Chapter II Poverty measurement in India

Chapter II Poverty measurement in India

Poverty measurement in India CHAPTER- II Poverty is a state of Individual, a family or a society where people are unable to fulfill even their basic necessities of life. When a substantial segment of society is deprived of the minimum level of living and continues at a bare subsistence level, that society is said to be plagued with mass poverty. Broadly speaking, the concept of poverty is generally regarded as the measurement of poorness in standard of living. The definition of poverty varies from subject to subject. The economist defines poverty in terms of person living below the poverty line based on the income-consumption approach is a relative explanation and varies from place to place and nation to nation. The politician considers poverty as social injustice. Different countries in the world have been speaking always about a war against poverty which has been hardly conquered. Psychologist has defined poverty in term of deprivation and helplessness the poor do not have any control over their circumstances which are controlled by other. Thus, Poverty dimensions are important in deciding the deprivation and helplessness among the poor. Measurement of Poverty and Guidance Poverty measurement effect public perception and can create public awareness for action, if effectively communication using tool like uniform recall period (URP) and mixed recall period (MRP), particularly when economic development has not made progress in reducing poverty. It can also further used as a tool for analyzing and displaying two or more poverty indicators for instance by presenting head count ratio and location of schools or infra-structures or natural resource bases. Absolute income measure of poverty 31

is used to determine who is considered a poor in our society. Absolute measures of poverty assume that there is a specific income level under which basic level. They purpose a relative measure existing level of development. A relative measure is more flexible than an absolute measure because it can be adjusted for changes in living standards. The reliance on income as the standard for absolute and relative measures of poverty is often criticized. Poverty can be reliance, social-exclusion and consumption measures. Self reliance measures focus on the importance of earning capacities and family s ability to support a livelihood through their own means. This addresses the issue that some families are unable to meet a certain standard of living despite the complete participation of all adult work forces. Social exclusion measures the capacity to participate fully in society and suggest that poverty can exclude people from the institutions, services, social networks and employment opportunities available to main stream of society. Consumption poverty or material hardship considers a family s level of consumption relative to a threshold. Measures that capture the essence of material hardship include basic needs and food insecurity, housing insecurity, in access to medical and health insurance in ability to pay utility bill, bad housing quality and lack of ownership of durable goods. These are also suggestion to measure poverty using local perception and to evaluate socially poverty gap magnitude of the difference between family resources and poverty thresh hold. These various measures shed light on measures of poverty in India. The number of economist and organization has conducted the studies on the extent of poverty in India. It is necessary to study some of the important estimates. 32

Ojha s Estimates of Poverty Estimates of poverty in India are typically based on normative minimum calorie intake. In the same way Ojha estimates are also based on the calorie intake. Mr. P.D. Ojha estimated the number of persons below the poverty line on the basis of an average calorie intake of 2,250 per capita per day. This entailed monthly per capita consumption expenditure of Rs. 15-18 (1960-61 prices) in urban areas and of Rs 8-11 in rural areas. On this basis Ojha estimates that 51.8 percent of total rural population it means 184 million persons and 7.6 percent which means 6 million persons in urban areas lived below poverty line. For the country as a whole 190 million persons (44 percent of total population) could be classed as poor in 1960-61. During 1967-68 Ojha estimated that 298 million persons (70 percent of rural population) lived below poverty line. Ojha therefore, concluded: Compared to 1960-61, the nutritional deficiency in rural areas widened considerably in 1967-68. As compared to only 52 percent of the rural population in the 1960-61, 70 percent of the population in the 1967-68 was found to be below poverty line. Dandaker and Rath Estimates of Poverty 1 Estimates of Poverty in India: The estimates of poverty provided Dandaker and Rath are quite old and do not indicate exactly the same incidence of poverty. Dandaker and Rath had determined poverty line slightly lower than the one determined by Minhas and yet incidence of poverty according to their estimates was greater than that indicated by Minhas s estimates. 2 33

