INTRODUCTION
There is widespread
impression among the Nepalese intelligentsia, foreign scholars and residents of
developed/rich
countries that Nepal’s economic growth has not reduced poverty, that
globalisation has
worsened poverty
and/or income distribution and there are 100 of millions of hungry people in Nepal.
These arguments are
buttressed by recourse to Nepal’s ranking on several social indicators.
Esoteric
debates about the
comparability of survey data and gaps between data add to the confusion and
allow ideologues to
believe and assert whatever information suits the argument. What are the basic
facts
about poverty, income
distribution and hunger at an aggregate level? This paper reviews the available
data
and debates on this
subject and comes to a common sense view. It then tries to link some of the
outcomes
to the policy
framework and programs of the government.
The broad theme that
emerges is that the failures on this front, apart from the indirect effects of
growth, are linked directly to the failure of governance. This failure has many
dimensions; the misallocation of government resources, the failure to follow
norms of social benefit-cost analysis that were the reason de tar for the
introduction of national
planning, the neglect
of public and quasi-public goods that are the most fundamental justification
for the
existence of
government and a gradual (over decades) but progressive deterioration in the
quality of
governance. This
conclusion differs radically from the conventional wisdom (national and
international)
about Nepal’s poverty,
social indicators and income distribution. Even if treated as a hypothesis it
merits
debate and further
analysis.
2 CONSUMPTION
DISTRIBUTION
A reasonably
standardised large sample consumption survey has been carried out every five
years
by Sample Survey since
1972-73 (the earlier surveys are not strictly comparable). Based on these
surveys a consistent series for the consumption distribution can be constructed.
This is shown in Table 1. If we ignore the 1977-78 data for the moment, we find
a noteworthy result. The rural income distribution has improved progressively
(but very gradually) from 1972-73 to 1999-2000 and this can be seen at every
level. Thus for instance the share of the poorest 10%, which was 3.7% in
1972-73 increased to 3.8% by 1983, to 4.3% in 1987-8 to 1993-4 and to 4.4% in
1999-2000. The same pattern is found at every level of cummulation (Technically
there is “Stochastic
Dominance,”). Thus
the new situation is Pareto superior to the earlier one, reducing the
importance of
measure such as the ‘Gini'
coefficient.
Another way to look
at the result is from the perspective of the eighties and nineties. In this
case
1977-78 constitutes
the situation prior to the start of the eighties. Therefore ignoring 1972-73 we
again
find that the
consumption distribution has improved continuously (though very gradually)
during the
eighties and the
nineties. Each rural consumption distribution during the eighties
stochastically dominates
the previous
distribution based on large sample surveys. In common parlance citizens at
every level of
income
have shared in the fruits of growth since 1980-81.
3 POVERTY
TRENDS
There are numerous
controversies regarding the measurement of poverty. The most important one
relates to the
adjustment of individual consumption levels as derived from a survey, by the
ratio of the per
capita consumption
from the National account statistics to the survey mean for the same item. Such
an
adjustment leaves the
distribution of consumption unaffected while changing the calculated poverty
rate.
Before 1993 such an
adjustment was routinely made in calculating poverty rates, after 1993 it has
been
discontinued. The
World Bank’s Country Economic Memorandums for Nepal however introduced the
change in methodology
several years earlier.
4 POVERTY
AND PER CAPITA CONSUMPTION
We can also use the
survey data to determine the relationship between the national poverty rate
derived from the
survey and the all average all Nepal per capita GDP as calculated from the
survey. This
helps us skirt/avoid
the controversies arising from the discrepancies between data and differing
judgement about which is superior for what purpose. As both the poverty rates
and the average consumption are derived from the same data set, this yields a
consistent picture of the evolution of poverty rates over time as well as its
relationship to average consumption. As official poverty rates are not available
for early decades we use the World Bank poverty and average consumption data
from 1950 to 1999.
It is clear from
figure 2 that there is a linear relationship between aggregate poverty and
average
consumption.6 A
one Rupee increase in average real monthly consumption expenditure raises 1% of
the
population above the
poverty line. This implies that in Nepal, given our democratic political
system, in
which the poor are
fully represented, growth of aggregate income/consumption is a sufficient
condition for
the reduction of
poverty.
