Which world do economists live in?

On September 20, the Montek Singh Ahluwalia-led Planning Commission filed an affidavit in the Supreme Court stating that anyone capable of spending more than Rs 965 a month (Rs 32 per day) in urban India and Rs 781 (Rs 26 per day) in rural India is not poor and, therefore, will not be allowed to benefit from Central and state government schemes meant for people living below the poverty line. Many may have forgotten that the aforementioned “generous” estimates were arrived at by the Planning Commission after it faced criticism from the Supreme Court for claiming in May this year that a person is not poor if s/he earns more than Rs 20 a day in urban areas and Rs 15 a day in villages.

“The Planning Commission may revise the norms of per capita amount looking to the price index of May 2011 or any other subsequent dates,” the court had firmly suggested.
The apathy of the government and its so-called compassionate economists towards finding a humanistic social policy to improve the lot of the “capability deprived” (to use an Amartya Sen phrase) majority of this country is indeed shocking.
The enormity of this institutional neglect, apparent in the plan panel’s latest estimates, needs to be looked at from the perspective of the August 2007 report on the “Conditions of Work and Promotion of Livelihoods in the Unorganised Sector” released by the National Commission for Enterprises in the Unorganised Sector (NCEUS).
According to this report, in 2004-05, 77 per cent of our population, i.e. totalling 836 million, was subsisting on an income of less that Rs 20 per capita per day, and is therefore, poor.
But the Planning Commission, uncomfortable with the truth, seeks not to remedy the situation but use anachronistic methodology and derive from it more comfortable figures that will drop the poverty line and make the “77 per cent of Indians are poor” fact go away.
According to the official definition, the poverty line is the monthly cost of a “basket of food” that gives 2,400 calories of nutrition per capita per day in rural areas and 2,100 calories per capita per day in urban areas.
In 1973-74, the government fixed this line at Rs 49.09 and Rs 56.64 per capita per month for rural and urban areas respectively. These values were revised in 1999-2000 to Rs 327.56 and Rs 452.11 per month. In other words, we were made to believe at that time that a person who earns Rs 328 per month in a village and Rs 453 per month in a city is not poor.
Astonishingly, these outdated figures still form the basis of poverty calculations in India. The Planning Commission, in March 2007, used these figures to claim that the number of people living below the poverty line had declined to 21.8 per cent from 26.1 per cent in 1999-2000. The NCEUS report contradicted this contention in August the same year
with its 77 per cent report card.

The common international poverty line has in the past been roughly $1 a day. In 2008, the World Bank released revised figure of $1.25 at 2005 purchasing-power parity (PPP). To avoid such conflicting claims the poverty line must be redefined for a realistic evaluation of the number of poor in India.
In this connection, the methodology used by Australia may be worth studying as it takes into account even non-income indicators to calculate poverty. For instance, “for a family comprising two adults, one of whom is working, and two dependent children” the Australian poverty line for the March quarter 2011, inclusive of housing costs, was $835.3 per week (or $3,341 per month). This was an increase of $27.72 over the poverty line for the previous quarter, December 2010.
The poverty line in Australia is drawn from a benchmark weekly income of $62.7 established in December 1973. Since then it has been periodically updated using an index of per capita household disposable income, which includes housing and other requirements. Interestingly, the Australian poverty line is always higher than the welfare payments the state makes, like dole.
A comparison of Indian and Australian methodologies would reveal the ridiculousness of Indian estimates.
For instance, an Australian family of four with a monthly income of less than $3,341(approximately Rs 1,65,000) is deemed to be below the poverty line in that country, whereas a city-based Indian family of the same size earning just a rupee over the beggarly sum of Rs 3,860 (that is, Rs 965 x 4) a month is designated “not poor” by our government and denied relief.
Even if one were to factor in the higher cost of living in Australia, it is extremely distressing to note that as per the Planning Commission’s definition, an Indian BPL family has to be 43 times poorer than its Australian counterpart to be called “poor”!
The truth is that through the Planning Commission’s affidavit to the Supreme Court, the government has sought to grossly understate endemic poverty in India — perhaps to escape censure by the aam voters in the next general election.
One wonders if members of the Planning Commission are aware of the cost of living in “urban” India.
Some tenements in Mumbai slums cost up to `15,000 per square foot. A two-room house at the Matunga labour camp, for instance, sells at Rs 40 lakh, and it has been reported that rents in Wadala’s slums are around Rs 2,500 to Rs 3,000 a month for a 100-sq-ft home and around Rs 3,500 for a 200-sq-ft tenement. Add to this the cost of food, clothing, medicine, education and you are looking at anywhere between Rs 10,000 to Rs 15,000 a month for a family to survive — consuming no more than 2,100 calories a day — in India’s metropolitan cities.
If Mr Ahluwalia’s Planning Commission feigns ignorance of this reality, it must be living in a time warp.

A. Faizur Rahman is a Chennai-based civil engineer and social activist. He may be reached at faizz@rocketmail.com