Poverty Estimation in India - 3 | Agriculture Optional Notes for UPSC PDF Download

Post-Independence Poverty Estimation

Planning Commission Expert Group (1962): A working group established by the Planning Commission in 1962 devised separate poverty lines for rural and urban areas, setting them at ₹20 and ₹25 per capita per year, respectively.

VM Dandekar and N Rath (1971): In 1971, VM Dandekar and N Rath conducted the first systematic assessment of poverty in India, utilizing National Sample Survey (NSS) data. Their approach differed from earlier scholars by advocating that the poverty line should be based on expenditure sufficient to provide 2250 calories per day in both rural and urban settings.

Expenditure-Based Poverty Line Estimation: This approach sparked a debate on the minimum calorie consumption norms.

Alagh Committee (1979): A task force convened by the Planning Commission, chaired by YK Alagh, constructed poverty lines for rural and urban areas, considering nutritional requirements and related consumption expenditure. Furthermore, it proposed that poverty estimates for subsequent years should be adjusted for inflation.

Lakdawala Committee (1993): The Task Force led by DT Lakdawala operated under the assumption that the basket of goods and services used to calculate the Consumer Price Index-Industrial Workers (CPI-IW) and Consumer Price Index-Agricultural Labourers (CPI-AL) represented the consumption patterns of the poor. The committee recommended the following:

• Continue to calculate consumption expenditure based on calorie consumption, as previously practiced.
• Create state-specific poverty lines and regularly update them using CPI-IW in urban areas and CPI-AL in rural areas.
• Discontinue the practice of scaling poverty estimates based on National Accounts Statisics.

Reforming Poverty Estimation: Recommendations from Tendulkar and Rangarajan Committees

• Transition from Calorie-Based Poverty Estimation: The Tendulkar Committee departed from the calorie consumption approach and based its calculations on a comprehensive list of items encompassing various aspects of life, from food to education and entertainment.
• Uniform Poverty Line Basket: Unlike the Alagh Committee, which employed separate poverty lines for rural and urban areas, the Tendulkar Committee introduced new poverty lines for both areas within each state, utilizing a consistent poverty line basket. The all-India poverty line for 2004-05 was set at ₹446.68 per capita per month in rural areas and ₹578.80 per capita per month in urban areas.
• Incorporating Private Expenditure: The Tendulkar Committee recommended the inclusion of private expenditure on health and education in the poverty estimation process.
• Innovative Price Adjustment Procedure: The Committee proposed a novel method for updating poverty lines, accounting for changes in prices and consumption patterns. This adjustment aimed to rectify spatial and temporal disparities, considering the consumption habits of individuals near the poverty line.
• Mixed Reference Period Shift: The Tendulkar Committee advocated a transition from Uniform Reference Period-based estimates to Mixed Reference Period-based estimates.
• Purchasing Power Parity (PPP) Consideration: The poverty lines were computed in PPP terms, equating to Rs 33 per day.

Rangarajan Committee's Approach

• Survey-Based Poverty Estimation: The Rangarajan Committee relied on an extensive household survey conducted by the Center for Monitoring Indian Economy (CMIE) to formulate its poverty estimates.
• Normative and Behavioral Poverty Line: This committee suggested establishing a poverty line based on two factors:
• Normative Level of Adequate Nutrition: A standard of nutrition that is ideal and desirable.
• Behavioral Determination of Non-Food Expenses: Taking into account people's typical consumption patterns.
• Nutritional Requirements: The normative nutrition levels were determined based on Indian Council of Medical Research (ICMR) norms, considering calorie, protein, and fat requirements differentiated by age, gender, and activity level. For instance, the calorie requirements were set at 2090 kcal in urban areas and 2155 Kcal in rural areas.
• Poverty Threshold: Individuals spending below ₹47 a day in cities and ₹32 in villages were considered impoverished.
• Modified Mixed Reference Period (MMRP): The Rangarajan Committee replaced the Mixed Reference Period (MRP) with a Modified Mixed Reference Period. This change involved different reference periods for various items, such as a 365-day period for clothing, footwear, education, institutional medical care, and durable goods, 7-day period for certain food items, and 30-day period for remaining food items, fuel, and other goods and services.
• Critique: The Rangarajan Committee faced criticism for not exploring a multidimensional perspective of deprivation beyond expenditure-based poverty rates.

Challenges

• Complexity of Poverty Line Basket (PLB): Determining the components of the Poverty Line Basket poses a challenge due to varying price differentials for its constituents, which fluctuate from state to state and over time.

• Dynamic Demographics and Economics: The shifting consumption patterns, nutritional requirements, and prices of basket components continually change in response to macroeconomic and demographic dynamics.

• State Discrepancies: A lack of consensus among states regarding the acceptance of the Tendulkar and Rangarajan committee reports has led to a divide. While some states, like Odisha and West Bengal, support the Tendulkar Poverty Line, others, such as Delhi, Jharkhand, and Mizoram, favor the Rangarajan report.

• Critique of Official Measures: The current official poverty measures based on the Tendulkar poverty line, set at a daily expenditure of ₹27.2 in rural areas and ₹33.3 in urban areas, have faced criticism for being perceived as too low to address the real needs of the impoverished population.

The Way Forward

• Redefining Poverty Lines: Poverty lines must be recalibrated to reflect changing income levels, consumption patterns, and prices. As India transitions into a middle-income country with an estimated per capita income of around $9,000 in purchasing power parity, setting a viable poverty line becomes essential. Economists suggest a poverty line of $3.20, equivalent to ₹75 a day, which is 68% higher than the Tendulkar poverty line.

• Establishing a Viable Poverty Line: It is prudent to set the poverty line at a level that ensures households can afford two square meals a day and meet their essential life needs.

• Hybrid Approach for Poverty Measurement: A hybrid approach could combine elements of both absolute and relative poverty measurement. This approach would assess poverty from a global standard of living perspective while also considering relative poverty within countries. The poverty line under this model would encompass the income required to attain a specified welfare status, including basic nutrition and social inclusion.

• Adapting to a New Economic Reality: Indian political, policy, and administrative systems must adapt to the realities of a transitioning middle-income country. In this context, poverty is not merely defined by hunger but also by the lack of income to seize opportunities within a growing economy. Government spending should prioritize the provision of public goods over subsidies.

By addressing these challenges and adopting a more nuanced approach to poverty estimation, India can better target its efforts toward reducing poverty and improving the well-being of its population.