The Line of the Poor

India’s official poverty estimates are based on the regular consumer expenditure surveys conducted by the National Sample Survey Organization (NSSO). These surveys, pioneered by P. C. Mahalanobis in the 1940s and 1950s (Mahalanobis and Sen in 1954) were the world’s first system of household surveys to apply the principles of random sampling established in 1920s and 1930s.

The NSSO conducts both large and small surveys while the Planning Commission uses the larger ones on the ground that they are required to estimate poverty accurately for each state and those estimates are the basis for transfers from the central government to the state governments. These official poverty estimates count the number of people living n households with monthly per capita total expenditure below a poverty line specific to state and sector (rural or urban). The poverty lines are updated periodically using a system of state-by-state price indices which are estimated separately for rural households (the consumer price index for agricultural laborers) and urban households (the consumer index for industrial laborers). Rural and urban poverty estimates for each state are aggregated for all the states and an all India poverty line is set up that matches the sum of state counts.

NATIONAL ACCOUNTS AND SAMPLE SURVEYS

Before the 1990s, the planning commission used the national accounts estimate of consumption as a control total for the surveys in estimating poverty. Thus, for example, if the ratio of national accounts to the survey estimate of mean consumption was greater than one, the commission would multiply the expenditure of each household by that ratio before calculating the number of people living in households below the poverty line. This gave rise to a debate: does the growth measured in the national accounts show up in improvements in the living standards of the poor?

During the 1990s the national accounts estimates of mean consumption grew much more rapidly than did the survey estimates. Scaling up thus would have shown a more rapid reduction in poverty in the 1990s than by the survey estimates. Those who believe that the economic growth following the reforms has been associated with large scale poverty reduction have tended to argue that national accounts are right and surveys are wrong. While the early comparisons between the national income and surveys are similar with even a coinciding show in distribution pattern of income and consumption, the recent comparisons are anything but.

The use of outdated rates and ratios in a growing economy experiencing struc­tural development will typically lead to systematic trend errors in the accounts. Con­sider the netting out of intermediate production from value added, which is frequently done using a fixed ratio. Because the degree of intermediation tends to grow as the economy becomes more complex and more monetized, the rate of growth of GDP and of consumption will be systematically overstated in a growing economy. Cooking oil, particularly vanaspati, provides a good example for India. The national accounts estimate consumption of vanaspati as total production less imports plus exports, less consumption by government or business. In an economy in which all vanaspati is used for household cooking, this gives the right answer. But as the economy grows, consumers eat more meals out, so that an increasing fraction of vanaspati is used by commercial food suppliers, restaurants, hotels, and street vendors. Consumer spending on these services is derived from (fairly shaky) data on the gross output of the services sector, adjusted to a value-added basis by deducting the value of intermediate inputs, including vanaspati. At best, this adjustment is done using one of the rates and ratios, which means progressive and increasing overstatement if intermediation increases with income and if rates and ratios are infrequently adjusted. In the case of vanaspati in India, no adjustment is made at all, so that all vanaspati used in restaurants is counted twice, helping overstate the rate of growth of consumption and GDP and to increase the ratio of national accounts to survey consumption.

METHODOLOGY

An important design issue for poverty measurement is the length of the reporting period. The NSSO had adopted a uniform 30-day recall period, based on experiments carried out by Mahalanobis and Sen (1954) in the 1950s. A ques­tionnaire with a 7-day reporting period for high-frequency items (food, pan, tobacco), 365 days for low-frequency items (durable goods, clothing, footwear, insti­tutional [hospital] medical care, and educational expenses), and 30 days for every­thing else gave poverty counts that were only half of those derived from the questionnaire with a uniform 30-day reporting period.

