Sunday, July 6, 2014

Every Third Indian Is Poor

Every third Indian poor, says new poverty formula-Business Standard

A new panel has found that 29.5 per cent of India's population was poor in 2011-12 against just 21.9 per cent estimated under the previous methodology which had drawn sharp criticism from various quarters. In absolute terms, 363 million people were below the poverty line that year, higher by about 93 million over 269.8 million estimated earlier.

However, the poverty rate - the number of poor as a proportion of the population - came down swifter in the new estimates prepared by the panel headed by former Prime Minister's Economic Advisory Council chairman C Rangarajan than calculated earlier on the Suresh Tendulkar methodology.

The Rangarajan panel recently submitted its report to the government.

A greater number of people were classified under poverty in 2011-12 as the Rangarajan committee raised the poverty line compared to that fixed earlier, officials said. The Rangarajan panel says anyone spending up to Rs 47 a day in urban areas and Rs 32 in villages would be considered poor as of 2011-12. The Suresh Tendulkar methodology had pegged these levels at Rs 33 in urban areas and Rs 27 in villages. By either method, poverty was reduced during 2009-10 to 2011-12 (the first three years of the second UPA government).

For 2009-10, the Suresh Tendulkar methodology had pegged the poverty line at Rs 22 in villages and Rs 29 in urban areas. These were raised to Rs 27 and Rs 40, respectively, by the Rangarajan committee.

As many as 91.6 million people were lifted out of poverty, according to the Rangarajan panel report, during the period as there were 454.6 million poor in 2009-10. The estimation based on the Suresh Tendulkar methodology had earlier shown that 84.9 million people came out of poverty since the number of poor stood at 354.7 million in 2009-10. The poverty rate fell by 8.7 percentage points in this period under the Rangarajan formula against a 7.9 percentage point fall under the Tendulkar methodology.

This was also the point made by the previous regime - that whichever methodology one looked at, poverty was reduced during its rule - highlighting that its welfare schemes such as
worked. However, officials did not give comparative figures to assess if the poverty rate declined faster under the UPA or the earlier NDA regime. The pattern is the same for rural and urban India, but the Rangarajan panel shows poverty was much underestimated in urban areas previously.
As many as 53.1 million people in urban parts, constituting 13.7 per cent of the population, were estimated to be poor in 2011-12 by the earlier estimate.

By the new methodology, poverty in absolute numbers was almost twice as high at 102.5 million, constituting 26.4 per cent of the urban population.

The poverty numbers are based on the National Sample Survey Office (NSSO) report on the consumption expenditure for 2009-10 and 2011-12.

So, which side should one look at: the absolute number or the rate of decline in poverty? "Both absolute numbers and the rate of reduction in poverty are important," said former Planning Commission member and poverty estimation expert Abhijeet Sen.

Notably, the Rangarajan panel made a sharper revision in the poverty line in urban areas than in rural areas. So, while the line was raised from Rs 27 (Tendulkar committee method) in 2009-10 to Rs 32 in 2011-12 in rural areas, a rise of 18.5 per cent, the line for urban areas was raised from Rs 33 to Rs 47, representing an increase of 42 per cent.

According to the Tendulkar committee method, the poverty line in urban areas was 22 per cent higher than in rural areas in 2011-12, but the same was 47 per cent according to the Rangarajan panel.

"The Rangarajan panel seems to have gone back to the Lakdawala panel report (on which Tendulkar made improvements) so far as poverty lines are concerned," Sen said. Using the Lakdawala panel method, the poverty line was fixed at Rs 11.87 per day per capita expenditure in rural areas, lower by 51.2 per cent compared to Rs 17.95 in urban areas in 2004-05.