D.M. Dandaker and Nilkhanta Rath Estimates of Poverty estimate the poverty on the basis of the value of diet with 2250 calorie as the desired minimum level of nutrition. They suggested that planning commission accepts Rs 20 per capita per month (or 240 per annum) as the minimum desirable standard, it would not be fair to use this figure for both urban and rural areas. Dandaker and Rath suggest lower minimum for rural population i.e. 180 per capita per annum and a somewhat higher minimum Rs 270 per capita per annum for urban population at 1960-61 prices. However 1968-69 prices, the figure for rural and urban population work out to be Rs. 324 and Rs 486 per capita per annum respectively. According to this estimate of 1968-69 about 40 percent of total population (i.e., 6 million) and little than 50 percent of urban population (i.e., 41 million) lived below poverty line. The percentage of person living below poverty line slowed an increased from 177 million in 1960-61, but there is no change in percentage of rural and urban poor to population in two years, it is stood 41 percent. Minhas s estimates of rural population B.S. Minhas estimates of rural population is based on the NSS data revealed that if one regards the level of per capita annual consumption expenditure of Rs. 240 as the base minimum, the 50.6 percent of the population lived below the poverty line in 1967-68. During period of 1956-57 and 1967-68, the proportion below the poverty line among the rural poor seem to have fallen in good harvest years but shot up again in bad harvest years. But there is a steady decline in the proportion of people below the poverty line i.e., from 65 percent in 1956-57 to 50.6 percent in 1967-68, and the corresponding number in the earlier year varied between 20.6 and 221 million. 3 34

Montek Ahluwalia s estimates on rural poverty Montek Ahluwalia made the study on the incidence of rural poverty in India for the period of 1956-57 to 1973-74. He used the concept of poverty line i.e., expenditure level of Rs 15 in 1960-61 prices of rural areas and Rs 20 for urban areas. He mentioned: this line has a well-established Pedigree in the Indian literature. However, it is important to emphasis attempts to interpret this line as guaranteeing nutritional minimum could be seriously misleading. Suffice to say that this level of expenditure represent an extremely low level of livings and one that has been widely accepted as minimum level in the policy debate. 4 Table 2.1 Percentage and Number of persons living below poverty line Year Size of poverty population (millions) Percentage of rural population in Poverty Ahluwalia Minhas Ahluwalia Minhas 1956-57 181 215 54.1 65.0 1957-58 171 212 50.2 63.2 1960-61 141 211 38.9 59.4 1961-61 146 206 39.4 56.4 1963-64 171 221 44.45 51.6 1964-65 184 202 46.8 50.5 1967-68 235 210 56.5-1968-69 217-51.0-1970-71 210-47.5-1973-74 241-46.1 - Source: Compiled from Gurav Datt and Mahajan taken from the journal of development study (1977) and B.S Minhas, planning and the poor. 35

One of the important features of Montek Ahluwalia s study is the fluctuation over a time in the extent or incidence of poverty, the percentage of rural poverty. Initially declined from 50 percent in mid-fifties to around 40 percent in 1960-61, rose sharply through the mid-sixties, reaching peak in 1967-68, and then declined again. He therefore concludes: The Indian experience over the past two decades cannot be characterized as showing a trend increase in the extent to poverty as whole In general, the time series show a pattern of fluctuation with the incidence of poverty falling in period of good agricultural performance and rising in period of poor performance. There are, some evidences trickle down associated with growth. Planning Commissions Estimates of Poverty-Official Methodology The planning Commission has provided the estimates of incidence of Poverty since 1970s. It is determined poverty line for rural areas at Rs 49 (1973-74) prices per capita per month while for urban areas poverty line was fixed at 56.04% per month. On this criterion using official methodology the planning commission estimated the extent of poverty for 1973-74, 1977-78, 1987-88, 1993-94. The estimates of planning commissions regarding population below the poverty line are depicted in the following table. Table 2.2 Number and percentage of population below poverty line Year Rural no. of persons (lakh) Urban no. of Persons (lakh) Combined no. of persons (lakhs) 1973-74 2693 56.4 600 49.0 3213 54.9 percentage 1977-78 2642 53.1 647 45.2 3289 51.3 1983-84 2520 45.7 709 40.8 3229 44.5 1987-88 2319 39.1 752 38.2 3071 38.9 1993-94 2440 37.3 763 32.4 3203 36.0 Source: Planning Commission, Ninth Five Year Plan (1997-2002), vol. 1, p.29 Percentage Percentage 36

