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What’s wrong with the IMF and World Bank reports?

Here is how the IMF and World Bank reports assess poverty in India.

First, the IMF estimate.

The IMF used (i) the HCES of 2011-12 (the fiscal year 2011 for the IMF) as the base and the estimated distribution of consumption for all years up to 2020-21 (IMF 2020)” via the using estimates based on the average per nominal CCTB growth per capita” and (ii) also considered “the average transfer of food subsidies in rupees to each individual” for the years 2004-05 to 2020-21.

The second factor – taking the monetary value of the subsidized and free ration for 2020-21 – was taken into account because it says that without it, any exercise of estimating poverty “only on the basis of declared consumption expenditure will lead to an overestimation of poverty levels”.

Several questions arise from this methodology. The first is its heavy use of the 2011-12 HCES while ignoring the 2017-18 HCES (which showed an increase in poverty). The second is that the PFCE maps the consumption expenditure of all Indians, rich or poor, except government consumption (GFCE), and does not say which segment (income level) of society spends how much – this which makes it impossible to know the status of households. , which can be taken into account for the estimation of poverty.

The third concerns the IMF assumption that the subsidized and free ration (which started during the pandemic under the PMGKY) has reached two-thirds of the population and that the free ration will continue forever (eliminating extreme poverty). IMF report applauds 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 operation of Aadhaar, including 73% faulty biometric data that people paid to correct, duplications and verification failures. Moreover, a year after the start of the mass exodus in 2020, migrant workers had not received a subsidized ration, forcing the Supreme Court to castigate the central government (for its failure to operationalize the application under development in the purpose and ongoing work “one-nation-one” ration card system) and direct state governments to provide rationing of migrants.

And what happens when the free ration is discontinued after September 2022? The decline in extreme poverty would come back, wouldn’t it? So, does the IMF think this equates to the eradication of poverty?

On the other hand, the World Bank report seeks to combine the ONSS’s HCES 2011-12 with private sector data, the CMIE’s Household Consumer Pyramid Survey (CPHS), to inform its estimate. of poverty.

This is when the World Bank report admits that (i) the CPHS data from the CMIE is not comparable to that of the ONSS and that (ii) it “reassessed the CPHS to construct measures of poverty and inequalities compatible with the ONSS for the years 2015 to 2019”. He said the CPHS data needed to be turned into “a nationally representative dataset”.

As for the CPHS data, an extensive debate on its ability to capture poverty has taken place over the past year. Several economists, including Jean Dreze, have pointed to “a troubling pattern of underestimation of poverty in the CPHS, compared to other national surveys”. Several others have accused the CPHS of a strong bias in favor of the “well-to-do”, which the CMIE has acknowledged and promised to examine.

Another question arises from the use of CPHS.

If a private firm like the CMIE can conduct household surveys monthly or quarterly (for example, its employment and unemployment data are monthly), why can’t the government do so with decades institutional knowledge and experience and enormous human and financial resources?

What about the massive loss of lives and livelihoods?

The most critical question regarding the IMF and World Bank reports is why do they think poverty in India is decreasing amidst a widespread economic downturn – pre-pandemic downturn and pandemic crisis causing massive loss of lives and livelihoods? Both reports are silent on this.

The IMF cites subsidized or free rations and the MGNREGS rural employment guarantee for poverty eradication, but this ignores the most critical element it uses for its estimates of consumer spending – the CCTB – as flawed be it.

The CCTB (at constant prices) plunged -6% in FY21 from the FY20 (pre-pandemic) level – as revealed by the National Statistics Account’s second advance estimate (released February 28 2022). In absolute figures, the PFCE fell from Rs 82,59,704 crore in FY20 to Rs 77,63,735 crore.

Had extreme poverty fallen sharply in FY21 (from 1.4% in FY20 to 0.8% in FY21) – as the IMF report asserts – the Shouldn’t PFCE have gone up instead of down?

Another missing element is the high cost of health care that the pandemic has brought about. The central government admits, in its official brief on the Ayushman Bharat program launched in 2018, that “catastrophic” health care pushes 60 million people into poverty each year in normal times (“PM-JAY plans to help alleviate the catastrophic expenditure on medical treatment that pushes almost 6 million Indians into poverty each year.

Imagine how many millions of people would have been pushed into poverty during the pre-pandemic years FY12-FY20 (60 million multiplied by 9 or 540 million) and millions more impoverished by costly Covid-9 care.

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

There is no estimate of how many millions of jobs have been lost and businesses closed since the 2016 demonetization and ending with the 2020 pandemic shutdowns and how many have been revived. But from the K-shaped recovery of the economy in FY22, it is clear that lost jobs and businesses, especially micro and small businesses, are not yet fully recovered. .

No matter how good and infallible the methodologies adopted by the IMF and the World Bank, no estimate of poverty can be valid without knowing how the income of the poor has increased to keep them above the poverty line. .

At best, subsidized and free rations can avert hunger, not poverty. IMF economists should be aware of these concepts.

What is the poverty line in India?

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

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

In 2021, the NITI Aayog followed the concept of the Multidimensional Poverty Index (MPI) – a non-monetary measure compared to the consumption expenditure method of the 2011-12 or 2017-18 ONSS surveys – in accordance with that from Oxford University’s Oxford Poverty and Human Development Initiative (OPHI) and United Nations Development Program (UNDP).

The MPI takes into account three key deprivations – health, education and standard of living – and is a better measure of poverty. But here’s a catch. The Aayog has produced a “benchmark” index for states in 2021, against which it will measure MPI in subsequent years.

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

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

Then there are credibility issues with the Aayog. Remember how the Aayog has become a cheerleader since demonetization, giving wholehearted support to all central government decisions even in the face of overwhelming evidence. He also supported the untimely and unplanned lockdown and said Covid cases would hit zero on May 6, 2020. His SDG report for FY21 actually said poverty, hunger and income inequality had declined – instead of increasing as was the case in the FY20 pre-pandemic.

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

What about studies that have shown that poverty is increasing?

Here is the end point.

How about many other studies that have shown the exact opposite – a quantum leap into poverty? There are several such surveys and studies published in 2021 by Pew Research, UNCTAD, Azim Premji University, Oxfam International and economists like Mehrotra and Parida – some of them mentioned in IMF and EC reports. World Bank.

It seems more likely that the IMF and World Bank reports are an exercise in brushing hard realities from under the rug.

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