GS-2, Uncategorized

Poverty Line in India: Its Meaning, Concept and Evolution

It should be noted that ‘determination of poverty line’ and ‘identifications of poor/beneficiary’ are almost different things. Poverty line is (was) determined by Planning Commission on the basis of data provided by ‘National Sample Statistical Organization’ (NSSO). NSSO conducts a survey at 5 year interval of a mere sample to capture consumption patterns of various sections of society. It is taken care that sample size represents character of the Nation (or a state) as a whole. This gives us data about various classes of consumption in the sample size. (For e.g. say how many people out of sample size consume what food? how many calories/nutrients they get, what is there expenditure on food and nonfood items? What people eat most within food – cereals, pulses, fruits? What are the patterns? And so on). This is goldmine of information that planning commission seeks.

Planning Commission quantifies (in terms of money) Calorific/Nutritional needs for a basic minimum living by taking an ideal ‘poverty line basket’. This ideal basket includes food and nonfood items which are recommended by expert groups (among other things) which are constituted from time to time (NSSO job is only to collect data and patterns). So we’ll have a monetary figure (Rs16/25/32 etc.) which that expert panel considers benchmark ‘poverty line’. Then this poverty line is adopted by Planning Commission. For determination of this figure, reliance is obviously placed on data provided by NSSO.

Now we have, poverty line figure based on a minor sample and we need to determine number of poor in the country i.e. people whose consumption expenditure is below this poverty line. For this ratio of ‘poor to the total sample size’ is replicated on total population of the country. For e.g. If Survey Sample Size was of 200000 households and 50000 households are found to be consuming below the poverty line figure, then 25 % of total population of country will be considered below poverty line.

As we can see in given course of ‘determination of poverty line’ and estimation of ‘number of poor’ there is no identification of particular households. ‘Number of poor below poverty line’ in this sense is just a tool to measure effectiveness of government policies and make interstate, International or temporal comparisons. Other product of this exercise is ‘poverty line’ and it might be (or not) be used for actual identification of poor/beneficiaries.

Ministry of Rural Development is conducting BPL census for ‘Rural poor’ since 1992 on the basis on which rural poor are actually identified. In case of urban poor there no uniform mechanism in place and State governments/ UT admin. adopts their own methodology for identification. Having said this, relevance of identification on basis of poverty line is doubtful these days. It is widely accepted that poverty is multidimensional and different schemes of government should either be universal, or their beneficiaries should differ as per matter of scheme. For example MGNREGA is universal (now focus is on 250 backward districts). Food Security Act covers two-third population which is far more than BPL population. Indira Awas Yojna is for homeless (not for BPL), Sarva Shiksha Abhiyan or RTE are universal. However, many benefits from the government are still exclusively for BPL card holder such as free gas connection or kerosene oil.

Notwithstanding all this, poverty line and estimate of population will still be needed to measure and compare effect of policies of various national and state governments. Presumptions on which this line can be made are many and it is herculean task in continent type country like India. There is always fear of exclusion of deserving ones and inclusion of undeserving ones.

Poverty is a state of deprivation of people or society, in which they are not able to meet their basic needs such as food, clothing and shelter. In all this they have low capacity to deal with Socio-economic and environmental exigencies. This definition however can be contested for it doesn’t include education, healthcare and decent standard of living or dignified life. But it could be agreed upon that former are immediate needs and will be preferred by any deprived person. For e.g., India in initial decades after independence was severely short of food grains and that prompted government to invest in agriculture which resulted in green revolution. At that time investment in social infrastructure was negligible and now that India has achieved self-sufficiency, focus has shifted to Health and education.

There are many challenges in marking a poverty line, such as determining components of poverty line basket. There are price differentials (of constituents of basket) which vary from state to state and period to period. Further, consumption patterns, nutritional needs and prices of components keep on changing as per dynamics of macro economy and demography.

Let’s take up and discuss some issues relevant to poverty line –

Absolute poverty vs Relative poverty

Almost all underdeveloped and developing countries prefer targeting Absolute poverty. Under absolute poverty certain minimum basic standards of living are defined and people living below these standards are termed in policy as poor or below poverty line. This is done by determining a poverty line basket and calculating monetary figure of that basket (as in India), which varies across countries.

In contrast relative poverty is measured in relation to rich people of the country. In this method certain percentage of economically bottom population is always considered below poverty line. In these countries BPL people may have all basic amenities and reasonable standard of living, but as their incomes are far below national per capita income they get support of government.

Argument that India should focus on absolute poverty need no further elaboration, given such low consumption of vast part of population which NSSO and various other studies reveal.

