Syllabus:- GS I (Poverty and developmental issues); GS II (Issues relating to poverty and hunger)
- India has not released its Consumption Expenditure Survey (CES) data since 2011-12. Normally a CES is conducted by the National Sample Survey Office (NSO) every five years. But the CES of 2017-18 (already conducted a year late) was not made public by the Government of India. Now, it is likely to be conducted in 2021-22, the data from which will probably not be available before end-2022.
- Meanwhile, we know that the economy has been slowing for nine quarters prior to the outbreak of the novel coronavirus pandemic. Unemployment had reached a 45-year high in 2017-18, as revealed by NSO’s Periodic Labour Force Survey (PLFS).
Sufficient to estimate change
India’s labour force surveys, including the five-yearly Employment-Unemployment Rounds from 1973-4 to 2011-12, have also collected consumption expenditure of households. The PLFS has maintained that tradition. While the PLFS’s questions on consumption expenditure are not as detailed as those of the CES, they are sufficient for us to estimate changes in consumption on a consistent basis across time.
It enables any careful researcher to estimate the incidence of poverty (i.e., the share in the total population of those below the poverty line), as well as the total number of persons below poverty.
There is a clear trajectory of the incidence of poverty falling from 1973 to 2012. In fact, since India began collecting data on poverty, the incidence of poverty has always fallen, consistently. It was 54.9% in 1973-4; 44.5% in 1983-84; 36% in 1993-94 and 27.5% in 2004-05.
This was in accordance with the Lakdawala poverty line (which was lower than the Tendulkar poverty line), named after a distinguished economist, then a member of the Planning Commission.
Methodology
- In 2011, it was decided in the Planning Commission, that the national poverty line will be raised in accordance with the recommendations of an expert group chaired by the late Suresh Tendulkar (then professor of Economics at the Delhi School of Economics).
- That is the poverty line we use in estimating poverty. As it happens, this poverty line was comparable at the time to the international poverty line (estimated by the World Bank), of $1.09 (now raised to $1.90 to account for inflation) person per day.
Based on the Tendulkar poverty line, the poverty estimates for 2004-05 and 2011-12 are to be found in the Planning Commission’s own estimates using the CES of those years. Hence, it was extended the 2011-12 poverty line for each State and used the consumption expenditure reported by the PLFS to estimate a consistent poverty head count ratio (i.e., incidence of poverty in the population) as well as the absolute number of the poor.
In the absence of CES data, the PLFS can be used to estimate the incidence of poverty. It also collects the household monthly per capita consumption expenditure data based on the Mixed Recall Period methodology.
Similar to the CES, the PLFS (PLFS annual report, 2019-20, page 6) also asks the household questions about expenses on health, clothing and bedding, education, footwear and consumer durables for a 365 day recall period — prior to the day of the survey; but for non-durable consumption goods/services — including expenses on food, housing and conveyance, etc. — its question expects a recall period of 30 days prior to the day of survey.
An urban and rural rise
- What is stunning is that for the first time in India’s history of estimating poverty, there is a rise in the incidence of poverty since 2011-12.
- The important point is that this is consistent with the NSO’s CES data for 2017-18 that was leaked. The leaked data showed that rural consumption between 2012 and 2018 had fallen by 8%, while urban consumption had risen by barely 2%.
- Since the majority of India’s population (certainly over 65%) is rural, poverty in India is also predominantly rural. Remarkably, by 2019-20, poverty had increased significantly in both the rural and urban areas, but much more so in rural areas (from 25% to 30%).
- It is also for the first time since the estimation of poverty began in India on a consistent basis, that the absolute number of poor has risen: from 217 million in 2012 to 270 million in 2019-20 in rural areas; and from 53 million to 71 million in the urban areas; or a total increase of the absolute poor of about 70 million.
It is important here to recall two facts: between 1973 and 1993, the absolute number of poor had remained constant (at about 320 million poor), despite a significant increase in India’s total population.
Between 1993 and 2004, the absolute number of poor fell by a marginal number (18 million) from 320 million to 302 million, during a period when the GDP growth rate had picked up after the economic reforms.
It is for the first time in India’s history since the CES began that we have seen an increase in the absolute numbers of the poor, between 2012-13 and 2019-20.
The second fact is that for the first time ever, between 2004-05 and 2011-12, the number of the poor fell, and that too by a staggering 133 million, or by over 19 million per year.
This was accounted for by what has come to be called India’s ‘dream run’ of growth: over 2004 and 2015, the GDP growth rate had averaged 8% per annum — a 10-year run that was not sustained thereafter. By contrast, not only has the incidence of poverty increased since then, but the absolute increase in poverty is totally unprecedented.
The contributory factors
The reasons for increased poverty since 2013 are not far to seek. While the economy maintained some growth momentum till 2015, the demonetisation followed by introduction of Goods and Services Tax, both delivered body blows to the unorganised sector and Micro, Small and Medium Enterprises.
The economic slowdown followed. None of the four engines of growth was firing after that. Private investment fell from 31% inherited by the new government, to 28% of GDP by 2019-20. Public expenditure was constrained by a silent fiscal crisis.
