July 27, 1998

Why public expenditure figures are an exercise in self-deception.

Jairam Ramesh

Nowhere is poverty so grinding, dehumanising and degrading as in India. It is visible on every street. In these circumstances, to expend intellectual energies in "measuring" what is obvious may appear heartless and insensitive. But it is required to get a broad picture of poverty trends and see where we are headed. This is particularly necessary because the popular perception is liberalisation and reforms are increasing poverty.

Two of our technically most accomplished economists -- Amaresh Dubey of the North-East Hill University and Shubhashis Gangopadhyay of the Indian Statistical Institute, Delhi -- have published the results of 20 months of painstaking study. They have produced what must rank as the most rigorous and detailed study on poverty trends in recent times. Their monograph, Counting the Poor, has been issued by the government after months of wrangling. The delay occurred because the finding that poverty is falling went against the personal convictions of the United Front's Planning Commission. Even now, there is extreme reluctance to give the report wide publicity.

Poverty in India has different dimensions. For example, there is education poverty: over two in five females above the age of seven are illiterate. There is nutrition poverty: three of every five children are underweight and malnourished. The poverty used for policy purposes is "expenditure and consumption poverty". It is estimated through five-yearly surveys of consumer expenditure. These are carried out by the government's National Sample Survey (NSS) Organisation.

The poverty line is defined as a level of expenditure incurred by an individual to obtain a certain minimum daily calorie intake. This is 2,435 calories in rural areas and 2,095 in urban ones.

Dubey and Gangopadhyay break with past practice and calculate different poverty lines for rural and urban areas in 25 states and seven Union territories. In terms of monthly consumption expenditure, the average poverty line for rural India in 1993-94 ranges between Rs 186 and Rs 214 and for urban India between Rs 245 and Rs 279.

For the first time, the NSS parted with its raw data -- collected for the years 1987-88 and 1993-94. The two economists used this data to estimate different indices of poverty. The simplest of these is the head count ratio: the proportion of people with a monthly expenditure below the minimum stipulated as the poverty line.

The conclusions on magnitudes vary; those on direction don't. In 1993-94, anywhere between 29 and 40 per cent of India was below the poverty line as officially defined. But all indicators of poverty show a decline between 1987-88 and 1993-94. The decline is of the order of about 1.25 percentage points per year. This is double the rate of decline in the '70s and '80s.

Thus, poverty is declining at a faster rate. But this rate is not good enough. It will take at least another 25 years to bring all Indians above a modestly-defined poverty line. The analysis shows that rural poverty is declining broadly at the same pace as urban poverty. Average per capita expenditure of the poor has gone up by over 3 per cent -- after adjusting for inflation. This matches other evidence about improved living standards. Terms of trade are moving in favour of agriculture. Average real wages for unskilled farm labourers have also increased.

For the first time, the number of poor has declined in absolute terms as well -- the reduction being over 25 million between 1987-88 and 1993-94. Since 1991-92 was a year when GDP growth was a paltry 0.8 per cent, the magnitude of this achievement becomes even more striking. Moreover, the human face of reforms -- for example, increased expenditure on rural development, urban employment programmes and social security schemes -- became public only with the 1993-94 budget.

Given India's size and diversity there will always be regional and group variations. Dalits, Adivasis, agricultural and casual labourers are most vulnerable to poverty. Contrary to national trends, poverty has increased in the North-east, the east, Haryana and Himachal Pradesh.

In the North-east, increased migration is surely adding to the poor population. The pace of decline in West Bengal is not very substantial, intriguing given extensive land reforms and rising foodgrain production there.

On the other hand, reduction in the poverty ratio in Rajasthan and Madhya Pradesh have taken place at about double the national rate. This indicates two things. One, the large poverty base in these states to begin with. Two, the positive impact of development programmes.

The next NSS consumption expenditure survey will be ready by July 1999. It will provide data for the crop year 1998-99. If this data is also subjected to independent analysis by professionals like Dubey and Gangopadhyay, then we will be better placed to draw the links between reforms and poverty. Even on the limited evidence so far, it seems clear that reforms are not worsening poverty. That, by itself, is a significant conclusion. Hopefully, it will spur even bolder reforms.

The author is secretary of the AICC's Economic Affairs Department. The views expressed here are his own.

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