Poverty Line Estimation: Concepts and Issues in India

SUBMITTED TO :-

DEPARTMENT OF AGRICULTURAL ECONOMICS

S.K.N. COLLEGE OF AGRICULTURE, JOBNER

SRI KARAN NARENDRA AGRICULTURAL UNIVERSITY, JOBNER

SUBMITTED BY:-

Indu Swami

M.Sc. (Ag.) AGRICULTURAL ECONOMICS

Poverty Line Estimation: Concepts

and Issues in India

3

INTRODUCTION

India is a prominent global voice that has made significant

progress on human development over the past 60 years, but the

benefits of a growing economy are not shared equally: the

country is still home to one-third of the world’s poor

More than one third of the population lacks the resources and

information to meet basic human needs such as adequate food,

clean drinking water, sanitation, good health provision, shelter

and education.

Science, technology and innovation can play a crucial role in

alleviating poverty. They have led to a wide array of

developments, from boosting agricultural productivity to

providing the means to generate energy cheaply.

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poverty

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According to World bank “Poverty is the deprivation of food,

shelter, money and clothing when people can’t satisfy their basic

needs. Poverty can be understood simply as a lack of money or more

broadly in terms of barriers to everyday human life”.

According to Mobile Orshansky who developed the poverty

measurements used by the U.S. government, “ Poor is to be deprived

of those goods, services and pleasures which others around us take

for granted.”

According to David Kurten , “ Poverty also involve social

disintegration and environmental degradation which he describe as

forming the threefold human crisis in the world today”.

Types Of Poverty

(1) Absolute Poverty : (Destitution) It refers to the

state of severe deprivation of basic human

needs.

(2) Relative Poverty : It is defined contextually as

Economic inequality in location or society in

which people live.

POVERTY LINE

Poverty line is the line which indicates the level of purchasing power required to satisfy the minimum needs of a person. It represents the capacity to satisfy the minimum level of human needs. The line divides the people into 2 groups :

1. Above poverty line 2.Below poverty line

Poverty is easy to spot but difficult to estimate.

Poverty lines are cut-off points separating the poor from the non-

poor.

Everybody measures poverty in their own way.

Its multidimensional nature makes the estimation of poverty

difficult and controversial.

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Measurement of Poverty in World: A Chronological

Examination

International Poverty Line : World Bank Approach

The international poverty line was first developed by World

Bank, working on the 1990 World Development Report

(WDR), which focused on poverty.

Dollar a day line i.e., $1 per day in terms of PPP exchange

rates.

In 2000, World Bank updated it to $1.08 per day.

Armed with International Comparison Programme (ICP)

2005 data which used almost 700 surveys for 115 countries,

World Bank updated new poverty line $1.25 per day that

serves as the common international standard of extreme

poverty (Ravallion and Chen, 2008).10

Where Do the World’s Poor Live?

Around 1.4 billion people in the world were in extreme poverty.

Nearly 80 per cent are actually in middle-income countries.

The number of Indian poor constituted 37 per cent of the globalpoor.

Around 426 million people or about 34 per cent of the populationliving below the new international poverty line of $1.25 per day inIndia.

(Summer, 2012)

Extreme Income Poverty, 2010($1.25 poverty line of World

Bank)

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Region Millions of Poor % of World’s

Poor

Headcount

Poverty Rate

Sub-Saharan

Africa

404 30.5 47.5

South Asia 641.5 44.3 36

East Asia 295.4 21.5 14.3

Latin America

and the Caribbean

45.3 2.9 6.9

Middle East and

North Africa

9.5 0.7 2.7

World 1,395.7 100 22.8

Selected MICs:

China 173.0 13.1 14

India 426 37.4 34.5

Indonesia 51.5 4.2 22.6

Nigeria 100.5 8.1 66.5

Poverty Line Estimation in Developed Countries

In most of Europe, a family with a net income of

less than 60% of the “ net disposable income” is

counted as poor.

In USA, poverty line represents the basic cost of

food for a family multiplied by three. The

threshold level is adjusted for inflation every

year. A family is counted as poor if its pre-tax

income is below this threshold.

(Nanda and Suresh, 2012)

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Measurement of Poverty in India: A Chronological

Examination

The Working Group Poverty Line (1962)

The Planning Commission, in 1962, constituted a Working Group under the chairmanship of Dr. Gadgil to estimate the poverty line.

The national minimum for each household of 5 person should not be less than Rs.100 per month in terms of 1960-61 prices.

For urban, should not be less than Rs. 125 per month.

This national minimum excludes expenditure on health and education.

Widely used as the poverty line in the 1960s and 1970s despite the fact that the details of the calculation based on which the minimum norm of Rs. 20 per person per month was set was not clear.

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Task Force Poverty Line (1979)

The Planning Commission on 30th July, 1977,

constituted a Task Force on Projections of Minimum

Needs and Effective Consumption Demand under the

Chairmanship of Dr Y. K. Alagh.

The Task Force defined the poverty line as per capita

consumption expenditure level, which meets the average

per capita daily calorie requirement of 2400 kcals. in

rural areas and 2100 kcals. in urban areas.

This transforms into monthly per capita consumption

expenditure of Rs. 49.09 in rural areas and Rs. 56.64 in

urban areas, at 1973-74 prices.

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Expert Group Methodology (1993)

The Planning Commission constituted an expert group in September, 1989 for estimating the proportion and number of poor under the chairmanship of professor D. T. Lakdawala to "look into the methodology for estimation of poverty and to re-define the poverty line, if necessary".

