INDIA: A POOR JOB WITH SUMS – A CASE FOR DOUBLING THE OFFICIAL POVERTY LINE
Prabhat Patnaik
An important demand of the trade unions which had called for an all-India general strike on September 2 was that the minimum wage of unskilled workers should be raised to Rs 692 per day.
This was not just a figure pulled out of thin air. On the contrary, it was in conformity with the criteria for fixing the minimum wage which have been arrived at after careful deliberations at the Indian Labour Conference, the apex-level tripartite body consisting of representatives of workers, employers and the government (including both Central and state governments), which takes major decisions in matters relating to labour.
The ILC in 1957 had laid down the following criteria for fixing the minimum wage. The wage-earner should be able to support a family of four, consisting of husband, wife and two children; since these two children were assumed to constitute one “consumption unit”, this meant that the earner should be able to support three consumption units. This support should mean 2,700 calories per adult per day and 72 yards of cloth for the family as a whole per year. In addition, 10 per cent of the amount that would cover food and clothing should be added for house rent and 20 per cent for fuel, lighting and other miscellaneous expenditures.
In 1992, the Supreme Court in an important judgment added a further 25 per cent to the basic food and clothing expenditure, for children’s education, medical expenditure and minimum recreational and social expenditure. The minimum wage criteria as they stand today therefore are as follows: if Rs X are required per year to cover food expenditure that would assure 2,700 calories per adult per day and 72 yards cloth per annum for the family of four, then the annual minimum wage should be Rs X plus 55 per cent of Rs X. The exact amount this translates into would depend, of course, on the prices prevailing in a particular year; but the criteria themselves are clear and approved by all.
Some may wonder why the ILC assumed only one earning member per family. The reason is obvious. If one adult in the family takes up wage-work, then the other will have to do the cooking, cleaning, taking care of the children, and other household chores, which do not fetch any money-earnings. The entire family’s need for food, clothing and the other items mentioned above has to be met out of the wage-income of only one member which, therefore, has to be sufficient for the purpose. If both the adults are assumed to work for money, then they have to employ somebody else to do the household chores that one of them would otherwise have done, which would accordingly raise the minimum wage (since the payment to such an employee would then have to be included as additional expenditure for the family). The criteria therefore are perfectly defensible; the only issue is the amount of the minimum wage into which they translate.
And here we have access to some new information now. The Central pay commission has just recommended that Rs 18,000 per month should be the minimum wage for Central government employees whose work requires no special skills; and the Central government has accepted this recommendation. Using the perfectly legitimate principle of “equal pay for equal work” the trade unions demanded that the same amount should be the minimum wage of unskilled workers in other occupations as well, which, assuming a 26-day working month, comes to Rs 692 per working day. The Central government, however, rejected this demand, which was one of the factors precipitating the strike.
This entire minimum wage discussion, however, has an important bearing on the question of the poverty line for the country. The poverty line in India is defined as that level of actual expenditure (on all items) at which a person just accesses 2,200 calories per day in rural areas and 2,100 calories per day in urban areas. These levels were calculated for the base year 1973-74 from the National Sample Survey data; and even though such data are available for large samples once every five years, and similar calculations could have been made at five-year intervals for the entire subsequent period, the government chose instead to follow a curious alternative method. It simply brought forward the 1973-74 poverty lines for all subsequent years by using consumer price indices.
This has had an unfortunate effect. The infirmities of the price-indices have meant that the official poverty lines have been much lower in the subsequent period than those employing the correct method, adopted in the base year, would have warranted, thus underestimating poverty. And what is more, the excess of the poverty lines given by the correct method over those given by the questionable method (which uses the price-indices), has kept increasing over time, because of which an entirely erroneous impression has been given that the headcount ratios of poverty in the country have been declining.
Since the poverty figure is not just a matter of academic interest but determines people’s ability to access the many government schemes meant for the poor, the Planning Commission’s ludicrously low poverty lines became the target of attack from several quarters some years ago, forcing the government to set up a number of committees to “revise” the poverty lines. The reports of these committees, doing arbitrary patchwork jobs, however, are dictated more by the need to find some “acceptable” way out rather than by any objective considerations. The Rangarajan committee has lowered the rural and urban daily calorie norms by 10 and 45 respectively.
This is in sharp contrast to the manner in which the minimum wage figure is arrived at. And what is more, even what I have called the “correct” method above, which was used only in the base year 1973-74, estimates the poverty line by looking at the household’s own expenditure pattern, and not by objectively specifying the various amounts of goods and services that should be covered. Since the daily calorie norms 2,200 and 2,100 are objectively specified, there is no reason why such objective specification should not be extended to other expenditure items as well.
If we do so, however, then a curious situation confronts us. The expenditure basket covered by the minimum wage is supposed to provide 2,700 calories per adult per day, which, for three consumption units, comes to 8,100 calories. The new poverty line, in contrast, is supposed to provide 2,155 calories in rural India and 2,090 calories in urban India per day per capita (and not per consumption unit); these therefore amount to 8,620 calories in rural areas and 8,360 calories in urban areas for a family of four, and are higher than what the minimum wage provides. If other expenditures are added in the same proportion then it follows that the poverty lines must exceed the minimum wage. In other words, an objectively-postulated poverty line using the same logic that underlies the minimum wage calculation must place it above Rs 18,000 per month.
Let us, however, err on the conservative side and take Rs 18,000 per month as a uniform poverty line, ignoring differences between rural and urban areas. This would amount to Rs 600 per family per day and Rs 150 per capita per day, which is almost three times the figure that emerges if the suggestion of the Rangarajan committee (the last of the government committees asked to revise the poverty line) is brought forward to the current year by using a consumer price index.
The Chinese government almost doubled the daily poverty line for rural China in December 2011, from 3.5 yuan to 6.3 yuan. It did not provide any statistical reasons for doing so, but clearly the earlier poverty line was far too low and the idea was to include many more people among the beneficiaries of government schemes meant for the poor. In India, as I have just shown, a very clear case exists, based on the report of the government’s own Central pay commission, for at least doubling the poverty line. Since being below the official poverty line provides access to several benefits, even a simple doubling of the poverty line will go a long way in ameliorating the conditions of vast numbers of destitute working people in the country. All those who take pride in the fact that India’s current gross domestic product growth apparently exceeds that of China, should surely support such a doubling for it would show that India’s concern for the poor too is no less than that of China.
The trade unions of late have also been including the demands of the peasantry in their charter of demands, as evidence of their desire to rise above a narrow, self-centred economism. This is laudable. But in the same spirit they should take an extra step and demand that the official poverty line should at least be doubled.
The author is Professor Emeritus, Centre for Economic Studies, Jawaharlal Nehru University, New Delhi
The Telegraph – 20 September 2016.
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