DISCUSSION

february 6, 2010 vol xlv no 6 EPW Economic & Political Weekly74

A Critical Look at Some Propositions on Consumption and Poverty

Utsa Patnaik

Utsa Patnaik (patnaikutsa@yahoo.com) is at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi.

A comment to the analysis and discussion in Angus Deaton and Jean Dreze, “Food and Nutrition in India: Facts and Interpretations” (EPW, 14 February 2009).

1 Consumer Price Index Is Not a Cost of Living Index

Deaton and Dreze (2009) have argued that the NSS consumption data show rising per capita real

expenditure in both rural and urban India, over the same period that per capita calorie intake has been declining. As they put it (p 46), “…the decline in per capita calorie consumption has been accompanied by an increase in real average household per capita expenditure”. They have posed as a “puzzle” the steady “downward drift” in calorie intake for all spending classes de-spite this “rise” in real per capita expendi-ture, saying “per capita calorie consump-tion at a given level of per capita expendi-ture has steadily declined over the last 20 years” (ibid, p 46, all emphases in original). What do they mean by “real” expenditure and by a “given level of expenditure”? From the note to their Table 2 headed “Real Mean Per Capita Expenditure on All Goods and on Food”, they are deflating nominal rural and urban spending by the CPIAL and CPIIW, respectively, which is the routine procedure that economists follow. This is the same as using the implicit de-flator from successive official poverty lines, since these poverty lines have been obtained by updating 1973-74 rural and urban poverty lines using the CPIAL and the CPIIW.

However, can economists confine them-selves to routine procedures alone, and continue to apply uncritically only the conventionally accepted methods of de-flating current to constant values, when these methods have been shown already to be increasingly inadequate? Using con-sumer price indices over long periods of time has led to absurd results by way of grossly underestimating the required ex-penditure for maintaining even a modest

consumption standard. The particular lev-els of money expenditure in 1973-74 which allowed official nutrition norms to be met, when updated by price indices to 2004-05 permit only much lower nutritional levels, sharply lower in many states by 600 to 1,000 calories daily . The questions pre-cisely are, how “real” are these authors’ estimates of “real per capita expenditure” calculated over two decades using con-ventional indices, and to what extent is their “given level of per capita expendi-ture” actually given?

Economists generally tend to treat the consumer price index as equivalent to a cost-of-living index, and term as “real ex-penditure”, spending levels deflated by the consumer price index. It is clear by now that such an identification is untena-ble for time periods in excess of five years or so, for we have been getting seriously misleading results by treating price indices and cost of living indices as the same. Money incomes and expenditure should be rising enough for working people to permit both the maintenance of the mini-mum nutritional standards as well as rea-sonable spending on health and utilities, and thus should be rising in tandem with the cost of living in order to maintain real purchasing power. But clearly that is not happening, money expenditures are not growing in tandem with the cost of living and this is reflected in absolute decline in the consumption of necessities like foodgrains and cloth. Consumer price indi-ces are increasingly understating actual change in the cost of living, since the nom-inal spending level which allowed a mod-est nutrition norm of 2,100 calories per capita to be accessed three decades ago, when consumer price index adjusted, now allows only 1,400 to 1,700 calorie intake in most states. The actual nutrition-invariant cost of living is more than double the price-index adjusted poverty lines.

For urban employees, the consumer price index alone has never served as the sole basis for determining the cost of liv-ing for fixing salaries. The author joined her university as an associate professor in 1973, the base year for official poverty estimates, at a gross pre-tax salary of about Rs 1,000 per month. The Consumer

DISCUSSION

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Price Index for Urban Non-manual Em-ployees rose 10.55 times by 2004-05, so applying this index the salary for an entrant into the same post should be Rs 10,550 per month. But no urban middle class profes-sional could possibly maintain herself on such a sum, which the University Grants Commission considers adequate only for the senior research fellowship awarded to young doctoral scholars. The actual entry-level salary for the same post in New Delhi by 2005 was more than double the CPI-UNME index adjusted base year salary and close to the multiplier value of 2.6 yielded by taking the ratio between the 2,100 cal-ories poverty line and the official poverty line in 2004-05.

2 Alternative Deflators to Calculate Real Expenditure Since the consumer price indices have not been capturing the actual change in the cost of living, and deflating expenditure series over a decade or more by these indi-ces no longer gives a correct approxima-tion to “real expenditure”, we need alter-native deflators to convert nominal spend-ing to real spending. The official poverty lines (OPL) measure the cost of a fixed base-year basket updated by consumer price indices, so one set of implicit defla-tors is given by the change in the OPLs at successive points of time, representing the change in the consumer price indices. An alternative set of implicit deflators is given by taking the nutrition-invariant or direct poverty lines (DPLs) at successive points of time at the norm and at lower levels. “Real expenditure” is found to be highly sensitive to the specific deflator used, which not merely affects the values but also alters the direction of change.

