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http://www.thehindu.com/2010/02/05/stories/2010020554300800.htm

A methodology deeply flawed
Madhura Swaminathan

For some years, the Government of India has been under pressure to change the norms for calculating the official poverty line. Current norms have resulted in gross and manifest underestimation of the numbers of the poor, and, consequently, in the exclusion of hundreds of millions of people from development programmes. The exclusion of malnourished households from the public distribution system has been the most visible form of such exclusion; exclusion also characterises a wide range of development schemes that are based on the principle of targeting “below poverty line” (BPL) households.

The current poverty lines are based on a consumption basket that derives from a 1973-74 consumer survey, and are intended to ensure 2100 calories per person per day in urban areas and 2400 calories per person per day in rural areas. These poverty lines have been criticised for being too low, and for focussing exclusively on food consumption norms, and ignoring expenditure on health, education and other basic needs.

Less than two months ago, the Report of the Expert Group to Review the Methodology for Estimation of Poverty (chaired by Professor Suresh Tendulkar) was submitted to the Planning Commission.

The best-known outcome of the Report is that the poverty line that it has proposed is higher than the current poverty line for rural areas, and has resulted in a dramatic increase in the proportion of the rural poor in India. At the all-India level, the Report estimates that 41.8 per cent of rural households were below the poverty line in 2004-05 (the current estimate is 28.3 per cent).

While the main outcome of the Report is thus to raise the share of the population below the official poverty line by about 14 percentage points, its methodology is deeply flawed. The poverty line that it proposes actually depends on reduced calorie consumption, and fails to provide for reasonable household expenditures on schooling and health.

The new poverty line for rural and urban areas is simply the old poverty line for urban areas in 2004-05. The Committee defends the choice of the poverty line for urban areas in India in 2004-05 as the all-India poverty line on three main grounds. First, it is defended as being “generally accepted as… less controversial than its rural counterpart.” Secondly, it is defended on grounds of statistical consistency and comparability over time. Thirdly, the Report argues that the proposed poverty line is reasonable because it happens simultaneously to ensure satisfactory nutrition, health and education
outcomes.

This claim that the revised poverty line is adequate to meet expenditure requirements with respect to nutrition, education and health is invalid. First, the Committee has actually lowered the calorie intake requirement from 2100 kcal per day for urban areas and 2400 kcal per day for rural areas to a single norm of 1800 kcal per day. The Report says that “the revised minimum calorie norm for India recommended by FAO is currently around 1800 calories per capita per day which is very close to the average calorie intake of those near the poverty line in urban areas (1776 calories per capita).” What it does not say is that the standards set by the Food and Agriculture Organisation for energy requirements are for “minimum dietary energy requirements” or MDER. MDER is defined as the amount of energy needed for light or sedentary activity. Nutritionists prescribe energy requirements that vary by age,
sex, and activity level. The proposal that the standard for light activity be taken as the requirement for an average person with expenditure around the poverty line is unacceptable. It is a fiction that will result in a gross underestimation of the population of the poor.

According to the FAO, an example of sedentary or light activity is of “a male office worker in urban areas who only occasionally engage in physically demanding activities during or outside working hours.” No poor person struggling to make a living in the informal sector would fit this description. Can a domestic worker in urban areas who scrubs floors and dishes, and washes clothes at work and home for at least eight hours a day be assumed to engage in light activity? Or can we assume that a head load worker who carries heavy sacks through the day is engaged in light activity? Anyone who has observed how hard the urban poor toil for their paltry wages will see the absurdity of this assumption.

Secondly, the FAO Report warns that in countries where under-nutrition is high, “a large proportion of the population consumes dietary energy levels close to the cut-off point, making MDER a highly sensitive parameter.” In India, drawing a poverty line at the MDER is clearly problematic, since taking a slightly higher cut-off will increase the number of poor people substantially.

Thirdly, FAO data show that in all countries where undernourishment affects less than 5 per cent of the population, irrespective of income level, the average per capita energy supply is greater than 2800 kcal per day. The per capita energy supply was, for example, 3100 kcal per day in Iran, 3320 in Egypt, 2860  in Malaysia and 3030 in Korea. It is thus clear that in countries with low malnutrition, average calorie intake is much higher than 1800 calories.

The Report’s claims about education and health are equally unacceptable.

The Report states that in 2004-05, 90 per cent of children aged 5 to 14 years belonging to households at the poverty line level in the urban areas were in school. This is assumed to be a satisfactory outcome, although it falls short of universal schooling. Secondly, it assumes that the median cost of sending a child to school, as reported in the National Sample Survey employment survey, sets a normative or desirable level of expenditure on a child in school. Thirdly, according to the Report, the average expenditure on education per child among households in the poverty line expenditure class was higher than the median cost of schooling per child. From these observations, it is concluded that actual expenditure is adequate to ensure that children are in school.

The assumption by the expert committee that the median cost is adequate to ensure proper schooling for all children is incorrect.

Here is an illustration. First, given high inequality of expenditure on education in urban India, the median cost is likely to be lower than the mean cost. Thus, if the Committee had taken the mean expenditure as
the norm, actual expenditure may have been inadequate among households at the poverty line. Secondly, even if all children of a household at the poverty line are in school, they may not have all the notebooks required or proper uniforms or other study materials. In other words, the fact of school enrolment or attendance is no assurance of the adequacy of household expenditure on schooling. There is no discussion of the absolute level of the estimated median cost of schooling, and whether it can be interpreted as a minimum desirable level of expenditure. Thirdly, the actual expenditure incurred on education by a household at the poverty line may be at the cost of rising indebtedness. If a household is borrowing heavily to send its children to school, the sustainability of educational expenditure is also in question.

In sum, the Expert Group chaired by Professor Tendulkar chose the urban poverty line of 2004-05 to serve as the new national poverty line on the grounds that it was “less controversial” than the current rural poverty line and also fulfilled the requirement of statistical consistency over time. This new poverty line was justified on the grounds that it also provides for minimum nutritional, health and educational outcomes. These justifications do not stand up to scrutiny.

(Dr. Madhura Swaminathan, an economist, is a Professor at the Indian Statistical Institute, Kolkata.)