The Poverty Game. World Bank, Asian Development Bank and India's Planning Commission comes out with three magical figures.

Does it really matter if these children earn an equivalent of $ 1.51 or $ 1.25 or less than that per day? 

Picture Ankesh Kothari (from web)

The magicians are out on the stage. The challenge before them is to compute poverty. performing the vanishing trick, and that too without any compassion, they perform the statistical jugglery. Leading the pack is the World Bank. In its latest poverty vanishing trick the World Bank revisits its Purchasing Power Parity (PPP) index, and in one stroke it reduces India’s poverty from over 402 million in 2005 to a very impressive 98 million in 2010.

On the other hand, the Asian Development Bank has revised its poverty line to $ 1.51 per person (from the existing $1.25), and India's poverty in 2010 rises to 584 million or 47.7 per cent of the population. The gap between 584 million and 98 million is so huge that one is forced to dismiss both the estimates as unreal.

Here comes the third magician. An expert committee under Prof C Rangarajan, a former economic advisor to the Prime Minister, submitted its report to India's Planning Commission in July this year. By revising the poverty line to Rs 32 in rural areas and Rs 47 in urban areas, Rangarajan committee actually added another 93.7 million thereby raising the number of total poor to 363 million or 29.5 per cent of the population. 

So now we have three estimates: 98 million, 363 million and 584 million.

Isn’t this shocking? While not many Indians will believe that Rangarajan committee’s estimates are anywhere near the reality, and in fact is a gross underestimation of the extent of poverty in India, the World Bank’s latest estimates only shows that poverty does not require Millennium Development Goals (MDGs) targets to be achieved or any real effort to combat poverty and squalor. All it needs is a few economists who can play around with statistics. These economists can perform the vanishing trick much better than the Indian rope trick.

According to the World Bank’s latest estimates, global poverty has come down overnight from 1.2 billion to 571 million.

The earlier poverty line figure in India was Rs 27 for rural areas and Rs 33 for urban areas as computed by the Tendulkar committee a year back. This had raised a storm over the faulty and impractical estimates necessitating the setting up of yet another committee under C Rangarajan. And if the recommendations of the Rangarajan committee are to be believed, it tells us that there is something dubiously wrong with the way India is trying to deliberately keep poverty low. In all fairness, the new poverty line is nothing but a starvation line. It only tells us how many people need emergency food aid.

World Bank’s projections are still worse. In order to justify economic liberalization, it has been trying to fiddle around with social indicators as well as the poverty line to establish that the market mantrais working. World Bank’s chief economist Kaushik Basu defends the exercise by saying: “In case a dollar in Ghana can buy three times what it can but in the United States, then a person who earns 1,000 dollar each month in Ghana is said to earn 3,000 in terms of PPP-adjusted dollars”. But the reality is that even in the United States, despite being a privatized economy, hunger has shattered 25 years record. A record 49 million people, one in seven, depend upon food coupons to meet their daily food needs. One in four lives in poverty in America.

The World Bank is wrong. In case of India, with or without the new PPP index of the World Bank, I would like to know what can a poor with a daily income of Rs 47 in urban areas buy three times more than what he can buy in America with the same money. It therefore tells us that economists are no different from the famed Indian magicians. They too can perform the vanishing magic trick with alacrity. 

Global empirical evidence is now emerging challenging the World Bank's deliberate underestimation of poverty. Recent studies (ECLAC 2002, 2011) have conclusively shown that in Latin America for instance actual poverty rates are twice than what the World Bank had projected. More recently, on April 11, 2014, a study by the University of Bristol published in the Journal of Sociology concludes that the World Bank is painting a 'rosy' picture by keeping poverty too low due to its narrow definition. Dr Christopher Deeming of the Bristol University's School of Geographical Sciences is quoted as saying: "Our findings suggest that the current international poverty line of a dollar a day seriously underestimates global poverty."