Poverty line basket

Determining composition of the basket is among most debated part of the issue. To make a living people consume innumerable items. Apart from food; housing, fuel, health, education, communication, conveyance, entertainment/recreations are the things which are important. But whether they should be included or not, if so their weights in basket, whether health should get preference over housing, or whether reasonable expenditure on recreation be included in basket etc. are toughest questions to be answered. Problem is that these are qualitative aspects, which are needed to be quantified.

Further, consumption varies as per age groups, occupation, regions, cultures and gender. This variation is hard to capture.

Over the last decade consumption by Indians has risen constantly and share of food in total consumption has fallen. Also, within food share of calorie rich cereals have fallen and Share of proteins, fat, nutrient rich items like pulses, milk, fruit has risen.

Historically focus of India’s poverty like basket policy has been on consumption of calories which was first adopted in 1970’s on recommendation Algah committee. It was believed that 2400 kcal in rural areas and 2100 Kcal in urban areas was sufficient to give good nutritious health to citizens. In this sense, number or percentage of people below poverty line and those of under or malnutritioned people, should be roughly same. But it is known that undernutrition is more rampant and widespread than poverty and outscores ratio of BPL people by huge margin. This forced our policy makers to look for other determinants of nutritional status and they found that pre natal/birth health of mother, post natal care of babies, Sanitation, open defecation, health and educational infrastructure has decisive impact on nutritional status of people. Lack (or presence) of many these things has pushed significant number of people towards undernutrition, even when they consumed more than needed calories. These issues were taken into account by Tendulkar committee to some extent. (More on this later)

Reference period

During the survey NSSO workers will ask certain questions to households. Period covered by these questions is called reference period. Care has to be taken that this period is representative of general pattern of consumption. If we take ‘Poverty line Basket’ it will cover food and nonfood items. In case of food, expenditure is routine and a month’s consumption can give us data which represents general pattern. If we take consumption pattern of Nonfood item such as clothes or footwear, we find that in a normal household, these are once or twice in year expenditure. If we take reference period 30 days for these products we’ll find in majority of household no expenditure at all. So reference period should be different for different category of items.

Income based poverty line vs consumption based poverty line

We have seen that NSSO captures consumption expenditure which used by Planning commission to determine poverty line. An alternative way of calculation of poverty line can be one based on Income of the population. But till now all committees have favored consumption based poverty line due to following factors –

  1. Huge majority of population has irregular income, most of them are in informal sector which consists of self-employed people, daily wage laborers etc. Income of this group is highly variable both temporally and spatially, while consumption pattern are comparatively much stable.
  2. Even in case of regular wage earners, there are additional side incomes in many cases, which is difficult to take into account.
  3. For e.g. MGNREGA provides employment for about 100 days, for rest of the time too people will earn something.
  4. NSSO’s sample based surveys use a ‘reference period’ (say 30 days). They will ask households under survey about their consumption in last 30 days. This they will take a representative of general consumption of that household. This is not possible in case of income.

So we can conclude that in absence of reliable data Income based approach can’t be relied upon.

Now we’ll see evolution of poverty line in India in Its current form. A working/expert group recommends a particular poverty line which attracts intense debate and criticism. After this new Expert group is appointed. This group has to convert results of past years by the previous methodologies into those by new methodologies, sometimes using old base year, as per data available with NSSO. This is essential so as to make poverty line and population BPL comparable. This is a bit confusing as there is no consistency and new data keep coming. We just need to have basic idea of evolution and most of the figures or data can be ignored. It is given just for an idea of patterns.

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’ suggested a poverty line of Rs 75 per capita per year.

Working Group of planning commission, 1962

This was first crated by planning commission to determine desirable minimum level of expenditure required to make a living.

  1. Recommended ‘national minimum consumption expenditure’ for a household of 5

    Rural – Rs 100/ month (Rs 20/ Person)

    Urban – Rs 125/ month (Rs 25/ Person)

  2. It excluded Health and educational expenditure on assuming that it is provided by state.
  3. Used recommendation on ‘Balanced diet’ by Indian council of Medical Research.

Task force of 1979, under Algah

Poverty line of 1962 was used during 1960’s and 1970’s at both National and state level. But it attracted intense debate for its low figures. In response taskforce under Dr. Y.K. Algah was created to revisit poverty line.

  1. Average calorie requirements‘ were estimated, separately for the
    all -India rural and urban areas on the recommendation of Nutrition Expert Group. This resulted in different ‘Poverty line basket’ for urban and rural areas. The estimated calorie norm was 2400 kcal per capita per day in rural areas and 2100 kcal per capita per day in urban areas.
  2. Now these calorie requirements needs some ‘monetary value’ which can be determined by ascertaining ‘quantity’ of consumption and ‘prices/value’ of that quantity. Data relating to quantity and value was provided by NSSO survey.
  3. It was estimated that, on an average, consumer expenditure (food and non-food) of Rs.49.09 per capita per month was associated with a calorie intake of 2400 per capita per day in rural areas and Rs.56.64 per capita per month with a calorie intake of 2100 per day in urban areas. This ‘Monthly Per Capita Expenditure’ was termed as poverty line. This poverty line was used for upcoming years after
    adjusting for rise in prices.