Planning commissions estimates of population below the poverty line provided in above table suggest rapid decline in the incidence of poverty during, from 1973-74 to 1994-95. This success on the poverty front was clained by the planning commissions as spectacular. Planning commission has attributed this achievement mainly due to higher rate of growth, the increase in agricultural production and a substantial effort at providing employment to rural works. NSS0 55 th Round and Poverty Reduction 55 th According to figure published in economic survey (2000-2001), NSSO round shows a significant decline in poverty to 25 percent based on 30 days recall and 23.3 percent on 365 days recall methodology. The reference period for all NSS round after the early 50s, has essentially been confirm. The schedule was filled by asking the respondent about their consumption for past 30 days. During 55 th round the question consumption of clothing, footwear s, education, health and for food, tobacco and intoxicant all sample households were put both 30days and one week questions. Table 2.3 Percentage of Population living below poverty lines in Rural and Urban areas Year All India Rural Urban 1973-74 54.9 56.4 49.0 1977-78 51.3 53.14 45.2 1983-84 44.5 45.7 40.8 1993-94 38.9 39.1 38.2 1999-02 36.0 37.3 32.4 30 day recall 26.1 27.1 23.6 Source: Ministry of Finance, Government of India, Economic survey (2000-01), P.13. 37

Table 2.4 Poverty line per capita per month Year Rural Urban 1993 211.30 274.88 1999 327.56 454.11 Source; Planning Commission Gaurav Datt, Valerie Kozel and Martin Ravallion in their paper A model based assessment of India s progress in reducing poverty in 1990s suggested that the key determinants of the rate of poverty reduction at the state level are due to agricultural yield, growth of non-form sector (depending on state s initial conditions) development, spending and inflation. 5 The model has given the following findings: 1. The rate of poverty in the 1990s is slightly lower than in 1980s National: 0.8% point against 1% point Rural: 0.9% point against 0.7% point 2. Poverty reduction in the 1990s is also lower than expected from prereform national elasticity of poverty with respect to mean consumption i.e. 0.81 point in 1990s as regard 1.61% points in the earlier period. The main reason behind slow decline in poverty is pattern of growth that was promoted following the policies of liberalization, Privatization and Globalization. Abhijitsen (2000) estimates of consumer expenditure and its distribution-statistical priorities after NSS 55 th Round, Economic and political weekly, December 16. Abhijit Sen questioned the view of Visvaria. Sen Writes; Moreover, the limited result now from the 55 th round show clearly that the answers to both one week and 30 day question have been examined by the 38

presence of the other. Quite possible, exclusive reliance on the 365 days in case clothing etc. has also altered responses. As a result consumption estimates from this round, and will probably be virtual useless for any assessment of change in consumer demand. Precisely, the same position was taken by planning commission, which did not accept NSS poverty figures, in view of the sharp criticism of methodology, the planning commission decided to use 30 day recall basis of poverty at 26.1 percent in all official documents. Latest planning commission estimates of poverty 6 The latest planning commission estimates poverty using data from large sample survey on household consumer expenditure carried out by National Surveys office every year (NSSO) every five years. It defines poverty line on the base of monthly per capita consumption expenditure (MPCE). The commission for the estimation of poverty and planning commission based on the recommendation made by expert in the field from time to time. The expert group consists of Prof. Suresh Tendulkar as head which submitted its report in Dec. 2009 has computed the poverty line at all India level as MPCE Rs 447 for rural areas and Rs. 579 for urban areas in 2004-05. After 2004-05, this survey has been conducted in 2009-10. The planning commission has updated new poverty line and poverty ratio for 2009-10 as per the recommendation of the Tendulkar Committee using 6 th round (2009-10) data from household consumer expenditure survey. It has been estimated new poverty line at all India level as an MPCE of Rs. 673 for rural areas and Rs 860 for urban areas in 2009-10. If we look at the percentage of people living below poverty line in the country has declined from 37.2 percent in 2004-05 to 29.8 percent in 2009-10. In absolute terms, the number of poor people has fallen by 52.4 million during this period. Of this, 48.1 million are rural poor and 4.3 million are urban 39

