A controversy has been triggered by the recent affidavit of the Planning Commission (PC) in the Supreme Court on the poverty line used to estimate the number of poor persons in the country. The affidavit, which only reproduces the S.D. Tendulkar committee report, albeit selectively and sometimes out of context, has become a rallying point for criticism against poverty lines recommended in the report. Unfortunately, emotionally charged critics have missed the larger issue that was raised by the court. But even those who understood the larger point have not been careful in their interpretation of the Tendulkar committee report.

The Planning Commission is responsible for boxing itself into a corner. It filed an affidavit that is not only insensitive but does not even directly respond to the issues raised by the apex court. The court wanted to know whether the commission applies ''caps'' (limits) on the number of below poverty line (BPL) households and the rationale for any such caps. The Commission, instead, responded on how poverty ratios are estimated in the country. By doing so it tried to justify its arbitrary and unjust use of caps in allocation of resources to state governments for targeted social assistance schemes. The Commission has been putting a cap on the number of BPL households in each state, based on poverty estimates; this is not an appropriate use of such estimates. Neither the Tendulkar committee nor the previous expert group on poverty estimation headed by D.T. Lakdawala recommended using poverty lines in this manner. In fact, most members of expert groups have voiced reservations against using the poverty estimates to limit the number of BPL households.

The question then is, if they are not used for targeting social assistance, what is the purpose of these poverty lines? In the context of estimation of poverty, their primary purpose is not to determine how many persons should be provided social benefits but to arrive at a comparable benchmark to measure progress over time. This was the reason why poverty estimates were generated and it is not the first time that a committee has come out with the notion of a poverty line. This has been in existence since the 1960s with successive committees using different yardsticks to suggest a poverty line.

The Tendulkar committee was asked to arrive at a poverty line that corrected the limitations of existing poverty lines and make it comparable over time. To do this, the committee accepted the existing urban poverty line based on the Lakdawala committee in 2004-05 to anchor a new set of poverty lines across states. It only used new spatial price indices to update poverty lines across states and sectors (rural/urban). By this exercise, the urban all-India poverty line remained the same but the all-India rural poverty line was raised by 30%. And if these are starvation lines even after raising the poverty line by 30%, then surely, the old poverty lines were suicidal lines.

To say if poverty lines are low or high, however, one needs a normative reference line. Frankly, there is no such reference norm available that is acceptable to everybody. This was accepted by the Tendulkar committee when it repeatedly said that the lines are arbitrary and are only meant to serve as a yardstick.

Having said this, let’s also compare it with other poverty lines. The weighted average of Tendulkar committee rural and urban poverty lines for 2004-05 turns out to be Rs.16.25. This is only marginally lower than the Rs.20 used by the Arjun Sengupta committee that claimed that 77% of Indians live under below this poverty line. But can one really say that Rs.16.25 is low but Rs.20 is adequate as a poverty line? The World Bank uses a poverty line of $1.25 per day in Purchasing Power Parity (PPP) terms. The current poverty line, as claimed by the Planning commission in its affidavit, is Rs.26 for rural areas and Rs.32 for urban areas. The weighted average turns out to be Rs.28 in 2009-10 prices. Using the current PPP exchange rate of Rs.19 to a dollar, the Indian poverty line is higher than the World Bank poverty lines.

What about other countries and their poverty lines? Most developed countries don’t use an absolute poverty line but use a relative poverty line pegged at 60% of median income/expenditure. The current Indian poverty line mentioned by the Planning Commission is 97% of the median in rural areas and 69% of the median expenditure in urban areas. That is, the Indian poverty line is considerably higher than poverty lines used either in international comparisons or comparable poverty lines in other countries.

But does it then justify using these poverty lines to restrict benefits to the BPL households, particularly for basic rights such as food and health? The answer is an emphatic no. This column has consistently argued for universal provisioning of these basic rights without recourse to any targeting.

The debate should not focus on what the poverty line is but on who is eligible for social benefits. On this issue there is wide ranging acceptance that this must be completely delinked from estimates of poverty based on expenditure norms. Poverty lines are benchmarks for policymakers and economists to understand how the country is progressing and cannot be used for inclusion and exclusion from government programmes.

* This article was originally published in the Livemint on September 30, 2011
(http://www.livemint.com/2011/09/29220533/Poverty-lines-and-poor-minds.html?atype=tp)