Poverty Measurement - Approaches


There are many approaches for poverty measurement. Human beings need a certain minimum consumption of food and non-food items to survive. However, the perception regarding what constitutes poverty varies over time and across countries. Generally the approach is to look at it in terms of certain minimum consumption expenditure on food and non-food items. Any household failing to meet this level of consumption expenditure can be treated as a poor household.

In India, we have had a long history of studies on measurement of poverty starting from the study of Dadabhai Naoroji (1901)13 . Officially, the erstwhile Planning Commission was the nodal agency in the Government of India for estimation of poverty. These estimates are based on the recommendations of the committees appointed by it. A working group of the Planning Commission prepared a methodology of poverty estimation in 1962. There has been intense debate on this methodology by the academicians, experts and policy makers over the years. The Planning Commission constituted Task Force/Expert Group from time to time to review the methodology. The seinclude the Task Force under the chairmanship of Y.K. Alagh in 1977 (GOI, 1979); the Expert Groups under the chairmanship of D.T. Lakdawala in 1989 (GOI, 1993) and S.D. Tendulkar in 2005 (GOI, 2009).

Tendulkar Committee submitted its report in 2009. The Expert Group (Tendulkar) did not construct a poverty line. It adopted the officially measured urban poverty line of 2004-05 based on Expert Group (Lakdawala) methodology and converted this poverty line (which is Universal Reference Period URP-consumption based) into Modified Reference Period (MRP)- consumption. Here the MRP-consumption based urban poverty line is worked out as the level of per capita consumption expenditure in the MRP consumption distribution that corresponds to the bottom 25.7 per cent of the population in 2004-05. The Committee moved away from the calorie intake as anchor for poverty estimation.

In June 2012, the Government of India appointed an Expert Group (C. Rangarajan as Chairman) to take a fresh look at the methodology for the measurement of poverty. The Committee submitted its report towards the end of June 2014.

The Expert Group (Rangarajan) has gone back to the idea of separate poverty line baskets for rural and urban areas. In defining the new consumption basket separating the poor from the rest, the Rangarajan Committee is of the considered view that it should contain a food component that addresses the capability to be adequately nourished as well as some normative level of consumption expenditure for essential non-food item groups (Education, clothing, conveyance and house rent) besides a residual set of behaviorally determined non-food expenditure. The introduction of norms for certain kinds of non-food expenditures is an innovation. In the absence of any other normative criteria, the median fractile class expenditures were treated as the norm. In fact, non-food consumption as a proportion of total consumption has been steadily rising. That is why the Group decided to take a fresh look at the basket rather than only updating the old basket for price changes.

The poverty lines in the year 2011-12 for all India are presented in Table 2. For 2011-12, for rural areas the national poverty line using the Tendulkar methodology is estimated at Rs. 816 per capita per month and Rs. 1,000 per capita per month in urban areas. Thus, for a family of five, the all India poverty line in terms of consumption expenditure would amount to about Rs. 4,080 per month in rural areas and Rs. 5,000 per month in urban areas. Per year it would amount to Rs.48960 in rural areas and Rs.60,000 in urban areas.

Similar numbers are given for estimates based on Rangarajan Committee methodology. The poverty lines based on Rangarajan committee are higher than those of Tendulkar Committee. For a family of five, the expenditure would amount to Rs. 4860 in rural areas and Rs.7035 in urban areas.

There have been questions on whether one can live with this money. Sundaram (2011) mentions Suresh Tendulkar’s views on absolute poverty line as follows. “ The absolute poverty line is not the aggregation of expenditure needed for purchasing the commodities and services required for fulfilling all the basic needs. This follows from the problems of objective norm specification as well as those of aggregation across interdependent basic needs… and from the fact that households are not uniform in their composition, tastes and location across climatic conditions. There is therefore an inherent and irreducible element of arbitrariness in the specification of the absolute poverty line and (there is) no alternative but to treat it as broadly representing a ‘low enough yet reasonable’ minimum living standard” (p.111, Sundaram, 2011). As shown below, there were about 250 to 350 million poor people based on these poverty lines of the two committees. One should be concerned about the poor population.

Some other Issues in Poverty Measurement

Bottom Quintile and Shared Prosperity: Some analysts use other methods such as share of bottom quintile population in consumption to examine the changes in poverty without using poverty line15 . World Bank started using the share of bottom 40% (B40) as an indicator of shared prosperity. The idea is that prosperity needs to be better shared with the bottom 40% of the income distribution (Cruz et al, 2015). World Bank report also talk about depth of poverty16. It examines the trends in new poverty measure called personequivalent headcounts. According to the report, the depth elasticity at the global level between 1990 and 2012 was 1.18 indicating that the reductions in traditional head count ratios were accompanied by even-larger reductions in person-equivalent poverty ratios. Rangarajan and Dev (2015c) examine the depth of poverty in India using different cut-offs of poverty line. They found bunching of poverty around the poverty line in both rural and urban areas.

Multi-Dimensional Poverty: Income or consumption poverty can be different from deprivations based on education, health etc. Oxford Poverty and Human Development Initiatives (OPHI) and UNDP together developed multidimensional poverty index (MPI). It used ten indicators relating to health, education and standard of living (OPHI, 2015)17. However, there are several issues regarding multidimensional measures particularly problems in aggregation.

Identification of Poor and Socio Economic Caste Survey (SECC): Planning Commission has earlier decided to delink the consumption based poverty estimates for allocating resources to states19. The Rangarajan Committee recommended that the beneficiaries under target group oriented schemes of the Government may be selected from the deprivation-specific ranking of households. Such ranking of households could be generated from BPL (below poverty line) surveys and the latest one is Socio Economic Caste Survey (SECC) 201120 . The objective is to collect socio economic data and rank the households and state governments can prepare BPL list. Caste information also would be useful.

Official poverty estimates will not be used as caps. The beneficiaries could be selected from this set of households until the resources earmarked for the programme/scheme permit. The data are captured directly on an electronically handled device (a tablet PC). Collected data has to be verified in the panchayats.

Three step criteria are being used for ranking the households. These are: (1) automatic exclusion21 (2) automatic inclusion22 (3) remaining households will be ranked based on deprivation indicators 23 . The final selection of the indicators for ranking of households at the State level would be decided by an Expert Group, appointed recently by the Ministry of Rural Development.

Saturday, 08th Jul 2017, 10:50:13 AM

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