The interesting results of applying the alternative deflators to average nominal MPCE during 1983 to 2004-05, normalis-ing for 1993-94, are shown in Table 1. Applying the OPL implicit deflator gives a rise in average “real expenditure” by 25% in rural India from Rs 259 to Rs 323 and by 40% in urban India from Rs 397 to Rs 557. This is the same finding as Deaton and Dreze (2009). But applying the implicit deflator from the DPLs at norm levels, alters the direction of change to the opposite: rural real spending declines by 25.5% from Rs 306 to Rs 228 and

declines by 5.6% in urban India from Rs 441 to Rs 416.

Implicit deflators have been obtained also for two additional, below norm nutri-tional levels. Over the two decades from 1983 to 2004-05 there is a decline in rural real spending with implicit deflators for every nutritional level. Urban India shows spending decline with the norm level deflator while the lower level deflators give rise in spending. Note that the differ-ence between the OPL deflator and the

1,800 calories DPL deflator is not very large but it is enough to alter the rise in rural real spending to a decline.

The performance using the DPL deflators, is very different during the period 1983- 1993-94 compared to the subsequent eco-nomic reforms decade. Urban real MPCE shows unambiguous rise in the pre-reform decade for all nutrition level deflators. This improvement in real spending saw a small rise in average calorie intake. Rural real MPCE shows decline by 7.9% and 6.4% using the norm level and next lower deflators, while it remains virtually constant with the lowest level deflator. But over the sub-sequent economic reforms decade, which saw income deflating macroeconomic policies, urban real spending declines by 9.2% and 3% for the norm and next lower level deflators while only the lowest level deflator gives a rise by 6.6%. Rural India shows much larger decline in real spend-ing by 19.1% and 9.5% for the first two DPL deflators while even the lowest level deflator shows decline. All these results are very different from the OPL deflator showing improvement in real expenditure over both periods and in both rural and urban India.

What of the fractile specific behaviour of “real expenditure” over time? As Table 2 shows for urban India, the OPL deflator gives rising real spending for all spending classes over 1993-94 to 2004-05 with the average rise at 21.5%. But with the DPL de-flator at norm level, the finding is the op-posite. There is a 9.2% average decline in real spending, and 11 of the 12 spending classes containing 95.1% of all persons

Table 1: Nominal Average Monthly Per Capita Expenditure Deflated Using Alternative Implicit Deflators from Official and Direct Poverty Lines Implicit Deflators 1983 1993-94 2004-05

1 Rural a < 2,400DPL (norm) 36.8 100 245.4

b < 2,200 DPL 37.4 100 219.5

c < 1,800 DPL 39.8 100 206.0

d OPL 43.4 100 172.8

2 Urban a < 2,100 DPL (norm) 37.2 100 253.0

b < 2,000 DPL 38.2 100 236.8

c < 1,800 DPL 40.7 100 215.4

d OPL 41.3 100 189.0

3 Nominal mean MPCE, Rs Rural 112.5 281.4 558.8

Urban 164.0 458.3 1052.4

4 Real mean MPCE, Rs (base 1993-94) Rural a Applying < 2,400 DPL deflator 305.7 281.4 227.7

b Applying <2,200 DPL deflator 300.8 281.4 254.6

c Applying<1,800 deflator 282.7 281.4 271.3

d Applying OPL deflator 259.2 281.4 323.4

5 Urban a Applying <2,100 DPL deflator 440.9 458.3 416.0

b Applying<2,000 DPL deflator 429.3 458.3 444.4

c Applying <1,800 DPL deflator 403.0 458.3 488.6

d Applying OPL deflator 397.1 458.3 556.8Source: Patnaik (2007) gives the official and the direct poverty lines at both norm levels and at 1,800 calories level. Direct poverty lines for other nutritional levels are from author’s charts of the g relation.

Table 2: 2004-05 Expenditure Deflated to 1993-94 Using Different Deflators by MPCE Classes (All-India Urban)MPCE Persons 2004-05 1993-04 2004-05 2004-05 (Col 6- Col 5) Calorie IntakeClass 1993 2004 Current Current DPL OPL Change % Change (%) (%) (Rs) (Rs) Index Index (Rs) Deflated Deflated 1 2 3 4 5 6 7 8 9

