Understanding and quantifying poverty is essential for creating efficient strategies aimed at inclusive growth and poverty reduction. Poverty, broadly defined, refers to a state where an individual or a household lacks sufficient financial means to maintain a basic standard of living.
This is often measured by a poverty line, which represents the minimum income or expenditure required to meet basic human needs. This measure varies across countries and time, reflecting diverse perceptions and economic conditions.
The number of people living beneath this poverty line is expressed as a percentage of the total population, known as the head count ratio (HCR) or poverty ratio.
While different countries use varying methods to calculate poverty, the central premise remains the same: determining the consumption level needed to sustain a minimal lifestyle. However, due to the complexity of comparing poverty levels across different regions and times, alternative methodologies have been developed to measure the depth and severity of poverty.
Methodology Of Poverty Estimation In India
- India has had a consistent approach to measuring poverty since the 1960s, led primarily by the erstwhile Planning Commission.
- India has been conducting regular assessments of poverty levels since the 1960s, as per the methodology proposed by Expert Groups/Committees established by the Planning Commission.
- Data regarding consumption expenditure and its distribution is gathered from large sample surveys conducted by the National Sample Survey Office (NSSO).
- Households with consumption expenditures falling below this poverty line are categorised as “Below the Poverty Line (BPL)” and considered to be poor.
- Consumption is evaluated using a standard set of goods and services, known as the reference Poverty Line Baskets (PLB).
- The estimation of poverty, therefore, relies on two vital factors: the NSS consumption expenditure surveys’ data and the comparison of this data to the established poverty line.
Poverty Line Estimation
The first step in estimating poverty is to define and quantify a poverty line.
Pre-Independence Poverty Estimation
Poverty and Unbritish Rule in India (1901)
In his book “Poverty and Un-British Rule in India,” Dadabhai Naoroji provided the earliest estimate of the poverty line. He calculated it at ₹16 to ₹35 per capita per year in 1867-68 prices. This estimation was based on the cost of a subsistence diet for emigrant coolies during their voyage, where they lived in a state of quietude.
National Planning Committee (1938)
In 1938, the National Planning Committee, chaired by Jawaharlal Nehru, proposed a poverty line based on a minimum standard of living. This line, ranging from ₹15 to ₹20 per capita per month, aimed to establish a benchmark for measuring poverty.
The Bombay Plan (1944)
The advocates of the Bombay Plan proposed a poverty threshold of ₹75 per person per year, a significantly more modest figure compared to that of the National Planning Committee (NPC).
Post- Independence Poverty Estimation
The erstwhile Planning Commission had formed several expert groups to assess the poverty levels in India. These groups had made estimations regarding the number of individuals living in poverty.
Working Group (1962)
- The Working Group first quantified the poverty line in India in 1962.
- The calculation was based on a minimum requirement (food and non-food) for individuals to live healthily.
- The Group’s recommendations aligned with those of the Nutrition Advisory Group from the Indian Council of Medical Research (ICMR) in 1958.
- They established separate poverty lines for rural and urban areas (₹20 and ₹25 per capita per month respectively, at 1960-61 price levels), with no regional differentiation.
- The poverty line did not include health and education expenses, as it was assumed these would be provided by the State.
- These were not official poverty lines, but were frequently used in the 1960s and 1970s to calculate national and state-level poverty ratios.
Study By VM Dandekar And N Rath (1971)
- The poverty line in India originates from the pioneering work of economists V N Dandekar and N Rath in 1971.
- The study was not initiated by the Planning Commission, but it was the first comprehensive assessment of poverty in India.
- The economists utilised data from the National Sample Survey (NSS).
- The unique approach of Dandekar and Rath was to measure the poverty line based on the expenditure needed to meet a minimum average calorie intake of 2,250 calories per person per day.
- This expenditure-based approach to estimating the poverty line incited discussions on minimum calorie consumption standards.
- They established the poverty line at Rs. 15 per person per month for rural households and Rs. 22.5 per person per month for urban households, based on prices in 1960-61.
Task Force On “Projections Of Minimum Needs And Effective Consumption Demand” Headed By Dr. Y. K. Alagh (1979)
- The Task Force on “Projections of Minimum Needs and Effective Consumption Demand” was led by Dr. Y. K. Alagh and formed in 1977.
- The Task Force presented its findings in 1979.
- The poverty line was determined by the average per capita daily calorie intake – 2400 kcal for rural areas and 2100 kcal for urban areas.
- The calorie requirements were calculated as a population-weighted average of the specific allowances for different ages, genders, and activities, as recommended by the Nutrition Expert Group in 1968.
- These calculations referred to the 1971 population Census.
