Inclusive Development :-The quintile income and the poverty line
Background:-
The rhetoric of “inclusive development” tends often to be lost in vague generalities, when it is not altogether absent in various processes on the ground or in state policy that claims to be inspired by its demands. This note suggests that in at least one specific and restricted area of application – the intersection of poverty, inequality and growth – it should be possible to capture some elementary aspect of inclusiveness by monitoring trends, set against targets, of the “quintile income” statistic. This statistic, which was proposed in earlier work by Kaushik Basu, is a simple and useful aid to verifying the reach of inclusiveness in a specific dimension of development, a theme that is elaborated on in this note.
Introduction:-
Every season has its buzzword, and the vogue today, it would appear, is “inclusive development”. One supposes that the term is intended to cover a multitude of desirable aims and goals. As such, it seems reasonable to believe, for instance, that “inclusive development” would have implications for the notions of “national integration” and “citizenship”, and therefore for recent events on the ground in Jammu and Kashmir, the north-east, and the so-called “Maoist Belt”.
Similarly, one must expect that an engagement with “inclusive development” must imply also an engagement with various manifestations of social exclusion based – for example – on caste, religious,and gender identities. A third area of relevance would presumably relate to the extent – measured by both depth and coverage – of social security provisioning for the deprived. This is just a minute sample of the objects of concern of the term under discussion – but the sample is large enough to highlight certain elementary distinctions and contrasts.In particular, it is impossible not to see that there is the engagement in principle and disengagement in practice, just as there are pretty phrases and ugly facts.
Thus, for many, the State’s protestations of “inclusive development” make for a clanging, angling discord when juxtaposed with talk of sedition and anti-national activity; with the facts of manual scavenging, the socio-economic status of Muslims (as revealed in the Sachar Committee’s report), and the scale of sex-selective foeticide in the country; and with the widespread perception that the unique identification (UID) programme which has been advertised as facilitating the “targeting” of public benefits is, on the contrary, a mechanism for excluding large numbers of deserving citizens from the ambit of social assistance (when it is not associated with more sinister forms of intrusive surveillance of the citizenry). But we live in the age of the specialist, and it may not be for me to dwell at any length on these subjects. Having said this, it is also true that a further area of concern when we speak of “inclusive development” relates to the domains of poverty, inequality, and growth.
The Quintile income:-
It appears that the World Bank is planning to maintain and disseminate systematic information on a version of what Kaushik Basu had some years ago advanced as the ‘quintile income statistic’. The quintile income—which we shall find convenient to refer to simply as Q—is just the average income of the poorest quintile (that is to say, poorest 20 per cent) of a population. The quintile income statistic is a very simple, but also very versatile, welfare indicator—one which can be employed to cast light, admittedly in a somewhat elementary way, on aspects of both income poverty and the ‘inclusiveness’ of growth. The World Bank aims to track, subject to the availability of data, country-specific performance with respect to the average income of the poorest 40 per cent of the population (rather than 20 per cent, as Basu had proposed in his original version of the statistic).
The Poverty Line:-
As is well-known, extant protocols of money-metric poverty measurement follow what one may call the route of ‘identification-cum-aggregation’. The identification exercise is concerned with specifying an income ‘poverty line’ designed to distinguish the poor segment of a population from its non-poor segment. The aggregation exercise is concerned with combining information on the distribution of income and the poverty line in order to come up with a single real number which is supposed to signify the extent of poverty in the society under review. A particularly simple aggregate measure of poverty, and one which is very widely employed, is the so-called headcount ratio, or proportion of the population in poverty (that is to say, the proportion of the population with incomes or consumption expenditure levels below the poverty line).