     

    (Please note that till now difference was mode only in Rural and Urban poverty line and there are only All India rural and urban poverty lines. But next Expert Group will recommend ‘state specific poverty line’)

Expert group 1993 (Lakdawala)

This panel didn’t redefine poverty line and retained mechanism defined by Algah expert group.

  1. Instead it disaggregated ‘All India poverty line’ to ‘State specific Poverty Line’ (using Fisher index) for base year 1973-74.
  2. For latter periods these ‘Rural and Urban Poverty lines of states’ were updated by taking into account

    a)’Consumer Price Index- Agricultural Labor’ for ‘Rural state specific poverty line ‘ and

    b)’CPI- Industrial workers’ for ‘Urban state specific poverty line’.

  3. Then All India poverty Ratio (rural and urban) was derived through ‘population based weighted average’ of poverty ratios of various states.

Hence ‘poverty line’ of India is converted in to ‘state poverty lines’ while ‘poverty ratios’ of states were aggregated to ‘All India poverty ratio’

Note- Poverty line is based on consumption expenditure which gets affected by Inflation. So, for latter years poverty lines are increased using CPI-AL/IW. They won’t calculate new poverty line every year. (CPI-AL doesn’t include housing component, but CPI-IW includes it.)

Group was able to give State Specific poverty lines of only 18 states as in other states adequate data was not available. For these (remaining) states poverty line was determined by equating them with one of the 18 states on basis of Physical Contiguity and similarity of economic profile of those states.

This Mechanism was adopted by planning commission and was used till 2011, when recommendations of Tendulkar expert group were adopted.

Expert Group 2005 (Tendulkar)

Largely it adopted same poverty line (Lakdawala) and major departures were –

  1. It adopted ‘Mixed Reference Period‘ in place of ‘Uniform reference period

    During previous methodologies, a ‘uniform reference period’ was used that included 30 days just before the survey for all food and nonfood items. But Tendulkar group changed ‘reference period’ to past one year for 5 nonfood items viz., clothing, footwear, durable goods, education and institutional medical expenses. For other items 30 days reference period was retained. This is called ‘Mixed reference period’

  2. Further, it recommended a shift away from basing the Poverty Line basket (PLB) in caloric intake and towards target nutritional outcomes.
  3. It called for an explicit provision in the Poverty Line Basket to account for private expenditure in health and education.
  4. 1st point under Algah committee mentions that it adopted separate PLB for Urban and rural areas. But Tendulkar committee ended this practice by using a uniform basket (for both rural and urban) based on previous urban poverty line basket.

    These changes were made for base year 2004-05 and ahead. These rendered past poverty lines incomparable with new ones as they were based on URP and Separate baskets for rural and urban India.

  5. Poverty line was in form of ‘Rs per capita per month’

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

Year Rural Urban
2004-05 446.7 578.8
2009-10 672.8 859.6
2011-12 816.0 1000.0

These expenditure as per expert group was sufficient to cover food and nonfood expenditure, including that on health and education. This created furore in public and government was forced to appoint a new expert group under Dr. Rangarajan.

It is often said that Tendulkar Poverty line is equivalent to World Bank’s $1 or $1.25 in PPP terms. This purely incidental and poverty line calculated by Tendulkar had nothing to do with World Bank methodologies. But government often defended poverty line claiming that it is as per global standards.

Expert group, 2012 (Rangarajan)

Expert group submitted its report in 2014 giving ‘per capita monthly expenditure’ as Rs. 972 in rural areas and Rs. 1407 in urban areas as poverty line. It preferred to use ‘Monthly expenditure of Household of five’ for the poverty line purpose which came out to be Rs 4860 in rural areas and Rs. 7035 in urban areas. It argued that considering expenditure of household is more appropriate than that of individuals. Living together brings down expenditure and as expenses such as house rent, electricity etc. gets divided into 5 members.

Other major recommendations were –

  1. It reverted to old system of separate poverty line baskets for Rural and urban areas, which was unified by Tendulkar group.
  2. Instead of ‘Mixed reference Period’ it recommended ‘Modified Mixed reference period’ in which reference periods for different items were taken as –
    1. 365-days for clothing, footwear, education, institutional medical care, and durable goods,
    2. 7-days for edible oil, egg, fish and meat, vegetables, fruits, spices, beverages, refreshments, processed food, pan, tobacco and intoxicants, and
    3. 30-days for the remaining food items, fuel and light, miscellaneous goods and services including non-institutional medical; rents and taxes.
  3. Report says that poverty line should be based on
    1. Certain normative levels of ‘adequate nourishment’ plus clothing, house rent, conveyance, education And
    2. A behaviorally determined level of other non-food expenses.