In India too, the entire effort of policy planners as well as the numerous expert committees constituted over time to estimate poverty have simply tried to brush the realities under the carpet. While Rangarajan Committee tabulates a new poverty line, way back in 2007, Arjun Sengupta committee report had estimated that 77 per cent of the population or 834 million people were unable to spend more than Rs 20 a day. But more recently, the consumer expenditure data presented by the National Sample Survey Organisation (NSSO) 2011-12 paints before us the grim realities.

Accordingly, if you are spending more than Rs 2,886 per month in the rural areas and Rs 6,383 in the urban areas you are part of the top 5 per cent of the country’s population. In other words, those spending more than Rs 6383 in urban areas are in the same category as Mukesh Ambani, Ratan Tata, Nandan Nilekani et al. For the rest 95 per cent, roughly 118-crore people, life in any case remains tough. With or without the growth trajectory, their life hasn’t changed. In fact, with the aggressive pitching by the corporate-controlled media, the growing social divide is getting completely ignored. Poor have simply disappeared from the economic radar screen.  

Another estimate exposes the glaring inequalities. The economic wealth of 56 people is equal to the economic wealth of 600 million people. No wonder when we take averages like the rising average income, it hides the rapidly growing inequalities. The mainline economic thinking is that the 600 million would benefit from a trickle-down impact. Now with the number of absolute poor being reduced with a magic stroke, the World Bank will succeed in painting a rosy picture by brushing the poor under the carpet in one single sweep hides the truth. With the passage of time, these unchallenged statistics will be repeatedly used and get accepted over time.

Unless the World Bank makes an immediate correction, all projections of removing 'extreme poverty' by 2030 would be as farcical as the new poverty estimates are. But I doubt if there would be an international uproar forcing the World Bank to redraw the poverty line. At this rate, in the next five years when the World Bank will revise its PPP index, poverty in India on paper will disappear. The poor in India will one day suddenly wake up to find themselves bracketed with those living in opulence. That’s the power of statistical jugglery. #

Painting a rosy picture, Deccan Herald, Sept 9, 2014.
http://www.deccanherald.com/content/429821/painting-rosy-picture.html

गरीबी पर आंकड़ों का खेल Dainik Jagran, Sept 6, 2014
http://www.jagran.com/editorial/apnibaat-figures-on-poverty-11609424.html

Four Tough Steps Modi Govt Should Take

Prime Minister Narendra Modi’s comment on the need for a ‘bitter medicine’ to revive the Indian economy and restore its flagging fiscal health has triggered off a national debate. Coming ahead of the Union Budget, the talk of tough measures is being mistakenly perceived by Capital Markets as an effort to postpone the Acche Din.  Repairing the economy will need some unpopular decisions for which the aam aadmi should be willing to make sacrifices.

When it comes to making sacrifices, it is always the man on the street. So to tell him to once again tighten his belts for the sake of country’s slogging economy is nothing new. They have silently borne the brunt of some of the so called popular economic decisions all these years. Even if they don’t pay taxes, every time inflation shows its ugly head they are the ones who gets heavily taxed indirectly. With the real estate booming, and with property prices going out of the roof, they can’t even think of finding a suitable shelter. They have little choice but to make sacrifices.

I am talking of the 95 per cent of India’s 125 crore people who are unable to spend more than Rs 2,886 per month in the rural areas, and Rs 6,383 in the urban areas. According to the National Sample Survey Organisation (NSSO) consumer expenditure data for 2011-12, only 5 per cent live above this fictitiously drawn prosperity line, which puts you and me in the same category as Mukesh Ambani, Ratan Tata, Nandan Nilekani et al. For the rest 95 per cent, roughly 118-crore people, life in any case remains tough. With or without the growth trajectory, their life hasn’t changed. They have been in any case swallowing the bitter pill every day.

But the wish list of the tough measures that a section of the media is wanting Narendra Modi to adopt are very cleverly shifting the focus from the real issues confronting the country, and is in reality seeking more freebies for the rich and wealthy. In the name of controlling fiscal deficit and the current account deficit all out efforts are being made to divert the resources meant for the poor and needy. Let me therefore present five tough steps that the Prime Minister must take to repair the economy in a way the shine reflects on everyone’s face, and not only the top 1 per cent.

