Let’s not use Rangarajan panel to hike dole outlay
Given that India now has 93 million more poor people, thanks to the new Rangarajan formula for calculating poor—he increased the urban poverty line by 42% and the rural one 19%—chances are the Opposition will make political capital were finance minister Arun Jaitley to cut subsidies in the Budget. Before doing that, however, the Opposition would do well to keep in mind certain facts. For one, Indians have not actually got any poorer, indeed even by the Rangarajan formula, the fall in poverty levels over the past few years has been faster—while there was a 7.9% fall in the number of poor under the Tendulkar method between FY10 and FY12, the fall was 8.7% under the Rangarajan formula. The Tendulkar formula, interestingly, showed India had more poor people than the earlier formula did; Rangarajan shows more poor people than Tendulkar did; and a McKinsey report talks of 680 million people who are economically disempowered by virtue of adding up what needs to be spent on health, water and sanitation. The short point is, you can keep hiking/dropping the poverty line, and you will keep getting more/less poor people. Since there will always be a debate over what the correct poverty line is—at one debate, it was pointed out that you couldn’t even buy 6 bananas in south Delhi at the Tendulkar urban poverty line of R32 per day—it is a good idea to move to an altogether different definition of poverty. Treat anyone who is, say, 50 below the median per capita income as poor.
With a lot more poor, say the 680 million number put by McKinsey, the question is what should you do to alleviate their poverty. Apart from the fact that the government simply does not have the money to provide subsidised food, fuel, health and other services to such large number of people, the McKinsey analysis points out 75% of the people who have moved out of poverty have done so because they got new jobs, not more dole. The solution has to be spending less on wasteful subsidies, and more in areas like irrigation that will, for instance, raise farm productivity. McKinsey’s global analysis also found that productivity levels rose 10 times between the smallest and the largest firms, suggesting that changes in labour laws will help increase wage levels and hence reduce poverty—Indian states that have flexible labour laws, McKinsey found, had 35% of the work force employed in the organised sector; the figure was 23% in states that didn’t have flexible laws. Let’s not derail the reforms process by drawing the wrong conclusions from the Rangarajan report.