In a curiously timed press release yesterday, the Planning Commission of India, government’s official think tank, announced the latest “poverty line� for India.

Now, poverty line in India, along with the other related issues, has almost become a mysterious concept. This is primarily because there are too many people, who know too little about poverty, speaking too much about it.

A usual suspect is our everyday TV news anchor, who feigns gross outrage at the insensitivity of the poverty estimates, irrespective of the number in question. This fake outrage – and it is fake because no one seems to have taken the trouble to understand why at all do we have poverty estimates and how do we calculate them- on the part of media routinely misinforms and misguides the readers about this very important issue.

One big casualty, for example, is the reputation of Late Prof. Suresh Tendulkar, one of the most important scholars on poverty in the world. The way Tendulkar Committee’s efforts are manhandled in casual chats, it appears as if the legendary economist had an ulterior interest in keeping India poor! But, I wonder if people know that before Tendulkar revised them upwards,India’s poverty line was Rs 12 for rural areas and Rs 17 for urban areas.

Let me spend some time to clear the haze a bit and attempt to de-mystify a few things about India’s poverty and its estimates.

However, given the various misconceptions around it, I am tempted to repeat Sherlock Holmes, when he said, “This is quite a three pipe problem.� I would urge the readers to hear me out before reaching any conclusions.

Let us look at the facts first.

According to yesterday’s statement, using the Suresh Tendulkar Committee’s method  and the latest available sample data (which is for 2009-10), the new poverty line (in terms of money spent on consumption) is Rs 29 per day per person in Urban areas and Rs 22 per day per person in Rural areas.

As a result, when compared to similar sample data of 2004-05, the poverty estimates have “declined by 7.3 percentage points from 37.2% in 2004-05 to 29.8% in 2009-10.� The rural poverty has declined by 8.0 percentage points from 41.8% to 33.8% and urban poverty has declined by 4.8 percentage points from 25.7% to 20.9%.

Now, as I understand, the biggest issue among the people, is about the actual poverty line number.

Some of the things that I have heard (not necessarily on TV):

“Rs 29 or Rs 32 or whatever the hell it may be – it is just too low!�

“How can you have Rs 29 or Rs 22 for daily consumption as the poverty line?�

“How can anyone in the Planning Commission, expect that you are poor at Rs 29 and not poor at Rs30?�

“How can they be so stupid as to think that Rs 30 per day is enough for living a decent life in urban areas?�

“Why don’t they make Rs 100 as the poverty line? That would be the only decent thing to do, no?�

All valid questions except they betray a complete lack of understanding about why countries have a poverty line at all. Or for that matter, what is a poverty line.

So what is poverty? And why is it so difficult to get a poverty line?

Poverty is a relative concept. [This appears straightforward but it is very crucial to understanding the problem in estimating poverty.] Let me elaborate a bit.

“Fundamentally, the concept of poverty is associated with socially perceived deprivation with respect to basic human needs,� states the Tendulkar committee report.

This means a person’s poverty depends most on how he/she is perceived by his surroundings. Of course, self-perceptions also matter, but it is how one stands “relative� to his surroundings that mainly determines how rich or poor he is.  For starters, it is a bit like saying that with Rs 100 in your hand, you are “rich� relative to the person who has just Rs 10 and “poor� relative to the person with Rs 1000. In that sense, as long as people have different incomes in a society, there will always be “poverty� since some will always be worse off than others.

This relative nature makes poverty one of the most complex issues to define and measure.

The reason why calculating a poverty line is fraught with difficulties is because a poverty line is an absolute measure of a relative concept. So, no matter what number you choose for delineating the rich from the poor, it would be arbitrary at one level.

Why do governments calculate a poverty line at all? And how is it done?

One of the main concerns for any welfare oriented government in any country, including China, is to provide relief to the poorest population. To this end, governments come up with policies like providing cheap foodgrains, or free education or some kind of unemployment benefit etc. And to know whether these schemes are working or not, government (and its economists) draws a “poverty line� and monitors whether its policies are raising the well being of its poorest people.

The idea behind a poverty line is to choose a number, partly based on some educated assumptions and some sample data, which would capture the picture of the lowest 20% – 30% of the population. This way, the government gets to know the exact standard of living of its poorest population. And as such, it can then tailor its anti-poverty programs more accurately. In a country like India, which is poor relative to, say, most western countries, such a poverty line often looks like a “starvation line.â€�

However, if, as many seem to suggest while in the throes of sham outrage, government was to draw a poverty line, which includes say 75% of the population, then it will only muddy the government’s policy prescription for the poorest people.

Why and How?

Imagine you are the government responsible for preparing the best pro-poor policies in a country of 5 people: A, B, C, D and E.