- The Poverty Task Force established the poverty thresholds for rural and urban areas at Rs. 49.09 and Rs. 56.64 per capita per month, respectively, using prices from 1973-74 as the basis.
- The poverty lines were set based on distinct Poverty Line Baskets (PLBs) for rural and urban consumption, taking into account various factors.
Lakdawala Expert Group (1993)
- The Planning Commission formed the Lakdawala Expert Group in 1989. Their task was to review how poverty was estimated and to possibly redefine the poverty line.
- The group gave their report in 1993. They decided to keep the separate poverty lines for rural and urban areas that the Alagh Committee had recommended. These lines were based on the minimum amount of nutrition people needed.
- They changed these national poverty lines to be state-specific. This was done to account for different prices in different states.
- The group suggested updating these poverty lines with two price indexes: the Consumer Price Index of Industrial Workers for urban areas, and the Consumer Price Index of Agricultural Labour for rural areas.
- This change was based on the assumption that these price indexes accurately represented what poor people bought and consumed.
- The Planning Commission used these state-specific poverty lines and national estimates to calculate poverty levels in rural and urban areas from 1997 to 2004-05.
- Over time, this method became less reliable. The price data used was flawed and the poverty lines did not maintain the original calorie standards.
Tendulkar Expert Group (2009)
- The Tendulkar Expert Group (2009) proposed several changes to the way poverty was measured in India.
- One primary recommendation was to shift away from calorie norms, which were the basis for poverty estimations since 1979, and to focus on target nutritional outcomes.
- The committee suggested using a single poverty line basket (PLB) for both rural and urban India, rather than having separate ones.
- It proposed using Mixed Reference Period (MRP) based estimates instead of Uniform Reference Period (URP) based estimates for calculating poverty.
- The inclusion of private expenditure on health and education was recommended in the poverty estimation process.
- It validated poverty lines by comparing actual per capita consumption expenditure near the poverty line on food, education, and health with normative expenditures.
- The committee broke down consumption expenditure into per person per day, which resulted in Rs 32 and Rs 26 a day for urban and rural areas respectively.
- For 2011-12, the national poverty line was estimated at Rs. 816 per capita per month for rural areas and Rs. 1,000 per capita per month for urban areas.
Rangarajan Committee (2014)
- The Rangarajan Committee was formed in 2012 to reassess how poverty is measured in India. They submitted their results in 2014 and made several key changes:
- They reintroduced separate measurements for rural and urban poverty. This means they used different standards for rural and urban areas.
- They recommended different baskets of goods for rural and urban areas, based on what people need to live. These baskets include not only food but also clothing, education, healthcare, housing, and transportation.
- The daily per capita expenditure limits were increased. For urban areas, it was raised to Rs 47 from Rs 32, and for rural areas, it was raised to Rs 32 from Rs 26 at 2022-12 prices.
- They recommended a monthly per capita consumption expenditure of Rs. 972 in rural areas and Rs. 1407 in urban areas as the poverty line at the all-India level.
- Despite all these recommendations, the government did not make any decisions based on the Rangarajan Committee’s report.
Use Of Consumption Expenditure Surveys
- In India, the poverty line is established by considering consumption expenditure rather than income levels. This approach allows for a more comprehensive assessment of individuals’ economic well-being.
- This method accounts for the difficulty in assessing the incomes of self-employed individuals and daily wage workers.
- Income levels in India can be subject to large fluctuations due to seasonal factors and additional side incomes.
- Data collection is also a challenge in India’s predominantly rural and informal economy.
- Consumption expenditures provide a more accurate reflection of a household’s standard of living, as households may access credit markets or use savings to even out their consumption.
- As a result, many Poverty Estimation Committees in India proposed that per capita consumption expenditure or household expenses should be used to calculate poverty.
- The Planning Commission utilised large sample surveys conducted by the National Sample Survey Organisation (NSSO) to estimate poverty incidence.
- These surveys, conducted every five years, ask households about their consumption over the past 30 days, providing a representation of general consumption.
- This data has proven effective in estimating poverty at national and sub-national levels, as it accounts for inter-state and inter-region price changes over time.
- There is a noticeable discrepancy between consumption expenditure estimates in National Accounts Statistics and those deduced from the NSSO’s sample surveys, leading to increased reliance on the latter.
- The method employed by NSSO’s surveys is regarded as a superior way to adjust for inter-state and inter-region price fluctuations, particularly given the improved recall period introduced in the surveys.
Data Collection Method For NSSO Expenditure Survey
- Uniform Resource Period (URP): Until 1993-94, the poverty line was determined using URP data. This method involved surveying individuals about their consumption expenditure over a 30-day recall period, meaning the information was based on their recollection of spending in the previous 30 days.
