The Poverty Estimation in India is a measure based on the income or consumption levels, and if the income or consumption goes below a certain minimal level, the household is said to be below the poverty line (BPL).  According to the Tendulkar Committee (2010 -11), 25.7 percent of the population in the rural areas and 13.7 percent of the population in the urban areas lives in poverty. In this article, we will see the meaning of poverty estimation, poverty line calculation and different committees definitions of the poverty line.

What is Poverty Estimation?

• The income or consumption levels are a typical measure used to estimate poverty in India, and if the income or consumption goes below a certain minimal level, the household is said to be below the poverty line (BPL).
• Poverty Line Calculation: Poverty estimation in India is presently carried out by the NITI Aayog task force using data collected by the National Sample Survey Office under the Ministry of Statistics and Programme Implementation to calculate the poverty line (MOSPI).
• Consumption vs. Income Level: In India, poverty lines are calculated based on consumption expenditure rather than income levels for the following reasons:
  • Income Variation: The income of self-employed people, daily wage labourers, and others is highly variable both in time and space, although consumption patterns are relatively stable.
  • Additional Income: Even for normal salary earners, there are often additional side revenues, which might be difficult to account for.
  • Data collection: In the case of a consumption-based poverty line, sample-based surveys use a reference period (say, 30 days) in which families are asked about their consumption in the previous 30 days, which is then used to reflect general consumption.
  • It is not possible to trace the main trend of income.
  • The reference period refers to the time frame in which NSSO staff conduct the survey and ask specific questions of households.

Need for Poverty Estimation

• Impact of Welfare Programs: Poverty estimates are significant not only for academic purposes but also for tracking the impact and success of various government policies, particularly social welfare programs aimed at eradicating poverty.
• The Ministry of Rural Development (in collaboration with the state) conducts the BPL Census to identify poor households.
• Poverty Elimination Plan: Poverty estimates in the form of poverty lines are used to create poverty elimination plans that are centred on the poor.
• Constitutional Requirement: Poverty assessment paves the path for poverty elimination, which in turn opens the way for a just and equal society, according to the Constitution.

Measurement of Poverty Line

Absolute Measurement of Poverty

• Absolute Poverty: According to the United Nations World Summit on Economic Development, absolute poverty is defined as a state of extreme deprivation of essential human requirements such as food, safe drinking water, sanitation, health, shelter, education, and information.
  • It is determined not only by income but also by the availability of social services.
• Poverty Threshold: In absolute terms, the poverty threshold is determined by the monetary worth of a basket of necessary products (needed for basic requirements), and any household with an income less than this amount is classed as poor.
• Limited Scope: The World Bank and developing countries like India utilise absolute poverty metrics based on a poverty line that remains constant across geographies and across time.
• Criticism: The use of absolute poverty measures ignores deprivation within countries and the higher cost of living in developed countries.

Relative Measurement of Poverty

• Relative Poverty: Relative Poverty exists when a household's income is lower than the country's median income, and it is primarily employed by industrialised countries.
  • Relative poverty refers to people who do not have all of their fundamental requirements met, but who do not have the same level of life as the bulk of society, or who are "relatively deprived."
• Poverty Threshold: According to this method, a specific percentage of the economically poor population is always considered poor.
• Criticism: This approach, on the other hand, ignores the importance of absolute living standards and implies that relative income is all that matters in terms of welfare.

Data Collection Methods

• Uniform Resource Period (URP): The poverty line was based on URP data until 1993-94, which comprised interviewing respondents about their consumption expenditure during a 30-day recall interval, meaning the information was based on the recall of consumption expenditure in the previous 30 days.
• Mixed Reference Period (MRP): The NSSO converted to an MRP technique in 1999-2000, which analyses the consumption of five low-frequency goods (clothing, footwear, durables, education, and institutional health expenditure) over the preceding year, as well as all other products over the previous 30 days.

