POVERTY ESTIMATION & INDICATORS (CONTINUED FROM PREVIOUS POST)

OBJECTIVES OF POVERTY ESTIMATION

1. To build awareness on poverty and to keep it in the agenda of discourse;
2. To design policies, programs and institution to alleviate poverty
3. To monitor and evaluate these policies, programs and institutions that are associated with it.

INTERNATIONAL POVERTY ESTIMATION

• According to World Bank, Extreme poverty is defined as average daily consumption of $1.25 or less and means living on the edge of subsistence, while the daily consumption of $ 2 defines moderate poverty.

OFFICIAL POVERTY ESTIMATION IN INDIA

• Poverty estimates in India, since 1979 has been done by the Planning Commission using data from NSS surveys(National sample survey) on household consumption expenditure.
• The major developments in this regard are as following:
• 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 force constituted 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. It recommended 2400 kilocalories for rural areas and 2100 kilocalories for urban areas.  Poverty estimates for subsequent years were to be calculated by adjusting the price level for inflation.

Lakdawala Committee (1993)

• In 1993, an expert group constituted to review methodology for poverty estimation, chaired by DT Lakdawala, made the following suggestions:

1. Consumption expenditure should be calculated based on calorie consumption as earlier;
2. 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; ( earlier it was based on wholesale price index) and
3. 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.

• This method, in turn, received its share of analysis and criticisms. These criticisms centered on the method used for price adjustment, the rural urban differentials in poverty and inter-alia the continued relevance of the 1973 basket for poverty comparisons. The main concern was the under-counting of the poor specifically from the view point of targeted programs.

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:

1. 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;
2. There were issues with the adjustment of prices for inflation, both spatially (across regions) and temporally (across time); and
3. Earlier poverty lines assumed that health and education would be provided by the State and formulated poverty lines accordingly.

It recommended four major changes:

1. A shift away from calorie consumption based poverty estimation;
2. A uniform poverty line basket (PLB) across rural and urban India;
3. A change in the price adjustment procedure to correct spatial and temporal issues with price   adjustment; and
4. Incorporation of private expenditure on health and education while estimating poverty.

• Planning commission accepted the recommendation of Tendulkar committee in 2011.
• The Tendulkar panel had redrawn the poverty line at a daily consumption expenditure of Rs 22.42 per person in rural areas and Rs 28.65 in urban areas.
  • According to the new estimates, there has been a sharp reduction in both absolute numbers of poor, as well as the poverty ratio. The poverty ratio has declined to 21.9 per cent in 2011-12 from 37.2 per cent in 2004-05. (Table)
  • That methodology, as well as the poverty estimates arrived at using it, were widely criticised for under reporting poverty by fixing the consumption levels too low. (The Committee has lowered the calorie intake requirement from 2100 kcal per day for urban areas and 2400 kcal per day for rural areas to a single norm of 1800 kcal per day and has kept the daily consumption expenditure very low)
  • The new estimates, revised based on the consumption expenditure survey, have revised the Tendulkar numbers upwards, but only slightly. The new poverty line pegs daily per capita consumption expenditure at less than Rs 33.33 in cities and Rs 27.20 in villages.
  • Faced with hue and cry over the issue, the panel now supports the idea that entitlements for the poor should go beyond the poverty line benchmark and de-linked from the poverty line.

 Percentage and Number of poor estimated by Tendulkar method

	Poverty Ratio (%)			Number of poor (million)
	Rural	Urban	Total
1. 1993-94	50.1	31.8	45.3	328.6	74.5	403.7
2. 2004-05	41.8	25.7	37.2	326.3	80.8	407.1
3.2011-12	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

Rangarajan Committee

• The Planning Commission subsequently appointed another committee, headed by Chairman of the Prime Minister’s Economic Advisory Council, C. Rangarajan, which is expected to submit its report in 2014.

Objectives:

1. 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;
2. To examine divergence between the consumption estimates based on the NSSO methodology and those emerging from the National Accounts aggregates;
3. 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
4. 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 is expected to submit its report by 2014.

National poverty line:

• While the Opponents criticizes  the Planning Commission for using a formal definition of poverty that ensures the percentage of people below the poverty line is lower than what it ought to be, the government has begun moving to a broader and more realistic de facto definition that will include roughly 65 per cent of the population. (in the wake of passing of ordinance on food security bill  (in July 2013 ) which entitles subsidized food grains to 67% population of country)
• This notional poverty line will stand at a per capita expenditure of around Rs. 50 per day in rural areas and Rs 62 in urban areas.
• By covering 67 per cent of the population, the government is in effect drawing the poverty line 85 per cent higher than what it is currently drawn at
• By 2011-12 consumption expenditures, this works out to roughly Rs.1,506 monthly per capita expenditure — or Rs. 50 per day — for rural areas, and Rs. 1,850 per month — or Rs. 62 per day — for urban areas. While India’s poverty line has usually corresponded with the World Bank’s definition of extreme poverty, which is $1.25 (in Purchasing Power Parity terms) per person per day, the new notional poverty line would correspond more closely with the Bank’s definition of moderate poverty.