Poverty Lines in India

The poverty line establishes a minimum income level. Households that earn less than this amount are considered poor. Depending on local socioeconomic needs, different countries define the threshold income in different ways. Consumer expenditure surveys conducted by the National Sample Survey Organization are used to determine poverty. A poor household is defined as one that spends less than a certain amount per month.

The former Planning Commission was the government of India’s nodal agency for poverty estimation. It calculates the prevalence of poverty in rural and urban areas at the national and state levels. The poverty ratio, which is the number of poor people divided by the total population, is used to calculate the incidence of poverty. It’s also referred to as the head-count ratio.

PGR / Poverty Gap Index (PGI)

The poverty gap is the average income required to lift all poor people out of poverty. PGR is its ratio to per capita income, which represents the economy’s average resource.

The poverty line

Poverty can be measured in a variety of ways. One method is to use the monetary value (per capita expenditure) of the minimum calorie intake, which was estimated to be 2400 calories for a rural person and 2100 calories for a city dweller. In 2004-05, the poverty line for rural areas was set at Rs 447 per person per month, while the poverty line for urban areas was set at Rs 579.

Do you believe the government’s method of identifying the poor, which uses monthly per capita expenditure as a proxy for household income, adequately identifies the poor in our country? One of the major flaws of this mechanism, according to scholars, is that it lumps all the poor together and does not distinguish between the very poor and the other poor.

Furthermore, because this mechanism uses food and a few select items as a proxy for income, economists question its foundation. This mechanism is useful for identifying the poor as a group that the government should assist, but it would be difficult to determine who among the poor requires the most assistance. Other than income and assets, there are many other factors that contribute to poverty, such as access to basic education, health care, drinking water, and sanitation.

They must be considered as the poverty line is developed. The current system for determining the poverty line also ignores social factors that cause and perpetuate poverty, such as illiteracy, illness, a lack of resources, discrimination, and a lack of civil and political liberties. The goal of poverty alleviation programs should be to improve people’s lives by expanding the range of things they can be and do, such as being healthy and well-nourished, knowledgeable, and involved in community life.

From this perspective, development is about removing barriers to a person’s ability to do things in life, such as illiteracy, illness, a lack of resources, or a lack of civil and political freedoms. Though the government claims that a higher rate of growth, increased agricultural production, providing employment in rural areas, and economic reform packages implemented in the 1990s resulted in a decrease in poverty levels, economists question this claim.

They argue that the way data is collected, the items included in the consumption basket, and the methodology used to estimate the poverty line and the number of poor are all manipulated to arrive at lower estimates of India’s poor. Scholars have attempted to find alternative methods due to various limitations in the official estimation of poverty. For example, Nobel Laureate Amartya Sen has created the Sen Index. Other tools include the poverty gap index and the poverty gap squared.

Poverty Line Estimation in India

In India, official poverty measurement is based solely on the poverty line. According to the Rangarajan Committee and the Tendulkar Committee, the concept of the poverty line was formally introduced only after independence, but it existed informally prior to that.

Pre-independence Line of Poverty

D.B. Naroji created some works to bring attention to India’s poverty. He chose people who do similar physical work because their nutritional requirements are similar, which is the most important factor.

Then he approximated the monetary value of this nutritional requirement. He came to the conclusion that many people are unable to spend this amount. As a result, they are poor. However, he never used the phrase “poverty line.”

The Beginning of the Poverty Line

India was the first country to use a poverty line in 1961-62. The Planning Commission (PC) was tasked with determining the poverty line. To define this planning commission, the Rangarajan and Tendulkar Committees were formed.

Dandekar & Rath Committee

Dandekar & Rath Committee was established by the Planning Commission in 1971-72. They are credited with developing India’s first calorie-based poverty line estimate.

It claims that nutrition is the only requirement and that it is measured in terms of calories. According to them, the average Indian requires 2250 calories per day. The value was then converted to a monetary amount.