Pre-Independence Poverty Estimation

• Dadabhai Naoroji estimated the poverty line (between ₹ 16 and ₹ 35 per capita per year) in his book "Poverty and Unbritish Rule in India."
  • He advocated a poverty criterion that was based on the cost of a subsistence or basic diet (rice or flour, dal, mutton, vegetables, ghee, vegetable oil, and salt).
• The poverty level established by the National Planning Committee in 1938 (varying from ₹ 15 to ₹ 20 per capita per month) was likewise based on a basic standard of living perspective that included dietary needs.
  • Subhash Chandra Bose established the National Planning Committee in 1938 under the chairmanship of Jawaharlal Nehru with the goal of setting up an economic plan with the core goal of ensuring a sufficient standard of living for the masses.
• The proponents of the Bombay Plan (1944) proposed a poverty limit of ₹ 75 per capita per year.
  • The Bombay Plan was a series of proposals for the development of India's post-independence economy put up by a small group of powerful business leaders in Bombay.

Post-Independence Poverty Estimation

VM Dandekar and N Rath

• In 1971, VM Dandekar and N Rath conducted a systematic assessment of poverty using data from the National Sample Survey (NSS).
• While prior estimates focused on subsistence living or bare minimal necessities as a criterion for the poverty line, VM Dandekar and N Rath proposed that the poverty line's criteria should be based on spending that would supply 2250 calories per day in both rural and urban areas.

Alagh Committee (1979)

• The Taskforce established by the Planning Commission, led by YK Alagh, developed a poverty line for rural and urban areas based on dietary needs and linked consumption expenditure. In the following years, the estimates would be updated to account for inflation by taking into consideration the price level.

Lakdawala Committee

• The results of the Lakdawala committee were based on the idea that the baskets were used to construct the Consumer Price Index-Industrial Workers (CPI-IW) and Consumer Price Index-Agricultural Laborers (CPI-AL) reflected the poor's consumption patterns.
• Prof DT Lakdawala chairs an expert group on 'Estimation of Proportion and Number of Poor' (former Deputy Chairman Planning Commission)
• In 1993, the Lakdawala Committee issued a report that included the following recommendations:
  • The Poverty Line strategy, which is based on calorie consumption, can be sustained (fixed consumption basket)
  • The CPI-IW in urban areas and the CPI-AL in rural areas should be used to create state-specific poverty lines, which should be updated using the CPI-IW in urban areas and the CPI-AL in rural regions.
  • National Accounts Statistics should not be used to scale poverty estimations. The Expert Group advised that only NSS data be used.
• In 1997, the Indian government approved the recommendations of the Lakdawala Committee with minimal changes.

*Click here to read more about the Lakdawala Committee.

Tendulkar Committee(2009)

The following suggestions were made by this committee, which was chaired by Suresh Tendulkar.

• A shift away from poverty estimate based on calorie consumption
• India's poverty line basket (PLB) is the same in rural and urban areas.
• A reform in the price adjustment technique to address geographical and temporal price adjustment difficulties
• When calculating poverty, private health and education expenditures are taken into account.
• The Mixed Reference Period was employed instead of the Universal Reference Period used by previous committees.
• Using this criteria, the committee determined that the poverty line in rural regions was ₹ 446.68 per capita per month in 2004-2005, and in urban areas, it was ₹ 578.80 per capita per month.
• It was ₹ 859.6 in urban areas and ₹ 672.8 in rural regions in 2009-2010. It was ₹ 1000 in urban areas and ₹ 816 in rural regions in 2010-2011.
• The below table depicts national poverty levels over the last two decades using the Tendulkar Committee methodology.

*Click here to read more about the Tendulkar Committee.

C Rangarajan Committee (2012)

The Planning Commission established a new group to estimate poverty.

• Provide a different way of determining poverty levels.
• Examine discrepancies between the NSSO's consumption data and the aggregates from the National Accounts.
• Methods for estimating poverty in different parts of the world are examined.
• Recommend how these strategies can be linked to qualifying for the government of India's various poverty-eradication programmes.
• The committee's final report was submitted in 2014. The report slammed the Tendulkar Committee's estimate of India's poverty rate.
• According to the report, this poverty level was substantially higher in 2011-2012, at 29.5 percent of the population, implying that three out of ten Indians were impoverished.

*Click here to read more about the C Rangarajan Committee.

Conclusion

The most popular way of estimating poverty in India is to evaluate income and consumption levels. A person is termed poor if his or her income falls below a certain threshold that is insufficient to support his or her basic necessities. A transparent and holistic poverty estimation in India is required for effective and efficient planning of poverty alleviation policies.