1 5.0 5.0 279.7 132.8 110.6 148.0 22.2 3.7

2 5.0 5.1 368.1 175.5 145.5 194.8 -30.0 -0.5

3 9.4 9.8 410.3 210.8 162.2 217.1 -48.6 -2.4

4 9.0 10.3 533.2 247.5 210.8 282.1 -36.7 -2.7

5 10.9 9.7 625.8 286.8 247.4 331.1 -39.4 -4.2

6 10.0 9.9 730.2 331.6 288.6 386.3 -43 -4.2

7 10.3 10.3 858.0 380.7 339.1 454.0 -41.6 -5.2

8 10.6 9.7 1,014.3 447.6 400.9 536.7 -46.7 -5.0

9 10.0 10.2 1,226.4 543.5 484.7 648.9 -58.8 -5.0

10 10.2 9.9 1,594.1 698.3 630.2 843.4 -68.1 -8.2

11 4.7 5.1 2,157.2 923.4 852.7 1,141.3 -70.7 -8.4

12 4.9 4.9 4,235.6 1643.1 1,674.2 2,241.1 31.1 -7.5

All 100 100 1,052.4 458.3 416.0 556.8 -42.3 -4.9For real spending col 6 uses 2,100 calories DPL Index = 253, and col 7 uses OPL Index =189 both with base 1993-94 = 100. The last column gives the relative change in calorie intake in 2004-05 over 1993-94 for normalised calorie intake viz, deducting 1,000 calories from both sets.

DISCUSSION

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show decline while only the top 4.9% of persons show a rise. There is a clear asso-ciation between the decline in real ex-penditure and decline in calorie intake for 10 classes. The anomalies are the lowest class which shows a small rise in calorie intake despite fall in real expenditure1 and the richest class which shows fall in calorie intake albeit from very high levels, with a rise in real spending. On average there is a 4.9% calorie intake decline with 9.2% real spending decline.

Clearly, “real” per capita spending shows rise without exception for every period in the Deaton and Dreze (2009, Table 2) ex-ercise, and in both rural and urban areas, solely owing to the specific price indices they use, which have been used always for updating official poverty lines, and have cumulatively underestimated the actual rise in the cost of living. The “downward drift” of calorie intake at a “given real ex-penditure” is the result of using these spe-cific indices to the exclusion of any other. If the alternative deflators from the nutrition-invariant poverty lines are used for com-paring what Deaton and Dreze (2009) have called the “calorie Engel curves”,2 the pattern would be very different from the one in their Figure 1. The curves for different years would not drift downwards but would cluster closely together.

Thus, there is no puzzle of declining per capita calorie intake with consistently ris-ing per capita “real spending” since such behaviour does not exist in reality: apply-ing reasonable alternative deflators shows decline in real spending, which turns out to be particularly large in the economic reforms decade. This is consistent with macroeconomic policies over this decade which were employment and income re-ducing in the material productive sectors while favouring tertiary sector growth. Even applying the standard price index de-flators, the consumption data show not only falling real spending on food – as Deaton and Dreze have correctly pointed out – but also falling real spending on cloth. The exception was urban India between 1983 and 1993-94 when per capita real ex-penditure rose using the alternative defla-tors, and average calorie intake far from declining also registered a marginal rise.

Indian consumers are neither abnormal nor irrational, and poor consumers who

are already undernourished and inade-quately clothed, do not further cut back on basic necessities like food and cloth unless they are obliged to do so by falling pur-chasing power. The alleged puzzle in con-sumer behaviour arises from ignoring every bit of adverse evidence such as rising unemployment rates, falling foodgrains availability per capita, stagnant mass in-comes in the material productive sectors especially the primary sector, loss of owned land and livestock by the majority of peasants – all of which indicate falling purchasing power. Relying exclusively on increasingly faulty tools, the consumer price indices, for deflating current spending values to constant values pro-duces misleading results. My argument is not that these conventional tools should be rejected, but that they should be used critically, never be treated as cost of living indices, applied only over short periods of four years at most between large sample surveys, and sup-plemented by alternative deflators. However I have no illusion that any established academic will ever think out of the box, and economists in particular tend to be more deeply attached to their standard concepts and tools however faulty these have proved to be than they are to their spouses.

3 Problem of Deaton and Dreze EstimatesDeaton and Dreze (2009, Table 5) have given estimates of the percentage of per-sons below nutrition norms which do not seem to square with the basic NSS data. Their rural estimates for 1993-94 and 2004-05 are 71.1% and 79.8% of the per-sons falling below 2,400 calories and urban estimates are 58.1% and 63.9% of persons below 2,100 calories. They have not mentioned the poverty lines at which they obtain these percentages, and neither the data for the ogives they use, nor for the g relation are given. Their Table 5

(given in briefer form as Table 3 in this article) only has a note saying “Authors’ calculations based on NSS data”. The ques-tion is precisely how the authors have cal-culated, which remains unstated, making their procedure non-transparent. We find that most of their numbers for other years are also off the mark to some degree but

the largest divergence from the data is in their rural poverty estimate for 2004-05, which is 79.8%, 7 percentage points lower than the correct 86.7%. So let us consider this, reproducing the relevant information from NSS Reports for the reader’s ready reference in Table 4.