poor. This poverty has declined on an average by 1.5 percentage points per year between 2004 and 2009-10. The yearly average rate of decline during the period 2004-05 to 2009-10 is twice the rate decline during period 1993-94 to 2004. This is shown given in the Table 2.5. Table 2.5 Number of Poor in Million and Poverty Ratio Year Number poor (million) Poverty ratio (%) Rural Urban Total Rural Urban Total 1993-94 328.6 74.5 403.7 50.1 31.8 45.3 2004-05 32.63 80.8 407.1 41.8 25.7 37.2 2009-10 278.2 76.5 354.7 33.8 20.9 29.8 Annual av. Decline: 1993-94 to 2004-05(% points per annum. Annual av. Decline: 2004-05 to 2009-10. - - - 0.75 0.55 0.74 - - - 1.60 0.96 1.48 Source: Planning commission, estimated by Tendulkar method. Infant mortality rate which was 58 per thousand in 2005 has fallen to 44 in the year 2011. The number of rural household provided toilet facilities annually has increased from 6.21 lakh, in 200-03 to 88 lakh in 2011-12. Similarly MPCE (at constant prices) has also increased from Rs 558.78 and Rs 1052.36 during 2004-05 to 707.24 and 1359.75 in 2011-12 in rural and urban areas respectively. The estimates rural urban gap, the monthly per capita expenditure (MPCE) defined first at household level to assign a value that indicate the level of living to each individual or household is used. According to the provisional finding of 68 th round (2011-12) of the NSS, average MPCE (uniform reference period based) is Rs 1281.45 and Rs 2401.68 40

respectively for rural and urban India indicating rural-urban income disparities. However, monthly per capita rural consumption rose by 18 percent in real term in 2011-12 over 2009-10. And monthly per capita urban consumption rose by only 13.3 percent. Thus the rate of increase in the MPCE of rural areas is higher than that of urban areas, indicating a bridging of rural-urban gap. This is shown in data table given below. Out of the MPCE, the share of food as per 66 th round, NSS data (2009-10) is Rs. 600 (57 percent) and Rs 881 (44 percent) of rural and urban India respectively, showing a higher share for food in rural compared to urban India. NSS Round Table 2.6 Current prices in rural and urban areas Year Current Prices 2004-05 Current Prices 2011-12 Rural Urban Rural Urban 68 th round July 2011-June2012 702.24 1359.75 1281.45 2401.68 66 th round July2009-June1010 599.06 1200.70 927.70 1785.81 61th round July2004- June2005 558.78 558.36 558.36 1052.36 Source: NSSO Press release 1 August 2012 (The result of 68 th round of NSS data are provisional. Study of rural poor by Ravallion & Gourav Datt Gaurav Datt and Martin Ravallion in his paper Regional disparities, targeting and poverty in India (1989) developed the concept of poverty gap along with poverty line. The Author has also used Rs 89 as the poverty line. Unlike most developing countries, consistent poverty measure for India can be tracked over a long time. Ravallion and Datt used 20 household survey for rural India for the year 1958-90 to measure the effect of agricultural growth on rural poverty and on rural labor market and to find out how long it takes for the effects to be felt. 41

Table 2.7 Growth of poverty in rural and urban area on the bases of real wages State Urban Rural Total P0 P P 1 0 P1 P0 P1 Andhra Pradesh 30.8 7.49 30.32 7.20 30.44 7.2 Assam 34.29 7.34 42.44 8.44 41.58 8.32 Bihar 49.28 14.58 62.48 19.10 60.76 18.52 Gujarat 40.05 8.79 44.43 10.28 43.04 9.81 Haryana 26.93 5.93 20.14 3.86 21.69 4.33 Himachal Pradesh 17.58 3.89 29.79 5.77 28.85 5.62 J & K 39.78 7.73 14.00 1.87 19.56 3.14 Karnataka 38.61 11.33 47.88 14.53 45.11 13.57 Kerala 37.76 10.42 39.07 9.85 38.82 9.96 Maharashtra 42.06 10.41 41.71 11.01 41.78 10.88 Manipur 31.79 6.91 30.56 5.33 30.93 5.94 Meghalaya 11.09 1.72 44.29 14.23 38.44 11.87 Orissa 37.79 9.24 57.74 17.79 55.16 16.71 Punjab 30.96 7.51 14.72 2.51 19.35 3.94 Rajasthan 37.9 9.83 32.37 8.45 33.58 8.75 Tamil Nadu 46.80 14.21 54.06 17.52 51.63 10.41 Tripura 32.39 8.38 35.33 7.68 35.01 7.76 Uttar Pradesh 44.19 12.17 40.95 10.58 41.48 10.88 West Bengal 40.82 11.56 59.34 20.39 54.37 18.02 All India 40.03 1094 45.02 12.70 43.90 33.29 Population Weighted 13.46 20.47 26.29 38.21 23.05 33.68 Co efficient of Variation Source: Gaurav Datt & Martin Ravallion, regional disparities targeting and poverty in India (1989) World Bank Paper w.p.s. 375, p- 37 42

