Earlier this month, two different estimates of poverty and inequality were published by authors affiliated to the International Monetary Fund (IMF) and the World Bank (WB). They added to the existing pool of private estimates of poverty and inequality since 2011-12. Private, because the government, which used to conduct consumption expenditure surveys (CES) and update poverty lines, has abdicated its responsibility.
The last consumption survey of 2017-18 was junked for no reason. Based on the leaked estimates of consumption expenditure from that survey, S Subramanian reported an increase in poverty from 31 per cent in 2011-12 to 35 per cent in 2017-18 with the number of poor increasing by 52 million. Santosh Mehrotra and Jajati Parida reported an increase in headcount poverty from 22 per cent in 2011-12 to 26 per cent in 2019-20 using the consumption aggregates from the Periodic Labour Force Survey (PLFS) with the number of poor increasing by 78 million. As against these estimates, which used different consumption aggregates from the NSO surveys, estimates from the IMF and WB have reported a significant decline in poverty after 2011-12 although they differ from each other on the level of poverty as well as the magnitude of poverty reduction since 2011-12.
The IMF working paper is authored by Surjit Bhalla, Arvind Virmani and Karan Bhasin. This paper is similar to Bhalla’s earlier work on poverty in terms of methodology with not very different conclusions. Bhalla has argued for long that CES surveys do not capture the estimates of consumption expenditure correctly and are unfit for poverty measurement. He maintains that position here as well and in fact justifies the withholding of the 2017-18 CES survey by the government. He prefers using the Private Final Consumption Expenditure (PFCE) estimates from the national accounts. The difference between survey estimates of consumption expenditure and national accounts (NA) are not unique to India.
But the PFCE estimates do not give the distribution of consumption across households which is a prerequisite for estimating poverty. These are derived aggregates and are available for the country as a whole with no separate estimate for rural/urban or states. Bhalla or anyone else is left with no choice but to use the same CES surveys they dismiss as faulty for getting consumption estimates. One implication of this is that while the consumption expenditure estimates obtained from the surveys are deemed faulty and biased, the ranking of households from the same consumption surveys is seen as free from error. While they find the 2011-12 survey to be right, they see the 2017-18 survey as faulty even though both have been done using the same sampling strategy and concepts and by the same institution.
There is nothing new in this method of updating the NSS survey estimates using estimates from the PFCE. But it has been rejected multiple times by official expert committees after careful examination of the differences between the two estimates. All committees concluded that these are essentially non-comparable because of differences in concepts, design and aggregation methodology. All committees have unanimously rejected the practice of adjusting survey estimates based on NAS estimates of PFCE. This is not the practice in India, or anywhere in the world.
Based on this flawed methodology, Bhalla concludes that India has eradicated extreme poverty even before the pandemic with the percentage of population below the $1.9 poverty line of the World Bank at only 1.4 per cent. While the levels may vary, his conclusions on the trend in poverty reduction are not very different from a completely different exercise by the World Bank. Both conclude that poverty reduction has slowed down in the last seven years of the present NDA government compared to the 10-year period of 2004-2014 of the UPA. While Bhalla reports 26 million people moving out of poverty every year during the UPA regime, this number is one third at 8.6 million for the NDA government. In terms of percentage point per annum (ppa) reduction in poverty, it is 2.5 ppa for the UPA declining to one fourth at 0.7 ppa for the current NDA.
The World Bank estimates also come to a similar conclusion with the rate of poverty reduction between 2004-11 at 2.5 ppa which declines to almost half at 1.3 ppa for 2011-18. They arrive at their figures by using estimates from the Consumer Pyramid Survey of Households (CPSH), a privately conducted survey by the Centre for Monitoring Indian Economy (CMIE). They do this by reweighing the household and population weights of the CPSH given the problems with the survey. While their methodology is also questionable, they try and adjust for the anomalies of the CPSH surveys to arrive at estimates as close as possible to the NSS surveys. Notably, they also dismiss the Bhalla methodology as one of the options.
While the broad conclusion of a sharp slowdown in poverty reduction during the present NDA government compared to the UPA period may be valid, there are differences in the level and extent of poverty reduction claimed, with some studies showing a rise in poverty. But the real issue is not just what happened to poverty and inequality but also what factors contributed to poverty reduction.
There appears to be a consensus that many of the initiatives during the UPA era, including the rural employment guarantee programme and the Food Security Act have contributed to improvement in the lives of the poor, pulling them out of poverty. Bhalla also agrees and documents the stellar role of the in-kind transfers through the subsidised food scheme under the Public Distribution System. The expansion of the PDS during the pandemic has certainly contributed to reducing the misery of the poor who suffered through a sharp slowdown of the economy and the subsequent disruption in economic activity during the pandemic. This calls for strengthening the social safety nets and expenditure on food and livelihood schemes given the challenge of economic recovery coupled with rising inflation.
But an important message is also to strengthen the statistical system and make it independent of state interference. Poverty, inequality and a deeper understanding of what works for poverty reduction is not just an academic exercise but is crucial for designing policies and programmes that work. The responsibility of anchoring policies and programmes to clearly defined goals of poverty reduction rests with the government. Given the controversy over poverty estimates, it is all the more important that the government conducts the CES at the earliest and decides the yardstick of measuring poverty which is the poverty line.
Written by HIMANSHU
The writer teaches at JNU
Source: Indian Express, 12/04/22