It was earlier shown (Patnaik 2007) that direct head count rural poverty percentages changed little over the period 1973-74 to 1993-94. The variation is plus/minus 3% or so, around 72% below 2,400 calories in-take. This relatively stable picture changed over 1993-94 to 2004-05 with the rural direct poverty line rising from Rs 326 to Rs 800 and the percentage of persons below these lines rising by an unprecedented 12 points to reach an all-time high of 87%.

Table 3: Percentages of the Population Living in Households with Per Capita Calorie Consumption Below 2,100 Urban and 2,400 Rural (abstracted from Deaton and Dreze 2009 Table 5)Year Round Rural Urban All-India

1983 38 66.1 60.5 64.8

1993-94 50 71.1 58.1 67.8

2004-05 61 79.8 63.9 75.8

Table 4: Distribution of Persons, Average MPCE and Average Nutritional Intake by MPCE Classes, All-India Rural, 61st Round 2004-05 (U-30) and Distribution of Persons and Average Expenditure by MPCE Classes 61st to 63rd Round 2006-07 (MRP)MPCE % of Cumulative % Average Average Cumulative % of PersonsClass Persons of Persons MPCE Rs Calorie Intake (Current Values) URP URP URP URP MRP MRP MRP 2004-05 2004-05 2004-05 2004-05 2004-05 2005-06 2006-07 1 2 3 4 5 6 7 8

0- 235 4.8 4.8 199.53 1,376 2.8 2.0 1.2

235-270 5.1 9.9 253.80 1,575 6.1 4.5 3.2

270-320 9.9 19.8 296.64 1,679 14.4 11.4 7.5

320-365 10.5 30.3 342.40 1,800 23.9 18.7 12.7

365-410 10.2 40.5 387.72 1,885 33.9 27.9 20.8

410-455 9.4 49.9 432.06 1,962 43.6 36.5 29.1

455-510 9.9 59.8 481.55 2,042 54.4 46.6 39.0

510-580 10.2 70.0 543.25 2,158 65.3 58.9 50.3

580-690 10.4 80.4 630.40 2,290 77.5 72.3 64.9

690-890 9.8 90.2 775.00 2,380 88.8 86.1 80.3

890-1155 4.9 95.1 999.94 2,568 94.7 93.2 90.6

1155 ++ 4.9 100 1,956.57 3,018 100.0 100.0 100.0

All 100.0 558.78 2,047Note that in Report 508 perhaps owing to rounding, the percentage of persons by MPCE classes totals to 100.2. We have adjusted for this by assuming the last two classes to contain 4.9% of persons each and not 5 as stated. Source: NSS Report 508, Level and Pattern of Consumer Expenditure, 2004-05 Statement 2R on p 46, Appendix Tables 1R and 5R. Report 513, Nutritional Intake in India 2004-05, Report No 527. Household Consumer Expenditure 2006-07, Table, p 1.

DISCUSSION

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Given the data of Table 4 from the cited NSS Reports, used for the relations depicted in Charts 1a and 1b, and applying the nutrition norm of 2,400 calories, there is a unique value for the rural poverty line and the associated poverty percentage. The em-pirical reading can vary at most by plus/minus Rs 5 for the poverty line and plus/minus 0.5% for the associated poverty percentage when we read the graphs, but it cannot possibly differ by as much as 7 percentage points. That is why the Deaton and Dreze estimate of 79.8% below 2400 calories is so problematic.

Inspecting the first five columns of Table 4 shows that the Deaton and Dreze calculation of 79.8% under 2,400 calories, cannot be correct. 80.4% of all persons spent below Rs 690 per month, with an average calorie intake of 2,290 calories per day in the class Rs 580-Rs 690. Clearly 79.8% of persons would be spending a little below Rs 690. The average calorie intake of even the next higher class Rs 690-Rs 890 is marginally below 2,400 calories and 90.2% of all persons spent less than Rs 890. Deaton and Dreze’s 79.8% of per-sons could not possibly access anything but a little below 2,335 calories (2,290 class

average plus half the dif-ference of this with the next class average of 2,380 calories). Even without plot-ting the graphs it is crystal clear that reaching 2,400 calories intake requires spending at a level just over half way between Rs 690 and Rs 890, and the poverty percentage has to lie above 80.4 and include more than half of the 9.8% of persons falling in this class. Even assuming the ogive is linear at this stretch which it is not. It has to be over 80.4+4.9 = 85.3% and cannot possibly be 79.8%.

