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Distorted data

Indian dilemma

by Clemens Spiess
Rice farmers in the Indian state of West Bengal

Rice farmers in the Indian state of West Bengal

The Tendulkar Commission was appointed by the Indian government to assess the extent of the country’s poverty. It established that rural poverty is more wide-spread than officialdom previously admitted. Donor governments should take heed of this result. [ By Clemens Spiess ]

It was too good to be true. For years, the Indian government reported noticeable declines in poverty after liberalisation policies started in the early 1990s. According to official data, the share of the absolute poor fall from 36 % of Indians to 27 % in 2005 (which still meant an astounding 297 million people were poor). It seemed that the trickle-down theory was proving true. India was apparently making progress towards fulfilling the Millennium Development Goal 1 (MDG 1) of halving the number of extremely poor people between 1990 and 2015.

In April 2010, the Tendulkar Commission brought such euphoria to an abrupt end. Acting on behalf of the government, it revised the national definition of the poverty level. The influential Planning Commission accepted its findings in April. India does not use the World Bank definition of absolute poverty (which today is living on the purchasing power of $ 1.25 per day). According to World Bank criteria, India’s rate of poverty went down from 51 % in 1990 to 42 % in 2005. In absolute numbers, the Bank registered a rise from 435 million to 456 million in that time.

Ever since the late 1970s, India’s official poverty line was defined as the monetary value of a daily requirement of 2100 calories in urban areas and 2400 calories in rural areas. Civil-society organisations and scholars have been criticising this definition as too low for a long time. The Tendulkar Commission found it was inadequate in rural areas because it no longer covered the bare minimum needed for daily survival.

Recent data

The Commission’s adjustment made the official share of absolute poor people in India rise abruptly by 10 percentage points to 37.2 % (or 407 million people). They eke out an existence on about $1.15 or less per day. Roughly one third of the world’s absolute poor thus live in India

The old poverty line had been adjusted to inflation, but not to changing consumer habits. Consumption patterns did change over the decades, however, even for the poor. The reasons include that state authorities have increasingly withdrawn from providing basic services in healthcare and primary education.

As early as 1991, the economist Rohini Nayyar stated that the official poverty line and actual calorie consumption were diverging. By 2005, if not earlier, the official poverty level had in practice become something like a “destitution line”, but certainly did not reflect basic human needs.

The Tendulkar Commission therefore dropped the old definition of poverty. Its new poverty definition for urban areas remains controversial, however. It is based on a daily calorie requirement of only 1770, which is even a little under the FAO recommendation of 1800 calories and much below the 2100 calories stipulated in India in the late 1970s.

Thanks to this move, the urban poverty line today has the same monetary value as the old one had in 2005. It does, however, now include spending on other things than food. It is in rural areas, that the new definition really made a difference. The re-evaluation led to the poverty line rising by slightly more than 20 % to 14.8 rupees per day. In one swoop, an additional 110 million people thus became officially classified as poor. Had the Tendulkar Commission been realistic enough to use a slightly higher calorie consumption, the figure would have risen even more.

The figures do not mean that poverty in India has not been reduced at all in the past 20 years. The criteria were changed after all. The figures do prove, however, that the decline of poverty was nowhere near the levels proclaimed so far.

The adjustment may have far-reaching consequences for India’s poverty reduction policies. So far, the poverty line largely determined who is entitled to subsidised food and other benefits from governmental welfare programmes.

Ahead of last year’s election, the Congress party and its ruling coalition, the United Progressive Alliance, promised to introduce a law to create a “right to food”. The ministries involved in drafting the Food Security Act needed solid data. That was the main reason for the official acceptance of the Tendulkar Commission’s report.

The sheer extent of the poverty was a shock, nonetheless, not least since it implies higher costs for implementing the right to food. Back-pedalling set in soon. The ministries involved suggested that governmental allocations should be capped by a kind of upper poverty line, the use of which would lead once more to an official poverty rate around 27 %.

However, such a step would be contrary not only to the report of the Tendulkar Commission, but also to two other earlier studies commissioned by the government. In 2009, the Saxena Commission had estimated the share of the absolute poor at 42 %, and in 2007, the Sengupta Commission had even postulated a share of nearly 80 %.

The government now has two alternatives:
– It can either use the figures of the Tendulkar Commission as the basis for its poverty reduction policy, or
– decide to not use any official poverty line at all.
The latter option may make sense. Coherent policies to satisfy basic needs can be enforced without any definition of who is entitled to support. The Indian state of Tamil Nadu has promising experience in this area.

The government’s reasons for treating the findings of the Tendulkar Commission with caution are obvious. It worries that the costs of fighting poverty may skyrocket. Moreover, the Tendulkar findings contradict the carefully cultivated notion of the liberal economic policy having had a massive impact on poverty.

Donors show no interest

For several reasons, the international donor community has not reacted to the Tendulkar Commission’s report so far. One is that the World Bank’s definition of poverty is used internationally, according to which there is more absolute poverty in India than even stated by the Tendulkar Commission. It is probably more important, however, that bilateral and multilateral development cooperation with India has recently been geared to other topics than poverty reduction. This has been ever more the case as India itself took up a role as a donor country. Dominant cooperation issues to day include environmental affairs and energy. That is certainly in line with global challenges, but it also suits rich nations’ export interests.

MDG 1, the eradication of extreme poverty, however, no longer plays a prominent role for development cooperation in the very country that has more destitute people than any other in the world. This is not acceptable if the MDGs are still to apply internationally. India is increasingly behaving like an assertive economic power – but the international donor community would be well-advised to confront its leaders with their own poverty assessment. In India, concerted efforts to reduce poverty are as urgent as ever.