It is important to recognize that the language of a ‘poverty line’ is ill-suited to treating income as anything but a means to an end—specifically the end of avoiding deprivation in the space of human functionings. After all, what is the common sense meaning of the term ‘poverty line’? Is it not a reference to that level of income which, when it is attained, enables an individual to escape deprivation? And what is deprivation, if not a failure to achieve certain ‘minimally satisfactory’ states of being and doing—such as the state of being reasonably well-nourished, reasonably mobile, reasonably free of disease and ignorance, reasonably sheltered against the forces of nature and climate, reasonably equipped to participate without shame in the affairs of one’s society, and so on? And if this is the case, surely the right way of going about fixing the poverty line would be to first make a list of human functionings in respect of which it is reasonable to insist that one should avoid deprivation in order to be counted non-poor; to identify the reasonable cost of achieving each reasonable level of functioning; and to add up all of these functioning-specific costs in order to arrive at the money-metric poverty line.
Notice now that there can be both inter-personal and ‘environment-’ or ‘context-dependent’ factors which can make for differences in the rate at which incomes (or resources in general) are converted into functionings.
Thus, a pregnant or lactating mother will typically need more nutritional resources than a person who, other things equal, is not in this condition. Similarly, a differently abled person would typically need more resources to achieve the functioning of mobility than one who is not so. Apart from such individual heterogeneities, are also differences wrought by variations in the objective environment. Thus, a person living in unsanitary conditions without access to clean drinking water might be expected to require more food to achieve the same nutritional status as one whose absorptive capacity is not compromised by infected potable water. Similarly, a person living in a cold climate would require more resources to expend on protective clothing than one living in a temperate climate. We owe all of these insights to Amartya Sen who, many years ago, employed this line of argumentation to assert that poverty is best seen as an absolute concept in the space of functionings, but (and precisely because of variations across regimes in the ability to convert resources into functionings), as a relative concept in the space of resources (including income).
The practical issue is this: for poverty comparisons to be meaningful, the poverty standard must be invariant across the contexts of comparison. But invariant in what space? In the space of functionings (which is compatible with variability in the space of resources), not in the space of real incomes or of commodity bundles.
Yet, in practice, the World Bank’s ‘dollar-a-day’ international poverty line preserves invariance in the space of real incomes, while India’s official poverty lines preserve invariance in the space of commodity bundles. Regrettably, the language of a ‘poverty line’—in terms of which incomes or resources are seen as a means to the end of avoiding deprivation in the space of functionings—is wholly incompatible with such postulated invariance of real incomes or commodity bundles. The resulting estimates of ‘poverty’ are, quite straightforwardly put, hard to interpret in any conceptually coherent or meaningful way. And the problem cannot simply be taken care of by impatient assertions regarding the unavoidability of some element of arbitrariness in the specification of an income poverty line
Conclusion:-
Rectification of standard practice would require that poverty be treated as an absolute conception in the space of human functionings, and as a relative conception—allowing for both interpersonal and contextual heterogeneities—in the space of incomes. This is a practically very difficult exercise to implement, but is the price that must be paid for treating income—in terms of the language of a ‘poverty line’—as a means to an end. Failing this, income could be treated as an end in itself, in which case the quintile income can be employed as a legitimate money-metric indicator of poverty. Over-time comparisons of the actual quintile income with reasonably targeted levels based on a normative growth rate should yield a picture of how money-metric poverty has fared over time. Suitable comparisons of the over-time performance of the average incomes of the richest and the poorest declines over time—should yield a picture of the inclusiveness or otherwise of growth. In conclusion, there is a strong case for replacing dollar-a-day-type approaches to the estimation of money-metric poverty by a more straightforward ‘quintile income approach’, which can also be employed in order to pronounce judgment on whether or not growth in income has been ‘pro-poor’ or inclusive.
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Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.
Globally, around 80% of wastewater flows back into the ecosystem without being treated or reused, according to the United Nations.
This can pose a significant environmental and health threat.
In the absence of cost-effective, sustainable, disruptive water management solutions, about 70% of sewage is discharged untreated into India’s water bodies.
