This is the second part of the series on poverty. Read the first part here.

Brief history of poverty estimation in India

Pre-independence poverty estimates

One of the earliest estimations of poverty was done by Dadabhai Naoroji in his book, ‘Poverty and the Un-British Rule in India’.  He formulated a poverty line ranging from Rs 16 to Rs 35 per capita per year, based on 1867-68 prices.  The poverty line proposed by him was based on the cost of a subsistence diet consisting of rice or flour, dhal, mutton, vegetables, ghee, vegetable oil and salt.

Next, in 1938, the National Planning Committee (NPC) estimated a poverty line ranging from Rs 15 to Rs 20 per capita per month.  Like the earlier method, the NPC also formulated its poverty line based on ‘a minimum standard of living perspective in which nutritional requirements are implicit’.  In 1944, the authors of the ‘Bombay Plan’ (Thakurdas et al 1944) suggested a poverty line of Rs 75 per capita per year.

Post-independence poverty estimates

1. In 1962, the Planning Commission constituted a working group to 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.

2. 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.

3. 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.  The table below shows the nutritional requirements and related consumption expenditure based on 1973-74 price levels recommended by the task force.  Poverty estimates for subsequent years were  to be calculated by adjusting the price level for inflation.

Table: Minimum calorie consumption and per capita consumption expenditure as per the 1979 Planning Commission task force on poverty estimation

4. 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; and (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.

5. 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:

a) 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;

b) there were issues with the adjustment of prices for inflation, both spatially (across regions) and temporally (across time);

c) 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) a shift away from calorie consumption based poverty estimation;

b) a uniform poverty line basket (PLB) across rural and urban India;

c) a change in the price adjustment procedure to correct spatial and temporal issues with price adjustment;

d) 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.  The following table outlines the manner in which the percentage of population below the poverty line changed after the application of the Tendulkar Committee’s methodology.

Table: The percentage of population below poverty line calculated by the Lakdawala Committee and the Tendulkar Committee for the year 2004-05.

The Committee also recommended a new method of updating poverty lines, adjusting for changes in prices and patterns of consumption, using the consumption basket of people close to the poverty line.  Thus, the estimates released in 2009-10 and 2011-12 use this method instead of using indices derived from the CPI-AL for rural areas and CPI-IW for urban areas as was done earlier.  Table 5 outlines the poverty lines computed using the Tendulkar Committee methodology for the years 2004-05, 2009-10 and 2011-12.

Table: National poverty lines (in Rs per capita per month) for the years 2004-05, 2009-10 and 2011-12

6. Rangarajan Commitee: C Rangarajan Committee Was Set up By Planning commission in 2012 and submitted report in 2014. The Planning commission had set up the five-member expert group under Rangarajan to review the methodology for measurement of poverty. The committee was set up in the backdrop of national outrage over the Planning Commission’s suggested poverty line of Rs 22 a day for rural areas.

• 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.
• The methods also include on certain normative levels of adequate nourishment, clothing, house rent, conveyance, education and also behavioral determination of non-food expenses.
• It also considered average requirements of calories, protein and fats based on ICMR norms differentiated by age and gender.
• Based on this methodology, Rangarajan committee estimated the number of poor were 19 per cent higher in rural areas and 41 per cent more in urban areas than what was estimated using Tendulkar committee formula.
• Tendulkar, an economist, had devised the formula to assess poverty line in 2005, which the Planning Commission had used to estimate poverty in 2009-10 and 2011-12.

Comparison between Rangarajan and Tendulkar commitees

World Bank poverty line for India

Recently World Bank estimation shows that the country’s poverty rate has been reduced  from 21.2 per cent to 12.4 per cent for 2011-12. The World bank data shows that India is overestimating  while counting the number of poor.

Reasons for discrepancy between World bank data and NSSO data

• The World Bank uses modified mixed reference period (MMRP) instead of the uniform reference period (URP) while estimating poverty.
• Under the URP, used in the National Sample Surveys since the 1950s, data is collected on the “30-day recall for consumption of both food and nonfood items to measure expenditures”. But under the MMRP, which was first introduced in NSS (alongside URP) in 2009-10, the 30-day recall was modified to a 7-day recall for some food items and to a 1-year recall for low-frequency nonfood consumption items.
• As a result of the shorter recall period for food items, MMRP-based consumption expenditures in both rural and urban areas are 10-12 per cent larger than URP-based aggregates. These higher expenditures, combined with a high population density around the poverty line, translates to a significantly lower poverty rate of 12.4 per cent for 2011/12.

Questions

1. Though there have been several different estimates of poverty in India, all indicate reduction in poverty levels over time. Do you agree? Critically examine with reference to urban and rural poverty indicators.

2. Compare and analyse poverty estimation made by World Bank for Indian population with that of estimations made by various committees in India.

3. Do you think that the estimation of poverty lines in India has been a futile exercise? In your opinion how should governments make use of poverty line figures? Critically examine.

4. Recently few experts have suggested that the Tendulkar Committee’s report should be accepted for poverty estimation but socio-economic indicators should be used to determine entitlement for benefits. Do you see merit in this suggestion?