Slate’s Explainer series had an article last week that attempted to get to the bottom of the following question (a version of which some of you may have also wondered about in the past):
Recent news reports about the Congress Party’s election victory note that two-thirds of Indians live on less than $2 per day. How far does two bucks take you in India? [Link]
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p>The answer cites the “basket of goods” concept:: 
Not far in Mumbai, but it’s a living in the villages. The people who get by on less than $2 don’t even qualify as being in poverty, according to the Indian government’s own definition…India, like the United States, uses a “basket of goods” approach to define its poverty threshold. The cost of a minimally adequate diet is multiplied by a set amount to account for the cost of food and other essentials. (The United States multiplies by three, because the average American family spends one-third of its post-tax income on food.) The European Union uses a different method, based on relative income: The poverty line is set at a certain percentage of median income.
Neither of these methods works on a global scale, though, which explains why the World Bank has its own system. The “basket of goods” approach can be confusing, since every country uses different goods in their equations, based on local dietary habits. [Link]
In a new book titled Portfolios of The Poor – How the World’s Poor Live on $2 a Day, authors Daryl Collins et al. explored the daily economics of the poorest of the poor with some insightful results. EconLog reviewed the book:
I really liked Portfolios of the Poor: How the World’s Poor Live on $2 A Day. Westerners tend to think of the world’s bottom billion as charity cases. The harsh and amazing reality, though, is that they largely stand on their own two feet. The ultra-poor not only feed, house, and clothe themselves; they raise children and work hard to give them a better life. Portfolios shows us how they do it, relying heavily on financial diaries kept by villagers and slum dwellers in South Africa, India, and Bangladesh. [Link]
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Here is one of the lessons that the reviewer at EconLog summarizes from the book:
2. No one, no matter how poor, lives “hand to mouth.” Even the poorest people save money, make investments, and plan ahead. [Link]
It is striking given that the above is a lesson that seems to have been ignored by a great many in the West (individuals, companies, and governments) that are suffering through this economic crisis. Some of the biggest U.S. investment banks over-leveraged by almost 10 times their worth. I also think that the following conclusion demonstrates that weddings (especially ridiculously elaborate desi weddings) are a great place to trim the fat and help people get a leg up on saving for their future:
4. Even the poorest people spend a lot of money on things other than food. One of their main reasons for saving and borrowing is to pay for relatively lavish weddings and funerals. [Link]
Just think of how much extra investment capital there would be in India if weddings were less lavish 
. There is also some commentary in the book about the effectiveness of microcredit co-ops:
…most consumers… continue to transact largely in the informal sector, and it is not hard to see why. The interface with the microfinance institutions remains the weekly village meeting, a breakthrough of the 1970s that is now looking somewhat stale: meetings consume too much precious time, there is no privacy, individual needs go unrecognized, the male workers tend to patronize the women members, and more and more members skip the meeting if they can, preferring just to show up and pay their dues as quickly as possible. [Link]
The error is Slate’s, not yours, but there’s no way that the average American family spends 1/3 of its after-tax income on food! See, e.g., this.
Interesting Article!
How can this be true ? In some cases, there is no concept of saving money amongst many of the poors; mostly because they don’t have the luxury to do so while dependent on meagre daily wages. I have heard of programs that encouraged savings amongst poor, and got very good results. But the blanket statement that everyone saves, is not true.
Another thing that has always irked me about reporting poverty is that they do not mention the cost of living. A person living at $2 a day in US, is vastly different from a person living off $2 in India, because cost of living (food) is much lower in India; another comparison basis is that a well-paid govt official gets paid $20 a day in India, but he wouldn’t be considered poor in India, as in US.
I still think the micro-loan model (like Kiva) is a great way to empower without giving just food aid.
There are many great examples where it has worked for every one where it might have failed.
Also, when micro-loans are given to the women, there has been seen more responsibility with the money and a high payback rate – women are less likely to spend the money on vices like booze or gambling.
In the Ascent of Money, the author discussed how having access to banking is a huge boost for a small, local economy and for the poor. When you don’t have a place to save your money, it can get spent easily – or what is more dangerous – leaves you open to moneylenders and usurers – which leads to more debt and a downward spiral.
When you can save your money safely, the bank can build local capital and use it to lend to others such as small business owners.
There should be more internal support for these types of systems within India as opposed to just foreign aid organizations or returning NRIs. If during the green revolution the government could build thousands of wells and subsidize farming, why not do the same now with some sort of banking system ? Not money for free, but access to creating capital and credit.
