30 Nov

Poverty Estimation in India

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Contents

• Post-Independence Poverty Estimation in India
• Is there a need of consumption-based poverty estimation when there is a National Multidimensional Poverty Index by NITI Aayog?
• Challenges for Poverty Line estimation
• Why is poverty estimation crucial?

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Post-Independence Poverty Estimation in India

• In 1962, Planning commission formed a Working Group to estimate poverty nationally. This working group formulated a separate poverty line for Rural and Urban Areas (Rs 20 and Rs 25 per capita per year respectively)
• In 1971, VM Dandekar and N Rath made the first scientific assessment of poverty estimation based on NSS data from 1960-61.
  • They argued that poverty line should be determined by expenditure that was necessary to provide 2250 calories per day in both rural and urban India.
• Alagh Committee (1979) was a task force created by Planning commission for the purpose of poverty estimation.
  • It formulated a poverty line for rural and urban India based on nutritional requirements (24,00 calories for Rural India and 2100 calories for urban India).
• Lakdawala Committee (1993) was formed in 1993 to review the methodology of poverty estimation.
  • He recommended:

a. Consumption expenditure should be calculated based on calorie consumption as earlier.

b. State Specific poverty lines should be constructed, and these would be updated
using the CPI(IW) and CPI (RL) in urban and rural areas respectively.

• It assumes that basket of goods and services included in (CPI-IW) and CPI-RL reflect the consumption pattern of poor.
• Suresh Tendulkar Committee (2009)
  • Planning Commission formed an expert group chair by Suresh Tendulkar to review the methodology for poverty estimation in 2005.
  • It recommended four major changes:

a. A shift away from calorie consumption-based poverty estimation.

b. Incorporation of private expenditure on health and education while estimating
poverty.

c. Shift to Mixed Reference Period (MRP) based estimates, as opposed to Uniform
Reference Period based estimates.

• • The committee concluded the poverty line of just Rs 32 per capita per day in Urban India and Rs 27 in Rural India.
• Rangarajan Committee (2012)
  • In 2012, the Planning Commission constituted a new expert panel on poverty estimation, chaired by C. Rangarajan in light of public outrage over the planning Commission’s suggestion of Rs 27 a day as poverty line for rural areas.
• Key recommendations
  • Poverty Threshold: Rs 47 a day in urban areas and Rs 32 in villages
  • This method estimated that the number of poor were 29.6%.
  • In 2014, the NDA government had junked the C Rangarajan Committee Report on poverty as it had pegged 100 million more BPL vis a vis the last estimate based on Tendulkar Committee Report.
• Since, government is not conducting Consumption Expenditure Survey since last few years, the official poverty estimates haven’t been updated.
  • The last consumption survey of 2017-18 was rejected by government as defective.
  • So, currently the last official estimate of poverty that is comparable over time, undertaken by planning commission, is for the year 2011-12.

Is there a need of consumption-based poverty estimation when there is a National Multidimensional Poverty Index by NITI Aayog?

• What is the need of MPI?
  • Capabilities Approach – Some of the capabilities may not be tightly linked to the privately purchased consumption basket.
• But there are concerns about MPI:
  • Multidimensional indicators/measures raise several issues regarding their measurability, aggregation across indicators, and database which provide the requisite information at reasonably short interval.
    § For e.g., Child Mortality indicator is a problem as it is for population groups and
    not for individual households.
  • Aggregation is another problem – Drinking water can’t be aggregated with indicator like Child mortality.
  • Arbitrary weight being given to different components.

Why consumption-based poverty data should be supplementing MPI?

• Easy to understand and measure – In the minds of people, being rich or poor is associated with levels of income.

Challenges for Poverty Line estimation

• Determining the poverty line basket (PLB) is a crucial challenge in a country like India because of varying consumption pattern, prices etc. in different part of the country.
• Bringing states on board has also remained a challenge.
  • The current official measures are based on Tendulkar Committee’s recommendations, but some states suggest that C Rangarajan method will be a better estimation.
• Poverty Line has to be very dynamic – because of rapid changes in demography, consumption pattern, and technology.

Why is poverty estimation crucial?

• To get public opinion to support massive and urgent cash transfers.
  • The world outside India has moved onto proposed high fiscal support, as economic rationale and not charity.
• To ensure honest evaluation of various policies on the basis of whether they meet the needs of the majority.
• Holding public representatives more accountable.
• Poverty, inequality and a deeper understanding of what works for poverty reduction is not just an academic exercise but is crucial for designing policies and programs that work. It is crucial for any government to prioritize social sector schemes in a data driven fashion.

Way Forward:

• We need reliable data provided by independent public bodies ring fenced from potential political interference.
• Complete the new CES at the earliest and decide yardstick for measuring poverty which is the poverty line.

Conclusion:

• Many of our fellow citizens are living in abject poverty. Counting them would be a much-needed start to convey that each life matters.