The reduction in measured poverty comes from two quite separate effects. The first is that a higher rate of monthly expenditure is reported when people are asked to report food, pan, and tobacco over the past 7 days rather than over the past 30 days. Higher reported expenditure, other things being equal, decreases mea­sured poverty. The second effect comes from the low-frequency items. Although the mean reported expenditure for this category decreases for the longer reporting period, the lower tail of the distribution increases. With 30-day reporting periods, most households report no purchase of low-frequency items, but in 365-day peri­ods most households report at least some purchases. Thus despite the decrease in the mean, the longer reporting period for the low-frequency items also acts to reduce measured poverty. Measures of inequality are substantially reduced by moving from a 30-day to a 365-day reporting period for low-frequency items. Because the mean falls and the bottom tail increases, measured dispersion in these purchases is much reduced, and this carries through to total expenditure. This means that it is never legitimate to compare measured inequality across surveys with different reporting periods with­out some sort of correction.

POVERTY LINE(S)

Although the recent debate on poverty in India has focused mainly on the measure­ment of expenditures, poverty lines are equally important. How they are updated and adjusted across regions or urban and rural households have a major effect on poverty estimates. In India, as in many other countries, a base poverty line is adjusted across time and space using price indexes, so the selection and construction of these indexes become a key input into poverty measurement.

The history of poverty lines in India is a case study in the interaction of science and politics, with political decisions often claiming a scientific basis, sometimes with justification, more often without. Although poverty lines are often linked to the amount of money needed for a minimally adequate diet, the use and long-term survival of poverty lines depend on policymakers and others accepting them as useful. For example, Rudra (1974), in discussing the history of Indian poverty lines up to that time and the persistence of the "magic number" of 20 rupees per head in 1960/ 61 prices shows that a food-based analysis would lead to a considerably higher number. Yet the magic number persisted, as similar magic numbers have persisted in other countries, not because they are correct but because, once established as useful in economic and political discussions, poverty lines are resistant to change.

From the late 1970s to the mid-1990s the Planning Commission used only two poverty lines for per capita household expenditure, 49 rupees for rural households and 57 rupees for urban households at 19 73/ 74 prices, which was close to the 15 percent urban price differential estimated by Bhattacharya and Chatterjee (1971) using unit value data from the National Sample Survey. The poverty lines were held constant in real terms and were converted to current rupees using the implicit price deflator of consumption in the national accounts. This process ignored interstate dif­ferences in price levels and in urban to rural price differentials. Furthermore, the national accounts consumption deflator is probably not the best measure of inflation for households near the poverty line. These problems and several others were dealt with by an expert group in 1993 (India, Expert Group on Estimation of Proportion and Number of Poor 1993). Their recommendations for new poverty lines were adopted (in somewhat modified form) by the Planning Commission, and these pov­erty lines have been used in official calculations since 1983.

The expert group poverty lines have a serious flaw, however: the urban to rural price differentials that they imply are too large to be credible. It is unclear how this happened, whether because of an error in calculation or because the price indexes used in the calculations produced the result through some unexpected cumulative effect. The state by state urban and rural poverty lines were calculated indepen­dently, without consideration of the implicit urban to rural price differentials. In any case, the average ratio of urban to rural poverty lines is around 1.4 and varies widely across states. As a result, official headcount measures of poverty are higher in urban than in rural areas in some states, and the all-India headcount ratios differ lit­tle for urban and rural areas. In Andhra Pradesh, which is the most dramatic exam­ple, the 1999/2000 official estimates give a poverty rate of 27.2 percent for urban areas and only 10.8 percent for rural areas.

Another serious issue is the accuracy of the inflation rate used in the state-level price indexes. Errors in the indexes will induce errors in the trend rate of poverty reduction. These indexes are reweighted infrequently. For example, until 1995 the consumer price index for agricultural laborers used weights based on a 1960/61 survey. And although this index and the index for industrial workers are almost cer­tainly better than the price deflator of national accounts consumption, it is unclear whether the prices or the weights that go into these indexes are the right ones for a national poverty measure.

