Surjit S Bhalla: End of the great poverty debate?

IT DOESN'T MATTER

Growth is the best antidote to poverty; this is likely to be proved when the latest GOI poverty data are released.

Most of the comments pertaining to Budget 2006-07 had one common relief theme""phew, the UPA government is not as populist as we all had thought. The all-important fiscal deficit was down, so it certainly was the case that the government, populist warts and all, was resisting the temptation to spend its way towards a political recovery in the forthcoming elections. The fact that populism has reigned supreme for two years and yet the UPA has lost many election it has fought since it came to power should sober most politicians. But the UPA, and the Left, invariably project the image that they are different than most""they are the anointed elite, and because of this anointment, they are the privileged caretakers of the poor. Hence, the heartfelt concern, and policy, of the FM to turn back the clock on interest rate reform by regulating interest rates; but it is okay, because he is only doing it for the poor farmers. His speech also had a nice allegory of the mount, the journey, and the destination of social justice of the UPA. He said it with a sense of discovery.

There were several other comments, by Mr Chidambaram and his ministerial colleagues, in post-Budget interviews, which smacked of more than a touch of anointed arrogance""listen, the UPA government is the only one to really care about the poor, rather than all other governments (whether led by the non-Family Narasimha Rao, or by the former farmer Gowda, or by the urban elitist BJP, of " India shining Bharat suffering" infamy. (It is another matter that if anyone looks like the elite, it is the Congress!)

Whether the poor have been served by economic growth will be known when the data from the 2004-05 NSSO (National Sample Survey Organisation) consumer expenditure survey are released. This survey was conducted between July 2004 and June 2005, i.e. it was completed more than eight months ago. One would have thought that in this age of computers and Infosys, the government would be able to process the survey information a bit faster than the days of hand-held calculators. In a parallel situation, the NDA government released preliminary results of the 1999-00 survey in September of 2000, just three months after the completion of the survey.

But the Congress is in a dilemma""if the poverty reduction according to the NSS data is "large", even its savvy public relations experts would find it difficult to take credit; the Congress-led UPA has been in power only since May 2004. Only if the results of the 2004-05 survey are "bad" i.e. reveal low poverty decline, will the UPA have an empirical (as opposed to ideological) basis for asserting the need for a Mrs Indira Gandhi- or Venezuela's Hugo Chavez-style populism. And the data, when released, are unlikely to support populist policies""hence, the release of the data post-Budget 2006.

The 1999-00 NSS survey was controversial for two reasons: first, it showed a largish poverty decline in the post reform 1990s; second, the NSS had asked for food consumption according to two separate recall periods""7 and 30 days. Many trees were felled by the leftists in writing about how, because of this statistical "lapse", the 1990s poverty decline was more mirage than reality, and therefore how economic reforms had not produced extra growth, etc. In response to this criticism, the NSSO changed the survey design to that which prevailed in 1993-94 and before.

What are the 2004-05 NSS data likely to show""since the data are not available, this is just speculation, though one hopes educated speculation. Per capita consumption in the first pre-reform 10-year period (1983 to 1993-94) rose at a low rate of 1.7 per cent per annum. In the next 11-year post-reform period (1993-94 to 2004-05) per capita consumption has risen at more than twice that rate""3.9 percent per annum. These data merely reflect the higher GDP growth that has occurred in India post the 1991 economic reforms, introduced first by the then reformist Congress. These rates are for national accounts data; the NSS survey mean consumption, the basis for poverty calculations, increased at a lower 1.0 percent annual rate in the 1983 to 1993-94 period; this survey growth rate is also expected to more than double, in keeping with the trend revealed by national accounts data.

How much poverty reduction can we expect with twice the growth rate in per capita consumption (and the distribution of consumption remaining constant, an assumption relaxed below)? In the pre-reform period, poverty declined at an approximate rate of 1 per cent (percentage point) a year; in the post-reform period, the expected rate of poverty decline is 2.3 per cent a year (the ratio of the growth rates, 3.9 and 1.7). For 11 years, that is a cumulative decline of 25 percentage points or a poverty level of 11.2 per cent in 2004-05 (from 36.1 per cent in 1993-94).

But inequality can worsen. Assume that the poor, the bottom 40 per cent of the population, enjoy a level of consumption growth only three-fourths of that experienced by the average Indian in the post-reform period, i.e. a large increase in inequality. This yields a result that rather than poverty declining at 2.3 percentage points a year, it should only decline at a rate of 1.7 per cent per annum post 1993-94; i.e. a cumulative decline of 19 percentage points, or a poverty level of 17 per cent in 2004-05.

These are just illustrative calculations, but the basic point remains the same: per capita consumption growth in the post-reform period has been at more than twice the pre-reform rate. Even with inequality worsening, there is still considerable cushion for poverty decline to have been significantly faster post reforms. The conspiracy theorist in me would like to point to the surprising (for the UPA, though not necessarily for Mr Chidambaram) statement by the FM in his Budget speech: growth was the best anti-dote to poverty. Maybe he knows more than what the UPA has so far deemed it useful for the public to know. And this is after the Right to (timely) Information act has been passed!

ssbhalla@gmail.com