POVERTY CONCEPTS

PHASE I- GENERAL AWARENESS

PHASE II- ECONOMIC AND SOCIAL ISSUES

TOPIC- POVERTY ALLEVIATION

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How is the poverty line measured?

Two Measures of the BPL Population

  • The official poverty line is determined by the Planning Commission, on the basis of data provided by the National Sample Survey Organisation (NSSO).
  • NSSO data is based on a survey of consumer expenditure which takes place every five years.
  • In addition to Planning Commission efforts to determine the poverty line, the Ministry of Rural Development has conducted a BPL Census in 1992, 1997, 2002, and 2011 to identify poor households.
  • The BPL Census is used to target families for assistance through various schemes of the central government.
  • The 2011 BPL Census was conducted along with a caste census, and is dubbed the Socio-Economic & Caste Census (SECC) 2011.

Planning Commission Methodology

  • Rural and urban poverty lines were first defined in 1973-74 in terms of Per Capita Total Expenditure (PCTE).
  • Consumption is measured in terms of a collection of goods and services known as reference Poverty Line Baskets (PLB).
  • These PLB were determined separately for urban and rural areas and based on a per-day calorie intake of 2400 (rural) and 2100 (urban), each containing items such as food, clothing, fuel, rent, conveyance and entertainment, among others.
  • The official poverty lineis the national average expenditure per person incurred to obtain the goods in the PLB.
  • Since 1973-74, prices for goods in the PLB have been periodically adjusted over time and across states to deduce the official poverty line.

Uniform Reference Period (URP) vs Mixed Reference Period (MRP)

  • Until 1993-94, consumption information collected by the NSSO was based on the Uniform Reference Period (URP), which measured consumption across a 30-day recall period. That is, survey respondents were asked about their consumption  in the previous 30 days.
  • From 1999-2000 onwards, the NSSO switched to a method known as the Mixed Reference Period (MRP). The MRP measures consumption of five low-frequency items (clothing, footwear, durables, education and institutional health expenditure) over the previous year, and all other items over the previous 30 days.
  • That is to say, for the five items, survey respondents are asked about consumption in the previous one year. For the remaining items, they are asked about consumption in the previous 30 days.

Tendulkar Committee Report

  • In 2009, the Tendulkar Committee Reportsuggested several changes to the way poverty is measured.
  • First, it recommended a shift away from basing the PLB in caloric intake and towards target nutritional outcomes instead.
  • Second, it recommended that a uniform PLB be used for both rural and urban areas.
  • In addition, it recommended a change in the way prices are adjusted, and called for an explicit provision in the PLB to account for private expenditure in health and education.
  • For these reasons, the Tendulkar estimate of poverty for the years 1993-94 and 2004-05 is higher than the official estimate, regardless of whether one looks at URP or MRP figures.
  • For example, while the official 1993-94 All-India poverty figure is 36% (URP), applying the Tendulkar methodology yields a rate of 45.3%. Similarly, the official 2004-05 poverty rate is 21.8% (MRP) or 27.5% (URP), while applying the the Tendulkar methodology brings the number to 37.2%.History of poverty estimation in India

    Pre independence poverty estimates:

    • One of the earliest estimations of poverty was done by Dadabhai Naoroji in his book, ‘Poverty and the Un-British Rule in India’.
    • He formulated a poverty lineranging from Rs 16 to Rs 35 per capita per year, based on 1867-68 prices.
    • The poverty line proposed by him was based on the cost of a subsistence diet consisting of ‘rice or flour, dhal, mutton, vegetables, ghee, vegetable oil and salt’.
    • Next, in 1938, the National Planning Committee (NPC) estimated a poverty lineranging from Rs 15 to Rs 20 per capita per month.
    • Like the earlier method, the NPC also formulated its poverty line based on ‘a minimum standard of living perspective in which nutritional requirements are implicit’.
    • In 1944, the authors of the ‘Bombay Plan’ (Thakurdas et al 1944) suggested a poverty lineof Rs 75 per capita per year.