(New benchmarks by the Planning Commission, submitted in an affidavit to the Supreme Court as part of new food security legislation, suggest that a person living on more than Rs32 ($0.64) a day in urban areas, like New Delhi and Mumbai, would no longer be classified as being below the poverty line. The threshold for rural areas would be Rs26 a day. By comparison, the World Bank’s poverty line is $1.25 a day.)

LESSONS

There is no suggestion here that the statistical failures in India in the 1990s were the result of undue interference by politicians or policymakers in data collection or publication. Yet politics in the broad sense played a role. In evaluating the reforms, the political right had an interest in showing low poverty, and the political left in showing high poverty, and this undoubtedly intensified the debate on survey design and led to the unfortunate compromise design that temporarily undermined the poverty monitoring system. This politicization of data collection and interpretation is often bemoaned. Yet political accountability is essential to poverty reduction, and policymakers have a legitimate interest in monitoring the statistical system and asking for changes that serve their interests.

Mistakes are inevitable, and survey data can be compromised by internal and exter­nal factors. Thus poverty assessments will often have to be made using imperfectly comparable surveys. India's experience illustrates the possibility of repairs to enhance the credibility of estimates. But that experience also demonstrates that repairs, however creative, are a poor substitute for the collection of clean, credible, and comprehensive data. What are convincing assumptions to one person can be unconvincing to another, and political positions inevitably influence the assump­tions that people are prepared to make or accept. 

Battlefield Next - Africa

If time plays in a cycle then perhaps the next destination is Africa. With Asia already bursting with development, Africa will play a crucial role in running the engines of the giants – India and China. The question is whether it will be able to accommodate the two giants simultaneously and fairly. The concern is also about sustainable development of the native African population and their secure futures. And for a long time it will be unclear whose futures are more at stake than others.

The gravest requirement and investment is in the field of infrastructure which is blooming at a frantic pace. The Chinese are building presidential palaces (as souvenirs to the governments), railway tracks, roads and ports across the continent. With their advent into strategic areas like mining, railways and ports the Chinese investment might well be beyond 90 billion US dollars (counting unrecorded deals) while its bilateral trade stands at 130 billion dollars.

Just as the reasons for China‘s interest in Africa are complex, so too are the reasons that so many African leaders are receptive to Beijing‘s entreaties.  First, China can provide much-needed funds for development (or simply to avoid become more impoverished).  This is important because many African states are desperate for investment and aid, and, (promises to the contrary notwithstanding) because many Western countries are providing relatively less aid or providing aid in ways that are less appealing to recipient countries.  Second, China‘s approach to providing aid or investment is a congenial one to many African leaders. China generally requires only that the recipient country refuse to recognize Taiwan. Beyond this, China‘s approach is, to many African leaders, refreshing:  it is pure capitalism, without attempts to work social or political changes through the pursuit of wealth. Besides, the Chinese do seem to cut their way through labyrinthine government policies – no meetings, no environmental impact assessment, no demand for anti-corruption measures and no check on private benefits for local leaders.

Long ignoring this case of ‘Dutch Disease’, the after effects of this in-pour of wealth have been neglected. The cases of over reliability on one goods (banana republic), a marginalized manufacturing sector, over dependency on FDI from a single source shall culminate into a deep hangover for the over-zealous countries.

Contrast this with Indian investments - mainly in the private sector, notably in telecom, pharmaceuticals and manufacturing. Interestingly, some Punjabi farmers have got farming outsourced from the Kenyan farms where the natives find themselves unable of being able to handle vast stretches of land. Besides, we are doing, what we do best – being a soft power. Despite the relatively neglected role of India in Africa compared with that of China, India’s trade with the continent has grown ten-fold over 4 years to $39.5 billion in 2008-09 (over half of the US’s $77 billion).  The turning point, came in 2008 with the India-Africa summit in Delhi, which led to a doubling of credit to Africa (to $5.4 billion over 5 years), a focus on African human capital development programs, and a duty free preferential tariff scheme for the 34 least developed countries in Africa (with 94% of all tariff lines opened).