PC Alagh Committee

Another committee under the PC Alagh Committee was formed in 1978-79. It also proposed a calorie-based poverty line, but it should be differentiated between rural and urban populations because rural people do more physical labor. We calculated the poverty line using this method until 2004-05. It is no longer in use.

Lakdawala Committee

The following recommendations were made by an expert group chaired by DT Lakdawala in 1993 to review poverty estimation methodology. Consumption expenditure should be calculated using calorie consumption as previously; state-specific poverty lines should be constructed and updated using the Consumer Price Index of Industrial Workers (CPI-IW) in urban areas and the Consumer Price Index of Agricultural Labor (CPI-AL) in rural areas, and scaling of poverty estimates based on National Accounts Statistics should be discontinued. This assumes that the CPI-IW and CPI-AL baskets of goods and services reflect poor people’s consumption patterns.

The Planning Commission establishes the poverty line, and data on consumption expenditure is obtained through the NSSO survey. The consumption expenditure survey is the name of the survey. The consumption basket, which is a list of all food and non-food items collected by the NSSO in its consumption expenditure survey, is used to estimate poverty. It is required for this reference period.

The Recall Period is used in poverty estimation as a reference period. There are 3 methods of consumption expenditure survey which are-

Uniform Recall Period (URP) method

People are asked about the recall period for food & non-food items. This period is 30 days. For E.g. how many kgs of wheat were bought in the last 30 days?

• The argument is generally expenditure on non-food items is less frequent than on food items.
• It should be longer.

Mixed Recall Period (MRP) method

The recall period for food items = 30 days

Recall period for non-food items = 365 days

This method is more genuine & practical so URP is getting outdated.

Modified MRP method

• Only one survey was done by NSSO using this method.
• New method.
• Here food items are divided into 2 parts. One type of food item is very regular food items like salt, oil, spices, vegetables, milk fruits, etc. for these very regular food items, the recall period is 7 days. They are doing so as they want the data quality collected should be more relevant.
• For other food items recall period is 30 days like grains, cereals, etc.
• For non-food items recall period = 365 days.
• So only change from MRP is the recall period for very regular food items.
• These surveys help to take inflation into acceptance.
• Let’s say,  NSSO data for 3 persons are as below

A – Rs 1238/person/month

B – Rs 1199/person/month

C – Rs 982/person/month

Then Planning Commission will say A & B are Above Poverty Line and C is Below Poverty Line.

Poverty Debate

It is based on the claim that the official figure of poverty given by the Planning Commission underestimates poverty. Pre-Tendulkar Committee HCR = 26%. It was claimed that this figure is underestimated. Justification is-

NFHS claimed that about 46% of Indian children below 5 years are malnourished, which is a very high figure whereas the calorie-based poverty line is 26% which is misleading. N.C. Saxena Committee focused on rural poverty. His results showed at least 50% of rural households are poor. This committee is under a government department. World Bank estimate claimed that at least around 40% of the Indian population are poor not satisfying the limit of $1.25 /person/day. So to revise the poverty definition, Tendulkar Committee was set up under Suresh Tendulkar.

Tendulkar Committee

In 2005, another expert group to review the methodology for poverty estimation, chaired by Suresh Tendulkar, was constituted by the Planning Commission to address the following three shortcomings of the previous methods: 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; there were issues with the adjustment of prices for inflation, both spatially (across regions) and temporally (across time); and earlier poverty lines assumed that health and education would be provided by the State and formulated poverty lines accordingly. 

• It recommended four major changes:
• a shift away from calorie consumption-based poverty estimation;
• a uniform poverty line basket (PLB) across rural and urban India;
• a change in the price adjustment procedure to correct spatial and temporal issues with price adjustment; and
• incorporation of private expenditure on health and education while estimating poverty.   

The Committee suggested that mixed reference period (MRP) estimates be used instead of the uniform reference period (URP) estimates in poverty estimation methods. Cereals, 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 were all included in the study.

