Poverty Estimation In India – Indian Economy

Table of Contents

In India, the most commonly used method to estimate poverty is through the measurement of income and consumption levels.
A person is considered poor if his/her income level falls below a minimum level that fails to meet his/her basic needs.
This minimum level is known as the ‘poverty line’.
When the income or consumption of an individual or the household he/she belongs to fall below minimum level then they are designated to be Below the Poverty Line
The Poverty Line calculation is now carried out by the NITI Aayog

WHY IS IT IMPORTANT TO IDeNTIFY THe POOR IN INDIA?

To Measure the Impact of Welfare Schemes: It is important to estimate poverty as it helps to keep track of the impact and success of various government schemes that have been introduced to eliminate poverty.
Its a part of a Poverty Elimination of Plan: The poverty estimates are used to formulate new plans that will ensure the elimination of poverty from the society.
It’s a Constitutional Requirement: As the Constitution of India promises a just and equitable society, estimation of poverty paves the way for such a society as it helps in identifying the vulnerable sections of society an easy task.

Uniform Resource Period (URP): From 1993 -1994, the poverty line was based on a Uniform Resource Period, which involved asking people about their consumption expenditure across a period of over 30-days
Mixed Reference Period (MRP): From 2000 onwards, the NSSO relied on an MRP method which measured consumption of five-low frequency items over a period of 30 days.These items are clothing, durables, education and institutional health expenditure.

VM DANDEKAR AND N RATH

Based on the data from the National Sample Survey (NSS) data VM Dandekar and N Rath made a systematic assessment of poverty in 1971.
While the previous estimations had stressed on subsistence living or basic minimum needs as a criterion for the poverty line,VM Dandekar and N Rath suggested that the poverty line’s criteria must be based on the expenditure that would provide 2250 calories per day both in rural and urban areas.

Alagh Committee (1979)

The Taskforce constituted by the Planning Commission under the direction of YK Alagh, constructed a poverty line for rural and urban areas on the basis of nutritional requirements and related consumption expenditure.
The estimates in the ensuing years would be adjusted taking into account the price level for inflation.

LAKDAWALA COMMITTEE (1993)

The Lakdawala committee based their findings on the assumption that the basket used to calculate Consumer Price Index-Industrial Workers (CPI-IW) and Consumer Price Index-Agricultural Labourers (CPI-AL) reflected the consumption pattern of the poor
Expert Group on ‘Estimation of Proportion and Number of Poor’ – Chaired by Prof DT Lakdawala (former Deputy Chairman Planning Commission)
The Lakdawala Committee submitted the report in 1993 and recommended:
Poverty Line approach can be continued based on calorie consumption (fixed consumption basket)
State-specific poverty lines should be constructed and these should be updated using the CPI-IW in urban areas and CPI-AL in rural areas
Scaling of poverty estimates should not be based on National Accounts Statistics. The Expert Group recommended only NSS data should be relied upon.
The Indian Government accepted the Lakdawala Committee recommendations with minor modifications in 1997.

TENDuLKAR COMMITTEE (2009)

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

The committee used the Mixed Reference Period as opposed to Universal Reference Period used by earlier committees.
Using this method the committee arrived at a conclusion that the poverty line was at Rs.446.68 per capita per month in rural areas and Rs. 578.80 per capita per month in urban areas from 2004-2005.
In 2009-2010 it was Rs. 859.6 in urban areas while it was Rs.672.8 in rural areas.
In 2010-2011 it was Rs. 1000 for urban and Rs. 816 for rural areas.

C RANGARAJAN COMMITTEE (2012)

Provide an alternate method to identify poverty levels
Examine divergences between the consumption data provided by the NSSO and the National Accounts aggregates
Review of international poverty estimation methods
Recommend how these methods can be linked to eligibility for various poverty elimination schemes created by the government of India

The committee submitted its final report on 2014.
The report dismissed the Tendulkar Committees estimation of the poverty level in India.
The report said that was much higher in 2011-2012 at 29.5% of the population, which means that three out of 10 people in India were poor.