Poverty & Unemployment – 02

According to recent reports, more than a quarter of the population living in rural areas of India is below the poverty line. Out of the total population living in the rural parts of India, 25.7% is living below the poverty line whereas in the urban areas, the situation is a bit better with 13.7% of the population living below the poverty line.


Poverty Line Calculation: Poverty estimation in India is now carried out by NITI Aayog’s task force through the calculation of poverty line based on the data captured by the National Sample Survey Office under the Ministry of Statistics and Programme Implementation (MOSPI).

Poverty line estimation in India is based on the consumption expenditure and not on the income levels because of the following reasons:

Variation in Income:

Income of self-employed people, daily wage laborers etc. are highly variable both temporally and spatially, while consumption pattern are comparatively much stable.

Additional Income: Even in the case of regular wage earners, there are additional side incomes in many cases, which is difficult to take into account.

Data Collection:

In case of consumption based poverty line, sample based surveys use a reference period (say 30 days) in which households are asked about their consumption of last 30 days and is taken as the representative of general consumption. Whereas tracing the general pattern of income is not possible.

Poverty Line Basket:

The basket of goods and services necessary to satisfy basic human needs is the Poverty Line Basket (PLB).

Poverty Ratio:

The proportion of the population below the poverty line is called the poverty ratio or headcount ratio (HCR).

Need for Poverty Estimation

Impact of Welfare Schemes: Poverty estimates are not just important for academic purposes but are also crucial to track the impact and success of various government policies, especially social welfare schemes that are intended to eliminate poverty.

BPL Census is conducted by the Ministry of Rural Development (along with the partnership of state), in order to identify the poor households.

Poverty Elimination Plan: The Poverty estimates in the form of poverty line are used to formulate poor centric poverty elimination plans.

Constitutional Requirement: Poverty estimation paves the way for poverty elimination that in turn prepares the ground for a just and equitable society

The current methodology for poverty estimation is based on the recommendations of an Expert Group to Review the Methodology for Estimation of Poverty (Tendulkar Committee) established in 2005.  The Committee calculated poverty levels for the year 2004- 05.

A common method used to estimate poverty in India is based on the income or consumption levels and if the income or consumption falls below a given minimum level, then the household is said to be Below the Poverty Line (BPL).

 Various committees related to poverty line estimation:

Pre-Independence Poverty Estimation

Dadabhai Naoroji through his book, “Poverty and Unbritish Rule in India” made the earliest estimation of poverty line (₹16 to ₹35 per capita per year).

The poverty line proposed by him was based on the cost of a subsistence or minimum basic diet (rice or flour, dal, mutton, vegetables, ghee, vegetable oil, and salt).

National Planning Committee’s (1938) poverty line (ranging from ₹15 to ₹20 per capita per month) was also based on a minimum standard of living perspective in which nutritional requirements were implicit.

In 1938, the National Planning Committee was set up by Subhash Chandra Bose under the chairmanship of Jawaharlal Nehru for the purpose of drawing up an economic plan with the fundamental aim to ensure an adequate standard of living for the masses.

The Bombay Plan (1944) proponents had suggested a poverty line of ₹75 per capita per year. The Bombay Plan was a set of a proposal of a small group of influential business leaders in Bombay for the development of the post-independence economy of India.

Post-Independence Poverty Estimation

Planning Commission Expert Group (1962), working group constituted by the Planning Commission formulated the separate poverty lines for rural and urban areas (₹20 and ₹25 per capita per year respectively).

Dandekar & Rath Committee :

it was Setup in 1971. This committee Calculated poverty line by using calorie based poverty line.

it recommended 2,250 K Cal / person / Day is said to be above BPL.

Alagh Committee:

Task force constituted by the Planning Commission under the chairmanship of YK Alagh, constructed a poverty line for rural and urban areas on the basis of nutritional requirements and related consumption expenditure. it was Setup in 1979. This committee Calculated poverty line for Rural & Urban differently.

Poverty estimates for subsequent years were to be calculated by adjusting the price level for inflation.

It fixed 2400 / K Cal / Person / Day for Rural  and 2100 / K Cal / Person / Day for Urban.

Till 2004, Calorie based poverty line was calculated in India.

Lakdawala Committee (1993): In 1993, an expert group constituted 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;

(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 group to 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);

(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

Rangarajan Committee

The committee was set up in the backdrop of national outrage over the Planning Commission’s suggested poverty line of ₹22 a day for rural areas.

Objectives:

To review international poverty estimation methods and indicate whether based on these, a particular method for empirical poverty estimation can be developed in India.

To recommend how these estimates of poverty can be linked to eligibility and entitlements under the various schemes of the Government of India.

Recommendations: The Rangarajan committee estimation is based on an independent large survey of households by Center for Monitoring Indian Economy (CMIE). It has also used different methodology wherein a household is considered poor if it is unable to save.

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