US, China count their poor afresh. India looks away

By Richard Mahapatra
Published: Saturday 03 December 2011

Not counting the poor properly can prove politically disastrous for government

Measuring poverty seems to be the latest target for reforms. The US, the world's largest economy, is busy experimenting with a new methodology to count the poor. China, the fastest growing economy, has reset its poverty line. And India, as we know, has been debating fiercely a new poverty line.

These countries are not just estimating their poverty level but are also applying new methodologies to do so. Notwithstanding the obligation of spending more on supporting the poor, particularly in the face of an economic slowdown, the new estimates are adding a substantial number of poor to the respective lists. India is, however, an exception because the government is opposing its own new estimates arrived at after setting up more than one high level expert committee.  

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It raises many questions. Why are countries like the US adopting new methodologies of poverty estimation? Why are they taking up fresh surveys or resetting the poverty line before their national scheduled dates for doing so? Is it a genuine intent of the government to make public the right degree of poverty?  Do we, in India, have any lessons to learn from the recent US and China poverty surveys?

On December 1, the Chinese government decided to almost double the country's rural poverty line: from the annual per capita 1,274Yuan (about US $200, set in 2009) to 2,300 Yuan (US$360).  Overnight, the number of China's rural poor increased more than four times. China had 27 million rural poor in 2009. With the new poverty line, it is around 128 million.

In early November, the US Census Bureau released new poverty estimates for the country using a new methodology called Supplement Poverty Measure. It increased the country's poor from 15.2 per cent (46.6 million based on a poverty line of annual income of $22,314 for a family of four) to 16 per cent (49.1 million). The new methodology took into consideration expenditure on food, shelter, clothing and utilities and health. It fixes the poverty line at $24,343. This is the highest level of poverty the country has reported in the past five decades.

India witnessed a nation-wide outrage over a Planning Commission affidavit in the apex court on a new poverty line.

In the case of China, the change was unexpected both politically and economically. The Communist regime justified its economic policies by citing deep decline in poverty. The World Bank, in 2008, attributed reduction in global poverty to Chinese poverty reduction. China uses this as a shield against intense international pressure on its poor human rights record. Officially, the government wants more people to be benefitted by the state development supports. Below poverty line households have special access to such supports, as in India.    

The US experiment has turned the country into the poorest country among the developed ones. Recently, the government declared that 11 million people were taken above the poverty line by using two major anti-poverty programmes: the food stamp and the tax credit system. President Barack Obama has been pushing for the expansion of these two programmes. But will the increase in poverty help his cause? Maybe it won’t. The US Census Bureau officials have told media that the new poverty methodology will not form the basis on which anti-poverty programmes are targeted. Still the country preferred to apply a supplement methodology to reassess poverty.

Right poverty indicators

The world is waking up to a new situation vis-a-vis poverty estimate methodology. The poverty line in use in China, the US or in India is more than four decades old. When these lines were drawn, the socio-economic context was different from the present in all the countries. The poverty line was drawn on the basis of food consumption level because in 1960s and 1970s, food accounted for a large chunk of household expenditure. In the US, it accounted one-third of family expenditure. What’s more, all countries faced varying degrees of food insecurity. It was and still is a major indicator of individual or household well being. So the poverty line just sets a benchmark in term of calories consumption needed for a day and then applies the monetary value to it.

But over the decades, household expenditure patterns have changed drastically. Now an average Chinese, American or Indian spends more on health, education and clothing than on food. At present, an American's expenditure on food is a seventh of the total   expenditure. Both Americans and Indians spend a substantial amount of money on health. So the poverty line based on food consumption alone didn't reflect the new reality.

What did it result in? First, the faulty poverty line didn't reflect the right degree of poverty. Second, it kept the poverty figure artificially low. On the other hand, the national GDP of these countries has increased. Governments spend more on social sector now than before. But they have targeted their spending to the 'poor' identified through the faulty poverty line. Governments, thus, have the money but spend less due to the faulty targeting. It led to large-scale exclusion of people from government support systems. This explains the widening income inequality in all the three countries, though a poor American cannot be compared with the poor in China or India. Just before China reset its poverty line, there was a series of high level meetings that talked about unequal wealth distribution.

Inflation, inequality, politics

But why are the countries acting on this now? The current urgency in correcting or drawing a new poverty line is for two reasons: a) price rise, particularly food inflation, has made the poverty line redundant and made income disparity highly visible; b) there is growing public outrage over inequality in wealth distribution. Governments have just made the political choice to reform their poverty estimation mechanism.

Among the three countries cited here, India is the doubting Thomas. Redefining the poverty line in the country has got academic importance but without the necessary political support. Since 1991, the government has directed its development programmes towards only the poor identified by the consumption-based poverty line. Any reform means substantial increase in the number of poor and increased expenditure on anti-poverty programmes. It will also contest the government's consistent claim on poverty eradication.  

India needs to sense the message from the Chinese and the US decisions. Both democratic and not democratic governance systems agree on one thing: count poor properly or pay the political price. The recent outrage over a proposed poverty line in India is an indication of this.

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