I donno about many places, but in my home state of Andhra Pradesh, I have seen belt-shops that sell liquor to the poor.A hamlet maty lack a school and a hospital, and drinking water facilities, but it is bound to have 2-3 belt shops.And it is the Govt that distributes the liquor to these shops.During the recent elections, there have been many voices asking for a closure of these belt shops, but nothing came of it.There is a similar situation w.r.t unorganized gambling rackets.
My point: The poor, even if they make Rs. 100 a day, are not allowed to save any of that for future growth needs.A little bit goes into food, and the rest of it goes into drinking, gambling.For marriages, pilgrimages etc, the poor people generally borrow against the land of future earnings from the local landlord/money lender. The small grocery stores do lend micro credit, but the poor people end up paying lot more than what the city dwellers do for basic stuff.
The public sector banks have failed in India in addressing the credit needs of the really poor. The rural employment guarantee scheme has not been rolled out through out the country and is mired in corruption in places where it is run.The loan waiver scheme has helped only the medium size and rich farmers.The rural poor in India look at work opportunities in urban areas as a way out of this numbing poverty.
But all is not lost.There are instances where women self-help groups have succeeded in lifting entire villages out of poverty.Again, this is dependent on the sincerity of the Govt officials in those villages/mandals.
The cash transfer approach, IMO, would work better than the poverty ‘alleviation’ schemes.Create bank accounts for women members of the family, and deposit Rs.1500-2000 per month or combine the cash with vouchers for education and health care.
Finally, I think we are missing the point when we criticize the expenditure on weddings and other such events.These people have nothing else to look forward to in life other than these feasts.Let them at least have that dignity, and a few sweet memories.
So–spending on “weddings and other such events” is approved by you, whilst spending on “drinking, gambling” is bad. Thank you Commissar, for demonstrating why Desh remains poor. If you would stop the paternalistic BS, you would be surprised at how even “backward” villagers could come up in the world.
Rob,
The liquor shops are blessed by the Govt, and the gambling dens get protection from local police and politicos.I don’t think it is right on the part of the Govt to encourage the men to drink and gamble while the women are doing the hard work and the children are starving.
The wedding expenses are a choice – some go for it, and some don’t.One single goat or sheep would feed the entire hamlet.People look forward to the feast and cherish the memories.The ability to pay for a feast is hard earned, and has a lot of emotional value to these people.I don’t understand what is so paternalistic about recognizing this aspect. FYI please, I am one of those whose parents survived the poverty and made it to the city.So, please don’t lecture me on being paternalistic.
And stop your fixation with calling people names like commissar etc.It is not polite.
What a well-written, polite response. Well done Kumar, very classy.
Thanks, GurMando.
Kiva is a great idea and I believe would work well in India.I know of a team of youngsters who pitched a business plan to some VCs on a similar channel focusing on Indian market.The VCs showed some initial interest, but backed out later.
I wonder why Kiva doesn’t have a single field partner from India though.
Living on less than 2 bucks per day in an Indian village or small town is very doable, provided you don’t have kids. I’ve done it. No biggie.
I too have noticed that people, no matter how poor, somehow always have money for alcohol and cigarettes. Not just in the villages in India, but also poor students anywhere in the world. Anyway, the government shops in India are meant to control the use of illicit liquor that ends up seriously harming or even killing people. Abolition will not solve the problem.
When I first came to the U.S. I remember being struck by the fact that everything here was really, really cheap. I find things to be outrageously expensive in India. If there is a way to quantify cost of living, I think India would turn out to be more expensive.
Cut them some slack, being poor is stressful. How are you going to take away the stuff that lets them unwind? As long as they’re not beating their families it’s fine.
The trouble with poverty isn’t so much that people can’t consume enough, it’s about people being deprived of their dignity as they live hand to mouth and day to day being too focused on mere survival to live any better than a stray animal.
While some things might be cheaper in US (e.g. gas, pizza, beer, club entry), you can definitely find most commodities cheaper in India. In US, can you find food for $1 (except the unsustainable macdonalds), but you are telling me you you can’t find/make food for Rs 47 (eq to 1 dollar) for one person ? I don’t know where you are from in India, but I could find a lavish meal in the local dhabas small restaurants/street food for that amount. Also, clothes are much cheaper in India, unless you are looking for fancy stuff. What specific items did you find cheaper in US ? I
I think on a relative scale, good food is cheaper in US than India when you take into account the purchasing power. Meat and Eggs are very cheap in the US compared to what we get in India. I’m surprised at the cost of seafood though. It is expensive in India and in the US too. I don’t know why.