The young population, the second fastest growth rate of any continent, and the possession of nearly a third of the world’s natural resource value are the main motivations for India’s interest in Africa. While Chinese investments were merely extractive in purpose, India’s were more transformative, focusing on small and medium businesses, agricultural productivity, information technology, and investments in health care.

The mounting investments in Africa specially come into limelight by the name of expenditure on development. Vastly simplified, the theory is that if rich countries provide a big push of aid, and if the aid is used to address a wide range of problems simultaneously, then people in poor countries will, in a generation or so, begin to enjoy the kind of economic development that those in the west have seen. Broadly speaking, this approach emphasizes the transfer of wealth from rich to poor countries, the targeting of aid to meet human needs, and a strong role for rich and poor governments.  A second model is similar to the first, but with much less faith in the power of governments and aid agencies to meet the needs of people.  Argued most provocatively by William Easterly, this model accepts the need for Western countries—including governments—to contribute generously to the development needs of those in poor countries. And it accepts a limited role for Western aid agencies in fostering economic development.  But it is deeply skeptical of the efficacy of conventional aid programs because they rely on plans developed by outside experts and provide little room for aid recipients to influence the programs designed to help them.

Recent time brought an unpredicted change to the African black waters – social revolution. Prima facie it has over thrown authoritative governments, but on second thoughts it has triggered something bigger. The Africans are more aware of their place in the world than ever. The policies of ‘neo-colonialism’ cannot fool them forever. The issues of drainage of wealth and resources from Africa can no longer be put on back burner. But equally true is that the rate of development can only be accelerated by putting certain industries on accelerated rate while ensuring that the development process in all the areas goes along simultaneously.

As an African official candidly put – the Chinese are investing in the present of Africa while the Indians are investing in its future. Sooner or later, the Africans will rise enough to judge what is right for them; none of the players in their development process would want to show a laggard performance.

Economic Migration

Migration from one region to another for the purpose of seeking employment or better financial conditions is called economic migration.  It is important to highlight the word economic in order to distinguish it from the other kinds of migration which may include – forced migration, migration for religious reasons, for better natural environment.

Economic migration is put specially under the lens because of the caused demographic changes across the regions and countries. Its causes can be attributed to many factors and similarly, it influences many a policy worldwide. For example, some countries may impose migration and visa restrictions to prohibit the people from outside to enter their countries in search of work. Such protectionist measures are put in place in order to save domestic workforce from unemployment and low wages.

The factors that cause economic migration across the globe may be listed as follows:

1.      1. Absence of means of employment across one’s native country cause major migration patterns throughout the world.

2.    2. Decline in traditional means of earning such as agriculture, handicraft also causes loss of employment and hence, migration.

3.       3. Lucrative opportunities in regions other than native region.

Note that causes 1-3 and 2-3 act in conjunction with each other as push from one side and pull from the other, as such the examples of economic migration shall have them in hyphenation.

Principally, the process of economic migration can be categorized into two sets:

1.      1. External Migration

2.      2. Internal Migration

External Migration

External (economic) migration involves crossing a country’s boundaries in search of (or a better) livelihood. Change of one’s country induces environmental, cultural, social and economic changes in one’s life and into the country of immigration. This calls for critical assessment of various forces influencing economic migrations out of and into a country.

One important issue in recent years has been decrement in the number of domestic jobs in various developed countries. Such cases exist in various developed nations such as USA and European countries. The overall increment in EU’s population was 85% in 2005 alone, with 78% people migrating with working visas. The service sector inflation being extremely high in these places, the organizations tend to hire individuals from outside to perform the jobs. For the jobs that can be done from distant places, the tasks are outsourced while for direct jobs immigrant labor is hired. The Mexicans and the people from South-East Asia form a major fraction of these work forces in US. Similarly, in a lot of European countries especially Britain, people from South Asia have been hired. This, apart from unemployment, causes resentment in a country’s native population. In popular immigration destinations like France, UK and USA unemployment caused by jobs outsourced to immigrants is a major political issue.

