What’s wrong with IMF and WB reports?

Here is how the IMF and WB reports estimate India’s poverty.

First, the IMF’s estimation.

The IMF used (i) the HCES of 2011-12 (the fiscal year 2011 for the IMF) as the base and estimated consumption distribution for all the years until 2020-21 (IMF’s 2020) “via the use of estimates based on average per capita nominal PFCE growth” and (ii) also took into consideration “the average rupee food subsidy transfer to each individual” for the years of 2004-05 to 2020-21.

The second factor – taking the money value of subsidised and free ration for 2020-21 – was considered because it said without this any exercise of poverty estimation “solely on the basis of reported consumption expenditures will lead to an overestimation of poverty levels”.

Several questions arise out of this methodology. The first is its extensive use of HCES of 2011-12 while being dismissive of the HCES of 2017-18 (which showed poverty growing). The second is, PFCE maps the consumption expenditure of all Indians, rich or poor, except government consumption (GFCE), and doesn’t tell which segment (income level) of society spends how much – making it impossible to know the status of households, which can be considered for poverty estimation.

The third is about the IMF’s assumption that the subsidised and free ration (which started during the pandemic under the PMGKY) reached two-thirds of the population and that the free ration will continue forever (eliminating extreme poverty). The IMF report cheers the Aadhaar-linked ration cards. None of these assumptions can be taken at face value.

The CAG report tabled in Parliament earlier this month highlighted several flaws in the Aadhaar’s functioning, including 73% of faulty biometrics that people paid to correct, duplications and verification failures. Besides, one year after the mass exodus began in 2020, migrant workers had not received subsidised ration, forcing the Supreme Court to lambast the central government (for its failure to operationalise the App being developed for the purpose and work-in-progress “one-nation-one-ration card” system) and direct state governments to ensure ration to migrants.

And what happens when the free ration is discontinued after September 2022? The decline in extreme poverty would return, wouldn’t it? So, does the IMF believe this amounts to poverty elimination?

On the other hand, the WB report seeks to marry the NSSO’s 2011-12 HCES to private sector data, the CMIE’s Consumer Pyramid Household Survey (CPHS), to inform its poverty estimation.

This is when the WB report admits that (i) the CMIE’s CPHS data is not comparable with the NSSO’s and that (ii) it “reweighed CPHS to construct NSSO-compatible measures of poverty and inequality for the years 2015 to 2019”. It said the CPHS data needed to be transformed into “a nationally representative dataset”.

As for the CPHS data, an elaborate debate about its ability to capture poverty took place last year. Several economists, including Jean Dreze, pointed out “a troubling pattern of poverty underestimation in CPHS, vis-à-vis other national surveys”. Several others accused the CPHS of a pronounced bias in favour of the “well-off”, which the CMIE admitted and promised to look into.

Another question arises from the use of the CPHS.

If a private firm like the CMIE can carry out household surveys every month or every quarter (for example, its employment-unemployment data is monthly) why can’t the government with decades of institutional knowledge and experience and huge human and financial resources?

What about massive loss of lives and livelihoods?

The most critical question regarding the IMF and WB reports is why do they think India’s poverty is declining amidst an all-around economic downturn – pre-pandemic slowdown and pandemic crisis causing massive loss of lives and livelihoods? Both reports are silent on this.

The IMF cites subsidised or free ration and rural job guarantee MGNREGS for poverty elimination but this ignores the most critical element it uses for its consumption expenditure estimations – the PFCE – howsoever defective it may be.

The PFCE (at constant prices) plunged to -6% in FY21 from the FY20 level (pre-pandemic) – as the second advance estimates of the National Account of Statistics reveal (released on February 28, 2022). In absolute numbers, the PFCE fell from Rs 82,59,704 crore in FY20 to Rs 77,63,735 crore.

Had extreme poverty declined sharply in FY21 (from 1.4% in FY20 to 0.8% in FY21) – as the IMF report claims – shouldn’t the PFCE have gone up, instead of going down?