FAQs

MCQs

1. Which committee recommended the inclusion of health and education expenditures in India's poverty line estimation?

A) Alagh Committee
B) Lakdawala Committee
C) Tendulkar Committee
D) Rangarajan Committee

2. What is the primary reason for using consumption expenditure over income levels in poverty estimation in India?

A) Easier data collection
B) More stable and reliable measure
C) Government policy
D) International standards

3. Which organization is responsible for collecting data used in poverty estimation in India?

A) Reserve Bank of India
B) Ministry of Finance
C) National Sample Survey Office
D) NITI Aayog

4. Which committee's recommendations form the basis of the current official poverty line in India?

A) Alagh Committee
B) Lakdawala Committee
C) Tendulkar Committee
D) Rangarajan Committee

5. What does the poverty gap index measure?

A) The percentage of people below the poverty line
B) The average shortfall of the poor from the poverty line
C) The rate of poverty reduction
D) The income inequality among the poor

GS Mains Questions and Model Answers

Q1: Analyze the evolution of poverty estimation methods in India and their implications on policy-making.

Answer: The evolution of poverty estimation in India has been marked by significant developments through various expert committees. The Alagh Committee (1979) focused on calorie intake, defining poverty based on minimum nutritional requirements. The Lakdawala Committee (1993) broadened the approach by considering consumption expenditure without updating the poverty line for inflation. The Tendulkar Committee (2009) introduced a more comprehensive view by incorporating health and education expenditures, aligning with international standards. The Rangarajan Committee (2014) revised these metrics further to provide a nuanced perspective. These evolving methodologies have influenced policy-making by highlighting different aspects of poverty, allowing the government to tailor interventions effectively and target resources more efficiently to vulnerable sections.

Q2: Discuss the advantages and challenges of using consumption expenditure as the basis for poverty estimation in India.

Answer: Using consumption expenditure as the basis for poverty estimation in India has several advantages. It provides a more stable and consistent measure compared to income levels, which can be volatile and difficult to assess accurately in an economy with a significant informal sector. Consumption data better reflects actual living standards and helps policymakers understand household needs. However, there are challenges, including the potential underreporting of expenditure and issues related to data collection and accuracy. Surveys can miss nuances like seasonal variations in consumption and the impact of non-monetary exchanges common in rural areas. Despite these challenges, this method remains a key tool for assessing poverty and directing social welfare programs effectively.

Q3: Evaluate the role of NITI Aayog in modern poverty estimation and policy formulation in India.

Answer: NITI Aayog plays a pivotal role in modern poverty estimation and policy formulation in India. Tasked with coordinating poverty measurement efforts, the Aayog works with the National Sample Survey Office (NSSO) and other agencies to gather and analyze data. By providing policy recommendations and setting poverty reduction targets, NITI Aayog ensures that poverty alleviation strategies align with current socio-economic realities. It emphasizes comprehensive methodologies that consider multiple deprivations, including nutrition, education, and healthcare. This holistic approach facilitates evidence-based decision-making, allowing for targeted welfare initiatives that cater to the diverse needs of India's population. Challenges remain in the form of data reliability and implementation, but the Aayog’s work continues to evolve to meet these demands.

Previous Year Questions on Poverty Estimation

1. UPSC CSE Prelims 2021:

Question: Which of the following indices measures the intensity of poverty?

A) Human Development Index
B) Gini Coefficient
C) Poverty Gap Index
D) Multidimensional Poverty Index

Answer: (C)

Explanation: The Poverty Gap Index measures the intensity of poverty by calculating the average shortfall of the income or consumption of the poor from the poverty line. This index provides insight into how deep poverty runs among the population living below the poverty line.

2. UPSC CSE Mains 2019 (GS Paper 3):

Question: "Critically analyze the effectiveness of the current poverty estimation methods in India. What improvements would you suggest for better policy implementation?"

Answer: Current poverty estimation methods in India, primarily based on consumption expenditure, have been effective in highlighting the proportion of the population living below the poverty line. However, they have limitations, such as not adequately capturing multi-dimensional poverty aspects like access to healthcare, education, and living conditions. The Tendulkar and Rangarajan Committees have improved the measures, but there is a need for further refinement to include a broader set of indicators reflecting real poverty. A move towards the Multidimensional Poverty Index (MPI) could provide a more comprehensive view, allowing policies to address multiple deprivations simultaneously. Improvements in data collection, such as using technology for real-time monitoring, would enhance accuracy and policy effectiveness.