From Chart 1b, 2,400 calories can be accessed at Rs 800, so this is the direct poverty line. From Chart 1a, 86.7 or rounding to the nearest whole number, 87% of persons in house-

holds, failed to reach this level. Deaton and Dreze’s 79.8% of persons fall below Rs 685 spending level which allows a calorie intake of 2,325 only, not 2,400 calories. Plus ca change ……..again and again we find unstated and implicit low-ering of the standard to arrive at under-estimated poverty. Deaton and Dreze’s “below 2,400 calories” estimate is actually a “below 2,325 calories” estimate. One wonders what the point of doing this might be, and what conceivable differ-ence it would make to admit that the be-low 2,400 calories rural poverty is nearly 87% and not just below 80%.

How have Deaton and Dreze arrived at their very precise looking but incorrect estimate of 79.8% of rural persons below 2,400 calories intake in 2004-05? Let us try to solve the puzzle. If the relation of calorie intake to MPCE levels (which is available only for the URP distribution, and is shown in Chart 1b) is used to obtain the direct poverty line, Rs 800 then the only way a lower figure than the correct estimate can be obtained is to apply this poverty line to an ogive which is not the appropriate URP ogive to which the calorie intake data per-tain, but a different ogive lying to the right

of the URP one. The mixed-recall period (MRP) for the same year gives precisely such an ogive (col 6) since it records the same per head food expenditure but high-er per head non-food expenditure (on ac-count of the 365 day recall period used rather than the 30-day period, for infre-quently purchased non-food items).

Let us do some detailed statistical de-tective work to trace the possible steps through which a lower than actual poverty percentage can be claimed, referring to Table 4. Suppose the DPL of Rs 800 from the g relation of Chart 1b is incorrectly applied to the MRP ogive for the same year (col 6) which lies to the right of the URP ogive, we would get 84% of persons below Rs 800. This while shaving off 3 percent-age points from the correct figure remains higher than the Deaton and Dreze estimate. Carrying the detective work a step further, if we apply the same poverty line to the MRP ogive for the next year 2005-06 which lies even further to the right (col 7), we get a fraction over 80%, still a tiny bit “too high” (see Chart 2, p 78). If the relevant curved segment of the ogive is treated as linear however the percentage of persons drops a whisker below 80, the poverty es-timate claimed by Deaton and Dreze for 2004-05. Chart 2 presents the 2005-06 MRP ogive with grid lines for greater ease of checking the argument.

We are not in a position to assert posi-tively that Deaton and Dreze (2009) have arrived at their figure of 79.8% by using this particular procedure, since only they know what they have done and they have not chosen to share their method with their readers. All we are saying is that following the incorrect procedure of tak-ing the URP poverty line for 2004-05, and applying it to the 2005-06 MRP ogive while treating the relevant segment as linear, does give exactly their estimate. The fact that the Planning Commission has been applying its URP price-updated poverty line to the MRP distribution to give a second, lower poverty estimate suggests that the incorrect method has wide acceptance at present among econo-mists working in the area.

However widely it is being used, the fact remains that applying a URP poverty line to the MRP distribution is incorrect procedure even if the distributions are for

Chart 1a: Ogive, All-India Rural, 2004-05 (URP)

Source: Table 4 col 1 upper end values and col 3.

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Chart 1b: Daily Per Capita Calorie Intake by MPCE, All-India Rural, 2004-05 URP

Source: Table 4 col 4 and col 5, URP distribution. This is the g relation referred to in the text.

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Chart 1b Daily per capita Calorie Intake by MPCE, All-India Rural 2004-5 URP

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the same year. The average MPCE and calorie intake by classes will not remain the same for the MRP distribution as the URP one when the same money class limits are retained as is the case, and therefore the poverty line itself will be a different and higher one than Rs 800. And it is doubly incorrect to take the MRP distri-bution for any later year and use the same poverty line, because the price inflation factor will kick in additionally to make the given money poverty line inapplic-able. At the very least the poverty line has to be revised upwards for Inflation. The second point is obvious but the first point needs more elaboration, which is relevant also for our later critique of the Planning Commission practice of giving two sepa-rate poverty estimates using the same poverty line.

The MRP basis MPCE is on average only Rs 20 higher than the URP basis spending

(Table 5) and this extra spending is recorded on account of non-food items under the 365-day recall for infrequently purchased goods. The average food spending and calorie in-take are exactly the same for both, since non-food items cannot be used for obtaining calories; it is only Charlie Chaplin who on celluloid could boil shoes to make soup, but

in real life it does not happen. So it is a matter of common sense that the URP basis expenditure level at which 2,400 calories can be obtained, has to be suitably raised by the amount of extra non-food spending, to give the MRP basis poverty line to pre-serve access to the same level of nutrition. Differently put, a URP poverty line giving the norm level of calorie intake, will nec-essarily correspond to a lower than norm calorie intake and hence a lower than norm level poverty ratio, when applied to the MRP curve of the same year. Since any given calorie intake level will be accessi-ble only at a higher MRP spending than URP spending, the g curve pertaining to the MRP distribution for a given year will be a different one and it will always lie below and to the right of the g curve of the URP distribution for the same year.

