Economics

The Dogma Of High Poverty Lines

The recalculation of poverty lines almost always invokes criticism from sections of the society which feel that the new poverty line is still below an unsaid mental mark. Such criticisms are often perception based and devoid of any calculated logical arguments. Logical reasoning does, indeed, argue that high poverty lines are often the anti-thesis of upliftment of the poor.

It is of absolute necessity that, at the start of this article, the concept of poverty be defined. Many Liberals continue to believe that poverty is simply the inability to earn more than $1 a day, irrespective of any other factors. This approach ignores the multi-dimensional aspect of poverty. Poverty is not merely the lack of attainment of a monetary income level. As a concept, it is much more complex. Poverty needs to be defined as the deprivation of many human needs and attributes. This depravity can be in the field of food or access to it, education or access to it and health or access to it. Any non-fulfilment of these and other basic human needs should be understood as poverty. This idea can then be further categorised into absolute and relative poverty depending upon the severity of depravation.

Attempts to associate poverty with a minimum standard of living are unfair as a minimum standard of living implies that all the conditions that constitute a living standard have been met. For instance, if  school education is associated with a minimum standard of living. this would vitiate the analytics since a very substandard school education can also be classified as fulfilling a minimum standard of living.

Thus poverty does not imply any living standard. It, in fact, implies the failure to achieve any living standard as a living standard stipulates basic access to all human needs in the term ‘living’ standards itself.

After having established the definition of poverty, the idea of poverty lines needs to be better understood. Poverty lines simply indicate the level below which depravity is most likely to exist. This should not be construed as the ultimate indicator of poverty since, as mentioned above, poverty is multi-dimensional. However, it should be read as an indicator of the level below which the fulfillment of basic human needs is the least likely to happen. Hence, they are often calculated through a series of complex equations with adequate inputs related to the prices of various baskets of goods which are considered to be basic to human needs.

The Liberal view gets it wrong by applying the income data for one individual to an entire family. Rarely does any individual rich or poor live alone.  He lives in a family and it is the individual poverty line multiplied by the number of people in a family that results in a poor or non-poor classification.  Hence, the poverty line ends up being a high number instead of being a low number. At the same time, families often classified by them below the poverty threshold are usually unable to afford housing and live in temporary settlements which brings us back to the definition of poverty as a deprivation of any basic human need, with shelter being a basic human need. Many families living above this absolute poverty also have housing issues. However, rarely has any economic literature in this field highlighted a correlation between such families and legal housing. Often such families live in illegal structures. Only a few have legal rented accommodation. Even the latter situation would be covered by the fact that poverty is about depravation and not a minimum standard of living.

The dogma behind having higher poverty line levels also fails to take into account many other factors. Social welfare spending might skyrocket resulting in a severe deficit and economic crisis if more people are included in the welfare schemes of an already over-exhausted welfare economy. This argument is often countered by ideas like rationalisation of expenditure i.e. lesser amounts being spent on the army among others. Such ideas are often not well thought out or not articulated well. Sustaining high welfare spending by reducing military spending is irrational for the simple fact that the security cover required by the state for law and order to be maintained and the economy to function would be lost. An economy will never run smoothly and do well if law and order is not maintained. The economies of countries which are facing revolutions in the middle-east are the classic example for this.

The concept of greater aid from the international community often constitutes critical chunks of the argument favoring heavy welfare expenditure. However, international aid must neither be considered to be sustainable nor beneficial for the economy as it may put off international investors by painting a poor human resource or development picture of the country and thereby depriving the country of critical investments and employment opportunities which are more likely to provide a sustainable platform to lift the populace out of poverty.

Besides this argument of government spending, the concept of bank lending can also be introduced into the series of consequences of having a higher poverty line. India follows a system of priority sector lending with the banks being mandated to give out a significant portion of their lending amounts to priority sectors like agriculture which also employs almost 50% of the total Indian labour force. There obviously exists a massive competition to get loans and credit from the bank in these priority sectors. Banks need to be rational in their approach to lending and grant credit only to those individuals who are the most likely to repay the loan with interest.

Consequently, variables like poverty line are critical as they can influence the bank, decision to deny or grant credit to individuals. Banks are more likely to provide credit to individuals just above the poverty line with no assets than an individual just below the poverty line with no assets, for the simple reason that the vague assertion of being above the poverty line is the closest indicator of financial status in priority sectors like agriculture where the income is never fixed. Therefore, higher the poverty line and higher the number of people considered less financially able, lower would be the likelihood of them getting loans from banks to improve and develop their business. Thus, even the self-employment industry is negatively affected by high poverty lines.

Thus, while one can counter the popular arguments offered by Liberals who support greater welfare and subsidies, the concept of poverty lines is undeniable. Poverty lines are essential for the effective functioning of many government and private sector programs. What we need to avoid is the dogma of high poverty lines which is often mistakenly considered to help people more than create disadvantages for them.

About the Author

picDhruva Mathur

Dhruva is a 20 year old fresh graduate from St. Xavier’s College, Mumbai with Majors in Economics and Political Science. He blogs at An Indian Youngster  and tweets at @Dhruva_Mathur and is followed by Kevin Rudd, Foreign Affairs and European Council on Foreign Relations among others. In his spare time, he enjoys reading and debating. He is a Social Liberal with a Right tilt for economics oriented towards development.

One thought on “The Dogma Of High Poverty Lines

  1. Hi,
    This is an interesting perspective, though it is rather unclear of whom the author classifies as a “Liberal” in the Indian context. The very term has several conflicting interpretations throughout the history of economic thought that intersects with politics. Further, the concept of poverty line is essentially problematic in underdeveloped countries which lack social safety nets such as minimum wage laws and unemployment allowances. With reference to the author’s remark about the supposed inter sectionality between bank loans and poverty lines, I’d like to point out that organised banking requires a much higher level of income/security/repayment capacity than any poverty line, no matter how low or high it may be. The funding that affects the poor is more of the nature of unorganized lending, and to an extent, microfinance options, which operate on completely different principles.

Leave a Reply