Need for a New Poverty Line

A food security law, steps to strengthen the NREGA, and so on, form parts of the pro-poor agenda of the UPA Government. For implementing these initiatives a fresh exercise to identify the below poverty-line (BPL) people has become necessary. It is obvious that the real outcomes and even the political pay-off of any such programme would depend on the extent to which the really needy acquire effective, assured, hassle and transactions cost-free access to a meaningful quantity of really needed goods and/or services or any other succour without submitting themselves to the bureaucratic discretion directly or mediated through various political touts and local riffraffs (the most inimical Achilles’ heel of the pro-poor programmes so far). In this context the poverty line (PL) is among the most critical factors as it is an entry level control over access to the programmes meant for the BPL families or individuals. Furthermore, the existing 35 year-old unchanged poverty line (PL) has lost whatever relevance it had initially. Moreover, in retrospect it seems that the old, unchanged PL has become an instrument to debar a very large number of the really poor, at least more then the number presently treated as BPL, from sharing in various schemes meant for the poor.

The question assumes urgency insofar as the Union Budget continues to make estimates, based on the old PL, of the number of the entitled poor and this would do grievous harm to the poor denied entitlement as also compromise the validity of the fiscal estimates should a revision of the PL become unavoidable during the course of the year. The simple point is: with even the World Bank upgrading the poverty level income and the recent information about the extent of deprivation prevalent in the country, a revision, at least increasing the poverty threshold three times over the current one, has become an absolute necessity if the PL has to have any credibility and reach the poor and the indigent. This has become an imperative as a result of the combined outcome of a series of economic, demographic, structural and social changes seen during the long period the PL has been left unchanged save converting it into current prices.

It seems in retrospect that working with the old PL served the purpose of showing that as the GDP grows, poverty declines. Recent estimates show that over three-fourths of the population has to make do with under Rs 20 per day, which is just marginally above the current PL of under Rs 15 per day. Thus the current PL may well be treated as a persisting special purpose instrument for demonstrating some degree of ‘success’ of the GDP growth-centric mainstream development strategy on the issue of poverty reduction. Since the proposed poor-friendly programmes have large public spending implications, there is an apprehension based on past practices that the number of beneficiaries may be restricted by remaining glued to a special purpose PL. In the past, in addition to a fixed PL, an arbitrary ceiling too was placed on the number of BPL families by an administrative fiat issued to cutting-edge agencies set up for delivering top-down development benefits.

In view of the above, a thorough revision of the PL is long overdue. Since its determination in early 1973-74, the per capita GDP in current prices has gone up by over 26 times by 2005-06, while simply prices based adjustment of the PL has seen increased by no more than 7.2 times for the rural poor and a little over nine times for the urban poor. It means in terms of the relative position with respect to GDP per capita, the PL has declined. This is ironically just the opposite of the suggestion to upgrade it as development proceeds, mooted by the experts, Dandekar and Rath, who devised the PL. It amounts to denial of any share in the rising GDP to the masses even in terms of setting the sights as no upward revision has been done with rising average national income. Any claim to use GDP growth as a means for overcoming poverty, let alone to ensure some redistribution, even at the level of setting sights, makes it imperative to revise the PL in line with current per capita income and adopt policies to make people cross the revised PL.

One may take note of the meagre contributions contemplated by the proposed pro-poor measures, especially for both the revised NREGA and food security law are unlikely to add more than Rs 13,600 per family per annum even in the best implementation scenario. Thus these initiatives can just about touch the fringe of the endemic mass poverty that has deep systemic roots. However, one has to realise that given the present depths of poverty, surely social assistance of the order proposed in the recent schemes too would make a difference.

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The PL provides the basis for accessing many welfare programmes and for measuring poverty reduction. Hence, the critical value of the PL. Even with a revised and realistic inclusion-causing PL, one cannot wish away the difficulties involved in accessing the leaky pro-poor measures. After all, the number of beneficiaries of self-selecting NREGA did not exceed 3.51 crore persons (a tiny fraction of the persons who need it) so far and not all of them succeeded in getting full 100 days of work in any given year at the full legally stipulated wages. Even in terms of outlay the total spending at under Rs 18 thousand crores falls far short of Rs 30 thousand crores allocated for the purpose. It becomes all the more disturbing that even in the States ruled by Leftist political parties, that so vociferously pleaded for the NREGA and some of its positive features, the performance has been among the worst in the country! Such ground-level realities go to add to the criticality of the PL as it defines the threshold for benefiting from pro-poor measures and can hope to make its demand-driven character an operational reality, as more and more people acquire job card and such like instruments.