Exports, which had never fallen in absolute dollar terms for a quarter century since 1991, actually fell below the 2013-14 level ($315 billion) for five years. Consumption stagnated and household savings rates fell.
Joblessness increased to a 45-year high by 2017-18 (by the usual status), and youth (15-29 years of age) saw unemployment triple from 6% to 18% between 2012 and 2018.
Real wages did not increase for casual or regular workers over the same period, hardly surprising when job seekers were increasing but jobs were not at anywhere close to that rate. Hence, consumer expenditure fell, and poverty increased.
Poverty is expected to rise further during the COVID-19 pandemic after the economy has contracted.
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Steve Ovett, the famous British middle-distance athlete, won the 800-metres gold medal at the Moscow Olympics of 1980. Just a few days later, he was about to win a 5,000-metres race at London’s Crystal Palace. Known for his burst of acceleration on the home stretch, he had supreme confidence in his ability to out-sprint rivals. With the final 100 metres remaining,
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]Ovett waved to the crowd and raised a hand in triumph. But he had celebrated a bit too early. At the finishing line, Ireland’s John Treacy edged past Ovett. For those few moments, Ovett had lost his sense of reality and ignored the possibility of a negative event.
This analogy works well for the India story and our policy failures , including during the ongoing covid pandemic. While we have never been as well prepared or had significant successes in terms of growth stability as Ovett did in his illustrious running career, we tend to celebrate too early. Indeed, we have done so many times before.
It is as if we’re convinced that India is destined for greater heights, come what may, and so we never run through the finish line. Do we and our policymakers suffer from a collective optimism bias, which, as the Nobel Prize winner Daniel Kahneman once wrote, “may well be the most significant of the cognitive biases”? The optimism bias arises from mistaken beliefs which form expectations that are better than the reality. It makes us underestimate chances of a negative outcome and ignore warnings repeatedly.
The Indian economy had a dream run for five years from 2003-04 to 2007-08, with an average annual growth rate of around 9%. Many believed that India was on its way to clocking consistent double-digit growth and comparisons with China were rife. It was conveniently overlooked that this output expansion had come mainly came from a few sectors: automobiles, telecom and business services.
Indians were made to believe that we could sprint without high-quality education, healthcare, infrastructure or banking sectors, which form the backbone of any stable economy. The plan was to build them as we went along, but then in the euphoria of short-term success, it got lost.
India’s exports of goods grew from $20 billion in 1990-91 to over $310 billion in 2019-20. Looking at these absolute figures it would seem as if India has arrived on the world stage. However, India’s share of global trade has moved up only marginally. Even now, the country accounts for less than 2% of the world’s goods exports.
More importantly, hidden behind this performance was the role played by one sector that should have never made it to India’s list of exports—refined petroleum. The share of refined petroleum exports in India’s goods exports increased from 1.4% in 1996-97 to over 18% in 2011-12.
An import-intensive sector with low labour intensity, exports of refined petroleum zoomed because of the then policy regime of a retail price ceiling on petroleum products in the domestic market. While we have done well in the export of services, our share is still less than 4% of world exports.
India seemed to emerge from the 2008 global financial crisis relatively unscathed. But, a temporary demand push had played a role in the revival—the incomes of many households, both rural and urban, had shot up. Fiscal stimulus to the rural economy and implementation of the Sixth Pay Commission scales had led to the salaries of around 20% of organized-sector employees jumping up. We celebrated, but once again, neither did we resolve the crisis brewing elsewhere in India’s banking sector, nor did we improve our capacity for healthcare or quality education.
Employment saw little economy-wide growth in our boom years. Manufacturing jobs, if anything, shrank. But we continued to celebrate. Youth flocked to low-productivity service-sector jobs, such as those in hotels and restaurants, security and other services. The dependence on such jobs on one hand and high-skilled services on the other was bound to make Indian society more unequal.
And then, there is agriculture, an elephant in the room. If and when farm-sector reforms get implemented, celebrations would once again be premature. The vast majority of India’s farmers have small plots of land, and though these farms are at least as productive as larger ones, net absolute incomes from small plots can only be meagre.
A further rise in farm productivity and consequent increase in supply, if not matched by a demand rise, especially with access to export markets, would result in downward pressure on market prices for farm produce and a further decline in the net incomes of small farmers.
We should learn from what John Treacy did right. He didn’t give up, and pushed for the finish line like it was his only chance at winning. Treacy had years of long-distance practice. The same goes for our economy. A long grind is required to build up its base before we can win and celebrate. And Ovett did not blame anyone for his loss. We play the blame game. Everyone else, right from China and the US to ‘greedy corporates’, seems to be responsible for our failures.
We have lowered absolute poverty levels and had technology-based successes like Aadhaar and digital access to public services. But there are no short cuts to good quality and adequate healthcare and education services. We must remain optimistic but stay firmly away from the optimism bias.
In the end, it is not about how we start, but how we finish. The disastrous second wave of covid and our inability to manage it is a ghastly reminder of this fact.