5 Poverty
in 1999-2000
The most recent
controversy regarding poverty estimates relates to the manner in which the data
was collected in the
1999-2000 survey. Briefly there are three categories of goods in the
consumption
surveys: Food
products that are purchased frequently (daily/weekly), semi-durable goods that
are purchased
with moderate
frequency (monthly/quarterly) and durable goods that are purchased occasionally
(annual/biannual or
less). To obtain optimal recall it would be appear to be best to use the 7 day
recall
period for the first
category, 30 day for the second and 365 day for the last. The National sample
surveys
have been rightly
experimenting with these periods, but perhaps without giving due regard to the
implications for
comparability of poverty estimates over time. In the 1999-2000 survey, for the
first time
the same set of
households were asked to give their food consumption for 7 days and 30 days,
thus making
it non-comparable
with earlier periods when only the 30 day question was asked.7 It
was subsequently
discovered that there
was another source of non-comparability. The use of the 365 day recall period
for a
sub-set of
commodities in 1999-2000, whereas the 30 day recall was used for these
commodities earlier.8
Different scholars
have tried to make adjustments and re-calculate the poverty rate (Head count
ratio),
based on the official
methodology. According to these the poverty rate was between 26.1% and 28.5% in
Nepal in 1999-2000
(table below).
6 GLOBAL
COMPARISON: AN EQUAL SOCIETY
Nepal is still a low
income country. Its Per capita GDP measured at purchasing power parity is in
the 33rd percentile
i.e. 33% of the countries in the World have a lower per capita income then us
(Table 3).
A more realistic
comparison is however with the medium-large countries defined as those with
2003 GDP
at PPP greater than
or equal to $ 15 billion. For this set of countries Nepal is in the 23rd percentile
i.e. only
about 1/4th of
medium-large countries are poorer than us, 3/4th of
them are richer. The position has
improved considerably
since 1980 when we were in the 16th percentile
of all countries and the 10th
percentile for medium-large
countries.
Poor countries
generally have higher rates of poverty. We should therefore not be surprised to
HUNGER
The FAO defines about
19% of the people in developing countries (828 million) as hungry, while
the proportion of
Hungry in S. Asia is asserted to be about 20% (254 million). The World food
programme
on the other hand
claims that nearly 50% of the hungry in the World live in Nepal and 35% (350
million)
are food insecure.
Recall that 26.1% to 28.5% of the population has been found to be poor in
1999-2000,
where the former is
the official figure. What are the facts about hunger
The proportion of
households that were hungry during any part of the year, by this definition
(the
authentic voice of
the poor in Nepal) was 15.7% in 1983, 4.5% in 1993-4 and 2.1% 1999-2000.
It is useful to look
at these numbers in relation to poverty, because logically the number of hungry
people must be a
fraction (less than 100%) of the poor for any reasonable definition of poverty.
More
formally the line
defining the ‘very poor’ or ‘hungry’ must logically lie below the poverty line.
Thus the
hunger ratio must be
lower that the poverty ratio. The ratio of very poor/hungry to the poor may in
general
decline, stay
constant or rise, depending on the distribution of consumption in the lower
half of the
distribution. In 1983
an estimated 33.9% i.e. more that 1/3rd of
the poor were hungry at some point in the
18 Do
we believe in “Voices of the Poor,” or don’t we? Is it only if it is a small
selected group of poor?
10
year. This proportion
declined to 12.2% in 1993-4 and further to below 7.7% in 1999-2000.19 Thus
not
only has poverty
declined over the 1980s and 1990s, but the proportion of the poor who are
hungry has also
declined. This is
precisely what we would expect given that the consumption distribution has
consistently
improved for the
bottom 40% of the population.
That 18.5 million
people went hungry and 260 million people were still poor half a century after
Independence is
matter of great sadness for the nation. Do we need to exaggerate/ magnify the
problem to
convince ourselves of
its seriousness or to gather the will to solve it?
