Consumption-Based Poverty Estimates Have Relevance

Relevance: GS1- Population and associated issues, Poverty and developmental issues GS2 - Social Justice GS3- Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment, Inclusive growth and issues arising from it

(Source: The Hindu, 08/16/2023 )

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Why in the news?

• This article discusses issues relating to the Multidimensional Poverty Index(MPI) and that it can not replace National Sample Survey (NSS) consumption-based poverty ratios.
• According to a recent report by the Niti Aayog on multidimensional poverty, the percentage of the poor in India has declined from 25% in 2015-16 to 15% in 2019-21 with around 135 million being lifted out of poverty in this period.
• The Global Multidimensional Poverty Index report, 2023 revealed that the incidence of multidimensional poverty dropped from 27.5% in 2015-16 to 16.2% in 2019-21 in India.

Comparison of Results

• According to the 2018 report of the Multidimensional Poverty Index, India has made momentous progress in reducing multidimensional poverty.
• Multidimensional poverty was found to have halved between 2005-06 and 2015-16, falling to 27.5%.
• This reduced the number of poor people in India by nearly 271 million in this period.
• Poverty estimates based on consumer expenditure and using the Tendulkar committee methodology indicated that the number of poor people dropped by 137 million between 2004-05 and 2011-12 despite an increase in population.
• The Rangarajan Committee methodology has revealed that the number of poor people declined by 92 million between 2009-10 and 2011-12.
• This means that around 46 million people were lifted out of poverty each year which is higher than that of global MPI (in decadal terms).
• However, the poverty ratios based on the Tendulkar and Rangarajan Committee methodologies are lower than those estimated by global MPI in absolute terms.
• Poverty based on income or consumption is different from poverty based on education or health.
• Some of the capabilities which are used in the capabilities approach to poverty measurement may not be tightly linked to the privately purchased consumption basket in terms of which the poverty lines are currently drawn.

Challenges with Multidimensional Poverty Indices

• Methodological:
  • According to the Expert Group to Review the Methodology for Measuring Poverty (2014), there are concerns over the use of multiple indicators related to their measurability, aggregation across indicators, and use in databases that provide the requisite information at reasonably short intervals.
  • Eg: Child mortality is considered an inadequate indicator as it is population-based and not household-based. This makes the analysis of poverty more difficult.
• Aggregation:
  • In principle, indicators of poverty should be independent while also relating to the same household to enable easier aggregation.
  • Eg: Access to safe drinking water cannot be aggregated with other indicators such as child mortality.

Comprehensive approach

• The progress achieved in non-income indicators such as education, health, sanitation, drinking water, and child mortality over time can be assessed using income or consumption poverty-based approaches.
• However, Deaton and Drèze (2014) claim that expenditure-based poverty estimation must be supplemented with other indicators of living standards such as nutrition, health, education, and environment.
• While viewing public services as another dimension besides consumption in a multidimensional analysis of poverty is useful, aggregating many relevant but non-corresponding metrics in a single index can be inadequate.
  • Eg: The Human Development Index of the UNDP is an arbitrary unidimensional index and not a meaningful multidimensional conceptualization.
• Most countries define poverty in terms of income or expenditure whose deficiency is the layman’s understanding of poverty.

Need for changes in surveys

• Earlier surveys indicate that the poverty ratio declines significantly during a period of high growth.
  • The COVID-19 period was one of slow growth rate which implies that the rate of reduction in the poverty ratio must have declined as well.
  • However, the consumption expenditure survey data which is being conducted this year will have to be released for a proper understanding on the matter.
• Although most countries have differences in the aggregate consumption estimates according to the National Accounts Statistics (NAS) and NSS data, the difference in India between the NSS and the NAS consumption is widening over time.
  • It has risen from less than 10% in the late 1970s to around 53.1% in 2011-12.
  • This means that the Survey Estimate is only 46.9% of NAS estimates.

Recommendations

• Integration: Both consumption-based and multidimensional poverty measures have their place. Utilizing them collectively can offer a comprehensive perspective on poverty.
• Data Improvement: Enhancing data collection methods is crucial to address inconsistencies and improve the accuracy of poverty estimates.
  • The National Statistical Office can introduce measures to improve the collection of data.
• Policy Insights: A nuanced understanding of poverty through combined approaches aids policymakers in making effective decisions that target various dimensions of deprivation.
• In addition, there is a need to supplement the results of consumption surveys with a study of the impact of public expenditure on health and education of different expenditure classes.

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FAQs

MCQs

Question: In a given year in India, official poverty lines are higher in some States than in others because (UPSC CSE 2019)

(a) poverty rates vary from State to State

(b) price levels vary from State to State

(c) Gross State Product varies from State to State

(d) quality of public distribution varies from State to State

Question: The Multi-dimensional Poverty Index developed by Oxford Poverty and Human Development Initiative with UNDP support covers which of the following?

1. Deprivation of education, health, assets and services at household level
2. Purchasing power parity at national level
3. Extent of budget deficit and GDP growth rate at the national level

Select the correct answer using the codes given below: (UPSC CSE 2012)

(a) 1 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3