We can see precisely how the average expenditure and calorie intake by MPCE

classes will change for the MRP distribu-tion, by consulting the detailed Tables 6R and 6U in NSS Report 508 which give the cross-tabulation of households under both MRP and URP using the same money class limits. The MPCE for the two distri-butions are shown in our Table 5, ab-stracted from the detailed Table 6R of the cross-tabulation. Studying these data the reader can appreciate the point being made here, that the new g relation relevant for the MRP distribution will lie to the right of the URP g relation, just as the MRP ogive lies to the right of the URP one. The two distributions will give exactly the same direct poverty estimate.

Consider the poorest class spending below Rs 235 containing 4.8% of persons. The MPCE is Rs 199.5 of which food spend-ing is 68.5%, and mean calorie intake is 1,376. With MRP basis spending, still tak-ing the same set of households (namely before “adjusting” them), the average spending goes up to Rs 225.11, but food spending remains unchanged and is a lower share, 60.7% of this, hence average calorie intake will be unchanged.

However, the number of households will not actually remain unchanged in the given class with MRP spending since those mainly lying in the top half of the class will exceed the class limit of Rs 235. Only 57% of households originally in this class continue to remain in it (see Table 6R, Report 508) with adjustment, the remain-ing 43% move up while some households move into this class from higher spending classes (see fn 5 for the reason). The aver-age MPCE declines to Rs 188.32 on URP basis for the new group of 2.8% of per-sons. This is lower than before by Rs 11.2 so the food spending falls, entailing at least 30 to 35 calories decline in average intake, given the slope of the g relation in this segment.

Or, take the class of 9.8% of persons, spending between Rs 690 and Rs 890, which contains the Rs 800 direct poverty line. Of Rs 775 average spending 53.9% is on food, giving 2,380 calories. The same set of households spend on MRP basis al-most Rs 40 more, Rs 814.4. The unchanged food spending declines to 51.3% of this and calorie intake is unchanged. After households are “adjusted” depending on whether their MRP basis spending keeps

Table 5: Per Capita Expenditure by MPCE Classes in MRP Distribution Compared to URP Distribution, Both Before and After ‘Adjustment’ of Households, by Unchanged Money Class Limits (All-India Rural 2004-05) MPCE Class Cumulative Before ‘Adjustment’ Cumulative After ‘Adjustment’ Rs % of Persons Average MPCE, Rs % of Persons Average MPCE, Rs URP URP Basis MRP Basis MRP URP Basis MRP Basis1 2 3 4 5 6 7

< 235 4.8 199.53 225.11 2.8 188.32 200.49

235-270 9.9 253.80 284.36 6.1 236.87 253.40

270-320 19.8 296.64 328.00 14.4 279.24 296.40

320-365 30.3 342.40 376.93 23.9 323.64 342.82

365-410 40.5 387.72 425.24 33.9 368.65 387.18

410-455 49.9 432.06 469.66 43.6 411.90 432.51

455-510 59.8 481.55 520.78 54.4 460.15 482.07

510-580 70.0 543.25 585.92 65.3 517.75 543.70

580-690 80.4 630.39 672.44 77.5 606.62 630.02

690-890 90.2 775.00 814.44 88.8 753.12 774.90

890-1155 95.1 999.94 1,046.00 94.7 983.95 999.03

1155++ 100 1,956.57 1,651.65 100 1,735.96 1,754.90

All 558.78 579.17 558.78 579.17

Source: NSS Report No 508, 2004-05 Table 6R for the four columns of average MPCE. The “before adjustment” refers to the average taking the same numbers of households in each MPCE class even with MRP spending, while the “after adjustment” refers to the result of shifting out of households according to whether their MRP spending exceeds the class limit (or in a smaller number of cases falls below the class limit). The MRP values of Col 7 are associated with a lower per capita food spending level and hence lower calorie intake compared to the URP Col 3, values, for the reasons explained.

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Chart 2: Ogive, Mixed Recall Period 62nd Round 2005-06, All-India Rural

Source: Table 4, Col 7.

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DISCUSSION

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them within the same class limits or moves them up or down,3 60% remain, most move up, some move down and many enter it from lower classes. The URP basis spending for the new group of 11.3% of persons lying within the same class limits, declines by Rs 22 to Rs 753.12 so food spending and hence calorie intake will be lower, by 18 to 20 calories given the slope of the g relation over this segment.

