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A socially distant poverty line

By reducing every household to a statistic on either side of an arbitrary line, inequality is masked

As the COVID-19 pandemic continues to expose cracks in the traditional policy space, public policy today is attempting to reimagine entire systems and create blueprints for a new world. However, while we speak of the need to bridge gaps in our healthcare systems, detail economic packages for vulnerable sections as well as increase welfare expenditure, there is inadequate debate on the foundations of most such schemes and programmes — the poverty line.

In India, the way we compute the poverty line is based on a large sample survey of household expenditures which estimates the purchasing power to buy food with a small margin for non-food expenses. From its use in driving policy design to its utility as a standard to measure the poor, the devil in poverty analysis, however, lies in the detail.

With poverty anticipated to rise with the pandemic, the shortcomings of this line have been thrown into sharp relief. The way we assess poverty has been and will be ever more "socially distant". The present crisis offers an opportune moment to revisit, recalibrate and move beyond the extant poverty line.

An arbitrary line

Studies consistently show that revising the components used to capture purchasing power significantly alter the poverty headcount, so much so that it could even triple. With most of India’s population clustered on either side of the poverty line, minor tweaks in the estimation methodology can result in colossal consequences.

The pandemic has underscored the criticality of certain "essentials" — access to quality healthcare, education and awareness, water and sanitation facilities, adequate nutrition, and the need for living spaces where social distancing can be practised. Real needs of the people must be factored into any credible assessment of poverty.

Absolute income or consumption measures do not address the difference in standards of living between the households closer to the poverty line versus those closer to zero income. Its gross oversimplification means that one cannot understand the ability of households to access health or education services, and does not even factor quality-differentials in such services.

One finds that the most important correlates of poverty, such as health, a critical factor in the current times, are not accounted for. It is undoubtedly a vicious cycle. People who are poor may have greater health issues and limited access to health care; people who have health issues are likely to be poor, as they have limited capacity to participate in the labour market.

In 2018, economist Jeffrey Hammer and a multi-disciplinary team from India and four other countries put together the One Hundred Homes project, a comprehensive visual documentation of per-capita consumption levels of households across the country, not unlike the National Sample Survey Office (NSSO), which uses consumption as an underlying factor in supplying data for defining the poverty line.

The current poverty line calculation is done based on the money spent to consume 2,100 and 2,400 calories per capita in urban and rural India, respectively. If this threshold is slightly modified to a per-capita consumption of 2,500 calories, the survey showed the poverty rate increases from 24% to over 40%, despite zero changes in the standards of living. Further, a household could be 33% worse off if it chooses to have a baby. And if the methodology in the U.S. were emulated, over 95% of Indians would be below the poverty line. In fact, the estimation of poverty does not account for some important resources, such as wealth or assets, and key family expenses.

Representing myriad brackets of per-capita consumption in the country, this analysis upends the conventional wisdom of classifying people above or below the poverty line. The images from One Hundred Homes across the country prove one thing — it is exceptionally difficult to distinguish households above or below the poverty line based on the way people look or how their houses are built or accounting for their belongings. Visual differences in households manifest only towards the higher end of the consumption/income distribution.

The arbitrary nature of its construct limits the poverty line from assessing the needs and impact of critical policies aimed at promoting development.

Masking inequality

By reducing every household to a statistic on either side of an arbitrary line, inequality is masked. For example, with an annual income of ₹2.6 lakh, the richest household documented in the same One Hundred Homes survey represents the top 1% of India’s income distribution. Let’s not forget, this same bracket also includes India’s richest people whose incomes exceed billions.

A regular update of the poverty line to adjust for inflation often hides changes in the real costs of living. Thus, with a rise in the country’s gross domestic product, the number of people classified ‘poor’ has been decreasing. Reality, however, might be starkly different.

With the pandemic driving the resultant spike in unemployment or the migration of labourers back to the rural hinterlands, there is a need for a measure which helps provide information on the nature of poverty. It is critical to differentiate between chronic poverty and sporadic poverty: the former, a result of generations of deprivation and the latter, a consequence of a sudden crises or short-term shock. Without this, a one-size-fits-all policy solution is likely to be implemented, though the solutions needed may be starkly different. A singular statistic in the absence of context runs the risk of abstraction from ground realities.

Above the poverty line in urban areas, one may find households in slums battling malnourishment, poor housing, and lack of sanitation facilities. Below the poverty line, there is information asymmetry about the level and extent of deprivation.

The nature of poverty is unknown, and socio-political dimensions of marginalisation are ignored. In addition, there is no insight on intra-familial inequities, typically manifested through gender differentials. An estimation of household poverty, therefore, eclipses individual poverty. Without a sense of the actual problems, it is almost impossible to advocate suitable policies for targeted beneficiaries.

Purging the paucity

Despite these shortcomings, the poverty line has been widely used to determine the provision of subsidies and access to essential goods or services. The insights above are all the more pertinent to shape the post-pandemic development narrative.

The coronavirus has differential socio-economic impacts on different sections of society, as the elderly, children and women in Indian households are likely to be the worst affected. Thus, there is a need for greater policy support for the most vulnerable. Evaluations of poverty should filter to the individual level.

As the use of evidence-based policy-making has become widely advocated, it is important to collect and use accurate data and relevant insights, to drive the design of welfare programmes as well as ascertain their impact. If India is to successfully battle the resultant social, economic and humanitarian crises arising from the pandemic, it is critical to purge the paucity in defining poverty.

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Printable version | Jul 11, 2020 11:34:50 AM |

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