With echoes from the controversy over the Indian Planning Commission’s definition of the poverty line still to die down, it’s a good time to point to a flaw in our wider discourse on poverty and development. Having arrived at a poverty line, we then recognize only two relevant classifications— below poverty line (BPL) and above poverty line (APL).

It’s a short-sighted view that leads to the conclusion—superficially logical, but inherently a fallacy— that the development process in poor countries is about moving people from the BPL to the APL category. The fallacy is that even as policymakers focus on lifting people out of poverty, and even as the numbers hint at a job well done, it tells us nothing about the longer term sustainability of the process by which the gains are achieved.

Here’s why it should matter. For example, beggars are often the poorest in any country, always found right at the bottom of the scale. One way to lift them out of poverty (without forcing a change in their vocation) is to have people give more alms to beggars. It pushes up their incomes and, so long as the bounty continues, their status gets an upgrade from BPL to APL. Yet, common sense suggests that this is no way to be rid of poverty. Indeed, sustainable solutions would necessarily involve having this class find a productive vocation for itself. And so, what works over the long term is not the transfer of money but the acquisition of skills to enable them to stand on their own feet without artificial support. That is why, even as we know that more alms to beggars will indeed help them out of poverty, we don’t bother to explore the idea as a viable policy option.

Remarkably, this nugget of wisdom gets lost when the government steps into the act. A large part of the population is sought to be helped out of poverty with a multitude of entitlements given out freely and unconditionally. These programmes carry grandiose labels often invoking the names of the country’s tallest leaders but, at the end of the day, it remains money given out for free, or for doing very little. The immediate impact, no doubt, is to increase income levels among the beneficiaries. Nevertheless, it does nothing to tackle the root causes of poverty which have to do with an inability (for whatever reasons) either to make meaningful economic contributions, or to have your economic contributions recognized as meaningful. The disease is left to fester while the symptoms are made to vanish.  Poverty stands eliminated only as long as the entitlement tap is turned on. The moment it’s turned off, beneficiaries are back to square one. As a method of addressing poverty, it’s as useful as kicking the can down the road.

In order to get a measure of these entitlement-driven methods of reducing poverty, I propose that an intermediate category of the AAPL or “artificially above poverty line” should also be recognized and tracked separately. The AAPL category would consist of people whose APL status is dependent upon the continuing receipt of a stream of handouts from the state, and who are certain to fall back into poverty the moment it stops.

Here’s an analogy to lend clarity to the idea. In a school, there are bright students who pass, and not-so-bright ones who fail. A measure of the academic standards at the school is the “pass percentage”. But in real life, it can happen that the pass percentage is given an artificial boost by awarding “grace marks”. This shows up as an improvement in the pass percentage even without any real improvement in academic standards. In this example, a truer picture of reality emerges if the school authorities report, not just those who passed and failed, but also those who passed with the help of grace marks.

In the same way, the AAPL numbers would show how much of the poverty disease has actually been cured and how much has been temporarily suppressed through strong doses of painkillers. Once the distinction is appreciated, a government would earn plaudits for reducing poverty only if it succeeds in permanently shifting the poor from BPL to APL—and none for overnight parking in the AAPL slot.  Importantly, it would also serve as a check on populism because any ill-considered intervention would only bloat the ranks of the AAPL and set off alarm bells ringing, raising doubts about the sustainability of the whole approach.

Applying the idea of the AAPL to India, it would also help us see through the fallacies of our entrenched left-liberal class who typically, and reflexively, favour expansion of entitlements as the only worthwhile method of reducing poverty. So long as India keeps track of only the BPL and APL numbers, their stance will continue to find a broad measure of support because the initial impact of all entitlements (as borne out by statistics) is a movement of beneficiaries out of the BPL category, and by default, into APL. However, once data for the AAPL is compiled, the bottom falls out of this argument.

For example, India’s federal government enacted the MGNREGA in 2005, a rural job guarantee cum make-work scheme that is now the largest initiative of its kind in the world, consuming an annual outlay of eight to nine billion dollars. Supporters have hailed it as a landmark social legislation that has boosted rural incomes and lifted millions out of poverty (while critics say that the food inflation it has kicked off has slowed growth and pushed millions back into poverty). Applying the AAPL test, the relevant question to be asked is, “What happens to these millions lifted out of poverty if the programme is wound up tomorrow?” Surely, there can be no doubt that all of them would promptly head back to where they came from. Indeed, in truth, matters may be worse. Having grown accustomed to doing state sponsored make-believe work, their native survival skills would be dented by now, and even reclaiming the status prior to MGNREGA would be a struggle.

The concept of the AAPL also points to the fallacy implicit in the exaggerated focus on Human Development Index (HDI) as a measure of development. Developing countries achieving high levels on HDI attract praise from left-wing economists because they are seen to have taken care of their poorest despite scoring low on conventional parameters like GDP per capita.  A fair count of the AAPL in these countries would likely reveal disproportionately high numbers suggesting that a model which eliminates poverty by requiring the state to take the burden directly upon itself is bound to fall into a “high HDI-low growth” trap.  The HDI thrust consumes a disproportionate share of available resources, and starves the economy of investment in infrastructure and other productive assets needed to drive growth. By definition, this development model is a one-trick pony.

The praise that countries like countries like Cuba—for that matter, Kerala—draw for presenting the paradox of high HDI coexisting with a rickety third-world economy is misplaced. It is in the nature of the beast that what is achieved is always at the cost of something far larger.

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Ranjan Sreedharan

Ranjan Sreedharan is an independent thinker (and occasional writer) on the economics underlying politics. Not being a professional economist, he believes in evaluating ideas for what they are worth, without waiting for the data (or the macro-economic numbers) to show up. Back in January 2011, he gave a call that India was headed towards an economic crisis and since then has not seen any reason to change his mind. He works in corporate communications and can be contacted at ranjan.sreedharan@gmail.com