The fixation of a new PL is no longer a closed issue. Just recall what the PM told the planners way back in November 2007. Recognising that the reduction in poverty and the quality of employment up to 2004-05 were inadequate, the PM went on to assert:

The numbers are too large and the poverty-line is 30 years old. I am glad that the Planning Commission has set up an expert group to review this matter. It must complete its work fast.

After about two years of the above statement, the urgency certainly goes up. The problem of an old, unchanged PL also finds mention on the first page of the Eleventh Plan when commenting on the performance of poverty reduction so far; it says:

This performance is all the more disappointing since the poverty –line on which the estimate of the poor is based is the same as it was in 1973-74 when per capita incomes were much lower.

As the planners express hope and confidence that at is possible, indeed feasible to put an end to poverty “within one’s life time†, the need for identifying all those who indeed are poor cannot be overemphasised. One may recall how promptly the cut-off income level for the creamy layer was increased from Rs 2.5 lakhs to Rs 4 lakhs per annum for determining eligibility for the benefits of reservation. The case for the excluded poor is surely far stronger than that of the creamy layer aspirants.

It is no trivial matter as to what the PL is. Some facts regarding the fixity of the poverty line are worth pondering over. In 1973-74, the rural PL amounted to 61.7 per cent and urban poverty line 70.7 per cent respectively of the per capita income of the country in that year. Since no adjustment was made for any factor other than the changed prices, the PL continued to become a smaller and smaller part of the per capita income; thus by 2005-06 the steadily declining proportion of the PL to average national income became as low as 16.6 per cent for the rural poor and 25.1 per cent for the urban poor. Non-recognition of these facts too seem to be among the factors that dented state capability to make use of the enhanced revenues flowing from the enlarged size and accelerated growth of the GDP for reducing poverty by financing more ambitious poor -friendly pull-up programmes to supplement the inadequacies of the market-based trickle-down processes. Even more significant is the fact that after recognising the issue and setting up the machinery to tackle it, almost two years are over and there is no indication that the process of revising the PL has been concluded.

The non-revised PL makes little sense in the light of the international practices regarding fixing the PL as well. For instance, in the UK the PL is fixed at about 60 per cent of the mean income while France takes 40 per cent of the mean income as the cut-off point. The practice in terms of relating the PL to the mean national income makes sense by maintaining some parity and preventing worsening the relative position of the lower layers of the social pyramid by attempting to make them share the gains of growth at least at the level of setting the sights. Furthermore the arbitrariness and distance from the real conditions obtaining in a diverse and highly differentiated economy such as ours involved in the practice of fixing the PL in terms of calorie intake or any other top-down fixed basket of commodities or a list of indicators gets further worsened owing to the massive data collection and verification costs, time required and reliability of such exercises. True, even with the PL in terms of a certain given and over time rising proportion of per capita income, a number of problems in actually identifying the BPL families remain. In fact unless a direct involvement of the civil society institutions is brought about in the process of door-to-door visits for identifying the poor and on-the-spot issue of BPL certificates the bureaucratic high-handed ness and discretionary distortions are unlikely to become a matter of the past, reducing the actually delivered benefits to a tiny fraction of the intended one. But by providing a common bench-mark for the entire country, the scope for arbitrariness in arriving at a common factor for different regions may well get reduced. Thus it is time to bid a good-bye to the old PL and adopt a new one as a gradually increasing proportion of the mean national income, at least for the present and initiate ground level door-to-door visit exercise involving the civil society institutions for actually issuing the BPL cards. The effectiveness of the proposed revamping of the NREGA and food security law are surely contingent on such a nationwide exercise on a priority basis. The profession of economics has spent enormous energies on the question of the PL stretched over a long period. Let these light-bearing exercises bring in a ray of hope and prepare the ground for making the poor fully participative citizens.

A prominent economist, Dr Kabra is a former Professor (now retired), Indian Institute of Public Administration, New Delhi.