All poor, all backward

When the not-so-poor label themselves poor, the really poor suffer

“If numbers are anything to go by,” Mint says in today’s editorial, “the second incarnation of the United Progressive Alliance (UPA) is likely to notch an unenviable record: an upward march in the number of poor in India.” Why? Because an “expert” committee appointed by the ministry of rural development “felt” that the actual number of rural poor are much higher than the 28.3% that the Planning Commission claims. Based on this “feeling” they upped it to 50%. One gets the feeling that they were feeling a little too ungenerous, for surely, there are people who feel that more than one in two people that they meet in villages are abjectly poor.

This cannot be mere statistical quibbling: A big increase in the number of poor in any country is a political matter. It raises interesting questions. Was the UPA-I’s record so unenviable that five years of its rule has made more people poor than any recent interval of our history? More remarkably, how did the UPA succeed at the hustings with such a disastrous record? [Mint]

Not only is the feeling-based poverty rate setting dubious, the methodology to identify the poor is more so.

Anyone who doesn’t spend large sums of taxpayer’s money based on feeling will know that if the expert committee’s recommendations are accepted, a whole lot of people will claim to be below the poverty line. Many will figure out ways to declare themselves abjectly poor, thereby increasing corruption at local government levels. (Look what happened in Karnataka). Political entrepreneurs will quickly figure out how to secure votes by promising to make their voters poorer. Just as more and more communities aspire to become backward or scheduled castes, more and more communities will aspire to become poor. Oh, their social standing, political empowerment and economic wealth will have nothing to do with these labels, of course.

So what? Well, without accurate measures of how many really poor people there are in India, it is very hard to devise policies to actually help them. Properly targeted policy measures will become harder, if not impossible. Besides, those who genuinely need government assistance will find themselves in competition with better-connected opportunists. Raising the poverty line wrongly is a good way to trample those who are really below it.

25 thoughts on “All poor, all backward”

  1. > So what? Well, without accurate measures of how many really poor people there are in India, it is very hard to devise policies to actually help them

    This assumes that the intention of the UPA is actually to help the poor.
    Wrong.

    The intention is to *show*, shambolically, your concern for the poor. And then creating large ‘payment programs’ (like NREGA) that simply disappear into the pockets (or the pajeros) of party cadre.

    Of course, no one in the media will ask “but, but, we’ve done this for 60 years, why does the number of poor keep increasing despite throwing billions at them?”
    THAT would stop the padmashrees pronto.

  2. Socialism will have been achieved when ALL Indians are declared poor. The day is not far off, eh?

  3. India’s Rising Tide
    The rural poor fare better than in China.

    Its funny the wall street feels differently about India’s rural poor. link

    (Comment edited. Please enclose links within proper html tags –Ed)

  4. @Aryan

    Funny indeed. Of course, feelings can have an existence independent of reality. And we can pick statistics that we like, as with cherries…

  5. That’s why economic policy shouldn’t be based on labels. That’s where personal ability, merit, and performance-based compensation come in. Because anyone can push a label. All we’ve seen from socialism and label-based quota-ism, is of course a proliferation of labels. Everyone wants to declare themselves disadvantaged in some way. Even overweight people will be declaring their fatness a disability. Restrict compensation to actual market forces such as performance, and people will then re-focus themselves on becoming good performers.

  6. Nitin, ruling by feeling is standard operating procedure for Indian politicians, isn’t it? Always has been since Nehru. Data doesn’t matter so why bother using it 🙂

    Aryan, thanks for the link. That’s an interesting take. I wondered about that when people come back from China and talk about how much they have leap-froged India. It’s like a poor man spending money like a rich dude. If Indian cities don’t have lavishly designed high rise buildings of Beijing or Shanghai, it’s because economics don’t allow it. Surely Indian local govts can be better run, but Indian private spaces are based on local economic conditions.

  7. Some of the statistics quoted in the WSJ sounds really fishy. For example:
    Rural India now accounts for half of the country’s GDP, up from 46% in 1993.
    I believe agriculture accounts for about 20-25% of Indian GDP. Does it mean non-agricultural rural activities account for a huge 25-30% of GDP? very unlikely.

    The article claims poverty and illiteracy has doubled in China since 2000. And that the rual poor do not need to migrate to cities. This is all so silly. But not surprising.. since the author of the article has also authored “Will China Fail”!

  8. The recent articles posted by Mr. Chandrabhan Prasad on Daily Pioneer is very pertinent on this issue. There is a bastard cartel of left economists sitting in New Delhi who are constantly devising new “schemes” that are nothing but a massive defrauding of the Indian state. No progress is possible unless these elements are completely purged down to the last man.

    We should also think about how entrenched political forces can form a very powerful kleptocratic state – and how these political forces can be contained or destroyed.

  9. Sai, the trends are clear that rural economy is getting stronger ie richer. So I don’t understand why a 4 points shift towards rural GDP in 15 years is wrong. In past two decades GDP itself expanded dramatically.

