The late, sharp-witted economist Michael Mussa, my first boss at the IMF, once told me that every statistic must pass the “smell test.” I recalled this sage advice recently when Indian authorities published the first driblets of a consumption survey in more than a decade. The numbers stink.
Economists have long maintained that India’s official GDP data overstate growth. Before the G20 summit in September last year, the Indian National Statistical Office issued a brazen overestimate. The last decennial census was in 2011. A survey highlighting stubbornly high malnutrition and anemia cost the survey’s director his job.
The last comprehensive consumption expenditure survey in 2012 showed that 22 percent of the population was living in poverty. The government junked a 2018 survey when leaked data indicated an increase in the poverty rate.
Illustration: Yusha
Not surprisingly, the new partial consumption figures generated much excitement. Hastily, former IMF executive director for India Surjit Bhalla and economist Karan Bhasin proclaimed — under the Brookings Institution’s imprimatur — that extreme poverty had been “eliminated.” While such misuse of statistics can be expected to amplify the India hype in elite echo chambers, poverty remains deeply entrenched and broader deprivation appears to have increased as inflation erodes incomes of the poor.
Measuring poverty is a complicated task, the essence of which lies in establishing a poverty threshold. The World Bank, which initially set the international poverty line at US$1 per day in 1990, updated the figure to US$1.90 in 2011 to account for inflation. Only those who cannot afford to spend US$1.90 per day are classified as “extremely poor.”
For India, the US$1.90 threshold represents below-subsistence-level consumption. As economists Shaohua Chen and Martin Ravallion have said, it allows for minimal food consumption and little else.
In 2012, US$1.90 translated to a meager 30 rupees a day in purchasing power parity (PPP) — barely enough for two basic meals, poverty expert and independent researcher S. Subramanian said.
In analyzing the recently released consumption-expenditure data, Bhalla and Bhasin seem to have converted the US$1.90 threshold into rupees at the IMF-reported PPP rate of 22.9 rupees per US dollar. Their analysis categorizes people as poor only if they cannot spend 45 rupees a day. This approach is tantamount to wishing away poverty. Assuming an average annual inflation rate of 6 percent, as stated in the government’s news release, the set of goods that cost 30 rupees in 2012 would now cost at least 58 rupees. Moreover, low-income households face diabolical inflation inequality: higher-than-average inflation rates due to the type of goods they buy, their limited mobility, which leaves them at the mercy of local monopolists, and their inability to buy in bulk.
Regrettably, Indian authorities do not provide inflation data segmented by household income. If the annual inflation were 8.5 percent for the bottom half of Indian households, they would need about 80 rupees per day to cover their basic needs. In that case, India’s poverty rate would be about 22 percent, essentially the same as in 2012.
Setting the bar slightly higher underscores the grim reality.
In 2014, a committee led by former Reserve Bank of India governor Chakravarthi Rangarajan said that the appropriate poverty line for rural regions was 33 rupees a day — close to the World Bank’s line — while urban residents required at least 47 rupees per day to cover commuting and housing expenses.
Subramanian said that the urban poverty line was a gross underestimate; he estimated a daily expenditure of 88 rupees to avoid severe deprivation.
Adjusting the Rangarajan and Subramanian estimates using plausible inflation rates leads to a stark conclusion: Urban poverty rates range between 40 and 60 percent, which means that 30 to 40 percent of all Indians are poor. This is likely conservative, given the sharp increase in education, transportation and housing costs, as well as out-of-pocket medical expenses.
With numerous parents forced to choose between food and their children’s education, is it any wonder that the government feels obliged to provide free supplementary grain rations to 60 percent of the population?
High, possibly rising, poverty can be partly attributed to the 2016 demonetization that nullified 86 percent of India’s currency and to the haphazard implementation of the Goods and Services Tax of 2017, both of which caused huge distress to the vulnerable. The COVID-19 pandemic delivered another harsh blow, causing millions of Indian workers to revert to low-productivity agricultural jobs.
Today, 70 million more Indians work in agriculture than in 2018, owing to the scarcity of non-agricultural job opportunities, which are mostly confined to financially and physically precarious sectors such as construction, street vending, security and domestic work. Given the significant hardship faced by millions of Indians, the pre-election release of partial consumption data invites suspicion, and the declaration of the end of poverty borders on the malicious.
Moreover, their assertion that consumption inequality has declined sharply is risible: Wealthy Indians do not report their US$400 designer sneakers, Lamborghinis or lavish parties to government surveyors. The gap between India’s rich and poor is startling. Consider the US$120 million prewedding celebrations for tycoon Mukesh Ambani’s son: The lad wore a US$1 million watch, a superstar received US$6 million to perform and the Indian aviation authority temporarily cleared a nearby airport to fly in international celebrities.
The lack of comprehensive consumption and inflation data makes it impossible to get an accurate picture of Indian poverty. Sadly, the government’s strategically released data and cherry-picked analysis continue to reek.
Ashoka Mody, a visiting professor at Princeton University, previously worked at the World Bank and the IMF.
Copyright: Project Syndicate
On May 7, 1971, Henry Kissinger planned his first, ultra-secret mission to China and pondered whether it would be better to meet his Chinese interlocutors “in Pakistan where the Pakistanis would tape the meeting — or in China where the Chinese would do the taping.” After a flicker of thought, he decided to have the Chinese do all the tape recording, translating and transcribing. Fortuitously, historians have several thousand pages of verbatim texts of Dr. Kissinger’s negotiations with his Chinese counterparts. Paradoxically, behind the scenes, Chinese stenographers prepared verbatim English language typescripts faster than they could translate and type them
More than 30 years ago when I immigrated to the US, applied for citizenship and took the 100-question civics test, the one part of the naturalization process that left the deepest impression on me was one question on the N-400 form, which asked: “Have you ever been a member of, involved in or in any way associated with any communist or totalitarian party anywhere in the world?” Answering “yes” could lead to the rejection of your application. Some people might try their luck and lie, but if exposed, the consequences could be much worse — a person could be fined,
Xiaomi Corp founder Lei Jun (雷軍) on May 22 made a high-profile announcement, giving online viewers a sneak peek at the company’s first 3-nanometer mobile processor — the Xring O1 chip — and saying it is a breakthrough in China’s chip design history. Although Xiaomi might be capable of designing chips, it lacks the ability to manufacture them. No matter how beautifully planned the blueprints are, if they cannot be mass-produced, they are nothing more than drawings on paper. The truth is that China’s chipmaking efforts are still heavily reliant on the free world — particularly on Taiwan Semiconductor Manufacturing
Last week, Nvidia chief executive officer Jensen Huang (黃仁勳) unveiled the location of Nvidia’s new Taipei headquarters and announced plans to build the world’s first large-scale artificial intelligence (AI) supercomputer in Taiwan. In Taipei, Huang’s announcement was welcomed as a milestone for Taiwan’s tech industry. However, beneath the excitement lies a significant question: Can Taiwan’s electricity infrastructure, especially its renewable energy supply, keep up with growing demand from AI chipmaking? Despite its leadership in digital hardware, Taiwan lags behind in renewable energy adoption. Moreover, the electricity grid is already experiencing supply shortages. As Taiwan’s role in AI manufacturing expands, it is critical that
RSS