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Is the governemnt hiding the poverty levels? How to Read India’s Poverty Stats

In the year ending 2012 there were 269.3 million people (21.9% of the population) living below the poverty line, the Planning Commission, the government’s think-tank, said Tuesday.
For sure, that’s a huge number, but it’s far lower than the 407.1 million people under the poverty line in the year ending 2005, when the Planning Commission estimated that 37.2% of the population were living in poverty.
And the latest estimates also showed a significant decrease from almost two decades ago when in the year ending 1994, there were 403.7 million people, or 45.3% of the population in poverty.
Local newspaper headlines celebrated the fall. “Now, only 22% of Indians below poverty line, Planning Commission” said the Economic Times.
“Poverty shrunk under UPA govt: Planning Commission,” was the headline in the Hindu.
But how accurate are these most recent estimates and do they stand up to economic scrutiny?
Some experts have questioned the government’s definition of poverty and argue that it may lead to a gross underestimation of poverty levels in India.
The Planning Commission’s data are based on a methodology recommended in 2005  by a panel of experts headed by economist Suresh Tendulkar who died in June 2011.
The methodology defines poverty in terms of consumption or spending of an individual during a certain period.
Only those spending up to around 27 rupees a day (45 cents)  in rural areas and about 33 rupees (55 cents) in urban areas would be counted as living in poverty. The Commission’s report does not qualify the term “poverty.”
Critics say the spending line has been drawn too low. The lower the poverty line, the fewer people who qualify as existing beneath it.
Economic realities, such as the high and rising cost of food, rent and commodities, in India, mean it is impossible to make even bare minimum purchases of food with such small amounts of money, some economists say.
The average cost of 1 kilogram of rice sold through the government’s public distribution system at subsidized rates for instance is currently around 18-20 rupees.
The estimates don’t present an accurate picture of the number of those who live in very poor conditions, critics add.
N.C. Saxena, a former bureaucrat who monitors food programs in India on behalf of the Supreme Court of India, says the estimates of numbers living in poverty are meaningless in the current economic climate.
He says the poverty line has been historically set at “very very low levels” in India.
The latest definition puts the poverty line slightly below the lowest levels set by the World Bank; levels at which the bank says people are living at the edge of subsistence.
The World Bank’s extreme poverty line is based on purchasing power parity, or PPP, for $1.25. The PPP compares the amount of currency needed to buy the same item in different countries.
The Indian rupee’s conversion rate under PPP was 22 rupees to every U.S. dollar in 2012, which translates to a poverty line of 27.5 rupees, half a rupee above that set by the government for rural areas in India. When put in line with the World Bank’s higher poverty line for middle-income economies of $2 a day, the poverty line in India would be 44 rupees.
Mr. Saxena, however, notes that consumption among the weakest sections of society has increased significantly over the past decade, a comforting indicator of improvement in living conditions.
According to the National Sample Survey Organization — a unit of India’s statistics ministry — which carried out a survey of spending among households in 2010-11, consumption increased at an annual rate of 4.0%-4.2% since 2004-05 compared with a 2.0%-2.5% average annual increase in each of the preceding ten years.
N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a Delhi-based think-tank, says lifting the poverty line should always remain an objective as it would indicate improvement in living standards.
However, given the financial constraints faced by the government, the current limit appears pragmatic, he said.
More people in the poverty bracket would have meant a larger financial burden on the government, which it may not be in a position to bear, Mr. Bhanumurthy added.
A lower poverty line, on the other hand, allows the government to target welfare policies at the weakest sections of society, he said.
The timing of the government’s announcement has raised some eyebrows.
Critics say the government could have waited for the recommendations of another panel headed by C. Rangarajan, the top economic adviser to Indian Prime Minister Manmohan Singh, before announcing the statistics on poverty in India.
The Rangarajan panel was set up in June last year to review the methodology used for estimating poverty after widespread criticism over how low the poverty line had been set by the government on the basis of the recommendations of the Tendulkar committee.
The government Tuesday said the Rangarajan panel’s report is expected only by the middle of 2014.
But since the spending survey conducted by the NSSO has already been completed, it decided to release updated poverty estimates in advance of the findings of the Rangarajan panel.



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