    There is nothing silly about any stats that Sri Lee provided or about his hypothesis.

  10. @Chandra
    Ok, I was too lazy to google out the real numbers. I thought the number was so outlandish that it did not need any proof to trash it. Anyway, here is the proof from the horse’s mouth:

    http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/87385.pdf
    http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/87384.pdf

    Agriculture and allied activities (at costant prices): 554336 crores
    GDP (at constant prices) : 3122862 crores

    Thats less than 20% of GDP. Now you see how ridiculous those numbers are?

    If you look at those numbers in the report, its not tough to figure out that agriculture has grown at slow single digits in the past two decades while the GDP has been growing at 6-7% – which would mean that the share of the former would have fallen drastically during the period.

  11. “Rural India now accounts for half of the country’s GDP, up from 46% in 1993.”

    Saying “Rural India” is different from saying “Agriculture and allied activities”. Rural folks are consumers as well, and consumption is a part of GDP. Plus, loads of rural folks aren’t into agriculture at all (e.g. all the teachers employed by State govts in villages). And where would other government spending in rural areas figure into all this?

    Not saying that the numbers don’t look fishy to me (all Chinese data looks fishy to me as well), or that I think this is a strange way of interpreting data, but that it is unlikely that (a) Mr. Lee would write X when he meant Y, and (b) WSJ’s fact-checkers would miss such a simple thing.

  12. Uh.. I meant to say that I do think that this was a strange way of interpreting data.

  13. @BOK

    I agree with you that agri and allied activities does not constitute the entire rural GDP. But I think it would be sensible to assume that it would be a substantial part of rural GDP. Do you really think that as much as 30% of GDP could come from non-agri rural production? Also, as you can see agriculture and allied share has come down from nearly 35% to less than 20% of GDP in the last two decades- so what exact are those rural industries/sectors which have not only compensated for this major loss in GDP share, but actually added another 4% to the rural share during the period. The numbers simply do not look credible at all.

    As far as the quality of WSJ goes, a few months back, I too would have been greatly surprised. But after perusing it more freqeuntly over the past few months (my company has a paid subscription), I figured that the reputation of the paper is somewhat exaggerated. This article is a good example of that.

  14. Sai,

    As I said, I doubt if the numbers are good.

    I only wanted to point out the difference, because that was probably the article’s intention. It perhaps also hints at how such a figure might have been derived, though I don’t think it is a useful way to look at data (even if his numbers are accurate somehow) and is certainly vaguely phrased. Depending on how you adjust the meaning of “accounts for”, you can make “Rural India” account for a lot.

  15. Sai/BOK, I still don’t understand how you can say Sri Lee’s mention that rural economy represents half of India’s GDP is made up just based on your assumptions on agri contribution to GDP!

    Using the RBI data I, very conservatively, estimate at least 40% contribution of rural economy to GDP: 100% Agr&allied + 100% mining +20% of Indus, Service, Manuf, and Const. This is after ignoring entire finance, power, and hotels/transport sectors. An easy case can be made that 60+ crores Bharatiya contribute close to 50% of the economy of about 110 crores.

    Your issue seems to be with your own apparent superior view of China wrt to India rather than anything to do with reality itself. One key reason why Chinese agri based rural economy suffers is because of enormous taxes that Chinese farmers pay compared to nothing that Indian farmers pay. The other of course is, as Sri Lee mentions, Chinese district level commie babus focus on building world class buildings, one hopes most of full, and infrastructure such as roads and golf courses in cities while neglecting those working in mud to make a living.

  16. Chandra,

    I did not say that his numbers were “made up”. In fact, I said that WSJ’s fact-checkers are probably not too bad.

    What I said was that this “Rural India accounts for” is a strange way of looking at data. AFAIK, there is no clear way of calculating accurate numbers on this. So – by tweaking the criteria – you can come up with a wide range within which such a number would probably fall.

    You’ve just put a methodology out there, and those criteria can be tweaked (thus proving what I said in my previous comment about making “Rural India” account for whatever one wants). Someone else can come up with another methodology, also with tweakable criteria. We can just go on debating it. And precisely because of that, this isn’t a useful metric to base informed debate upon.

    For economic comparisons, data needs to be clearer than that.

    PS: I haven’t expressed my views on China here, except to say that I find all their data suspect. Not a particularly “superior” view of China, I would think.

  17. BOK, you are right. I looked for stats on apparent rural/urban contribution to GDP on the net and couldn’t find it in the time I spent. Normally it contributes little to understanding anything except for marketing purposes for companies which is targeted anyway.

    With regards to China, I guess I was taking a swipe at Sai (and not you) 🙂

  18. @Chandra

    If only you could stop making sweeping assumptions and pay little bit more attention to analysing the numbers, then we can perhaps have a more meaningful discussion:

    Irrespective of whether your rural GDP esimate (of 40%) is right or wrong, please understand that it does not address the central issue here. Which is the claim that rural GDP share increased by 4%.