Fiscal deficit: The bitter pill that the country needs desperately is to remove the tax concessions for corporate India, clubbed in the category of ‘Revenue Foregone’ in Budget documents. In 2014-15 interim Budget, Rs 5.73 lakh crore was doled out as tax concessions to India Inc. India’s fiscal deficit is in the range of Rs 5.25 lakh crore. Just by doing away with these additional tax sops for the industry, which is basically income transfer, the entire fiscal deficit can be wiped out. This will mean that the Prime Minister will not have to reduce subsidy on LPG, diesel, food and fertilizer and raise rail fares.

Since 2004-05, Indian industry has been given Rs 31-lakh crore as tax concessions. This largesse did not help in creating more employment, and raising industrial and manufacturing output. If Rs 48,000-crore LPG subsidy can remove poverty for one year as some economists have calculated, Rs 31-lakh crore can wipe out poverty from India for 62 years, which means for all times to come.

Economic stimulus: With monsoon expected to be below-normal, and with prediction of a drought staring the horizon, it is high time to provide an economic stimulus package for drought-affected farmers. Reeling under economic distress reflected through the never ending spate of farm suicides, agriculture needs an economic booster. Considering that agriculture is the largest employer, directly and indirectly employing 70 per cent of the population, I suggest an economic stimulus package of at least Rs 1 lakh crore. At the time of the economic meltdown in 2008-09, India had provided an economic stimulus of Rs 3-lakh crore to the industry, which was stretched for at least three years.

In addition, it is time to put an end to the scandalous misuse of farm credit. In 2014-15 interim Budget, Rs 8-lakh crore at a subsidized interest of 4 per cent was provided in the name of agriculture credit, which primarily goes to agribusiness industry. With hardly Rs 60,000-crore going to farmers, the remaining Rs 7.4 lakh crore is gobbled by the agribusiness industry. Hyderabad for instance gets a higher farm credit than the entire Telengana region. The farm credit subsidy therefore is being used by the industry. It should also be included under ‘revenue foregone’ category.

Investment climate: I agree there is a need to build investor confidence. There is no denying that investments have dried up in recent years. But I fail to understand why are the Indian companies, which are sitting over a huge pile of cash surplus, are not investing within the country. According to a recent report, 126 companies are hoarding cash. In 2012, the Reserve Bank of India had estimated the cash surplus to be in the range of Rs 9.3 lakh crore. It is therefore high time the Indian industry is made to invest within the country.

To say Indian companies have no avenues to invest is not true. If foreign companies can make a beeline to invest in India, waiting for FDI clearances, how come the Indian industry does not find the domestic investment climate appropriate? It therefore needs a little bit of tough talk on the part of the government to make Indian industry invest. RBI also needs to revisit the rules that allows for the companies to make heavy investments abroad. 

New taxes or Higher taxes: In addition to striking out tax concessions under the category ‘revenue foregone’, the government should consider imposing income tax on IT companies. Infosys and Wipro have a huge cash surplus but do not pay taxes. The IT companies have also shifted to SEZs to seek a further extension to tax holidays.  While the sops and freebies are being paid by tax payers, personal wealth is being generated for the high and mighty in the IT industry.

Higher corporate tax and introducing a 20 per cent tax on sugary drinks like colas/fruit juices can mop up additional revenue so as to enable further tax relief to ordinary tax payers. # 

Believe it or not, Mukesh Ambani and an average guard (including those posted outside his Mumbai home) fall in the top 5 per cent of the country !