To tighten this process, the developed countries generally introduce changes in their visa policies. For some sectors like IT, the policies have been specially drafted keeping in mind the needs of the industry and provisions have been left for expurgation. A class – H1B is for professional level jobs that require a minimum of bachelor’s degree in a specific academic field. In addition the employee must have a degree or the equivalent of a degree through education and experience. In order to obtain an H-1B visa, the employer must show that it will pay the higher of the prevailing local wage or the wage it pays other U.S. citizens who have similar education and experience. The employer is not required to prove there are no American workers available to perform the work. However, some economists saw H-1B expansion as an assault on the American middle class that benefited the wealthy and made it impossible to maintain traditional American standards of living, or provide incentives to improve productivity as rapidly as nations like Japan with more restrictive immigration policies.

The companies who hired workers on H-1B visas often argue that the U.S. lacks enough skilled American workers to do the specific work needed by the company. Many economists argue that hiring these foreign workers provides more benefits to the U.S., and otherwise the recruiting companies would simply offshore the entire operation. It was claimed this would likely prove worse for the U.S. economy as a whole, because in the first scenario foreign national workers living in the United States would at least spend money in the United States, while the multi-national corporations that would purportedly export the jobs to overseas locations would probably not pass down as much of the savings to the U.S. consumer who purchased from them.

Additionally the policies of the government are also specific towards particular countries such as Mexico. Most of the workmen coming from Mexico are unskilled labor and work cheaply in the heavily burdened service sector of America. As such a lot of jobs in the southern states are lost to immigrants giving rise to nationalist sentiments. The forest-jobs such as tree felling, logging, transportation is filled up with Canadians from north who are wooed by the attractive higher wages then Canada.

Internal Migration

Internal migration is now recognized as an important factor in influencing social and economic development, especially in developing countries. According to census 2001, the total population of India is 1028 million consisting of 532 million males and 496 million females. India is geographically divided into 28 states and 7 Union Territories. There is a tremendous variation in the aggregate population size across the state. It varies from 0.54 million in Sikkim to 166.2 million in Uttar Pradesh. In 2001, 309 million persons were migrants based on place of last residence, which constitute about 30% of the total population of the country. This figure indicates an increase of around 37 percent from census 1991 which recorded 226 million migrants. (The final statistics from Census 2011 are yet to be released).

The reasons for migration have been classified broadly as – work/employment, business, education, marriage, moved at birth, moved with family and others. Of these reasons, moved at birth, moved with family and others constitute a negligible amount of people. Marriage as a reason has come only recently in prominence with inter-state, inter-cultural boundaries being let more relaxed. Some special cases like Haryana having no brides and girls from north-east, Chhattisgarh, Jharkhand being brought over deserve a special mention. Other than these, economic migrations – work/employment, business and post educational together form a major fraction of the migrating population. Additionally, it is observed that employment among males and marriage among females are the main reasons for migration.

A close look at the pattern of each state’s out-migration is as follows. 56 percent of out-migrants from Uttar Pradesh have gone to Maharashtra, Haryana and Madhya Pradesh. In the case of Bihar, nearly 50 percent out-migrants have moved to Jharkhand, West Bengal, Maharashtra and Uttar Pradesh. Out-migrants from these two states made up to 70 percent of total out-migrants. More than one-third of Tamil Nadu migrants moved to Karnataka. The rest of the out-migrants have chosen mainly Kerala, Maharashtra and Uttar Pradesh. More than three-fourth of out-migrants from Andhra Pradesh have moved to the border states namely, Karnataka, Maharashtra and Tamil Nadu. For the out-migrants from Rajasthan, destinations are Maharashtra, Haryana, Gujarat and Madhya Pradesh. Turning to Kerala, about 48 percent have moved to the neighboring states, Karnataka and Tamil Nadu. However, a slightly more than one-fourth of the out-migrants from Kerala have moved to Maharashtra, which is not a bordering state.