    The article says rural GDP in India in 1993 was about 46%. Now, we know that agri + allied was about one-third of GDP in the early 1990s. So by Lee’s definition non-agri rural activities contributed 13% of GDP in that year. By 2007-08, the agri+allied was contributing less than 20% of GDP but Lee claims rural GDP has risen to 50% – which would mean non-agri rural activities has moved up from 13% to 30% during the period. We are talking of a CAGR of 13-14% (in real terms) over this period or double the growth rate of the overall economy! Now, I find it really hard to believe that such a massive trend has been missed out by all economists – here and outside – and only Lee somehow unearthed this secret. Or maybe you could correct me by showing a single article by some renowned economist claiming that there were indeed these super sunrise rural sectors which grew at this explosive rate.

    When looking at numbers, it makes sense to give precedence to logic over prejudice/ideology. Its obvious to me that in your desparation to believe that India is doing beter than China, you are not even willing to do a cursory analysis of the data being thrown at you.

  19. @BOK

    Just to clarify, consumption, really speaking, is not part of GDP. GDP is simply the aggregate of all goods and services PRODUCED within an economy. We just try to understand the end use of the goods/services so produced by classifying it as those being used towards consumption versus being used towards investment.

    So while defining rural GDP, one should only include those activities which involve production within the rual areas. If a villager buys a TV or a car which is produced in an urban area, that would obviously not be rural GDP, but would be counted as part of urban GDP.

  20. Sai,

    “which would mean non-agri rural activities has moved up from 13% to 30% during the period. We are talking of a CAGR of 13-14% (in real terms) over this period or double the growth rate of the overall economy! Now, I find it really hard to believe that such a massive trend has been missed out by all economists – here and outside – and only Lee somehow unearthed this secret.”

    Why is it hard to believe? I showed you based on reasonable estimate, using RBI numbers, that rural GDP in 2006 easily contributes close to 50%.

    It seems to me you have an ideological issue, not me or Sri Lee. I did the analysis, you didn’t – not with regards to China or India’s data! All you can say “it’s hard to believe” or that “it’s not logical”! This is getting to be funny.

    Also, GDP can be measured in many ways – I have a cursory understanding of it. Consumption, actually, is a more standard way of measuring GDP – for one thing because it’s easier to measure and also because things have productive value only when consumed, not when produced. Although, in a free market economies, both are about equal, because most produced goods are produced for market consumption, not because of govt decree.

  21. @Chandra

    I think you just dont get it. But I will try one last time. The point is not whether rural GDP currently is 50% or not – that would depend on how you define it. The point is to prove that using the same definition, rural GDP was 46% in 1993 and has now moved up to 50%.

    If someone makes a statement which is completely against conventional wisdom, people with common sense would react in disbelief unless some satisfactory evidence is adduced. If you are willing to swallow whatever Lee says just because it suits you, then good luck to you.

  22. I suppose I can try one last time too…

    Without knowing the composition of GDP contribution “rural” India in 1993, beyond agri-related, there is no conventional wisdom to apply in 2006.

    What I don’t understand is why you think rural non-agri-related sectors can’t fill the diminishing contribution of agri-related sector towards GDP in the past 10-15 years. Instead of giving some back up information, I don’t know how you can conclude Sri Lee is driven by ideology. For example, the answer to “Will China Fail” could also be no.

    In any case, one should know that “conventional wisdom” is mostly wrong.

  23. @sai,

    To clarify the clarification (!), you are right, of course, that GDP is the aggregate of all final goods and services produced within a country. However, to actually calculate this number, a consumption-centric approach is the usual method.

    And yes, if you are trying to define a term called “Rural GDP”, that would imply the aggregate of all final goods and services produced within the rural areas.

    But Mr. Lee is not trying to define “Rural GDP”. He uses the curious phrase “Rural India now accounts for”, which can be a whole different thing (depending on how you decide to calculate it).

    Sure, a tractor produced by Mahindra should be classified under Industrial Production. And usually it is. But if a farmer purchased it, I could simply put the value under the column (my table would have very different columns from the usual GDP tables, of course) titled “Rural India accounts for”.

  24. @Chandra
    [i]What I don’t understand is why you think rural non-agri-related sectors can’t fill the diminishing contribution of agri-related sector towards GDP in the past 10-15 years.[/i]

    I have given the reason for the above in an earlier. If only you cared to read it…
    For non-agri related sectors to fill up the void of agri sector, A) their share has to increase from 13% to 30% over the period B) grow at a CAGR of 13-14% over the period.

    The above two trends would be simply too huge to miss. These being such stupendous claims, the author should have given some supporting evidence to back up his argument if he is to be taken seriously. And since you support his thesis, the onus is on you to prove it.

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