My maid servant asked me the other day: “Sahib ji, TV news tells me those earning more than Rs 1000 a month are not poor. How can this be true? Although I am earning Rs 5000 every month working at your home, I mop up your floor and wash your dishes. If I was rich why should I be doing jhhadu-pochha? Kuchch karona Sahib ji. Aap bolo na…”   

  

Mohan used to be a helper in my office. He now works as a guard in the Delhi University. “Sir ji, I earn Rs 6000 every month. I have a wife and two children. I live in a one-room shanty accommodation in Kamla Nagar. I know how I am struggling to run my family. My wife suffers from asthama, and my younger son has a heart problem. If I didn’t have the BPL card, I couldn’t have got them a hospital treatment. They would have died by now. And look, this government tells me that I am not poor…”

While I was grappling with words to assuage their anger at a faulty poverty line being enacted every now and then, here comes another shocker. The National Sample Survey Organisation’s (NSSO) latest set of consumption expenditure data for 2011-12 tells us that if you live in a village and spend more than Rs 2,886 per month you are among the top 5 per cent of the country. For the urban areas, the cut-off limit is Rs 6,383 per month. That makes me as well as you, the reader, in the same category as Mukesh Ambani, Ratan Tata and Narayana Murthy. Time to celebrate, isn’t it?

However, both my housemaid and my helper have narrowly missed being in the top 5 per cent bracket of the country. But they surely can derive some console and of course a lot of happiness to know that they rub shoulders with the top 10 per cent of the country. According to NSSO, those spending Rs 2,296 in rural and Rs 4,610 in the urban areas fall in the top 10 per cent. And that makes me wonder, if a guard outside an office or a swanky home is amongst the top 10 per cent of India, then imagine the fate of the remaining 90 per cent of the population? In simple words, does it not mean that over 110-crore people out of a population of 125-crore in India are simply destitute? Does it not mean that the poverty line that has been worked out time and again is completely fallacious and meaningless? 

If a spending of Rs 96.2 in the rural areas and Rs 212.77 in the cities is what it takes to form the top 5 per cent of the country, then there is something glaringly missing in India’s growth story. The promise and excitement of being the second fastest growing major economy is simply an illusion of prosperity wherein a handful of people/families have amassed huge wealth. The average growth in income that India has witnessed means nothing considering the gigantic income inequality that prevails.

The NSSO’s consumption expenditure data only shows how wide the income gap is. With every passing year, we know the prevailing inequality is further widening. At this rate, probably India would put the US to shame where 400 individuals have amassed economic wealth equal to that of half the American population. In India, economic growth seems to be all about the ultra high net-worth individuals (HNIs) whose number has risen to 100,900 in 2012-13, and is expected to swell to 300,000 in another five years. Ultra high net-worth individuals are those who have amassed Rs 25-crore or more in past 10 years.

The more the accumulation of economic wealth with a handful of families, the more is the projection of rising average incomes and growing prosperity. 

Regardless of how strong the poor feel about the cruel joke being thrust upon them, there is excitement in the air. I mean in the air waves. For the past few days I have been hearing the TV anchors and the Congress spokespersons repeatedly emphasizing on the latest miracle that they claim has been achieved. Poverty has come down by 15 per cent in eight years, between 2004-05 and 2011-12.  Some have even demonstrated their height of insensitivity by claiming that a decent meal is possible in Re 1/5/12.

Past NSSO data shows that the percentage of population below the poverty line has come down from 37 per cent in 2004-05 to 21.9 per cent in 2011-12. Planning Commission has last year (in Mar 2012) announced that poverty percentage has come down by 7.3 per cent, which means from 37.2 per cent in 2004-05 to 29.8 per cent in 2009-2010. And now finally, the data for the eight years the UPA has remained in power shows a magical decline in poverty by 15 per cent.

Interestingly, the reduction in poverty is being flaunted at a time when the Planning Commission is still not sure about the new poverty line. And if my housemaid and helper have crossed the Rubicon of poverty to rub shoulders with the rich and mighty, it is time for a grand celebration. But before that, let's have a reality check. 

Remember the TV serial: "Mungeri Lal ke haseen sapne"

Nothing Special about Special Economic Zones (SEZs)

Some years back I delivered a memorial lecture at Rohtak in Haryana. The Haryana chief minister Bhupinder Singh Hooda was in the chair. Knowing how flawed his economic thinking of acquiring large tracts of farmland for the sake of industry in the name of Special Economic Zones (SEZs) was, I dwelled upon the dangers and the disastrous fallout waiting to happen as far as livelihood security of the masses and country’s food security was concerned. 