To sum up, although overall average calorie intake is the same for the URP and the MRP basis data, in the latter the aver-age calorie intake will be lower in each MPCE class, and a higher value of MRP spending than URP spending, will be re-quired to reach any given nutrition level. (These lower class-wise per capita calorie intakes are getting weighted differently in MRP, by a higher proportion of persons be-ing in higher spending classes, with the overall average calorie intake unchanged.) Thus, for a given year the g relation for MRP will always lie to the right of the g relation for URP. Inspecting Table 5, we see that the col 3 URP values and the col 7 adjusted MRP values are almost identical for all classes but the top one, which is bound to be the case since the money class limits are fixed except for the open-ended top class. But it is important to remember that the MRP values of col 7 have lower per capita food spending and hence lower cal-orie intake compared to the URP col 3 val-ues, for the reasons explained.

We cannot plot the g relation for MRP 2004-05 exactly yet since we have not been given the new calorie intake values for the adjusted classes of the MRP distribution by NSSO. Nevertheless, since the observed MRP spending is about Rs 40 higher than URP spending in the relevant segment, we can safely infer that the required MRP poverty line for accessing 2,400 calories will be about Rs 840 corresponding to the URP poverty line of Rs 800. Applying this Rs 840 to the MRP ogive for the same year, shows nearly 87% of persons falling below it. In short, no one can possibly obtain a below 2,400 calories poverty percentage which is a lower one simply by using a MRP distribution – since this has exactly the same per capita calorie intake – unless the wrong procedure is followed of applying the URP poverty line to it. Those who do this are necessarily making

the absurd assumption that MRP gives a higher calorie intake than URP. In short people not only make soup out of shoes like Charlie Chaplin, they also obtain calorie intake from consuming the result. Statistics do not lie, it is only mishandled and abused statistics that are made to lie, by applying the poverty line relevant for one distribution incorrectly to a different distribution.

The recent Tendulkar Committee Report has fallen into the same error when it says that its revised MRP poverty line of Rs 446.7 for rural India, 2004-05 gives 1,999 calories. This stated calorie figure is not correct, it is only consistent with applying this MRP poverty line to the URP g relation of Chart 1b. Unknowingly, the Committee too has as-sumed that calorie intake is obtainable from the excess recorded spending on shoes, clothing and the like under MRP. Correct computation requires getting the URP value for the stated MRP line, before applying it to the URP g relation. Alterna-tively, the stated MRP poverty line should only be applied to the new g relation of the MRP distribution. From the ogives for 2004-05, we find that the stated MRP poverty line of Rs 446.7 is lower at Rs 415 on URP basis and it gives 1,930 calories. In Table 6 we have included the Tendulkar Committee’s new poverty estimates using MRP lines, and we have obtained the URP poverty lines corresponding to these,

comparable to the earlier official ones, by plotting the ogives.

The NSSO should calculate and give us the exact average food expenditure and the average calorie intakes corresponding to the MRP distribution, in its reports on nutrition. Such an explicit statement of calorie intakes for the MRP distribution would go a long way to introduce clarity and would help to check the mishandling and abuse of the data we see at present.

The mishandling of data had started with the Planning Commission itself most unfortunately using the MRP distribution in an illegitimate fashion. It has been giv-ing not only its regular poverty estimate applying the official poverty line to the URP distribution but has been applying the very same poverty line to the MRP distri-bution, without apparently realising that the poverty line itself will necessarily change. This is so even though the official poverty line is an indirect one, since it still retains an umbilical connection as it were, however distant, with a nutrition norm. Rural poverty is 28.3% at a poverty line of Rs 356, which is the price-index updated Rs 49 base year level, and rural poverty is stated to be 21.8, nearly seven points lower, by applying the same poverty line to the MRP distribution. The latter procedure is incorrect, and the figure of 21.8% is meaningless. The fact has been conveniently forgotten that the original Rs 49 poverty line was derived by applying a nutrition norm to calorie intakes for a distribution of rural persons in the base year which was not a MRP distribution, so the price-updated Rs 49 line cannot be validly ap-plied now to a current MRP distribution to obtain 21.8%, as is being done. The com-mission has to obtain first the current MRP spending which corresponds to its current URP poverty line, and then this has to be applied to the current MRP distribution.

This is readily done using the already mentioned cross-tabulations in NSS Report 508 giving the relation between the two distributions. From Table 5 interpolating from the given series, about Rs 383 on the MRP spending basis corresponds to Rs 356 official poverty line which applied to the MRP ogive, gives 28.3% in poverty – both distributions necessarily give the same re-sult. The economists in the Planning Com-mission do not seem to have applied their

Table 6: Rural Poverty in India Including Revised Estimates by Tendulkar Committee (All-India 1983 to 2004-05)NSS Round 38th 50th 61st 1983 1993-94 2004-05

(1) Direct poverty line (DPL),Rs <2,400 Kcal 120 326 800 j

(2) Direct poverty ratio (DPR), % 70 74.5 86.7

(3) a Official poverty line (OPL), Rs 89.5 206 356

b Revised OPL Tendulkar Committee NA 237* 415*

(ROPL) NA NA 446.7 (MRP)

