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Friday, 23 September 2011 00:00
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Do you know, CNBC’s Vivian Fernandes called to say after a heated television debate on Wednesday on the Planning Commission’s estimate that those urban Indians spending less than R32 per capita on a daily basis were poor, that you can buy two dosas in small hotels in his home town (5 km from the centre of Mangalore) for R8. Vivian was reacting to one of the TV panelists pooh-poohing the Planning Commission, saying that the bananas he buys in Jor Bagh (New Delhi) for his daughter cost R60 per dozen, so he can’t even eat two bananas per meal for fear Montek Singh Ahluwalia would say the sixth banana would take him above the poverty line!

Many such variants of the Jor Bagh bananas have been doing the rounds since yesterday, the more famous one being Jean Drèze’s saying the one rupee allowed for medical expenses in the R32 doesn’t even cover the cost of an aspirin.

Before we move on, it needs to be pointed out that the debate is really spurious since the government is not saying a per capita urban spend of R32 makes you comfortable—it says this is a poverty line, and around 450 million people live below it. You can make the number higher, say R40, and you’ll still get the same answer—if one aspirin a day can’t take care of your medical needs, how can two?

While the price of bananas, or dosas for that matter, differs from place to place, a more reasonable way is to examine just what other goods these poor buy. If they’re buying consumer durables, second-hand colour TVs for instance, they’re still poor but this can’t be considered blinding poverty. The NCAER data, the only one that correlates asset ownership with income and expenditure levels, shows that 7.5% of the urban poor owned a two-wheeler in 2004-05, and the figure was 21.3% in the case of the urban poor. In an ideal world, the number should be higher, but compare this with that of a decade earlier, and the change is impressive.

Another factor that determines just how far the rupee goes is the huge subsidies the government gives. If wheat and rice are available, or supposed to be available, at ration shops at around R4-5 per kg for the poor, this means the R5.5 that the R32-poverty-line keeps for cereals translates to one kg of rice/wheat per person per day. That doesn’t seem so bad, but the poor don’t get the ration is the argument. That’s true, but that probably makes the case stronger for giving direct cash transfers. Since the government spends around R3,00,000 crore a year on various programmes for the poor that include the likes of PDS and MGNREGA, that’s an expenditure of R18 per person per day—add that to the Planning Commission’s average of R28 per day for the entire country (the R32 applied to just urban India), and you’re talking of a daily per capita expenditure of R46, a lot more respectable one hopes.

The story doesn’t stop here. As FE columnist Surjit Bhalla has shown, the National Sample Survey (NSS) on which all consumption expenditures are based, captures less and less of India’s real incomes. According to Bhalla, just around 45% of the total expenditure of households are captured by the NSS samples. How does he know that? Because the GDP numbers we get have a consumption component—compare this with the NSS numbers, and you get the 45% figure. So, when you factor this in, you find the consumption is vastly understated. So instead of having 38% of the population spending under R28 a day, you’ll probably have 20% or so spending this much.

Equally important is to keep in mind the steady increases in wages/salaries over the past few years. Even the GDP growth data makes this obvious, since a 7-8% real GDP growth rate means incomes are rising across the board, even for the poor. Wages data got from the 66th round of the NSS point to the same thing. Between 2004-05 and 2009-10, the survey points out, wages for male casual workers in rural areas grew 13% per annum while salaries grew 11.4%.

Lastly, let’s keep in mind that poverty levels, whether you use a R32 poverty-line or a R64 one, are critically dependent upon factors like education, urbanisation, industrialisation and so on. So, if government policy focuses on this part of the equation, poverty will automatically fall—yet, none of the povertywallahs really talk of this. NCAER data for 2004-05 show that the proportion of poor are the highest for those who are illiterate and for those who are engaged in agriculture (see table). Greater literacy and greater industrialisation are the obvious answer.

The standard response of the povertywallahs, however, is to ask for a hike in wages, of the poor guard in, say, Jor Bagh. Raising wages is a great idea, but if that results in lower employment of guards, even high school economics will tell you, that means a rise in poverty levels. The fact that, in a labour abundant economy like ours, there’s more mechanisation happening, can’t be a healthy sign—coming up with the wrong poverty-solution is only going to make this worse. Before asking for higher wages, let’s ask for higher education.

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Last Updated ( Thursday, 22 March 2012 06:20 )

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