A staggering 21% of diseases are caused by contaminated water in India, according to the World Bank, and one in five children die before their fifth birthday because of poor sanitation and hygiene conditions, according to Startup India.
As we confront these public health challenges emerging out of environmental concerns, expanding the scope of public health/environmental engineering science becomes pivotal.
For India to achieve its sustainable development goals of clean water and sanitation and to address the growing demands for water consumption and preservation of both surface water bodies and groundwater resources, it is essential to find and implement innovative ways of treating wastewater.
It is in this context why the specialised cadre of public health engineers, also known as sanitation engineers or environmental engineers, is best suited to provide the growing urban and rural water supply and to manage solid waste and wastewater.
Traditionally, engineering and public health have been understood as different fields.
Currently in India, civil engineering incorporates a course or two on environmental engineering for students to learn about wastewater management as a part of their pre-service and in-service training.
Most often, civil engineers do not have adequate skills to address public health problems. And public health professionals do not have adequate engineering skills.
India aims to supply 55 litres of water per person per day by 2024 under its Jal Jeevan Mission to install functional household tap connections.
The goal of reaching every rural household with functional tap water can be achieved in a sustainable and resilient manner only if the cadre of public health engineers is expanded and strengthened.
In India, public health engineering is executed by the Public Works Department or by health officials.
This differs from international trends. To manage a wastewater treatment plant in Europe, for example, a candidate must specialise in wastewater engineering.
Furthermore, public health engineering should be developed as an interdisciplinary field. Engineers can significantly contribute to public health in defining what is possible, identifying limitations, and shaping workable solutions with a problem-solving approach.
Similarly, public health professionals can contribute to engineering through well-researched understanding of health issues, measured risks and how course correction can be initiated.
Once both meet, a public health engineer can identify a health risk, work on developing concrete solutions such as new health and safety practices or specialised equipment, in order to correct the safety concern..
There is no doubt that the majority of diseases are water-related, transmitted through consumption of contaminated water, vectors breeding in stagnated water, or lack of adequate quantity of good quality water for proper personal hygiene.
Diseases cannot be contained unless we provide good quality and adequate quantity of water. Most of the world’s diseases can be prevented by considering this.
Training our young minds towards creating sustainable water management systems would be the first step.
Currently, institutions like the Indian Institute of Technology, Madras (IIT-M) are considering initiating public health engineering as a separate discipline.
To leverage this opportunity even further, India needs to scale up in the same direction.
Consider this hypothetical situation: Rajalakshmi, from a remote Karnataka village spots a business opportunity.
She knows that flowers, discarded in the thousands by temples can be handcrafted into incense sticks.
She wants to find a market for the product and hopefully, employ some people to help her. Soon enough though, she discovers that starting a business is a herculean task for a person like her.
There is a laborious process of rules and regulations to go through, bribes to pay on the way and no actual means to transport her product to its market.
After making her first batch of agarbathis and taking it to Bengaluru by bus, she decides the venture is not easy and gives up.
On the flipside of this is a young entrepreneur in Bengaluru. Let’s call him Deepak. He wants to start an internet-based business selling sustainably made agarbathis.
He has no trouble getting investors and to mobilise supply chains. His paperwork is over in a matter of days and his business is set up quickly and ready to grow.
Never mind that the business is built on aggregation of small sellers who will not see half the profit .
Is this scenario really all that hypothetical or emblematic of how we think about entrepreneurship in India?
Between our national obsession with unicorns on one side and glorifying the person running a pakora stall for survival as an example of viable entrepreneurship on the other, is the middle ground in entrepreneurship—a space that should have seen millions of thriving small and medium businesses, but remains so sparsely occupied that you could almost miss it.
If we are to achieve meaningful economic growth in our country, we need to incorporate, in our national conversation on entrepreneurship, ways of addressing the missing middle.
Spread out across India’s small towns and cities, this is a class of entrepreneurs that have been hit by a triple wave over the last five years, buffeted first by the inadvertent fallout of demonetization, being unprepared for GST, and then by the endless pain of the covid-19 pandemic.