Now, total income in the economy is Rs 100 out of which A earns Rs 35, B earns Rs 30, C earns Rs 20 and D and E earn Rs 10 and Rs 5 respectively.

In one look, you would intuitively understand that D and E are the poor in the economy and as such, you might draw the “poverty line� at Rs 10. That way you will be able to narrow down your focus to the two most poor. The next person is C with twice the income of D and four-times the income of E.

Two things will happen if you raise the “poverty line� to Rs 20 and include C in your poverty list. One, you will have fewer resources left to be given to D & E, who are decidedly much “poorer� than C.

Secondly, when you study C’s income and consumption pattern and use them to shape the pro-poor policies, you might miss out on the real needs of D & E – the relatively poorer of the lot.

For example, C may not need subsidized food grains. Instead, C may need some help with skills, perhaps in the form of some government subsidy to allow C to pick up a skill. However, a decision to opt for subsidized skill development instead of subsidized grains may prove fatal for E, who is likely to be severely malnourished and acutely incompetent, in the short term, to earn even two square meals. Remember, governments have limited resources.

Now, with greater clarity about the concept at hand, let us get back to the more current issue of Tendulkar Committee and revision of poverty rates.

Contrary to the common perception, the committee headed by Prof Tendulkar did the country a huge favour by revising the way we estimate our poverty. The sum and substance of the new methodology, suggested by the committee in 2010, was that India is poorer than we thought.

The Tendulkar method revised the poverty line from Rs 12 in rural areas to Rs 15 and from Rs 17 in urban areas to Rs 19.  As a result, overall poverty ratio in the country is 37.2% instead of the old figure of 27.5%, thus recognizing an additional 120 million as poor.

The reason why Tendulkar’s method shows higher poverty levels is primarily that he has moved away from the traditional practice of benchmarking poverty by certain calorie consumption levels.

Instead, for the first time ever, it recognized the fact that apart from the expenditure to consume minimum calories, individuals also have to spend on two other basic requirements — healthcare and education. In the past, it was assumed that healthcare and education is already provided by the government and so the poor do not have to spend from their pocket on both.

Tendulkar Committee’s inclusion of expenditure on private healthcare and education is seen by most economists as an open acceptance that the State has failed to provide the most elementary of all the services it was supposed to.

However, the upward revisions did not mean that poverty reduction has not happened over the years because his method threw up even higher poverty estimates for the years gone by.

The Politics of Poverty Estimates

Typically, poverty lines are not estimated to put a cap on the beneficiaries of government schemes. But with limited resources, poverty estimates came to be used as ceilings for choosing beneficiaries during the 1990s. Thus instead of a universal public distribution system, we introduced the Targeted PDS.

The logic was simple. If the government did not cap its programs at some arbitrary number, its budget deficits would soar, given the high level of “poor� in the country.

This unhealthy convention of using the poverty line to identify beneficiaries or cap the number of beneficiaries has been the real bone of contention.

So on the one hand, you had the planning commission justifying literally a “starvation line�, and on the other hand, you had activists asking for a higher poverty line so that more people could benefit from the government’s anti-poverty schemes.

Things came to a head in September last year when the Planning Commission filed an affidavit in the Supreme Court quoting the Tendulkar Report to justify that the Poverty Line given by Tendulkar is “adequate� for identifying the beneficiaries for various government subsidies.

What I understand from my interactions with Prof Tendulkar and some of his colleagues in the committee, Tendulkar had meant that his method is adequate for broadly measuring the poverty line, not for identifying the beneficiaries.

However, after a long fight, in October last year, the Planning Commission finally relented and announced that poverty line would no longer be used to cap the number of beneficiaries in any government scheme.

Sadly, this decision has not yet been implemented. And with the deliberations of the national food security bill about to begin, the latest press release seems to suggest government’s efforts to bring down the expectation from the bill.

Be that as it may, the point to remember is that there is no point fretting over Rs 29 or Rs 32 as the poverty line. It is only meant to be a pointer which should be revised regularly. For example,China has revised its poverty line twice in the past two years.  The latest revision in November 2011, nearly doubled the poverty line. The move is seen as a reflection of the improving standard of living in China.

Going back to the earlier example, suppose in five years time, the economy grows fast and each individual’s income doubled. As a result, A now earns Rs 70, B earns Rs 60, C earns Rs 40, D earns Rs 20 and E earns Rs 10. Now if you still want to focus on the poorest lot, you will have to double your poverty line from Rs 10 to Rs 20.

A higher poverty number will make sense only when India’s poor are better off. If we arbitrarily increase the poverty line we would do the poor a great disservice.

So why has the Poverty Line come down from Rs 32 in 2011 to Rs 29 today?

There are two reasons for this.