Fishing is an expensive endeavor and keeping seafood fresh over long distances is hard.
A cow you can march to a meat processing plant and it stays alive the whole way. We don’t have good ways of transporting fish long distances over-land, however. You have to either keep it on ice or move it in a giant tank of water which is crazy expensive.
On top of that, overfishing constrains supply.
To put into perspective: $2/day = Rs. 3000-3100/month This is not really very poor in most parts of India Probably it could be even considered to be the starting income of the lower middle class (outside the metros). A while back, it was a living wage for the lower middle class in the metros as well.
Public sector banks interact with the poor to a level that would be unimaginable in the United States. SBI in particular offers a lot of free consulting and offers extremely small sized loans. (for example, a common sight on Cycle rickshaws / auto rickshaws is “Hypothicated to SBI” or some other public sector bank.)
Public sector banks have been involved in micro lending for decades – long before the term even came into use. . To expect the Public sector banks to do more is unreasonable. Given the fact that public sector banks compete in an open market, and today have private shareholders, the actually have a responsibility to get out of this area
The reasons it the poor do not have access to credit is deeper and more difficult to solve.
The chain of trust in India is very weak. Cheating a bank is par for the game and the laws do not allow for easy collection of debts. So banks require a lot of validation before making a loan. Since corruption is widespread in Indian society, any loan that fails brings about a suspicion of fraud, with a huge adverse impact on the banker’s careers. Also public sector banks cannot charge rates that reflect the risk of the loan, like, for example grameen does. It would be considered Usury. Worse, the government often forces banks to write off loans regularly creating an expectation that loans need not be repaid.
Then perhaps life for the middle class is cheaper in the US than it is in India. Besides, I don’t think one can convert dollars into rupees to figure this out. I remember buying a hair dryer for about ten dollars my first week in the US. In India I would have had to spend my entire month’s salary for that (I had just started working then). I find food to be really, really cheap here while I have always have to listen to my mom (who lives in India) carry on about the price of dal and what not. I haven’t come across any americans who discuss the price of potatoes or wheat. This is just my impression, but I think if there is a way to scale things, the US will turn out cheaper.
Yes and no. You just have to know where to get it.
I know that you get it cheap in chinese shops. But I was comparing that to the meat and egg prices.
Exactly! And most Indians are not buying pizza and beer. Rice and dahl, folks. Rice and dahl!
A special treat would be a bottle of coca cola every now and then.
We are talking about all this in context of the poor (who wouldn’t care for hair dryer) and not the middle class. In my experience, basic food is much more expensive in US, when converted to Indian rupee and compared to the price of the same commodities in India. When I came to US, I couldn’t eat the first month properly, because I could not bring myself to spend so much… each items cost when converted to Indian ruppee ( silly of me…but I had not got my student stipend yet, and didn’t have much money). The place where I live in US, you wouldn’t get a decent lunch under $5 which is about Rs 200: the amount a family in India paid for a really good meal for four people in restaurant in India (now that price has increased somewhat ). If you haven’t heard complaints about food prices from US, that’s because the percentage of poor in US is much lower (that’s why its first world); but try asking the poor people in US about the food prices in US, and you will get your answer, that they thrive on junk food (the cheapest available)
Sea food is cheap in the states where fish in found in plenty (bengal, kerala). Surprisingly one of the cheapest fish comes from Himachal Pradesh.
I was supposed to live on about 3 dollars a day for a year while volunteering in Southeast Asia. I often threw in my own money in addition to that, but I did do a three month experiment in the middle where I strictly adhered to the 3 dollar limit. I was already living in a cheap boarding house (no hot water or A/C), and the money stretched surprisingly far once you cut out any indulgences like a once a week western food craving etc. or seeing a movie at a big new multiplex. I was even able to get a local gym membership. However, this was a single guy…
But I will say I ended up drinking a bit more those two months. Part of that has to do with the fact that hanging around with the boys in your dorm drinking cheap local concoctions is one of the cheaper ways to spend a weekend night.
How does the cost compare with meat and eggs in those places. I am from Chennai (a coastal area) and the price of fish is expensive compared to meat.