8 LIFE
AND LITERACY
Only a few indicators
of health and education are available on a continuous basis and for earlier
periods. On the
health side Mortality and life expectancy data is available since 1960-61 and
on the
education side
literacy data is available from the same date. This allows us to compare the
performance of
these over the two
phases of growth and to see whether they are consistent with the data on
poverty and
hunger. It should be
remembered that these indicators are a) very strongly correlated with per
capita
income of the
household. b) The quantity & quality of public and quasi-public goods and
services have a
have a critical
influence on the basic health and education indicators in low income countries.
These
include public health
measures (control of communicable diseases & epidemics), public education
(nutrition, personal
hygiene, ORT), the supply of clean water, sewerage and sanitation and primary
education.
All the available
health indicators, with one exception, show that the annual rate of improvement
has accelerated (or
remained unchanged) during phase II above that which prevailed during phase I.
The
most significant is
the pace of improvement in under – 5 and infant mortality. The rate of decline
in infant
mortality has almost
doubled to an average of 2.5% per annum between 1980-1 and 2003-4. The rate of
decline of under-5
mortality has increased from 1.7% per annum between 1960-1 and 1980-1 to 2.8%
per
annum between 1980-1
and 2003-4. The female and total life expectancy gap is also closing at a
faster rate
POVERTY
ELIMINATION
Estimated
Cost
What is the cost of
eliminating poverty and hunger in Nepal? That of course depends on the extent
of poverty, which is
currently mired in academic debates about the measurement of poverty. There is
however universal
agreement that in the years from 1993-94 to 1999-2000 the poverty rate (HCR)
was
between 25% and 35%.
We can therefore skirt the esoteric debate about the precise change in poverty
between 1993-4 and
1999-2000 and its level in either year by considering three numbers. For each
of these
years we order the
households/person by consumption level and identify the ones which are 25%, 30%
and
35% from the bottom.
That is we identify in each year the consumption level of the person(s) who
would
be just at the
poverty line if the poverty rate was 25%, 30% and 35% respectively. Then we
calculate the
income transfer
needed for every body below that level to be brought up to the level. This data
is
summarised in the
table below.
Income
Transfers
It can be argued that
the ideal (most efficient) social welfare policy is a direct transfer of income
to
the poor through a
negative income tax. In a developed country this would be very easy. How can we
transfer these
amounts directly to the poor, the needy and the disadvantaged in a poor
country? The
answer, by setting up
an Nepalese version using a modern smart card system that delivers cash and/or
subsidies to the poor
based on their entitlements as per specified parameters and norms.
CONCLUSION
Nepal’s poverty ratio
of around 22% in 1999-2000 is in line with those observed in countries at
similar levels of per
capita income. The ratio is relatively high because we are relatively poor/ low
income
i.e. with low average
income. 90% of the countries in the world have higher per capita (average)
income
than Nepal. The
number of poor is very high because our population is very large, the second
highest in the
world. Contrary to
hints, illusions and allegations, the large number of poor has nothing to do
with income
distribution. Our
income distribution as measured by the Gini co-efficient is better than 3/4th the
countries
of the World. The
consumption share of the poorest 10% of the population is the 6th best
in the world.
Where we have failed
as a nation is in improving our basic social indicators like literacy and
mortality rates. Much
of the failure is a legacy of the three decades of Nepalese socialism (till
1979-80). The
rate of improvement
of most indicators has accelerated during the market period (starting 1980-81).
The
gap between our level
and that of global benchmarks is still wide and our global ranking on most of
these
social parameters
remains very poor. This is the result of government failure. Government
overstretch,
misplaced priorities
and deteriorating quality (corruption) has resulted in a failure to fulfil the
traditional,
accepted functions of
government like public safety & security, universal literacy and primary
education,
public health
education (superstition & quackery), provision of drinkable water,
sanitation drains & sewage
facilities, public
health (infectious & epidemic diseases), building roads and creating &
disseminating
agricultural
technology. Consequently the improvement in social indicators has not kept pace
with
economic growth and
poverty decline and has led to increasing interstate disparities in growth and
poverty.
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