The one dollar question

A sense of equity influences policy-making even in market-based economies. However, equity isn’t always easy to pin down. First, do we mean absolute notions of equity, such as the idea everyone must possess a minimum standard of living? This is the sort of notion that leads to a poverty line. Or do we mean relative notions of equity, such as the notion there mustn’t be wide divergences in living standards across income groups? This is the domain of inequality and many people legitimately argue that while one should be concerned with poverty reduction, an increase in inequality is inevitable and even desirable, especially in a country like India, where inequality levels are low by cross-country comparisons.

Second, assuming we restrict ourselves to the absolute notion of poverty, are we talking about distribution of income (which is an outcome) or distribution of education and health (which are like inputs into the process)? There will be greater sympathy for the view that we must remove unequal and discriminatory access to education, health, credit and land markets and the legal system. Extrapolating the argument, one can also make the point that poverty is about uneven participation in decision-making processes. However, most debate and discussion revolve around what is called income or expenditure poverty.

This requires construction of a poverty line, so that one can calculate the percentage of population below this line. The Planning Commission works out India’s own indigenous poverty line, while the World Bank’s poverty line has traditionally been regarded as 1 or 2 USD per day per person. It’s difficult to give a single figure for India’s poverty line, since it is based on a minimum number of calories required per day converted to a money figure that varies from state to state and region to region, since prices aren’t uniform. Logically, per capita per month poverty line in urban Maharashtra will be much higher than in rural Andhra. It is legitimate to argue India’s present poverty line covers no more than a minimal subsistence level of consumption (more than 80 per cent of which is food) and must be jacked up as development proceeds. There is a historical reason behind India’s poverty line’s preoccupation with food, and a little bit of housing. In the late ’50s and early ’60s, it was thought items like education and health would be provided by the state and needn’t figure in personal expenditure baskets. That assumption is no longer true. However, the calorie assumptions of that time aren’t true either.

... contd.

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