- Mixed Reference Period (MRP): Starting from 1999-2000, the NSSO adopted the MRP method to assess consumption patterns. This method measures the consumption of five low-frequency items (clothing, footwear, durables, education, and institutional health expenditure) over the past year while considering all other items over the previous 30 days. This approach ensures a comprehensive and accurate understanding of consumption trends.
Release Of Poverty Line Estimates
- The Planning Commission released poverty estimates for the years 1973-74, 1977-78, 1983, 1987-88, 1993-94, 1999-2000, 2004-05, 2009-10, and 2011-12. These estimates presented the number of individuals below the poverty line as a percentage of the total Indian population.
- In July 2013, the Tendulkar poverty line was used as the basis for the release of poverty data for 2011-12.
- The 2011-12 data revealed that 269.8 million individuals, or 21.9% of the Indian population, were living below the poverty line.
- Following the release of the 2011-12 data, no further official poverty estimates have been released in India.
Limitations Of “Below Poverty Line (BPL)” Approach
- The Planning Commission’s figures for estimating poverty are often considered too low, leading to debates on the appropriate criteria to evaluate poverty and its aspects.
- Regrettably, the methods recommended by various expert groups to define and measure “poverty” or “poverty line” have been insufficient and have not captured the real incidence of poverty in the country.
- Critical factors such as ill-health, low educational achievements, geographical isolation, powerlessness in civil society, and inherent disadvantages due to caste or gender are yet to be effectively included in identifying and enumerating the poor.
- There is a significant disparity in determining the population living below the poverty line (BPL). According to one expert group, using the current calorie norm of 2,400, 80% of the population would be considered BPL. However, by another standard, it drops to 37.2%.
- It is essential to estimate the poverty ratio objectively and realistically, which should go beyond the current emphasis on calorific value. The changing nutritional profile and living status of the masses need to be acknowledged.
- Government programs could be delivered more effectively if the multiple dimensions of poverty are recognised and the criteria adapted accordingly.
BPL Census For Identification Of Poor Households
- The BPL (Below Poverty Line) Census is a door-to-door survey conducted to identify poor households in India. It’s financially and technically supported by the States and Union Territories.
- The first BPL Census took place in 1992 for the 8th Five-Year Plan with the poverty line set at an annual income of Rs. 11,000 per household.
- The second BPL Census in 1997 for the 9th Five Year Plan involved two stages: an initial exclusion of families based on certain criteria, and then a detailed interview of remaining households to assess their consumer expenditure.
- Households were considered below the poverty line if their per capita consumption was below a set limit.
- By the third BPL Census in 2002 for the 10th Five Year Plan, the method shifted to an indicator-based scoring system to classify households as poor or non-poor, due to difficulties in identifying the poor based on income and consumption expenditure.
- The BPL Census methodology has faced criticism over identification issues, data quality, potential corruption, and content of data.
- For urban areas, the Ministry of Housing and Urban Poverty Alleviation is responsible for identifying BPL families. This involves a home-by-home survey based on State-specific poverty lines.
Socio-Economic Caste Census Survey (SECC) 2011
- The Socio-Economic Caste Census Survey (SECC) 2011 was initiated to address concerns regarding Below Poverty Line (BPL) Censuses and to minimise inclusion/exclusion errors.
- An expert committee, chaired by Dr. N.C. Saxena, was appointed by the Ministry of Rural Development (MoRD) to propose a new methodology for BPL identification.
- The committee suggested a significant change from previous BPL Censuses, recommending a three-fold classification of households into categories: “excluded”, “automatically included”, and “others”.
- The Ministry of Rural Development (MoRD) launched the Socio-Economic and Caste Census (SECC) in 2011 based on the recommendations of the Saxena Committee.
- This was a comprehensive enumeration conducted across both rural and urban India, gathering household-level socio-economic data through door-to-door visits.
- The SECC’s mission was not to replace the poverty line but to generate data on the socio-economic conditions and education status of various castes and demographic groups.
- It aimed to rank households based on their socio-economic status, thereby identifying those living below the poverty line.
- The Socio-Economic Caste Census (SECC) 2011 was an initiative outside of the Census Act that focuses on the multi-dimensionality of poverty, providing detailed insights into the specific deprivations faced by each household.
- The Sumit Bose Committee in 2017 advocated for the use of SECC 2011 data to identify beneficiaries for centrally sponsored, central, and state government schemes.
- The Government has used SECC data to pinpoint beneficiary households while implementing social welfare programs for various schemes.
- SECC data also aided several state governments in implementing the National Food Security Act. This helps in making evidence-based developmental interventions.
- Using SECC data, a program-specific priority list is generated, considering the fiscal space of the welfare program for targeting specific pro-poor interventions.
