How poor is India, how unequal?

Montek writes to the Statistical Commission chairman to fix norms.

Are 22 per cent of Indians poor, or is it 28 per cent? Do 77 per cent of Indians live on less than Rs 20 a day? Have inequality levels, as represented by the Gini coefficient, risen from 30.3 in 1983 to 34.3 in 2004-05?

While the Planning Commission itself released two poverty estimates earlier in the year, the National Commission for Enterprises in the Unorganised Sector (NCEUS) released the 77 per cent figure last month, and a study by economists Bibek Debroy and Laveesh Bhandari came out with the increased inequality figures a few days ago.

Since the data differ dramatically, depending on what definitions of consumption are used, Planning Commission Deputy Chairman Montek Ahluwalia has written to National Statistical Commission Chairman Suresh Tendulkar seeking clarity on the matter.

Ahluwalia has pointed out that the difference between the consumption estimates as reported by the National Sample Survey (NSS) and the National Accounts Statistics (the NAS gives the GDP numbers) was around 5 per cent in the 1950s (the NSS numbers are lower), and this rose to 30 per cent in the 1980s and is around 52 per cent at the moment.

According to Ahluwalia, if one is to use the old Planning Commission method of adding back this difference in consumption, poverty levels would be in the low single digits, for instance.

The National Statistical Commission (NSC), which has been discussing the matter for over a year, will meet again next month to figure out a course of action, and may commission a report to suggest a way to reconcile the big difference in the consumption data got from the NSS and the NAS.

Another issue the NSC needs to give a recommendation on is which NSS estimate has to be used for calculating poverty levels. The old definition asks respondents to state what consumables and durables they bought in the last month "" this gives poverty levels at 28 per cent.

The new definition, however, estimates poverty levels to be 22 per cent "" the new definition, which is more sensible, asks respondents what consumables they bought in the last month (this is the same as in the old method), but in the case of durables, it asks respondents what they bought in the last one year.

So, if you bought a cycle two months ago, it shows up in the new definition but not in the old one.

The rising level of inequality, as measured by the Gini, however, is something that is easily dealt with. While Debroy-Bhandari report that the Gini fell from 30.3 in 1983 to 30.1 in 1993 and rose to 34.3 in 2004, economist Surjit Bhalla disagrees.

At a seminar in the capital where the findings were presented on Monday, Bhalla argued that Debroy-Bhandari needed to adjust consumption expenditures for price differences in various parts of the country (Rs 100 of consumption in Delhi will buy a lot less than Rs 100 in Bhopal).

Once this is done, according to Bhalla, the Gini fell from 31.9 in 1983 to 30.3 in 1993 and rose to 32.5 in 2004 "" so, while Debroy-Bhandari report a 14 per cent worsening in inequality levels since the reforms began in 1991, Bhalla reports a figure which is around half that.