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Poverty, How it is defined in India???

In my recent interactions with friends, I was genuinely surprised that most of them don't know how the poverty line is defined by Indian government. Thus, the reason for this blog is to explain how poverty line is defined.

Most would be aware of US$ 1 per day definition of poverty. However, in India, the porverty line is defined by the amount required to consume 2400 calorie of food in rural area and 2100 calorie in urban India, plus minimun non-food requirements of clothing, shelter and transport.

Well, you might think, at US$1 per day (Rs 44 per day or Rs 1334 per month) it would be too low to sustain one individual in rural area. But, according to the government statistics published for 1999-00, the poverty line correlates to Rs 327.56 per capita per month in rural areas and Rs 454.11 per capita per month in urban areas.

Yes, despite this very low amount, the government statistics say that 26.1% of population live in poverty as of 1999-00. In numbers, it roughly translate into 275 million people.

To put it in perspective, around 9 litres of petrol can make an individual living in the same city to come out of poverty (7 litres of petrol for a person in rural areas).

If the numbers can't be believed, please refer to the government publication, Millenium Development Goals, India Country report, 2005.

Personally, I think the poverty line is ridiculously low and many economists also don't agree with the government estimate. According to this economist,the government estimate of Rs 327 correspond to 1868 calorie not 2400 calorie. For 2400 calorie requirement in 1999-00, it would correspond to Rs 567 and at that level rural poverty would be 75%.

Finally, it is not uncommon to find people earning Rs 6 lakhs or Rs 8 lakhs per annum claiming themselves as middle class, I certainly believe that people earning such income are in the top 10% of the population.


Dear John
I think you should update yourself on the present cost economics in India before writing. Do you know, the rent of a double bed apartment in South Chennai is Rs 8000 (two years back it was 4000). Petrol prices were Rs 25 a litre when I first bought a car in 2001. It is Rs 49 today. Today, you will never be able to do a shit in India, if your gross salary is Rs 6 to Rs 8 lakh. This is the starting salary in cities like Mumbai/Bangalore etc.
The upward spiralling prices, inflation, hardening interest rates, booming real estate prices et all are reasons for me to say that Rs 6 to 8 lakh does NOT constitute the top 10%. I just dont care what the government says in its initial reports to international agencies.
In a nut shell your thology is blatantly incorrect and is extremely outdated.
John Samuel said…
Dear Rajesh,
Thanks for reading and commenting on what I said about poverty. I liked your blog a lot.
Well, I can't really say anything regard to poverty since you don't seem to believe the statistics.
However, with regard to middle class, what you are saying is that there are ATLEAST 110 million Indians (10% of India's population) earn a minimum of Rs 6 lakh or Rs 8 lakh per annum.
Just a quick calculation. It translates as $17,750 (Rs 8 lakh). United Kingdom has a population of around 60 million with an average income (per capita income) of $37,000. To compare we can say UK has an per capita income of $18,500 if it had a population of 120 million.
So, according to what you say, the 10% of India which earns almost close to 90% of what the whole of UK earned last year.
However, India's GDP at $ 720.3 billion is one-third of UK's GDP of $ 2,131 billion.
Thus, it is quite hard for me to believe your reality even though I have been out of the country for close to three years. Would love to learn if I am wrong in what I explained here.
Ramnath said…
Interesting discussion.

Let me add what I think about it.

Firstly, I think Rajesh's post (which inspired yours) is a 'political' response to a 'political' move. It's not about economics. In fact, subsidy is mostly about politics - interest groups lobbying for and getting special privileges. From a political angle, one group is as good as the other - as long as they help to keep politicians in power.

Forming groups to get bargaining power (it doesnt matter what you bargain for is fair or not) is so prevalent, that one would be tempted to think that it's a fundamental human trait. Muslims would demand what Christians have, and in turn Hindus would demand what Muslims have. In fact, the more the better. What if all are Muslims? Then there would be competition between shias and sunnis; similarly in a christian country between, say catholics and protestants; and in a hindu country, between brahmins, vaishyas and so on. If the groups are not based on religion, it would be on color, language and what not.

What if a whole country is full of identical people - same colour, height, weight, hairstyle etc - like the guys who come in that famous 1984 Apple ad? What if people dont even have names - and are identified only by numbers? Even then, I am sure, odd numbered people would form a group - ask for privileges and complain that even-numbered ones are shown special favours.

In politics, it really doesnt matter if people really deserve spl priveleges or not; if a group is big enough, and if the lobbying, strong enough - that's enough. It should not be the case, but it is sadly so. That's why Hazlit's lesson - judge a policy by its impact on all groups, and also by its short/long term impact - is so important. A difficult lesson.

