Poverty, Inequality has risen in the Modi Years | K N Ninan

by K N Ninan *

Despite becoming the fifth largest economy in the world, India continues to have the largest concentration of the world’s poor estimated at 159.8 to 192.8 million people in 2020 using the international poverty line of Purchasing Power Parity (PPP) $ 2.15 as per a recent World Bank report (World Bank 2022).

Official estimates of poverty and inequality in India are based on the results of the household Consumer Expenditure Survey (CES) of the National Sample Survey (NSS). These are available almost uninterrupted from the mid-1950s to 2011-12. Results of the 2017-18 survey were not released by the government citing data quality issues such as divergence between consumption trends using CES and private final consumption expenditure (PFCE) compiled by the National Account Statistics (NAS). This is not unique to 2017-18 CES data and was observed in all previous CES data. While CES is based on household level data collected by the NSS, the NAS uses commodity flow approach to estimate private consumption at macro level. Macro level picture may often hide micro-level realities.

Sundaram and Tendulkar (2001) who did an in-depth study of NAS and NSS data observed that the issue of accepting NAS estimate of PFCE as more correct and reliable than NSS estimate is far from settled. They note that the item groups that accounted for a very large proportion of the aggregate discrepancy between NAS and NSS estimates had a much smaller budget share in the consumption basket of the bottom 30 per cent fractile group in rural and urban areas, whereas in respect of item-groups which together accounted for over 75 per cent of the consumption of the bottom 30 per cent, the divergence between the two estimates was much smaller than on the average for all item groups and negative in some cases. Another study by John (2007) noted that the important factors, which led to the divergence between NAS and NSS data include, the inclusion of notional elements like imputed rent and financial intermediation services indirectly measured (FISIM) in NAS estimate, differential implicit prices of the consumer goods, varied reference periods, differences in the classification schemes, differences in the estimation procedure followed by two agencies and possible discrepancy in the official and directly reported information.

Leaked reports of the 2017-18 survey in the media suggested that for the first time in four decades the average monthly per capita consumer expenditure (MPCE) in real terms had declined by 3.7% from Rs. 1501 in 2011-12 to Rs. 1446 in 2017-18 implying that poverty had increased in India. The decline was sharper in rural India (8.8%) as compared to in urban India (2.2%). This finding, if true, was embarrassing for a government which came to power on the ‘Sabka Sath, Sabka Vikas’ slogan and was heading to the Lok Sabha elections in 2019.

The methodology and concepts used in the 2017-18 survey were the same as the ones used in the 2011-12 survey. It is therefore natural for people to be perplexed as to why the Modi government decided not to release the results of 2017-18 CES. It may be noted here that when there was a controversy about the 1999-2000 CES data the then Government led by Atal Behari Vajpayee decided not to use the 1999-2000 CES data for estimating poverty in India, but nevertheless it released the report for the benefit of researchers, scientists, and the public at large to enable them to undertake in-depth analysis.

In the absence of official estimates since 2011-12 people have relied on estimates made by international or national agencies and researchers. While some studies suggest a decline in poverty, others indicate an increase after 2014.

A study by Surjit S. Bhalla, Karan Bhasin and Arvind Virmani (2022)) tried to extrapolate the official poverty estimates based on 2011-12 CES data upto 2020-21 by using consumption trends based on private final consumption expenditure (PFCE) compiled by the NAS. They also argue that previous studies did not account for in-kind food transfers which underestimated actual consumer expenditure and hence overestimate poverty levels. Their analysis suggests that extreme poverty in India has reduced to less than 1% and food transfers played a major role. They further argue that but for the pandemic India had almost eliminated extreme poverty! According to them consumption inequality (a proxy for income inequality) measured through the Gini coefficient has not changed much since the last three decades. The Gini coefficient however cannot capture resource transfers between different socio-economic groups.

They criticise the findings of other researchers who suggested an increase in poverty levels as being based on outdated methodology, underestimating household consumption, or ignoring free food transfers. But their own analysis is not flawless. In using NAS data to adjust 2011-12 household level CES data they assume that the consumption patterns and growth across different expenditure classes is similar which is incorrect. While they acknowledge that leakages in the public food distribution (PDS) system can affect the effective targeting of PDS foodgrains they don’t provide any micro level evidence of the extent of these leakages.