One, the Tendulkar committee not just gave a new method to estimate poverty but also a new method of updating poverty line. Typically,Indiaused the CPI-AL (consumer price index for agricultural labourers) and CPI-IW (for industrial workers) for updating the poverty line. CPI-AL gave 80% weightage to food articles. But as Tendulkar found out, the poor are also increasingly spending on education and health. So his committee recommended the use of Fisher Price Index which updates the poverty line on the basis of actual consumption data. This index gives just 60% weightage to food articles.

Two, and the bigger reason is that when Planning Commission came out with the Rs 32 poverty line last year, it had done a quick, and provisional, calculation based on CPI-AL for June 2011. When it released the poverty line yesterday, it used the Fisher Price Index for prices during 2009. Between the two years, prices have gone up by roughly 14%. As a result, the data for 2009 shows a poverty line at Rs 29.

In short, this fall is just a statistical difference. It does not mean that suddenly a large number of poor have been lifted out of poverty. Neither does it mean that the poor are not slightly better off. They are. But that again is relative.

P.S This blog post has been updated with the addition of a few paragraphs since it was first published.

One of the reasons why journalists are tempted to write about Rahul Gandhi so often is that he lends himself to many beautiful and interesting analogies. I will try to write about a couple of them below. Hope you find them engaging but let me add a caveat that most analogies are imperfect.

When I first returned from my reporting in UP earlier in January for the Forbes India cover story, my editor asked me how I rated Rahul Gandhi’s chances. I used the analogy of Bishan Singh Bedi’s legendary flighted delivery. Bedi was a master at inviting the batsman to play a shot by giving the ball a lot of flight. The trick was, batsmen often failed to reach the pitch of the ball because the ball typically fell much shorter than expected.

RG’s campaign was something like that. People came to his meeting, attracted by his unusual manners, his Nehru-Gandhi pedigree. But I seriously doubted whether all these people would actually go out and vote for him.

Reasons: One, Congress has no cadres. That is to say there are no grassroots level workers who would keep track of the prospective voters and make sure they give their vote in favour of congress. Two, absolutely fossilized state leadership. Notwithstanding RG’s efforts to unearth young, dynamic leaders, the congress leadership in the state is basically a bunch of quarreling rejects from other parties like SP. Even RG was aware that his state level leaders don’t bother to re-visit the electorate even once after RG’s initial campaign. Lastly, RG’s broader narrative was bereft of any solutions. He told the voters that a lot was amiss and then he told them that Mayawati’s elephant was to blame for that. But this was not followed up by any clear solutions. Instead, there was just a broad promise that “Congress will set everything right.� How? asked the voters. No answers. “Why has the centre failed to curb inflation?� asked the voters. No answers.

RG’s highly publicized, high pitched yet ultimately disastrous campaign in UP was like the road to hell being paved by good intentions. I don’t remember the name of the poet so I would quote the following urdu couplet with my apologies to poet.

Humein apno ne hi loota, gairon mein kahan dum tha;

[I was robbed by my own people, others could have never done that]

Meri kashti wahan doobi jahan paani bahut kum tha!!

[My boat sank at a point where there was hardly any water]

Congress went into the UP campaign thinking that no matter what the results, they can’t be as bad as a mere 22 out of 403 in 2007. It would be impossible to do worse and as such relatively easy to tom-tom RG’s campaign even if Congress got just 50 odd seats. “See, under Rahulji, we have doubled our seats,� they could have said.

But lo and behold, Congress’s boat sank even when there was not much water to sink in. As the dust settles down, we find Congress has ended up with just 28 seats on its own. An embarrassing increase of just 0.01%. Compare that to all the sound and fury. Seems to have justified nothing.

What is perhaps worse, in my opinion, for RG and Nehru-Gandhi family in particular and Congress in general, is the giant snub by the voters in their traditional home constituencies of Rae Bareli and Amethi.

RG has gone about the UP, and in fact the whole country, telling voters how the electorate in Rae Bareli and Amethi has benefitted from the family’s patronage. The near decimation in all the constituencies of these two districts is a warning sign for Congress.

Frankly, even the explanation that Congress’s “grassroots organization is weak� in UP doesn’t really work in the case of Rae Bareli and Amethi.

Since last August, when the Anna Hazare movement galvanized the people, Rahul Gandhi has been in sharp focus. There were calls for him to take over the mantle of governance from the ageing and increasingly marginalized Prime Minister Manmohan Singh.

Rahul has steered clear by saying that he wants to build the party and usher in a new kind of politics. May be he will. I hope he does. A new kind of politics sounds like something India could use.

From RG’s perspective although, the point now is: he’d better do it. Because Uttar Pradesh has called Congress’s bluff on RG. There is no way that people will accept him as the PM in the immediate future.

