A CAPITALIST economy is characterized by continuous process and product innovations, which means that the basket of goods consumed by the people keeps changing over time. New goods are typically introduced by capitalist producers keeping mainly middle class consumers in mind, and once new goods start replacing the old goods, the production capacity in the old-goods-producing sectors declines and the entire population goes over willy-nilly to buying the new goods. Economists generally pretend that the entire population has a choice between the old and new goods and prefers the new goods over the old, but this is scarcely the case; once a sufficient number of people, typically belonging to the middle class have started buying a new good, the production of what it replaces dwindles, and the remaining population is more or less made to go over to the new good.

This does not mean that this remaining population would have preferred the old good if given a choice between the old and the new; it only means that this remaining population is not given any choice as a matter of fact. To claim on the basis of the introduction of new goods that poverty has declined therefore has no rationale; what is relevant is not the consumption of the new goods per se but rather whether for doing so, the ordinary working people do not have sufficient income to spend and hence have to skimp on various other essential items of consumption.

There is however a second set of instances where we can clearly say on the basis, not necessarily of its own choice, but of independent judgement, that the entire population has become distinctly better off, and that set relates to scientific, especially medical, advances. But being better off in this sense cannot be equated to a reduction in poverty either. King Henry the Eighth of England who died because of an ulcerated leg might have lived longer if antibiotics had been discovered by then; but because antibiotics are available today, as are a host of other medicines, we cannot claim that a domestic help today, though better off than Henry the Eighth in this regard, is less poor than Henry the Eighth.

Reduction in poverty in other words must be defined by criteria that are quite different from the fact that product innovations have occurred, whether or not these innovations themselves enhance of the quality of life. Put differently, “modernity” must be distinguished from lack of poverty. The criteria for defining poverty must be not whether a new set of goods is being consumed, but whether in consuming the new set of goods, the household has to spend so much of its meagre income that it is forced to experience other crucial deprivations. The defining characteristic of poverty therefore is not access to a new set of goods per se, but whether this access requires skimping on some other essentials.

This is where one can fault the Multi-Dimensional Poverty Index, developed by the UNDP and the Oxford Poverty and Human Development Initiative (OPHI). It takes ten different indicators relating to years of schooling, child mortality, access to electricity, potable water, dwelling with non-thatch roof, cooking fuel, a specified minimum body mass index (BMI), and ‘financial inclusion’ (a bank account); it ascribes weights to each to ascertain if a person is poor. But it does not take into account either income or actual consumption.

There are two obvious problems with this index. One relates to the fact that the formal satisfaction of these criteria may not mean much. For instance, having a bank account is taken as one index of a person not being poor; but merely having a bank account means nothing if there is zero balance on that account. Likewise having a roof over one’s head rather than living in a thatched hut is supposed to indicate an amelioration of poverty; but the roof that is supposed to make this difference may be just a tin roof over a shed, in which case the claim of reduced poverty would be an utterly spurious one. Similarly years of schooling would mean little if during those years no classes were held because the government had not appointed any teachers in that school. The specified body mass index or BMI (which is a ratio) can be satisfied by persons who owing to undernutrition are both grossly underweight and grossly under normal height for age. Mere formal satisfaction of such criteria therefore would be extremely misleading as an indicator of poverty reduction.

The second problem with this index is what we have been discussing above, namely that it identifies sheer “modernity” with lack of poverty which misses the point. The idea should be rather to see whether in accessing the specified set of goods the person in question has had to skimp on some essential, and the obvious essential to take is nutrition. The question to ask is: has the person been starving herself in sending the child to school, or in having a roof over her head? If so, then the person can hardly be said to have overcome poverty. Nutrition is not included directly as one of the ten items to look at because as mentioned, acute nutritional deprivation is quite compatible with the specified value of BMI. However, the point I am making is not just that nutrition should be directly looked at, but that it should be a litmus test. This is not to say that nutrition alone matters; it is to underscore that nutrition is a marker, a signal, for determining a person’s overall well-being, at least at the levels of per capita income of the global south. This is why the Indian Planning Commission’s using a calorie norm to define poverty continues to remain so apposite.

If the multi-dimensional poverty index errs in ignoring income while focussing on ten other characteristics (which then impinge on the nutrition level), the World Bank focusses on expenditure alone, but uses an entirely illegitimate price-index for measuring real expenditure. It uses an old consumption basket and measures the rise in price since that base year by calculating how much the cost of that basket would have increased over time. This has the opposite problem of totally ignoring product innovations, and also the effects of such changes as the privatization of essential services like education and healthcare. For instance, if in the base year a person had access to public healthcare and the real cost of public healthcare has remained unchanged since then, but public healthcare facilities have been run down, forcing people to access private facilities that are much more expensive, then the rise in the actual cost of living because of this fact would not be reflected anywhere. As a result, the actual rise in the cost of living will not be captured, and hence the ‘real expenditure’ obtained by deflating money expenditure by the price index, will be an overestimate; and correspondingly, the magnitude of poverty will be underestimated.

Ironically therefore, both indices, one which ignores expenditure  completely, and the other which focusses only on expenditure while ignoring the related nutrition level, give gross underestimates of poverty. This is why we have such absurdities as the “finding” that India has virtually overcome poverty (apparently the ratio is now down to 2 percent) when it systematically occupies a rank well above 100 among the 115 (or so) countries for which the World Hunger Index is calculated, and when vast numbers of people look forward to the monthly dole of 5 kilograms of foodgrains for their survival.

In the erstwhile Soviet Union where poverty had actually disappeared, the provision of grain to households was so unnecessary that people used to waste grain provided by the Soviet authorities. In India by contrast it is the additional grain distributed through the public distribution system that constitutes the lifeline for millions of people in the countryside, as numerous persons, residing there or familiar with the state of affairs there, will readily testify.

In fact, using the old Planning Commission’s criteria for defining poverty, namely access to 2100 calories per person per day in urban India and 2200 calories per person per day in rural India, we find a significant increase in poverty between 1993-94 and 2017-18 (U.Patnaik, Exploring the Poverty Question), which were precisely the years of the neoliberal economic regime. So embarrassing for the government were the findings of the National Sample Survey data for 2017-18 that it withdrew those data from the public domain and changed the method of data collection in subsequent NSS rounds, which makes the 2022-23 data non-comparable with those of earlier years. But of course, as most observers of the Indian scene, including even the IMF, now recognize, India which used to have the finest statistical system in the global south now has statistics under the NDA government that are highly unreliable.