The group, decided to retain the poverty line defined by the Task force.

The group disaggregated the national level rural and urban poverty lines as defined by the Task Force into state-specific poverty lines.

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Tendulkar Committee (2009)

An export Group headed by Professor Suresh D.

Tendulkar was constituted in 2005 to review the

methodology for official estimation of poverty and

recommend changes in the existing procedures.

Main departures –

i) moving away from calorie norm

ii) use uniform ‘poverty line basket’ (PLB) to both the

rural and urban population.

iii) incorporating an explicit provision in price indices

for private expenditure on health and education

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New Poverty Line, 2011-12

Using 66th round NSSO survey and following the Tendulkar

Committee methodology, Planning Commission made

estimates of poverty for 2009-10 which were released

through a Press Note on 19th March 2012.

Constituted Rangarajan Committee in June 2012 to review

the methodology for the measurement of poverty.

Since the data from the NSSO 68th round (2011-12) of

Household Consumer Expenditure Survey became available,

the Planning Commission has updated the poverty estimates

for the year 2011-12 as Rs. 4,080 per month per family in

rural areas and Rs. 5,000 per month per family in urban areas.

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Number and Percentage of Population below poverty line

by states - 2011-12

(Tendulkar Methodology)S.No. State Rural Urban Total

%age of

Persons

No. of

Persons

(lakhs)

%age of

Persons

No. of

Person

s

(lakhs)

%age

of

Person

s

No. of

Persons

(lakhs)

1. Chhattisgarh 44.61 88.90 24.75 15.22 39.93 104.11

2. Rajasthan 16.05 84.19 10.69 18.73 14.71 102.92

3. Manipur 38.80 7.45 32.59 2.78 36.89 10.22

4. Uttar Pradesh 30.40 479.35 26.06 118.84 29.43 598.19

5. Bihar 34.06 320.40 31.23 37.75 33.74 358.15

6. Andaman &

Nicobar Islands

1.57 0.04 0.00 0.00 1.00 0.04

7. India 25.70 2166.58 13.70 531.25 21.92 2697.83

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Press Note on Poverty Estimates, 2011-12 Government of India

Planning Commission.

Poverty Line for India (Rs. Per capita per month)

Year Rural Urban

1993-94 205.84 281.35

2004-05 356.30 538.60

2009-10 672.8 859.6

2011-12 816 1000

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Source: Planning Commission, Government of India, retrieved

from

http://planningcommission.nic.in

Percentage and Number of Poor Estimated by Tendulkar

method in India

Poverty Ratio (%) Number of Poor (million)

Rural Urban Total Rural Urban Total

1993-94 50.1 31.8 45.3 328.6 74.5 403.7

2004-05 41.8 25.7 37.2 326.3 80.8 407.1

2009-10 33.8 20.9 29.8 278.2 76.4 354.6

2011-12 25.7 13.7 21.9 216.5 52.8 269.3

Annual

Average

Decline:

1993-94 to

2004-05

0.75 0.55 0.74

Annual

Average

Decline:

2004-05 to

2011-12

2.32 1.69 2.18

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Decline in Poverty at Various Points Above and Below

Tendulkar Poverty Line in Rural Areas (Annualized rate of

decline on Y-axis and variations from Tendulkar poverty

line on X-axis)

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Source : Press Note on Poverty Estimates, 2011–12, Planning

Commission (2013), Government of India

Decline in Poverty at Various Points Above and Below

Tendulkar Poverty Line in Urban Areas

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Source : Press Note on Poverty Estimates, 2011–12, Planning

Commission (2013), Government of India

Trend decline claimed based on the Tendulkar

poverty line is not going to alter with increase in

the poverty line.

While the absolute levels of poverty would be

higher, the rate of decline would be similar.

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Facts say……

Tendulkar line is roughly equal to the World Bank’s

well-established poverty line of $1.25 per day in

Purchasing Power Parity terms.

The Tendulkar poverty line is 92% of the median

expenditure in rural areas and 69% of the median

expenditure in urban areas in 2004-2005.

(Himanshu, 2010)

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Critics……

The Planning Commission's Rs 33 line that divides the

poor and the not poor is a cruel joke.

( Vikram, 2013)

The poverty estimates don’t present an accurate picture

of the number of those who live in very poor

conditions.

(Nanda and Suresh, 2013)

if Food Security Bill views two-thirds of the people as

needy, how could you have a poverty line saying only

one third are poor?

(Aiyar,2013)

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Most of the critics focussed on the figures of a

27.20 per capita per day for rural areas and Rs.

33.40 per capita per day for urban areas.

It is unfair to convert the poverty line to per day

figure as all the data is expressed in monthly

fashion and the concept of poverty is inevitably

linked to a time factor.

Expressing consumption on a per day level does

not reflect the consuming patterns of those

surveyed because households budget on a

monthly, not a daily basis.

(Pratima, 2013)

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We can Conclude…….

Critic’s arguments may be valid on moral ground but not

on economics ground.

Planning Commission should maintain the distinction

between use of poverty estimates as a tool of measuring

progress over time and targeting of beneficiaries for

social assistance programmes.

Poverty line is not a comfortable line, it is a comfortable

stress.

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From the viewpoint of keeping track of the fortunes of the destitute, poverty line is not crazy as the critics made out.

With limited revenue resources, we should target the destitute first.

Targeting above poverty line may be a good politics but very Bad Economics

Set higher poverty line, but be ready for another 1991-style Disaster.

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