Perhaps his best option is to build the organization that he wants to and do it in double quick time since the next Lok Sabha elections are just two years away.

In his book titled “The Age of Uncertainty�, celebrated American economist John Kenneth Galbraith succinctly articulated what political leadership is all about.

He said, “All of the great leaders have had one characteristic in common: it was the willingness to confront unequivocally the major anxiety of their people in their time. This, and not much else, is the essence of leadership.

Now pause for a moment and think of your favourite political leader -across the ages, across countries – and check whether he satisfies Galbraith’s test.

My guess is you are nodding in approval as you think. Political Leadership is about understanding what your people feel and responding to it.

It is a good time to ponder over this quote if you are an Indian because more than anything else, the country seems to be reeling under a leadership deficit.

Exactly a year ago, Forbes India wrote how a weak Prime Minister, who was increasingly unable to respond to the criticism against his cabinet colleagues, might actually make things worse.

A year later, things have actually got worse.

In my view, the Supreme Court’s decision yesterday to scrap 2G telecom licences isn’t just the result of flawed telecom policy or a wayward cabinet minister. The SC verdict brings back in sharp focus the kind of leadership deficit that now epitomizes UPA-2 and Manmohan Singh’s leadership style.

Over the past one year, I have tried to understand the basis of Singh’s leadership style; his leadership mantra, so to say, and why he falls short of expectations.

Partly, it is a personality issue. “He is no Bill Clinton. He has a weakness when it comes to communicating to the media or the general public,” a person who knows Singh well said to me. But in a greater measure, it seems that his idea of the prime minister’s role is based on an incomplete understanding of the parliamentary form of government.

Policies such as distributing scarce airwaves were eventually cabinet decisions taken after lengthy deliberations. For the Prime Minister to either keep quiet or pass the blame to his former cabinet colleague violates the basic tenet of “collective responsibility�. Yet Singh believes a PM should not “micro-manage� any ministry. In his view, once a ministry is assigned to a cabinet minister then it is the responsibility of minister in-charge.

At one level, this is a good working principle that some authoritarian prime ministers of India in the past were accused of having forgotten. Mrs Indira Gandhi was often accused of being overly autocratic.

However, there is a flip side to this daily working principle too: ultimately, the buck stops with the PM. And in cases of high-profile mismanagement, it is the PM who must necessarily intervene and sort out the issue.

It doesn’t appear that Manmohan Singh appreciates that even after designating all ministries with individual cabinet ministers, the Prime Minister’s responsibility, as the captain of the team, is not reduced even one bit. Ultimately, as far as policy making is concerned, it is the Prime Minister who is responsible not only for his personal conduct but also that of each member of his team. And when time demands he would have to guide and even rectify their behaviour.

But Singh does not look at himself as the final repository of the Indian electorate’s trust. Perhaps because he has never won that trust, not at least by means of winning a popular election. He does not see himself as the leader of the Indian masses. Instead, he sees himself as a professional who puts in an honest day’s work each day. That’s it.

His understanding of the top job lacks the appreciation of the political aspect, which incidentally is the most important element. That is why we find him always trailing behind the public mood whether it is on the Lokpal bill or the right to food. As finance minister in 1991, Singh was able to push through unpopular reforms because the then PM PV Narasimha Rao lent him the shielding cover of his political acumen. Now being PM, Singh does not have such a cover within the government and that has severely handicapped policymaking. The presence of the Left parties in UPA-1 helped him leave the blame for indecision at AKG Bhavan’s doorstep. Now even that is not available.

Even today, if you were to ask whether Manmohan Singh would change the way he leads his country and more specifically, his cabinet, if the results of the crucial state elections were to go against the ruling party, the answer is a simple, and rather unbelievable, “no.â€� That’s because there is hardly anything political about Singh’s style of leading the world’s largest democracy.

The PM, for his part, feels aggrieved by the constant outpouring against him but he puts it down to the general public’s faulty understanding of the governance structure in the country.

According to him, since this is not a Presidential form of government, the PM is not supposed to crack a whip and set things right. In his view, the parliamentary form of government essentially implies that decisions are likely to take longer as they would require wide-ranging consultations with all stakeholders, expert panels and committees to look into all round feasibility, so on and so forth.

So while he accepts that lack of reforms in the land acquisition policy is not only holding up development but also creating increasing number of victims, he does not see any new way to solve the problem.

Manmohan Singh’s approach to leadership is more akin to that of an honest, hardworking and well-meaning bureaucrat who has no political stakes .

With just two years left for his tenure to end, Singh is surely on his last lap. And if things continue the way they do, when the dust settles down, I suspect, political commentators  would do Singh a favour by remembering him more as India’s finance minister during the 1990s than India’s longest serving Prime Minister after Jawaharlal Nehru.