Another missing element is the high healthcare cost that the pandemic entailed. The central government admits, in its official brief on the Ayushman Bharat scheme launched in 2018, that “catastrophic” healthcare pushes 60 million people into poverty every year in normal times (“PM-JAY envisions to help mitigate catastrophic expenditure on medical treatment which pushes nearly 6 crore Indians into poverty each year.”).

Imagine how many millions would have been pushed into poverty during the pre-pandemic FY12-FY20 (60 million multiplied with 9 or 540 million) and additional millions impoverished by the expensive Covid-9 care.

The WB maintains complete silence on the reason for the poverty reduction.

There is no estimate of how many millions lost jobs and businesses shut since the demonetisation of 2016 and ending with the pandemic lockdowns of 2020 and how many were revived. But going by the K-shaped recovery of the economy in FY22, it is clear that job loss and business loss, particularly of micro and small enterprises, are not yet fully recovered.

No matter how good and fool-proof the methodologies adopted by the IMF and WB are, no poverty estimate can be sound unless it is known how the income of the poor increased to sustain them above the poverty line.

At best, subsidised and free rations can avert hunger, not poverty. The IMF economists must be aware of such concepts.

Which is India’s poverty line?

It is fine for the IMF’s report to advocate that India’s poverty line should be $3.2 (per capita per day expenditure), instead of $1.9, to reflect the elimination of “extreme” poverty (per capita per day expenditure of $1.9) but what is India’s official poverty line?

India’s official poverty line was last fixed in 2004-05, called the Tendulkar poverty line. As per this, per capita per day expenditure of Rs 14.9 for rural areas and Rs 19.3 for urban areas was fixed. These numbers haven’t been updated yet, except for inflation indexing it. Thus, for 2011-12, the Tendulkar poverty line was Rs 27 for rural and Rs 33 for urban areas. The Rangarajan committee set up to take a fresh look, suggested Rs 32 for rural and Rs 47 for urban areas in 2014 but that was never officially adopted.

In 2021, the NITI Aayog followed the concept of multidimensional poverty index (MPI) – a non-money metric measure against consumption expenditure method of the NSSO’s 2011-12 or 2017-18 surveys – in line with that of the Oxford University’s Oxford Poverty and Human Development Initiative (OPHI) and United Nations Development Programme (UNDP).

The MPI considers three key deprivations – health, education and living standard – and is a better measure of poverty. But here is a catch. The Aayog produced a “baseline” index for states in 2021, against which it will measure MPI in subsequent year/years.

The baseline report is problematic because it is not based on an actual study or survey. It is a statistical construction based on the old and unconnected (for poverty estimation) National Family Health Survey-4 of 2015-16 (NFHS-4). When this report was released in November 2021, the next health survey, NHFS-5 of 2019-20, was already available.

What Aayog’s MPI means is that the link with the past poverty estimation is broken and a new paradigm has been set up on an inappropriate data set (NHFS-4).

Then there are credibility issues with the Aayog. Recall how the Aayog has turned into a cheerleader ever since demonetisation, extending unqualified support to all of the central government’s decisions even in the face of damning evidence. It supported the untimely and unplanned lockdown too and said the Covid cases will touch zero on May 6, 2020. Its SDG report for FY21 actually said poverty, hunger and income inequality had gone down – instead of up as was the case in the pre-pandemic FY20.

The point is that Aayog’s MPI would be viewed with suspicion and can’t be taken seriously as an estimation of poverty.

What about studies that showed poverty growing?

Here is the final point.

How about many more studies that showed the exact opposite – a quantum jump in poverty? There are several such surveys and studies published in 2021 by the Pew Research, UNCTAD, Azim Premji University, Oxfam International and economists like Mehrotra and Parida – some of these find mentioned in the IMF and WB reports.

It seems more likely that the IMF and WB reports are an exercise to brush the harsh realities under the carpet.

IMF report on India poverty

How many are poor in India?