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March 15, 2013

Profiles in poverty

By cracking down on legal but imperfect options for the poor, we push them towards making an illegal and terrible choice.

Speaking of poverty through anecdotal experience is often berated. Anecdotal experience has its limitations. It runs the risk of basing policy decisions on hard cases rather than on the typical case. Nonetheless, anecdotal evidence helps illustrate what data elaborates on. It points to gaps in the data or suggests places that need to be further explored.

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Take the case of my household help, who along with her husband, is unlettered. Her daughter is married and does not live with them while her unmarried son does. She went into debt for her daughter’s wedding, and is now working to pay it off. The earnings of the family easily put it above the Planning Commission’s poverty line, but the family has no savings. Three cheques for Rs 5,000 each, representing the son’s salary for three months have been  lying in their house uncashed because he does not have a bank account. No one in the family has had experience navigating a bank’s bureaucracy or an understanding of how to obtain proof of identity and residence. They have applied for Aadhaar, but it will be months before they are issued the card. They had visited a branch of a private bank to understand what it took to open an account and were sent off with unhelpful directions. In an attempt to obtain proof of identity, they paid someone Rs 300 for a PAN card, but nothing came of it.

Years ago, her family had received Rs 1 lakh from the sale of a plot of land they owned. They believed that having such an amount of money meant that they would no longer need to work and were very surprised when the entire sum ran out by the end of the year. The fact that they did not have a bank account to put their money into made some difference in how soon they managed to run through it. The woman is now paying off debts she incurred for her daughter’s wedding, and the interest runs to around 4 percent a month or over 60 percent compounded.

How typical is this woman’s situation? Given India’s heterogeneity, there is no typical situation and given the size of India’s population, even the atypical case has millions of examples. But it must be pointed out that this woman is certainly not the poorest person in India. The case of her household elucidates that there is a significant proportion of people in India, for whom the system fails, not by withholding money or the opportunity to earn it, but by not providing the financial infrastructure to help them save and invest it. These people are ill-served by regulations like the RBI’s KYC norms that make it tougher to open bank accounts than it should be. In general, regulations that seem merely onerous to a middle class person tend to be too complicated and constitute an unbearable burden for a person who isn’t used to dealing with them.

They are also ill-served by the poorly thought out crackdown on microfinance institutions as was carried out in Andhra Pradesh. A 25 percent rate of interest seems usurious till one realises that the alternative for the poor person is 60 percent. Frequently, serving the poorest may involve charging them higher rates, because the cost of reaching them is high – and this may still be okay, because the alternative for the poor is an exploitative choice. If we crack down on a legal, but imperfect option for the poor, we push them to make an illegal and terrible choice that gives no recourse if things go wrong.

It is said that the plural of anecdote is not data. What is meant by this is that one should not generalise from individual examples. But in another sense, what is data but individual examples multiplied millions of times over? When the National Sample Survey reveals that 32 percent of Indians are poor, the statistic conceals the fact that it represents nearly 400 million individuals, each with his or her own story of coping with, failing to get out of, or worse still, lapsing back into a state of destitution. There are many millions who live above the poverty line, some of whom were poor a decade back and have come out of poverty since.

The poverty headcount number is a static number that fails to capture the dynamics of this movement. We need to build better models with more detail than this headcount number. We need to capture to a fuller extent the profile of people who are poor, how factors like industrialisation, agricultural policies, the weather, inflation, etc. affect their movement into or out of poverty.

Poverty is too important to be used as a battleground between headline numbers and selective anecdotal evidence.

Photo: nikki


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