Totally agree…
Did you convert the stipend into rupees and feel happy?. Even a professor in a good college in India would probably not get the same amount of money in rupees that you got as a student in the US.
Barely enough to ‘get by’ even in villages, let alone small towns. You really cannot raise a family on that without a lot of pain.
Definitely cheaper then meat of any kind. Some type of fishes are even cheaper than egg, but not all.
Yes, when I got the stipend and converted to rupees, I did actually feel happy, call me silly if you want. But towards the end of the grad school, I did want to warn a better salary.
*want to earn
Can you list the types of fish in India that are cheaper than eggs?. I agree that not all seafood fall in the same category. but just curious. we have the same in the US too with lobster at the top of the heap (I think).
Can you list the types of fish in India that are cheaper than eggs?.
Oops…I pressed ‘post’ by mistake
I know they are the small fishes (not the tiny ones but medium size)…I don’t know their names in English
Junk food is NOT the cheapest food in USA. I’m poor, so I know. You can get various types of cheap lentils in any grocery store. It’s not organic, but it’s not junk. You can buy non-organic brown rice cheaply as well. The thing is, people don’t wanna eat like that. They want their junk mac-n-cheese and the like.
Its not just about what cost less, but its also about where it is available. Most poor neighborhoods, do not have grocery stores, and really poor people do not have the time to take the shuttle to travel far to get the necessities, after long hours of work and with kids waiting at home. But I agree, better awareness can lead to healthier food (rice and beans e.g.) at less money, but there’s no culture for it in US, and the aforementioned ‘food deserts’ are also big problem. Mark bitten had a good discussion about it here. The comments there also have great discussion.
So then, what are they eating if they don’t have any grocery stores? Are you referring to “government cheese”? All the people I know on “food stamps” do not get goverment cheese. They have to go and buy stuff themselves with their card (stamps changed to cards a long time ago for those of you not in the “know” with the ways and lifestyle of our financial demographic).
They don’t have stores with fresh produce. Usually they end up going to convenience stores and other such places where the only things you get are sodium and preservative loaded frozen crap. What produce is available will be very expensive relative to a typical supermarket in an affluent neighborhood.
been there done that — have you lived in a poor neighborhood in America? I mean that genuinely. The grocery stores are very poor. To buy something like brown rice and lentils you usually have to travel to the wealthier neighborhoods, and those stores usually don’t take food stamps.
Divya:
You are ignorantly equating cheap with relative affordability based on disposable income. Dal is much cheaper in India than in America but most indians are so poor compared to even americans on minimum wage that even the price of basic staples like rice and beans is a source of worry.
All major grocery stores in my state take food cards. And “Aldi” is popping up here too (super cheap, no frills grocery store with staples like brown rice).
Major grocery stores are not far from the ‘hood here and those without cars ride their bikes. This scenario may be different elsewhere though.
often times its a matter of priorities. don’t get me started on baby mammas again! I’m seeing people throw away oppurtunities and wasting, not only their lives, but the lives of their kids as well! Poor babies, they didn’t ask to be born!
Atmaswarupa- it is not ignorant to associate cheap with relative affordability. That is what cheap means- it is a relative measure. Dahl is cheaper in the US precisely because at 4 bucks a pound it is a much smaller fraction of my income than it is at 40 rupees a kilo compared to what my counterpart earns in India.
A long time ago when the rupee was about 30 to a USD I had worked out that to find the equivalent cost of something in India I’d need to multiply the dollar value by 5. i.e. if something cost me x dollars here, to be an equivalent price in India it’d have to be 5x rupees. This was when I was earning 5K in India and came here on an assignment and they paid me an allowance of 800 dollars a month (and paid for the flat and the car rental). So if I could find a shirt for 10 bucks at K-Mart I’d need to find a similar shirt at 50 rupees in India for it to be equally affordable. With this ratio, everything, but especially white goods, was way cheaper here.
What starts to make the difference once you become a full fledged American (ie mortgage, family that sort of thing) is things like insurance and retirement and saving for kids’ education, things one doesn’t bother about as much in India. When I was in India my company picked up all my medical bills, no questions asked (I think there was an annual cap, but it was really high). I had a pension plan of sorts, so never worried about saving too much for retirement. And college education is definitely way cheaper in India if you go to a government institution. I don’t know about now, but back when I went to Engg college, the semester fees were like 500 rupees plus an additional 100 for exam fees. And in my PUC college it was 8 rupees a month (this is the late 80’s)