As we finally appear to be reaching some level of normality, now is the opportune time to identify the kind of industries that make up this layer, the opportunities they should be afforded, and the best ways to scale up their functioning in the shortest time frame.
But, why pay so much attention to these industries when we should be celebrating, as we do, our booming startup space?
It is indeed true that India has the third largest number of unicorns in the world now, adding 42 in 2021 alone. Braving all the disruptions of the pandemic, it was a year in which Indian startups raised $24.1 billion in equity investments, according to a NASSCOM-Zinnov report last year.
However, this is a story of lopsided growth.
The cities of Bengaluru, Delhi/NCR, and Mumbai together claim three-fourths of these startup deals while emerging hubs like Ahmedabad, Coimbatore, and Jaipur account for the rest.
This leap in the startup space has created 6.6 lakh direct jobs and a few million indirect jobs. Is that good enough for a country that sends 12 million fresh graduates to its workforce every year?
It doesn’t even make a dent on arguably our biggest unemployment in recent history—in April 2020 when the country shutdown to battle covid-19.
Technology-intensive start-ups are constrained in their ability to create jobs—and hybrid work models and artificial intelligence (AI) have further accelerated unemployment.
What we need to focus on, therefore, is the labour-intensive micro, small and medium enterprise (MSME). Here, we begin to get to a definitional notion of what we called the mundane middle and the problems it currently faces.
India has an estimated 63 million enterprises. But, out of 100 companies, 95 are micro enterprises—employing less than five people, four are small to medium and barely one is large.
The questions to ask are: why are Indian MSMEs failing to grow from micro to small and medium and then be spurred on to make the leap into large companies?
At the Global Alliance for Mass Entrepreneurship (GAME), we have advocated for a National Mission for Mass Entrepreneurship, the need for which is more pronounced now than ever before.
Whenever India has worked to achieve a significant economic milestone in a limited span of time, it has worked best in mission mode. Think of the Green Revolution or Operation Flood.
From across various states, there are enough examples of approaches that work to catalyse mass entrepreneurship.
The introduction of entrepreneurship mindset curriculum (EMC) in schools through alliance mode of working by a number of agencies has shown significant improvement in academic and life outcomes.
Through creative teaching methods, students are encouraged to inculcate 21st century skills like creativity, problem solving, critical thinking and leadership which are not only foundational for entrepreneurship but essential to thrive in our complex world.
Udhyam Learning Foundation has been involved with the Government of Delhi since 2018 to help young people across over 1,000 schools to develop an entrepreneurial mindset.
One pilot programme introduced the concept of ‘seed money’ and saw 41 students turn their ideas into profit-making ventures. Other programmes teach qualities like grit and resourcefulness.
If you think these are isolated examples, consider some larger data trends.
The Observer Research Foundation and The World Economic Forum released the Young India and Work: A Survey of Youth Aspirations in 2018.
When asked which type of work arrangement they prefer, 49% of the youth surveyed said they prefer a job in the public sector.
However, 38% selected self-employment as an entrepreneur as their ideal type of job. The spirit of entrepreneurship is latent and waiting to be unleashed.
The same can be said for building networks of successful women entrepreneurs—so crucial when the participation of women in the Indian economy has declined to an abysmal 20%.
The majority of India’s 63 million firms are informal —fewer than 20% are registered for GST.
Research shows that companies that start out as formal enterprises become two-three times more productive than a similar informal business.
So why do firms prefer to be informal? In most cases, it’s because of the sheer cost and difficulty of complying with the different regulations.
We have academia and non-profits working as ecosystem enablers providing insights and evidence-based models for growth. We have large private corporations and philanthropic and funding agencies ready to invest.
It should be in the scope of a National Mass Entrepreneurship Mission to bring all of them together to work in mission mode so that the gap between thought leadership and action can finally be bridged.