Overall it is observed that majority of the out-migrants have moved to the bordering states. Nevertheless, it is observed that migration to non bordering states has also been significant. Here, one has to remember the enormous variations in the geographical sizes of Indian states. With the distance covered by an inter-district migrant in state like Rajasthan, a migrant in smaller states can reach another state, thus qualifying as interstate migration.

From the flow matrix, Maharashtra emerges the most favored destination for migration. Half of the entire interstate migrants have moved to Maharashtra. Gujarat and Haryana are the other preferred destinations with nearly 30 percent of the migrants moving to these states. The three states, thus, attracted 80 percent of all interstate migrants during the inter-censal period. Surprisingly, Punjab despite being in a high income category attracts less immigrants since the 80's. Possible reasons might include automation of agriculture and food processing industries and separatist movement.

Bengaluru

As IT boomed, Bengaluru became the new Bombay; a magnet for migrants from around the country. Migration fuelled almost half of Bengaluru’s phenomenal population growth of 4.1 million in 1991 to almost 5.7 million by 2001; an increase of more than 30 percent. Concurrent with the influx of skilled labor from urban areas around the country was the expansion of an informal economy through in-migration of people from rural areas in Karnataka. The latter often joined the service economy, working as barbers, household helps, cooks, drivers, tea ladies, construction workers, and so on. Of the city’s total population, 1.2 million are migrants from other parts of Karnataka, and some 800,000 are from outside the state.

This ‘economic boom’ that acts as a magnet for the people is also a litmus test for the infrastructure of the city. "The bad condition of the roads, traffic jams, and consequently the long commutes has led to a drop in productivity for IT companies," is the popular perception. The number of flyovers, bridges, roads is on a rise along with the consumer-malls but the public spaces are shrinking. The city that was once called ‘Garden city’ may soon be choking for breath. This has also resulted in real-estate inflation which directly affects other sectors as well including basic necessities such as food. One argument against the ‘loss of productivity argument’ is that the number of working hours for employees has stayed the same causing no loss in productivity. 

Bihar

Looking into the different peripheries of Bihar’s contribution, what came very evidently was the robust industrialization growth due to cheap labor migration, at different locations like Punjab, Maharashtra, Andhra Pradesh, to name a few. Due to insufficient agricultural incentives, farmers have been influenced by their urban counterparts and have migrated to developing metropolitans and cities, in order to suffice their urge to enjoy the same comfort and better living conditions. The concrete structures, the skyscrapers and the infrastructural boom, are to some extent blessed by the hard-work and efforts of these migrants. Moreover, if one considers the skilled labor community, in the private sector or Govt. undertakings, one would find Bihar’s omnipresence across the phyla.

With Nitish Kumar on the scene and again against the incumbency, things are bound to change for Bihar and rest of the India. As major industrial hubs are being set with socio-economic development alongside, the immigrant labor shall come back and the exodus shall reverse. This is going to cause severe shortage of working hands across India. Keynesian model says that this will increase the service sector costs along a steep slope. This peculiar model shows that drop in immigration numbers can not only dampen progress but affect certain other economic parameters like supply side inflation.

Internationally and nationally, several human right organizations have stood against the anti-immigration policies. The freedom of movement is recognized as a civil right, the movement being within the international borders. As civil rights activist Jacob Appel has written - "Treating human beings differently, simply because they were born on the opposite side of a national boundary, is hard to justify under any mainstream philosophical, religious or ethical theory." The rather sad deduction from the migratory data is the selective pocket development across the countries of the world. With time, the differences between the haves and have-nots have increased exponentially. Immigration is an individual’s attempt to overcome this difference what should have been done by the state.