The Committee devised new poverty lines for both rural and urban areas in each state. It did so by analyzing data on the price and quantity of the above-mentioned items consumed by the poor population as defined by the previous urban poverty line. According to the report, the poverty line in India in 2004-05 was Rs 446.68 per capita per month in rural areas and Rs 578.80 per capita per month in urban areas.

Criticism

Later analysis revealed that, while education and health expenditures were included in the poverty line, the calorie norm had been diluted. He recommended 1800 calories per person per day. Perhaps this was forced to be done in order to lower the poverty line to a politically acceptable level. However, the number of people living in rural poverty was very high in his survey. URP estimated the poverty line was replaced with an MRP-based poverty line.

The committee recommended that instead of using CPI-based inflation to estimate poverty, the Fisheries Price Index (FPI) be used. FPI is one of NSSO’s best statistically calculated indexes. Its limitation is that it can only be calculated when a survey is conducted.

Rangarajan Committee

In 2012, the Planning Commission constituted a new expert panel on poverty estimation, chaired by C Rangarajan with the following key objectives:

• 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;
• to examine divergence between the consumption estimates based on the NSSO methodology and those emerging from the National Accounts aggregates;
• 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
• to recommend how these estimates of poverty can be linked to eligibility and entitlements under the various schemes of the Government of India.  The committee submitted the report in 2014.

As per the report submitted by C Rangarajan Committee:

People in cities who spend less than Rs. 47 per day should be considered poor, far more than the Rs. 33 per day suggested by the Suresh Tendulkar Committee. Poverty was 38.2% in 2009-10, but it dropped to 29.5 percent in 2011-12. This is in contrast to the Tendulkar report, which stated that poverty was 29.8% in 2009-10 and 21.9 percent in 2011-12.

In cities, a person who spends less than Rs. 1,407 per month (Rs. 47 per day) should be considered poor, as opposed to the Tendulkar panel’s recommendation of Rs. 1,000 per month (Rs. 33 per day). In villages, a person who spends less than Rs. 972 per month (Rs. 32 per day) should be considered poor, which is different from the Tendulkar committee’s recommendation of Rs. 816 per month (Rs. 27 per day). In 2011-12, India’s poor were estimated to number 36.3 crore, down from 45.4 crores in 2009-10. According to the Tendulkar panel, the number of poor in 2009-10 was 35.4 crore and 26.9 crores in 2011-12.

In the debate on poverty estimation in India

It has been claimed that official poverty figures in India are grossly underestimated. In this context, the PC established two committees over the last decade, the Tendulkar Committee (TC) and the Rangarajan Committee (RC), both of which made the following recommendations.

Both have moved away from a poverty line based on calories. TC included a minimum expenditure on education and health in addition to calories, but RC has expanded the list to include both food and non-food items.

In order to have a temporary solution for outdated consumption baskets, TC proposed a uniform poverty line for rural and urban India. Separate poverty lines are recommended by RC, and the basket has already been updated.

Both have moved away from the poverty line based on the URP. TC favors an MRP-based poverty line, whereas RC prefers a modified MRP-based poverty line. This will improve the conceptualization of poverty and make it easier to compare over time. Both have recommended using the FPI to adjust for inflation, which can be calculated using the quantity and expenditure data collected by the NSSO.

The poverty debate is far from over. Also, the figures appear to be very low. For example, the urban poverty line for RC is even lower than 50 Rs per person per day, which appears to be incorrect.

Supportive arguments in support of Tendulkar Committee& Rangarajan Committee- Estimations are made on a monthly and household basis. PDS provides significant subsidies on grains, fuels, and extremely cheap food grains to households, which are significantly lower than market prices. Naturally, the value will be lower than a market-cooked meal. It will automatically increase if subsidies are added to those who are above the poverty line. The NSSO underreports consumption expenditure because households intentionally underreport their consumption expenditure in order to be classified as officially poor and receive various benefits.