    Post independence poverty estimates:

    • In 1962, the Planning Commission constituted a working groupto estimate poverty nationally, and it formulated separate poverty lines for rural and urban areas – of Rs 20 and Rs 25 per capita per year respectively.
    • VM Dandekar and N Rath made the first systematic assessment of poverty in India in 1971, based on National Sample Survey (NSS) data from 1960-61.
    • They argued that the poverty line must be derived from the expenditure that was adequate to provide 2250 calories per day in both rural and urban areas.
    • This generated debate on minimum calorie consumption norms while estimating poverty and variations in these norms based on age and sex.

    Alagh Committee (1979):

    • In 1979, a task forceconstituted by the Planning Commission for the purpose of poverty estimation, chaired by YK Alagh, constructed a poverty line for rural and urban areas on the basis of nutritional requirements.
    • Table 3 shows the nutritional requirements and related consumption expenditure based on 1973-74 price levels recommended by the task force.  Poverty estimates for subsequent years were to be calculated by adjusting the price level for inflation.

    Table 3: Minimum calorie consumption and per capita consumption expenditure as per the 1979 Planning Commission task force on poverty estimation

    Area Calories Minimum consumption expenditure (Rs per capita per month)
    Rural 2400 49.1
    Urban 2100 56.7

    Source:  Report of the Expert Group on Estimation of Proportion and Number of Poor, 1993, Perspective Planning Division, Planning Commission

    Lakdawala Committee (1993):

    • In 1993, an expert groupconstituted to review methodology for poverty estimation, chaired by DT Lakdawala, made the following suggestions:
    • (i) consumption expenditure should be calculated based on calorie consumption as earlier; (ii) state specific poverty lines should be constructed and these should be updated using the Consumer Price Index of Industrial Workers (CPI-IW) in urban areas and Consumer Price Index of Agricultural Labour (CPI-AL) in rural areas; and (iii) discontinuation of ‘scaling’ of poverty estimates based on National Accounts Statistics.  This assumes that the basket of goods and services used to calculate CPI-IW and CPI-AL reflect the consumption patterns of the poor.

    Tendulkar Committee (2009):

    • In 2005, another expert groupto review methodology for poverty estimation, chaired by Suresh Tendulkar, was constituted by the Planning Commission to address the following three shortcomings of the previous methods:
    • (i) consumption patterns were linked to the 1973-74 poverty line baskets (PLBs) of goods and services, whereas there were significant changes in the consumption patterns of the poor since that time, which were not reflected in the poverty estimates; (ii) there were issues with the adjustment of prices for inflation, both spatially (across regions) and temporally (across time); and (iii) earlier poverty lines assumed that health and education would be provided by the State and formulated poverty lines accordingly.
    • It recommended four major changes: (i) a shift away from calorie consumption based poverty estimation; (ii) a uniform poverty line basket (PLB) across rural and urban India; (iii) a change in the price adjustment procedure to correct spatial and temporal issues with price adjustment; and (iv) incorporation of private expenditure on health and education while estimating poverty.   The Committee recommended using Mixed Reference Period (MRP) based estimates, as opposed to Uniform Reference Period (URP) based estimates that were used in earlier methods for estimating poverty.

    It based its calculations on the consumption of the following items: cereal, pulses, milk, edible oil, non-vegetarian items, vegetables, fresh fruits, dry fruits, sugar, salt & spices, other food, intoxicants, fuel, clothing, footwear, education, medical (non-institutional and institutional), entertainment, personal & toilet goods, other goods, other services and durables.

    The Committee computed new poverty lines for rural and urban areas of each state.  To do this, it used data on value and quantity consumed of the items mentioned above by the population that was classified as poor by the previous urban poverty line.  It concluded that the all India poverty line was Rs 446.68 per capita per month in rural areas and Rs 578.80 per capita per month in urban areas in 2004-05.  The following table outlines the manner in which the percentage of population below the poverty line changed after the application of the Tendulkar Committee’s methodology.

