13. According to multidimensional poverty index (MPI), 55.3 per cent of India’s population were multidimensionally poor in 2005-06, while another 18.2 per cent lived near multidimensional poverty.

However, since these estimates are based on data that are almost a decade old, the country’s standing as on date is likely to be better than that estimated in the report.

  1. When the World Bank decided to raise its global poverty line from $1.25 a day (in Purchasing Power Parity, or PPP, terms) to $1.90 in October and update the data for countries, it showed among other things that India had witnessed the fastest-ever decrease in the percentage of its population below the poverty line between 2009 and 2011.
  2. India’s Human Development Index value went from 0.462 to 0.609 between 2000 and 2014, a far higher increase than in the previous 15-year period. This was driven by improved economic growth and increase in life expectancy as a result of improved health care, and less so from improvements in educational outcomes, which have been harder to achieve, especially for women.
  3. If India’s women were their own country, they would be 30 ranks lower on the HDI than the country as a whole is now, with far worse educational outcomes dragging them down.
  4. Indian women are at a particular disadvantage in the workforce; the high proportion (up to 39 per cent of GDP by one estimate) of unpaid care work that falls on women alone pushes them out of the workforce, resulting in one of the world’s lowest female labour force participation rates.
  5. Coming at a time when there is a fear of social sector budget cuts, these reports show that India must build on its human development successes with better redistributive justice.

Thank You!

Editorials, Environment, GS-3, Uncategorized

Climate change can push 45 mn Indians into poverty

There were 263 million Indians living in poverty in 2011, according to recent World Bank estimates using a revised (Read more here) $1.9-a-day poverty line.

Even as the government reins in health funding–as IndiaSpend reported earlier this year–with lesser money for states even after devolution, the report suggests greater investment in health infrastructure.

This includes more subsidised healthcare, health insurance and systems to warn about emerging health crises. A recent move in India to revamp a health insurance scheme for the poor, the Rashtriya Swasthya Bima Yojana, is a step in the right direction. Other suggestions–to make assistance prompt, scalable and targeted–are in line with the government’s move to reform India’s vast subsidy programme.

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‘poverty’ (its features being high population growth, low growth, and high poverty and inequality) and  ‘prosperity’ (low population growth, high GDP growth, and low poverty and inequality)

Three ways in which climate-change drives poverty

1-Climate change could see crop yields dropping (the worst-case scenario has global crop yield dropping by 5% by 2030) because of which food becomes costlier. People then end up spending less on other things or cutting down on how much food they have.

table_2_mob_desk

2-Warming of 2-3 degrees Celsius could increase the number of people at risk from malaria by 5% and diarrhoea by 10% [around the world]. Increase in temperatures could also see a loss in labour productivity of 1-3 %.  People in poor countries have little access to financial assistance–either in terms of loans or insurance. They also pay “more than 50% [of their budget] in out-of-pocket [health] expenses

table_3_mob_desk

3- increasing occurrence and intensity of natural hazards such as droughts, river flooding and higher temperatures. These natural hazards affect the economically vulnerable relatively more than the rich. The things they own, such as housing or livestock, are more exposed to such hazards. These assets, built up over decades, could vanish in an instant.

table_4_mob_desk

What governments can do?

use of more climate-resistant and to counter the drop in agricultural productivity;

introducing practices such as polyculture (combating pest resistance by growing multiple crops in the same field) and improving awareness of these practices among farmers

improve transport so that farmers have better market access.

improve protective infrastructure such as dykes and drainage systems to protect against floods and also introduce early warning systems

granting people property rights so that they have an incentive to make their houses stronger and more resilient.

Government assistance should be: prompt (if support is delayed, families could try to sell off what they own to survive), scalable (the effort involved must be responsive to the severity of the shock) and targeted (to ensure that, even among the vulnerable, the program covers those who need help most first).