Officials said the Rangarajan panel suggested that poverty ratios should be disengaged from entitlements under various social security programmes. This means that entitlements for, say, the Food Security Act should not be based on the number of people below the poverty line but on some other methodology such as, say, the social and caste census.
Business Standard

10 stocks to watch out for after Budget

Spotlight likely to be on oil and gas, infrastructure, financials, real estate
Having clocked year-to-date returns of 23 per cent, the market has high expectations from the Budget and hopes it will achieve a balance between implementing fiscal discipline and kick-starting economic growth. Leading brokerages have highlighted steps that would cheer the markets further. Citi Research, for instance, says a phased reduction in LPG/kerosene subsidies, raising income-tax slabs, increasing the savings limit for deduction, a higher mortgage tax break, subsidy cuts, divestment, manufacturing, an infra and agri-chain push, and overhaul of labour laws could be some such measures. Among sectors, the spotlight is likely to be on oil and gas (increase production, cut subsidies), infrastructure (higher spending, tax breaks), financials (capital infusion in banks, insurance FDI, infra bonds) and real estate (REIT, low income housing, tax breaks). Here are 10 stocks that research houses believe investors should watch out for.

Clarity on land acquisition, industry status for real estate, guidelines and tax rates for real estate investment trusts and an increase in tax breaks on home loans will help the largest listed realty player. Emphasis on affordable housing is expected to boost the prospects of the sector. HDFC and other housing financiers such as LIC Housing and DHFL could benefit if the income-tax exemption limit for interest paid on home loans and for principal repayment is raised. A thrust on affordable housing (tax benefits related to affordable housing, extension of interest subvention scheme) could provide impetus to housing loans.

Though most analysts are expecting a hike in cigarette taxes (following duty hikes in the previous two Budgets), they differ on the quantum. If excise duties on cigarettes are doubled, analysts estimate ITC’s volumes and profits could be hit anywhere between 20 and 30 per cent. A major risk in case of a steep hike is weakening of demand for cigarettes, which could impact ITC’s pricing power significantly. If duties are raised by 15-20 per cent, it will have a marginal impact. And, if the hike is less than 10 per cent, it will be positive for ITC, notes Citi Research.

Larsen & Toubro
L&T will benefit from all measures directed at improving infrastructure investments in the country. A further increase in borrowing limits for infra bonds/higher tax exemption, increased FDI limits for railways, infra and construction, and a higher allocation for power transmission will bode well. Infrastructure status and higher FDI in defence and clarity on defence export policy and tax benefits will help.

Further measures to cut subsidies on sales of diesel, kerosene and LPG should help cut under-recoveries.

Measures to incentivise investments in exploration and production are positives. A hike in import duty on oil, though less likely, can benefit oil producers like ONGC. Excise duty changes (from Rs 3.56/litre specific excise duty on diesel to ad valorem) may be negative.

Power Finance Corporation
PFC will be a key beneficiary in the power sector if measures such as extension of a tax holiday on power plants, increased bank lending limits to the power sector, and coal and power distribution reforms are undertaken. Apart from improving PFC's asset quality, these measures could also lead to higher credit demand from power sector players.

Reliance Industries
Anti-dumping duty on PTA (purified terephthalic acid) will benefit integrated players like Reliance. Lowering of polymer excise duty or levying cess on crude oil imports (though less likely) can benefit the company. Possibility of the government extending the tax holiday on refineries and on natural gas production will also benefit the company.

A key positive for public sector banks such as SBI will be the creation of a bank holding company, which would ease capital availability and governance issues to some extent. The bank will also benefit from measures aimed at boosting private sector investments and economic growth. These will help drive credit growth and improve asset quality. SBI's life insurance business stands to benefit from a possible nod to a hike in foreign ownership limit in insurance companies to 49 per cent.

The company along with other jewellery stocks stands to gain from a reduction in import duty on gold from 10 per cent to 6 per cent, say brokerages. The duty cut will reduce domestic gold prices, which in turn will lead to higher demand for gold jewellery. Relaxation of the 80-20 rule (whereby 20 per cent of gold imported needs to be exported) could be another positive as it will improve gold supply. Proposals towards increasing disposable incomes and boosting economic growth will particularly enhance Titan’s prospects, given its exposure to various consumer segments.

UltraTech Cement
The expected boost to infrastructure spending or incentives for the housing sector can provide a push to cement demand, benefiting UltraTech, which is among analysts’ preferred picks. Reduction and removal of excise duty on imported or pet coal can be beneficial for reducing costs. However, any increase in excise duty on cement from the current 10 per cent to 12 per cent can translate into a Rs 5-6 a bag rise in cement prices and would be a negative.

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