(4) a Official poverty ratio (OPR), % 45.6 37.2 28.3

b Revised official poverty ratio (ROPR) NA 50.1 41.8

(5) a Calorie intake @ OPL 2,060 1,980 1,820

b Calorie intake at ROPL NA 2100 1930

(6) a Deficit of calorie intake at OPL - 340 - 420 - 580

b Deficit of calorie intake at ROPL NA 300 - 470The URP basis poverty lines marked with asterisk are comparable with other official poverty lines in the table. These PLs correspond to the revised poverty percentages for 1993-94 and 2004-05 presented in the Tendulkar Report, and have been obtained by this author from the ogives for the two years. The Report gives new poverty ratios for both years and the MRP poverty line of Rs 446.7 for 2004-05, but not the MRP poverty line for 1993-94. This MRP line is likely to be about Rs 255. Prefix R indicates revised values in Tendullkar Committee Report.

DISCUSSION

february 6, 2010 vol xlv no 6 EPW Economic & Political Weekly80

minds seriously to the question of correct computational procedure using their own definitions. Had they done so they would have realised that presenting two widely different poverty estimates on the basis of the same data set as regards food expendi-ture is a contradiction in terms.

To conclude, research scholars are strongly advised not to be tempted to take short cuts in their dissertations and theses by mechanically quoting the figures of “poverty percentages” produced by any individuals or institutions however well-known, but to go always to the basic NSS data source and take the trouble to under-stand the data. Published poverty esti-mates – including this author’s, needless to say – should be checked for definitional clarity, methodological correctness and internal consistency against the basic data. Genuine mistakes can always occur but they cannot be corrected unless esti-mators clearly give their method of esti-mation. Otherwise, we would simply have an endless cycle of incorrect estimates being quoted, particularly given the proneness of our intellectuals to commit the fallacy ad verecundiam which Aristotle warned against (the “appeal to awe”, uncritically accepting incorrect arguments – in this

case, incorrect numbers – merely because persons making them may be public figures or have a respected position in society).

It is learnt that NSSO is proposing to dis-pense altogether with the URP basis data and present the MRP basis data alone – which appears cosmetically “better” in giving a lower percentage of persons below every spending limit. Economists engaged in poverty estimation, with their new-found enthusiasm for the MRP distribution, should remember, however, that abandon-ing the URP basis data will not make an iota of difference to obtaining the correct direct poverty estimate, because the cor-rect poverty line will necessarily be higher for the MRP distribution and give exactly the same result as the URP distribution. Fortunately, the integrity of the Indian data collection system itself remains un-impaired so far and the NSSO makes its re-ports available to all online, in the inter-ests of transparency. No measure which undermines the integrity of our data collec-tion system built up by P C Mahalanobis decades ago should ever be permitted.

Notes

1 The relevant deflator for the poorest class is not the 2,100 calories implicit deflator; if we apply the

1,800 calories deflator real spending falls little to Rs 130 by 2004-05.

2 Incidentally, I consider it inappropriate to call the g relation a “calorie Engel curve” because Ernst Engel who studied a sample of 153 Belgian house-holds in 1863 discussed the share of food expendi-ture in the total and not calorie intake. Every vari-able which depends on expenditure cannot be called an Engel relation.

3 While the majority of households move up with MRP classification, a minority also moves down to lower spending classes. This could well be as the Report 508, pp 12-13 mentions, because these households happen to have made the infrequent bulky purchase in the particular reference 30 days, and this same expenditure reported for 365 days in the case of Mixed Recall Period response, being divided by12.17 gives a greatly lowered 30- day average. Report 508, pp 12-13 points out that “many more households move up than down as a result of adjustment”.

References

Deaton, A and J Dreze (2009): “Food and Nutrition in India: Facts and Interpretations”, Economic & Po-litical Weekly, Vol XLIV, No 7, 14 February.

Ministry of Finance, Government of India: Economic Survey 2008-09.

National Sample Survey Organisation: Report No 402, Level and Pattern of Consumer Expenditure 1993-94.

– Report No 405, Nutritional Intake in India 1993-94. – Report No 508, Level and Pattern of Consumer

Expenditure 2004-05. – Report No 513, Nutritional Intake in India 2004-05. – Report No 527, Household Consumer Expenditure

2006-07.Patnaik, U (2007): “Neo-liberalism and Rural Poverty

in India”, Economic & Political Weekly, Vol XL11, No 30, 28 July-3 August.

Planning Commission, Government of India (2009): Report of the Expert Group to Review the Methodol-ogy for Estimation of Poverty.

Reserve Bank of India (2009): Handbook of Statistics on Indian Economy.

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