A UNDP report (2022) on multi-dimensional poverty (MDP) suggests that 415 million people exited poverty in India over the period 2005-2006 to 2019-2020, with the incidence of poverty declining steeply from 55.1% to 16.4%. Of this two-thirds exited during the first ten years and one-third in the next five years. But India continues to have the highest number of poor people in the world at 228.9 million in 2020. The report cautions that the levels of undernutrition in India are still very high based on National Family Health Survey (NFHS) data. Its findings pertain to the pre-pandemic period. Unlike consumption-based poverty estimates which rely on a single criterion, the MDP is based on ten indicators covering education, health and standard of living.

Using household level panel data collected by the Centre for Monitoring Indian Economy (CMIE) A. Sahasranaman and N. Kumar (2020) analysed income distribution and inequality in India over the period 2014 to 2019. Their findings suggest that the bottom 10 percent of India’s rural population reported a decline in income by upto 41% and real average incomes declined at -4.3% per year during this period. This was the trend prior to the covid pandemic and despite free food transfers! This group mainly consists of small and marginal farmers, and agricultural labourers whose economic situation is deteriorating. Their analysis points to a regressive redistribution of resources from the bottom to the top.

Credit Suisse which compiles global wealth statistics in its 2022 report notes that wealth inequalities in India are rising rapidly with the top 1% of the population accounting for 41% of the national wealth (Credit Suisse 2022). The bottom 50% of the population own a mere 2.8% of the national wealth. The World Economic Forum’s Inclusive Development Index report for 2018 notes that 6 out of 10 Indians live on less than $3.20 per day.

A World Bank Report (2022) indicates that 70 million people fell below the poverty line of $2.15 per day in the world in 2020 of which India alone accounted for 80% (56 million). Slower GDP growth, stagnant agricultural growth (<3% annually during 2014-20), high unemployment rates (around 8% according to CMIE), decline in real rural wages are contributory factors.

A study on State of Working India 2021 by researchers at the Azim Premji University (2021) indicates the adverse impact of the pandemic with about 100 million people losing their jobs during the nationwide April-May 2020 lockdown. Although most were back at work by June 2020, even by the end of 2020, about 15 million workers remained out of work. Women and younger workers were affected the most. The study indicates that the number of people with incomes below the national minimum wage threshold of Rs.375 per day recommended by the Anoop Satpathy committee (2019) constituted by the Ministry of Labour and Employment, Government of India increased by 230 million during the pandemic. This implied an increase in the poverty rate by 15 percentage points in rural and nearly 20 percentage points in urban areas.

Rather than attacking reports and studies with adverse findings as the handiwork of anti-nationals and urban Naxalites, the government should note and address the growing poverty, inequality, agrarian distress, and unemployment about which even RSS General Secretary Dattatreya Hosabale expressed concern recently. As rightly said, growth without equity is not sustainable. To quote late US President John F. Kennedy: “If you cannot help the many who are poor, it will not save the few are rich†. The Modi government appears to be waking up from its deep slumber as seen from its recent Rozgar (Job) Mela promising 10 lakh jobs over the next one and half years, although in 2014 they had promised to generate 2 crore jobs per year.

(Author: K N Ninan is an economist)

References

• Azim Premji University (2021). State of Working India 2021-One Year of Covid 19. Centre for Sustainable Employment. Azim Premji University. Bangalore.

• Bhalla, Surjit S., K.Bhasin, A. Virmani (2022). Pandemic, Poverty and Inequality-Evidence from India. IMF Working Paper 22/69. International Monetary Fund. Washington D.C. USA.

• Credit Suisse (2022). Global Wealth Data Book 2022. Credit Suisse Research Institute. Zurich. Switzerland.

• John, J. (2007). A comparative study of private consumption expenditure estimates in India. RBI Occasional Papers. 28 (1). Summer. Reserve Bank of India. Mumbai.

• Sahasranaman, A. and N. Kumar (2020). Income Distribution and Inequality in India 2014-2019. mimeo. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3707153

• Sundaram K. and S. Tendulkar (2001). NAS-NSS estimates of private consumption for poverty estimation. Economic and Political Weekly. 36(2). 13 January, Mumbai.

• UNDP (2022). Global Multidimensional Poverty Index-Unpacking deprivation Bundles to Reduce Multidimensional Poverty. UNDP and Oxford Poverty and Human Development Initiative. USA and UK.

• World Bank (2022). Poverty and Shared Prosperity 2022-Correcting Course. World Bank. Washington DC. USA.

• World Economic Forum (2018). Inclusive Development Index 2018. World Economic Forum. Geneva. Switzerland.