Friday, July 26, 2013

Rs 32 a day is not enough. But subsidies make it’s value 3 times….

As is typical with our obstructionist opposition and ill-informed media, the issue of the definition of the poverty line (Rs 32 a day) has turned truly bizarre. For starters, the exact sum of money used to define poverty is itself irrelevant – for our focus should be on “trends” rather than on “absolutes”, and irrespective of which cut off point you take, the trends would broadly remain the same i.e. there has been a rapid decline of poverty in the last 7 years. Let me be clear. One could argue that Rs 32 is too low to define the poverty level, but one cannot argue that poverty levels have come down drastically. Nor can we argue that the rate of decline of poverty has been three times higher in the UPA regime than in the previous NDA one.

But let me stick to the Rs 32 point, the one that has caused the most anguish and uproar. Lay people have rightly joked that Rs 32 wouldn’t get even one square meal in any urban area. To which some foolish politicians of the Congress have commented that they could actually get food even at half this amount. No one has realized that all of us urban pseudo-intellectuals have made the cardinal mistake of viewing Rs 32 from the prism of our own much-better-off lifestyles. If only we didn’t do that, the story would be vastly different.

I first wrote about this subject a few months back when Rs 32 had first caused a stir (October 2, 2011: Rs 32 a day too low a definition of poverty?). I don’t think I succeeded in convincing too many people; so let me try again. Let me start by asking a question: what would be the price definition that would surely indicate a level of existence above the poverty line? Would it be Rs 100 per person per day? Since we don’t normally think of our income in daily and per-person terms, let me convert this to a monthly household income. Assuming a family size of 4.5 (for the urban poor), this converts to about Rs 13,500 per month. Would this be an acceptable cut-off for poverty? Or should we say the daily amount should be Rs 125, which would convert to Rs 16,875 per month. Or just topping Rs 2 lacs per annum. Incidentally, at this level, the person would start to be called a tax payer.

In any case, the cut off cannot be above Rs 125 a day. Most people (except those who really want to badger up this government!) would agree to even Rs 100 a day. So lets just stick to Rs 100 per day or Rs 13,500 per month.

My contention is that in real terms, the poor who gets (earns) Rs 32 is already getting Rs 100 a day in his hands. The reason is that his cost of living is highly subsidized by the Government. He gets wheat at Rs 2 per kg, rice at Rs 3 per kg, and coarse grains at Rs 1 per kg or some such low numbers. Equally, daal, sugar, oil and fuels like kerosene and LPG are highly subsidized. Lets try and put the market rates (which we inadvertently benchmark everything to) for these goodies. If the family gets on average 30 kg grain per month, and the price differential between PDS and market rates is an average of Rs 30 per kg, then that’s an additional Rs 900 per month in the kitty.

Take cooking gas. If a family uses 1 cylinder of LPG a month, then we know that the subsidy is of the order of Rs 600 per cylinder. Then take school education. Most poor kids get education for free, while most people like us (the ones who pompously comment and complain!) pay anything from Rs 1000 to Rs 4000 and even higher per month. Let’s take an average of Rs 1500 per month. For 2.5 kids, that’s Rs 3750 per month.

So far, we have taken care of food and education. What about clothing? Unfortunately again, most people like us think of how much we spend on clothes as a proxy for what the poor would need. But again what we find is that the poor can get clothes at less than 10% of what we spend on our clothes (branded; even non-branded). But let’s take a higher number of 25% (which means that if you buy your shirt and trouser at Rs 500 and Rs 1000 respectively, the poor can get good, clean ones at Rs 125 and Rs 250 per piece). How much do we spend on clothes per month. Say, a low average of Rs 2000? The difference with the cleanly dressed poor? Approx Rs 1500 per month.

What about transport? Now I agree this is where there is a convergence of sorts between us and the poor. We use the metro, and the bus….and so do the poor. Transport cost is a killer. And the poor surely feel the pinch. But maybe we can start to appreciate the concept of fuel subsidy a wee bit? Or subsidized metro and bus rates a tad? We can complain about the quality of the service, but the poor who is just interested merely in getting from point A to B is happy that the rates are subsidized. I don’t want to assign any monetary value to this, but let’s just agree that there is some value packed in here.

The real problem of course is housing. And the related subject of sanitation. This is what really defines poverty in our country. It’s when we look at people living in slums that we go about calling them poor. Its hardly ever that poor people don’t get enough to eat, or work, or travel, or put their kids through school. It’s almost always about the squalid conditions in which they live. This is where our biggest failure has been. And when I say “our”, I include the NDA as well. There is no politics in this. It’s a joint failure. At the very minimum, one has to say that the Congress has made attempts to provide affordable housing to the poor, but the migration into cities is so huge that it’s our biggest urban suffering. And failure.

So let me close by calculating the poor man’s real buying power. There’s Rs 32 – which translates to 32 x 30 days x 4.5 people = Rs 4,320. Add subsidies on food (Rs 900), gas (Rs 600), education (Rs 3750) and clothes (Rs 1500) which makes it Rs 11,070. I am not trivializing here. I am merely putting the original Rs 32 in the right “context”. This is the “PPP” (Purchasing Power Parity) principle in practice. And its based on solid economics that neither Sen nor Bhagwati can dispute!

Let me put it another way. Critics of the Congress lampoon it once for its subsidy culture. Then they lampoon it again when it defines poverty at Rs 32 a day. C’mon, that’s unfair. Criticize on either the subsidy or the Rs 32, not on both!

Let me put it yet another way. If the government were to cut subsidies and convert everything to cash transfers (DBT), then Rs 11,070 (and more) is what a poor family would get in its bank account every month. Would you then call them poor?

The real truth is that if we remove the politics, there is nothing wrong in Rs 32 a day. People like us who crib forget the subsidies that the poor get. That lifts the Rs 32 a month at least 3 to 4 times that number. It’s not about eating out in restaurants. None of us eats out every day. Its about living a decent life. Besides, the point is not the number. The larger point is that whatever the number, hundreds of millions of people are going above that defined line. That’s what we should be happy as Indians, and what BJP trolls should worry about near election time!

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