Editorials, GS-3, Uncategorized

How to measure poverty

What Panagariya suggested

  • Tendulkar committee’s report should be accepted for poverty estimation for estimation of economic performance
  • Socio-economic indicators should be used for determining the entitlement for benefits

Tendulkar Committee

  • Tendulkar committee was based on calorie consumption(based on Alagh poverty line)
  • It suggested that the expenditure required to meet this goal should be the poverty line for both rural and, of course, urban areas
  • Tendulkar report shifted the emphasis from calories to food demand, but Alagh report focused on on foodgrains, with price elasticities calculated separately for the rich and the poor, leading to dual pricing
  • Tendulkar committee report assumed that basic needs will be provided by the states (basic needs such as social services of health and education)

Previous committees:

Y K Alagh Committee

  • Till 1979, the approach to estimate poverty was traditional i.e. lack of income.
  • It was later decided to measure poverty precisely as starvation i.e. in terms of how much people eat.
  • This approach was first of all adopted by the YK Alagh Committee’s recommendation in 1979 whereby, the people consuming less than 2100 calories in the urban areas or less than 2400 calories in the rural areas are poor.
  • The logic behind the discrimination between rural and urban areas was that the rural people do more physical work. Moreover, an implicit assumption was that the states would take care of the health and education of the people.
  • Thus, YK Alagh eventually defined the first poverty line in India.

Lakdawala Formula

  • Till as recently as 2011, the official poverty lines were based entirely on the recommendations of the Lakdawala Committee of 1993.
  • This poverty line was set such that anyone above them would be able to afford 2400 and 2100 calories worth of consumption in rural and urban areas respectively in addition to clothing and shelter.
  • These calorie consumptions were derived from YK Alagh committee only.
  • According to the Lakdawala Committee, a poor is one who cannot meet these average energy requirements. However, Lakdawala formula was different in the following respects in comparison to the previous models:
  • In the earlier estimates, both health and education were excluded because they were expected to be provided by the states. This committee defined poverty line on the basis of household per capita consumption expenditure. The committee used CPI-IL (Consumer Price Index for Industrial Laborers) and CPI- AL (Consumer Price Index for Agricultural Laborers) for estimation of the poverty line.
  • The method of calculating poverty included first estimating the per capita household expenditure at which the average energy norm is met, and then, with that expenditure as the poverty line, defining as poor as all persons who live in households with per capita expenditures below the estimated value.
  • The fallout of the Lakdawala formula was that number of people below the poverty line got almost double. The number of people below the poverty line was 16 per cent of the population in 1993-94. Under the Lakdawala calculation, it became 36.3 per cent.

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