Planning Commission Deputy Chairman Montek Singh Ahluwalia is an easy, and favourite, target for the Left and an assortment of populists. So it was not surprising that an innocuous affidavit, filed by his office in the Supreme Court, explaining the basis for India’s official poverty-line estimate became the subject of ill-informed controversy. Part of the problem lies in the very subject under discussion. The idea of a “poverty line” is easily and widely understood, but the manner in which the official estimate is arrived at can confuse even trained economists. This paradox of simplicity and complexity can result in obfuscation in any political debate. That is what happened over the past week when the submissions made in the affidavit became the centre of controversy. Clearing the air, Mr Ahluwalia told the media that the poverty line income figure, estimated on the basis of a methodology recommended by an expert committee chaired by the late Suresh Tendulkar, would not be the basis for defining the beneficiaries of various welfare programmes. Both Mr Ahluwalia and Rural Development Minister Jairam Ramesh clarified that a large number of pro-poor interventions made by the Manmohan Singh government were, in fact, universal in character and not linked to the poverty status of a family. Mr Ramesh pointed out that of the Rs 1 lakh crore spent by his ministry on welfare and pro-poor programmes, only Rs 9,000 crore, or nine per cent of the total, was linked to a household’s status in terms of the poverty line. This should help clarify the issue and put an end to the misplaced criticism of the Planning Commission by its critics.
Some members of the National Advisory Council have in fact called for a scrapping of the poverty line numbers as estimated. This, again, is a misplaced idea. As Mr Ahluwalia correctly explained, such a notional line helps policy makers judge the impact of the development and growth process on poverty eradication. The real reform would be to change the method of calculating the poverty line. An alternative approach would be what has been dubbed the “European approach”, which identifies the poor based on the principle of “relative” poverty. If a person’s income is less than 60 per cent of a notional average, with varying ways in which such an average can be defined (for example, the median, or the income of the 51st person in a ranking of 101 people, or the person ranked by income at 500 million, in a population of a billion), then that person would qualify as living below a “poverty line”. These definitional changes would not only help define the poor more accurately, but also ensure that no non-poor people are covered by subsidies aimed at the poor. By definition, a poverty line defined as a percentage of the median would yield a population below the poverty line (or BPL) that is less than 50 per cent the population. This would make poverty alleviation programmes more fiscally affordable and prevent hijacking of such programmes by the non-poor.