- The selection of beneficiaries is validated through Gram Sabhas, and their identity is confirmed through Aadhaar, where legally permitted. This process ensures the selection of the correct beneficiaries, minimises duplication and fraud, and enhances the effectiveness of government efforts to tackle multidimensional poverty.
International Indices To Measure Poverty
Various international efforts to measure poverty along with implications for India are briefly discussed below:
Global Multidimensional Poverty Index (MPI)
Introduced in 2010 by the United Nations Development Program (UNDP) and the Oxford Poverty and Human Development Initiative (OPHI), the Multidimensional Poverty Index (MPI) is a comprehensive measure of poverty that encompasses over 100 developing nations.
Going beyond income as a singular poverty indicator, it assesses deprivation across three dimensions and tracks ten indicators. This holistic approach provides a more nuanced understanding of poverty and its impact on individuals and societies.
It tracks deprivation across three dimensions and 10 indicators.
Related Reading | Multidimensional Poverty Index (MPI) 2023
World Bank Poverty Line
- The World Bank defines poverty as living on less than $1.90 per day, measured in 2011 purchasing power parity prices.
The traditional method of measuring poverty through headcount ratios fails to capture the intensity of poverty. - To measure the intensity of poverty, the World Bank developed the ‘poverty gap index’, which calculates the income or consumption shortfall from the poverty line, representing the amount of money a poor household needs to reach the poverty line.
- The ‘poverty gap index’ expresses the mean shortfall from the International Poverty Line as a percentage, counting the non-poor as having zero shortfall.
- According to the World Bank, the poverty gap in India dropped to 4.3% in 2011 from 20% in 1977.
- The poverty gap index shows that there is a relationship between the incidence of poverty and the intensity of poverty, but it’s not absolute. For instance, India and Bolivia have similar poverty gaps (~4%), but differing poverty rates (India: 21%, Bolivia: 7.7%).
Task Force Set Up By Niti Ayog
- In 2015, Niti Ayog set up a Task Force on Poverty under the then Vice-Chairman, Niti Ayog, Prof Arvind Panagariya.
- The poverty line is designed to assess progress in eliminating extreme poverty, not to identify households for government benefit programs.
- Classifying households as above poverty line (APL) can undermine the objective of tracking progress in poverty reduction.
- A higher poverty line might track the comfort levels of those who have already achieved a certain level of comfort, failing to address households in extreme poverty.
- The ultimate goal of the poverty line should be to monitor improvements in combating extreme poverty.
- Setting the poverty line at a level just sufficient for accessing basic necessities is rational and logical.
- This approach weakens the case against the Tendulkar line, as it focuses on individuals living in abject poverty, not those living a comfortable existence.
- The Task Force recommends further deliberations to make a final decision on this issue, with an emphasis on these considerations.
National Multidimensional Poverty Index 2023
Based on the latest National Family Health Survey [NFHS-5 (2019-21)], the second edition of the National Multidimensional Poverty Index (MPI) represents India’s progress in reducing multidimensional poverty between the two surveys, NFHS-4 (2015-16) and NFHS-5 (2019-21).
Click to read more about the MPI Index 2023
Fighting Extreme Poverty In India
- Poverty is multidimensional and requires a multifaceted approach for effective eradication.
- India is making significant strides in poverty reduction and is on track to meet its 2030 elimination goals.
- The strategy for poverty elimination is two-pronged: maintaining a high GDP growth rate and implementing targeted programs.
- An average annual GDP growth rate of 8% is necessary for creating new jobs and accommodating those displaced from agriculture and other sectors.
- Targeted programs are designed to combat different aspects of poverty and support the economically disadvantaged through infrastructure development, asset creation, skills development, and fostering entrepreneurship.
- Universal access to banking, credit, and insurance under government initiatives is aiding Indian households.
- Pradhan Mantri Jan Arogya Yojana (PMJAY), also known as Ayushman Bharat Yojana Scheme, offers health protection to the poor and vulnerable.
- Pradhan Mantri Awas Yojana (PMAY) provides quality homes equipped with basic amenities like LPG, electricity, drinking water, and toilets.
- Assets generating income, such as farm ponds and cattle sheds, are developed through Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).
- Over 6 crore households are mobilised into Self Help Groups under the Deendayal Antyodaya Yojana-National Rural Livelihoods Mission (DAY-NRLM), leading to social capital formation.
- SECC 2011 data, IT/Direct Benefit Transfer (DBT), Aadhaar, and geo-tagging are used for efficient beneficiary selection and benefit delivery.
- Pradhan Mantri Gram Sadak Yojana (PMGSY) expands all-weather rural roads, enabling deprived households to better leverage markets.
- Digital platforms like Common Service Centers (CSCs) are transforming service access for the poor.