Secondly, about the middle class thing. Here, 'salaried' class, the only ones who cant escape taxes, and middle class are often used interchangeably. However, there is a deeper issue. I am not blaming you, but this issue is something that economics needs to look at. [Some complain that while there are popular-science-books, there aren't many popular-economics-books. And that, people in general dont grasp basics of economics. But there is a bigger problem. Economists too often are so narrow minded (and statistics they use, apparently so contrived) that people generally dont give a damn about what economists have to say.] The numbers you gave are good - (even though you could have simply said if over 10% earn more than rs8lakh, India's income from this segment alone would be over $1.7 trillion, more than our actual income).

But the point is not that. Have a look at these two. One, this sentence - "Today, you will never be able to do a shit in India, if your gross salary is Rs 6 to Rs 8 lakh." Two - remember that we tend to benchmark ourselves not against per capita GDP, but against incomes of friends, classmates and relatives, many of whom, increasingly, earn in dollars. To say (rightly) you come in the top 10% of the country and so you are not middle class, wont help. Esp when cost of living is higher in India (now, i hope you wont point out to PPP to say India is cheaper than the US, for it's not) and when your peers earn a lot.
John Samuel said…
Hey Ramnath,
I agree with your comment about the relationship between lobbying and previlages.
However, at the same time we can't turn blind to genuine needs of the people. And especially if it is poor and socially marginalised, it is very rare to find them finding organising and make their petitions. Few that are known to me- the slum dwellers of New Delhi (which had some support from left parties and VP Singh) and NBA (though you might argue against their ideas but it is a fact that the people they represent have not justice). Therefore, it would be great if the marginalised and poor could organise themselves in greater number and make case for their views. I think in the midst of lobbying of all kinds, I think we should not lose fact that people with genuine needs who would have managed to lobby. The reason why I am saying is that all bargaining power by people are not inherently bad.

I agree with what you said about middle class. Human beings are 'creatures of comparision'. But, at the same time, we need to be aware of what type of society we live in, where pay such low level of salaries are paid to the outsourced workers in offices and where people don't even have basic facilities.

Finally, I would agree that economists have not been successful in making the subject known to wider audiences. My guess is that even top economists themselves would not know the basics!!!!
Ramnath said…
Hey Johnny, you say "My guess is that even top economists themselves would not know the basics!!!!". Your is guess is probably right. When two Georgia State Univ ppl questioned some trained economists on opportunity cost, many gave wrong answers. You might want to check this : Here's the abstract. One expects people with graduate training in economics to have a deeper understanding of economic processes and reasoning than people without such training. However, as others have noted over the past 25 years, modern graduate education may emphasize mathematics and technique to the detriment of economic reasoning. One of the most important contributions economics has to offer as a discipline is the understanding of opportunity cost and how to apply this concept to all forms of decision making. We examine how PhD economists answer an introductory economics textbook question that requires identifying the relevant opportunity cost of an action. The results are not consistent with our expectation that graduate training leads to a deeper understanding of the concept. We explore the implications of our results for the relevance of economists in policy, research, and teaching.

You say, "I think in the midst of lobbying of all kinds, I think we should not lose fact that people with genuine needs who would have managed to lobby."

Yeah, i agree. Ganging up to get better bargaining power has indeed helped to solve a lot of genuine problems. The demands of some trade unions today might sound preposterous, but when they were first formed they really helped to drive some sense into callous management, and helped in making shopfloors better.

But the point is, from a policy perspective, you would agree its important not to yield to the loudest lobbying group. That's why, we should remember Hazlitt's Economics in One Lesson. He said: "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequence of that policy not merely for one group but for all groups."

But I guess, its far easier, and convenient to yield to lobbying groups. Thats why there are so many dumb policies around. (like you pointed out outdated labour laws, LPG subsidy, UTI bail out and all that). The problem with this is, once people know lobbying works, there will be more of it. That's why its important not to get distracted by lobbying, and see to quote hazlitt (yet again and again and again) looking not merely at the immediate but at the longer effects of any act or policy and in tracing the consequence of that policy not merely for one group but for all groups.
John Samuel said…
Hey Ramz,
I agree with you that one should not fall prey to the loudest lobbying group.
However, with regard to Hazlitt's Economics, I request you to take a policy of your choice and analyse all the long term effects and its effects on all groups. I think it would help me get clarity on Hazlitt's Economics.
As for me, once I have identified the bottomline, I am willing to accept the most effective solution.
Ramnath said…
I request you to take a policy of your choice and analyse all the long term effects and its effects on all groups. I think it would help me get clarity on Hazlitt's Economics.

Johnny, you should try this yourself, really.

Should be easy, especially if you are not emotional attached to some specific policy - more so, if you are willing to accept the most effective solution.

Besides, when you do it yourself, you would get even better clarity!

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