In the absence of Consumption Expenditure Survey (CES) data, the Periodic Labour Force Survey shows a rise in the absolute number of the poor in India.

About Consumption Expenditure Survey (CES)

• A CES is conducted by the National Sample Survey Office (NSO) every five years.
• But the CES of 2017-18 (already conducted a year late) was not made public by the Government of India.
• Now, we hear that a new CES is likely to be conducted in 2021-22, the data from which will probably not be available before end-2022.
• India has not released its CES data since 2011-12.

Key highlights

• Unemployment had reached a 45-year high in 2017-18, as revealed by NSO’s Periodic Labour Force Survey (PLFS).
• While the PLFS’s questions on consumption expenditure are not as detailed as those of the CES, they are sufficient for us to estimate changes in consumption on a consistent basis across time.
• It enables any careful researcher to estimate the incidence of poverty (i.e. the share in the total population of those below the poverty line), as well as the total number of persons below poverty.

There is unemployment induced poverty

• There is a clear trajectory of the incidence of poverty falling from 1973 to 2012.
• In fact, since India began collecting data on poverty, the incidence of poverty has always fallen, consistently.
• It was 54.9% in 1973-4; 44.5% in 1983-84; 36% in 1993-94 and 27.5% in 2004-05.
• This was in accordance with the Lakdawala poverty line (which was lower than the Tendulkar poverty line), named after a distinguished economist, then a member of the Planning Commission.

Methodology of Poverty Line

• In 2011, it was decided in the Planning Commission, that the national poverty line will be raised in accordance with the recommendations of an expert group chaired by the late Suresh Tendulkar.
• That is the poverty line we use in estimating poverty in the table.
• As it happens, this poverty line was comparable at the time to the international poverty line (estimated by the World Bank), of $1.09 (now raised to $1.90 to account for inflation) person per day.
• The PLFS also estimates the incidence of poverty. It also collects the household monthly per capita consumption expenditure data based on the Mixed Recall Period methodology.

Stunning rise in Poverty

• It is stunning fact that for the first time in India’s history of estimating poverty, there is a rise in the incidence of poverty since 2011-12.
• The important point is that this is consistent with the NSO’s CES data for 2017-18 that was leaked data.
• The leaked data showed that rural consumption between 2012 and 2018 had fallen by 8%, while urban consumption had risen by barely 2%.
• Since the majority of India’s population (certainly over 65%) is rural, poverty in India is also predominantly rural.
• Remarkably, by 2019-20, poverty had increased significantly in both the rural and urban areas, but much more so in rural areas (from 25% to 30%).

Why is it intriguing?

• It is important here to recall two facts: between 1973 and 1993, the absolute number of poor had remained constant (at about 320 million poor), despite a significant increase in India’s total population.
• Between 1993 and 2004, the absolute number of poor fell by a marginal number (18 million) from 320 million to 302 million, during a period when the GDP growth rate had picked up after the economic reforms.
• It is for the first time in India’s history since the CES began that we have seen an increase in the absolute numbers of the poor, between 2012-13 and 2019-20.
• The second fact is that for the first time ever, between 2004-05 and 2011-12, the number of the poor fell, and that too by a staggering 133 million, or by over 19 million per year.

Fuss over GDP growth

• This was accounted for by what has come to be called India’s ‘dream run’ of growth: over 2004 and 2014, the GDP growth rate had averaged 8% per annum — a 10-year run that was not sustained thereafter.
• By contrast, not only has the incidence of poverty increased since then, but the absolute increase in poverty is totally unprecedented.

Reasons behind this Pauperization

The reasons for increased poverty since 2013 are not far to seek:

• GST: While the economy maintained some growth momentum till 2015, the monumental blunder of demonetization was followed by a poorly planned and hurriedly introduced GST.
• Fall in investments: None of the engines of growth was firing after that. Private investment fell from 31% inherited by the new government, to 28% of GDP by 2019-20.
• Fall in exports: Exports, which had never fallen in absolute dollar terms for a quarter-century since 1991, actually fell below the 2013-14 level ($315 billion) for five years.
• Unemployment: Joblessness increased to a 45-year high by 2017-18 (by the usual status), and youth (15-29 years of age) saw unemployment triple from 6% to 18% between 2012 and 2018.
• Fall in wages: Real wages did not increase for casual or regular workers over the same period, hardly surprising when job seekers were increasing but jobs were not at anywhere close to that rate.
• Pandemic: Poverty is expected to rise further during the COVID-19 pandemic after the economy has contracted.

Hence, consumer expenditure fell, and poverty increased.

Back2Basics:

Poverty Lines in India: Estimations and Committees