Hooda was obviously irked, and visibly angry. Cutting me short, he got up and intervened saying how right his policy was for the farmers, and for the state’s ultimate economic progress. I asked him where and when was a public discourse held to know whether SEZ was a good investment, and he retaliated by challenging me to an open discussion anytime later in Chandigarh, which of course never happened.

Several years later, I stand bemused to find Hooda take a complete u-turn: “It is true that SEZs have not succeeded, not only in the state but in the entire country. There was economic slowdown in the entire world, so SEZs could not succeed,” he said recently. Although he acknowledges the fault, what he says in its defence is also not correct. And this is true for the entire policy making process, which still refuses to accept the fundamental flaws in the SEZ policy. As IMF chief economist and an advisor to the prime minister, Raghuram Rajan, had stated way back in 2007: “India’s SEZ policy was a tax give-away and was likely to shift Indian production to SEZs rather than create new economic activity.” He was quoted in the Wall Street Journal as saying “these zones would be viable only if they focused on providing superior infrastructure, business-friendly regulations and exemptions from labour laws rather than offering often misdirected subsidies, guarantees, and tax sops that a stretched budget can ill-afford”.

By October 2011, ministry of commerce had approved 583 SEZs. As per news reports, one-third of these – approximately 202 -- have been already withdrawn. A majority of those who are still struck are known to be looking for better escape options. For instance, the realty giant DLF with its joint venture partner Hubtown, has recently sold its IT SEZ in Pune to a private equity firm Blackstone for Rs 810-crore. In Haryana, Reliance Haryana SEZ Limited (RHSL), a Mukesh Ambani’s Reliance Ventures Ltd and Haryana State Industrial and Infrastructure Development Corporation (HSIDC), is the latest one to drop out. It had earlier shelved its Jhajjar SEZ and converted it into a model economic township to be implemented by a new company.

Reliance was seeking further extension for its Gurgaon SEZ, but has been finally asked to return 1,383 acres that it got from the state government. In Andhra Pradesh, 109 SEZs were approved, only 36 are operational. The Andhra Pradesh Industrial Infrastructure Corporation has scrapped the MoUs with the major defaulters and taken back the land assigned, including from Unitech and Caparo. In Haryana, only 3 of the 46 approved SEZ are in operation. 

SEZ were promoted as a engine house of economic liberalisation. These were primarily set up to prop-up the slowing economy. These were supposed to drive exports, and, in turn employment and growth. All kinds of sops – tax waivers and giveaways – including precious land provided at a throwaway price, were given to energise manufacturing and exports. To blame the economic slowdown therefore for the failure of SEZs to take-off is to find an easy escape route for the fundamentally flawed policy. Even before the global economic meltdown of 2009-10, SEZs had failed to live up to the expectations and at the same time failed to demonstrate any significant upswing in export growth. In reality, it provided a massive windfall for realty developers. SEZ were perceived as real estate ventures and therefore an opportunity for land grab where developers could use 65 per cent of the acquired land to build hotels, restaurant and apartments.  

Why blame Hooda alone, prime minister Manmohan Singh too was mesmerised by the SEZ potential. At an award ceremony in Mumbai in 2007, he had said: “Special Economic Zone (SEZ) is an idea whose time has come.” Supported by all political parties, including the Left Front, he actually launched a nationwide campaign to forcibly acquire and make available land on a platter to the industry, displacing lakhs of farmers. What began with SEZ subsequently continued in the name of industrial development. Farmers resisted, and pitched land battles were waged across the country, the likes of which have not been witnessed in living memory. The resulting social unrest across the rural spectrum was considered to be a small price the country must pay for achieving long-term development. As companies lined up for SEZs, most state governments went aggressively into property dealing.  

As expected, not many states have realised the social and economic benefits that were originally promised. Except for the IT sector, which has very cleverly used SEZ to seek further extend the tax exemption period, the enthusiasm from other sectors was clearly missing. In essence, SEZ was a misplaced idea whose time had lapsed much before it caught the imagination of policy makers in India.