      Normative means – what is ideal and desirable?

      Behavioral Means – What people use or consume as per general behavior

  4. For normative levels of adequate nutrition – average requirements of calories, proteins and fats based on ICMR norms, differentiated by age, gender and activity for all-India rural and urban regions is considered.
    1. Calories requirement – 2090 kcal in urban areas and 2155 Kcal in rural areas
    2. Proteins – for rural areas 48 gm and for urban areas 50 gm
    3. Fat – for urban areas 28 gm and for rural areas 26 gm

      Normative levels for fat and protein have been introduced for the first time and those for calories are reduces from earlier standards of 2100 kcal and 2400 kcal for urban and rural areas respectively. This was in lines with recommendations of Indian Council of medical research. It was found by council that due to change in lifestyle, more automation in industries, growing use of automobiles etc. minimum calorific consumptions required has fallen.

  5. Poverty line by the group is also based on Independent survey conducted by ‘Center for monitoring Indian Economy’ (CMIE). The results under this survey are remarkably close to those we get through NSSO survey. Confirming adequacy of NSSO data and group’s methodologies. CMIE considers maximum income required to meet consumption expenses of a household. If Income is above consumption expenses then household is above poverty line otherwise (if not able to save anything) it is below poverty line. CMIE conducted survey on 150000 households.
  6. Again National Urban and Rural poverty lines were converted to State specific poverty lines by using Fisher Index. This gave us poverty ‘ratios’ in states and state’s poverty ratios was weighted average of rural and urban state poverty ratios.

     

    As per these estimates the 30.9% of the rural population and 26.4% of the urban population was below the poverty line in 2011-12. The all-India ratio was 29.5%. In rural India, 260.5 million individuals were below poverty and in urban India 102.5 million were under poverty. Totally, 363 million were below poverty in 2011-12. It also noted that there was substantial drop in poverty ratio from 2009 levels.

World Bank’s Poverty line

The approach of poverty estimation by the World Bank is similar to that employed in India and in most of the developing countries. The World Bank estimates of poverty are based on the poverty line of US $1.25 per person per day measured at 2005 international price and adjusted to local currency using PPP (Purchasing Power Parity).

The international poverty line is worked out as the average of national poverty lines in poorest fifteen countries (in terms of consumption per capita). For this world bank runs as ‘International Comparison Program’.

Al this is essential for making International comparisons. Further, performance of a country on this front is major criteria for eligibility or other terms and condition for Loans. But it is not of much relevance for domestic policy making as it fails to provide variation within a country, region, society etc. Domestic poverty line in contrast tries to capture all local variations such as Inter-state or Rural-urban.

Asian Development Bank too has its own poverty line which is currently at $ 1.51 per person per day.

Identification of Poor/Beneficiaries

The Ministry of Rural Development has conducted a BPL Census in 1992, 1997, 2002, and 2011 to identify poor households. The BPL Census is used to target families for assistance through various schemes of the central government. The 2011 BPL Census is being conducted along with a caste census, and is dubbed the Socio-Economic & Caste Census (SECC) 2011. It is being conducted by Ministry of Rural Development with partnership of states. As it has been mentioned earlier that previous census were only for rural poor, but this is first time that a comprehensive census will include both urban and rural poor. As the name suggest it will be surveying households to collect a number of socio-economic indicators such as literacy, housing, assets and caste.

The entire exercise will be paperless, done on handheld electronic device (tablet PC). This will drastically reduce data entry errors and discretion. Census is still underway, and you can see work done so far
here.

It attempts to minimize inclusion and exclusion errors. For this it uses certain indicators which automatically exclude or include households. For example if a household have 4 wheeler vehicle, it will be automatically excluded or if a household is homeless or there is no working age and physically capable member in household, it will get automatically excluded.

Questions

  1. Comment on various issues involved in determination of poverty line in India. (200 words)
  2. In modern times it is widely accepted that poverty is multidimensional and no one criteria can be used by policy makers. Under these circumstances what is relevance of poverty line? (200 Words)
  3. Why Rangarajan expert group was appointed? Discuss major recommendations of this Group.
  4. How beneficiaries of various government schemes are identified and what role does poverty line plays in this? (200 words)
  5. Comment on global poverty lines determined by International Agencies. Discuss its relevance in domestic context of a country? (200 words)

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