Note 1. All poverty measure is expressed as percentage. 2. P 0 Expresses the percentage of population below the poverty line to corresponding population 3. P 1 (Poverty gap) = P 0 G where G = Z-Y/Z where Z represents the poverty line and Y represent the average consumption expenditure of poor in each state They found that measures of absolute rural poverty responded elastically to change in mean consumption. But agricultural growth had no desirable impact either positive or negative on the share of total consumption going to the poor. For the rural poor, Ravallion and Datt attribute long run gain from growth to higher average farm yields which benefited poor people both directly and through higher real agricultural wages. And the benefits from higher yields were not confined to those near the poverty line- the poorest also benefited. The process through which India s rural poor participate in gain from agricultural growth take time, although about half of the long- run impact comes within three years. The long run elasticity of the head-count index to farm yield was over 2 of which 40 percent came through wages. Short elasticity was for smaller. Inflation adversely affected the rural poor according to their real wages. In short Growth of poverty in rural and urban areas by Martin Ravallion & Gaurav Datt is shown in the above table 2.7. 43

Poverty Estimation in India C Rangarajan and Tendulkar Committee In official measure of poverty line in India, before 2005, was based on food security and it was defined from per capita expenditure for a person to consume enough calories and able to pay for associated essential to survive. Since, 2005 Indian government adopted the Tendulark methodology which move away from calorie intake to a basket of goods and used rural, urban and regional minimum expenditure per capita necessary to survive. C. Ranganajan Committee was set up by planning commission in 2012 and submitted it report in 2014. The planning commission had set up five member s expert group under Rangarajan to review methodology for measurement of poverty. The committee was set up in the back drop of national outrage over the planning commission suggested poverty line of Rs 22 a day for rural areas. The Rangarajan Committee estimation is based on an independent large survey of households by the centre for monitoring Indian economy (CMIE) it has used different methodology where a household is considered poor if it is unable to save. The method also include on certain normative levels of adequate nourishment, clothing, house rent, convenience, education and also behavioral determination of non-food express. And also consider average requirement of caloric, protein and fat. Based on this methodology C. Rangarajan Committee estimated the number of poor were 19 percent higher in rural areas and 41 percent more in urban areas than what was estimated using Tendulkar formula. Tendulkar, an economist, had devised the formula to assess poverty line in 2005, which the planning commission had used to estimate poverty in 2009-10 and 2011-12. 44

Table 2.8 Poverty Estimation by Suresh Tendulkar and C. Rangarajan are as under Committee Tendulkar C. Rangarajan Rural poverty line per month, family of five person 4080 4860 BPL (blow poverty line in crore) 27 37 Calorie Expenditure Only Calorific value of expenditure Calorie protein Calorie in rural areas 2400 2155 Calories in urban areas 2100 2090 Set up by Planning commission Planning commission Set up in 2005 2012 Submitted report 2009 2014 Poverty estimation method Per capita monthly Monthly fat expenditure expenditure of family Urban poverty line per day per 33 47 person (Rs) Urban Poverty line per month per person Urban poverty line per month, family of five members Rural poverty line per day per person Rural poverty line per month per person Source: Economic survey of Indian 2014-15 1000 1407 5000 7035 27 32 816 972 45

Reference 1. P. D. Ojha, A configuration of Indian Poverty-Inequality and level of living. Challenge of Poverty in India, Indian Energy, Gurav Datt and Mahajan, pg. 40 2. Dandaker K. M. and N. Rath, Poverty in India, dimension and trend s, economic and political weekly, January 2, 1971 and January 9, 1971 3. Indian Economy, Gaurav Bhatt, Mahaja, B.S Minhar Study of rural poverty in India 1967-68 4. Montek Ahluwalia, study of rural poverty, 1956-57 to 1973-74 pg.319 5. Gaurav Dutt, Valeric Kozel and Martin Ravalion a model based approach to projection of poverty in India. 6. Abhijit Sen, 2000; NSS 55 th Round, Economic and political weekly, December 16. 46