    Table 4: Percentage of population below poverty line calculated by the Lakdawala Committee and the Tendulkar Committee for the year 2004-05

    Committee Rural Urban Total
    Lakdawala Committee 28.3 25.7 27.5
    Tendulkar Committee 41.8 27.5 37.2

    Source: Report of the Expert Group on Estimation of Proportion and Number of Poor, 1993, Perspective Planning Division, Planning Commission; Report of the Expert Group to Review the Methodology for Estimation of  Poverty, 2009, Planning Commission

    The Committee also recommended a new method of updating poverty lines, adjusting for changes in prices and patterns of consumption, using the consumption basket of people close to the poverty line.  Thus, the estimates released in 2009-10 and 2011-12 use this method instead of using indices derived from the CPI-AL for rural areas and CPI-IW for urban areas as was done earlier.  Table 5 outlines the poverty lines computed using the Tendulkar Committee methodology for the years 2004-05, 2009-10 and 2011-12.

    Table 5: National poverty lines (in Rs per capita per month) for the years 2004-05, 2009-10 and 2011-12

    Year Rural Urban
    2004-05 446.7 578.8
    2009-10 672.8 859.6
    2011-12 816.0 1000.0

    Source: Report of the Expert Group to Review the Methodology for Estimation of Poverty (2009) Planning Commission; Poverty Estimates 2009-10 and Poverty Estimates 2011-12, Planning Commission

    Rangarajan Committee:

    • In 2012, the Planning Commission constituted a new expert panelon poverty estimation, chaired by C Rangarajan with the following key objectives: (i) to provide an alternate method to estimate poverty levels and examine whether poverty lines should be fixed solely in terms of a consumption basket or if other criteria are also relevant; (ii) to examine divergence between the consumption estimates based on the NSSO methodology and those emerging from the National Accounts aggregates; (iii) to review international poverty estimation methods and indicate whether based on these, a particular method for empirical poverty estimation can be developed in India, and (iv) to recommend how these estimates of poverty can be linked to eligibility and entitlements under the various schemes of the Government of India.

    It not only takes normative levels for adequate nourishment, clothing, house rent, conveyance and education, but also considers behaviourally-determined levels of other non-food expenses.

    The committee has estimated that almost 30 per cent of us were poor in 2011-12.It uses separate data sets for rural and urban parts.

    The panel computed the average requirements of calories, proteins and fats on the norms set by the Indian Council for Medical Research in 2010. These are differentiated by age, gender and activity for all-India rural and urban regions.

    Accordingly, the energy requirement as calculated by Rangarajan is 2,155 kcal per person per day in rural areas and 2,090 kcal per person per day in urban areas. This is significantly lower than the 2,400 kcal in rural areas and slightly less than 2,100 kcal in urban areas used by the earlier Lakdawala panel. The reason given is that the age profile and working conditions have changed with time.

    The protein and fat requirements have been estimated on the same lines. These are 48g and 28g per capita per day, respectively, in rural India and 50g and 26g per capita per day in urban areas.

    Levels
    The average monthly per capita consumption expenditure on food in these fractile classes is Rs 554 in rural areas and Rs 656 in urban areas, according to the NSSO report.

    The non-food component of the poverty line basket has both a normative component and one given by the observed consumption pattern of households in the fractile group in which the food component is located.

    The normative component relates to private consumption expenditure on education, clothing, shelter (rent) and mobility (conveyance). Since it is difficult to set minimum norms for these essential non-food items, the panel recommended that observed expenditures on these items by households located in the median fractile (45-50 percentile) be treated as the normative minimum private consumption expenditure on these items.

    This works out to be Rs 141 per capita per month in rural areas and Rs 407 in urban areas, according to the NSSO report referred to.

    For all other non-food goods and services, the observed expenditure of that fractile class which meets the nutrient norms (the 25-30 percentile in rural India and 15-20 percentile in urban India) is taken to define the poverty line in respect of these items. This works out to Rs 277 per capita per month in rural areas and Rs 344 in urban areas, on the basis of the NSSO survey of 2011-12.

    The new poverty line, thus, translates to a monthly per capita consumption expenditure of Rs 972 in rural areas and Rs 1,407 in urban areas in 2011-12. Or, Rs 32 in rural areas and Rs 47 in urban areas on a per capita daily basis. However, Rangarajan says the best way is to take it on a monthly household consumption basis. Taking a household as five members, this would mean Rs 4,860 in rural India and Rs 7,035 in urban parts.

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