Poverty
"Poverty is the worst form of Violence"
Mahatma Gandhi
Poverty - It is a situation in which an individual is deprived from basic amenities of life.
Types of Poverty
- Absolute Poverty → deprivation of basic amenities
- Relative Poverty → It is expressed in relation to differences in income/expenditure level in various sections of the society, i.e., it is related to inequalities.
As per UNDP, percentage of population earning less than half of median income is termed as poor.
Poverty line - A monetary threshold under which an individual is considered to be living in poverty (or an individual is considered to be poor).
Poverty ratio - The proportion of population living below the poverty line is termed as poverty ratio or Headcount Ratio (H).
Need to measure Poverty
- To access the level of development
- To decide developmental programs and also to evaluate the performance of developmental programs.
- To identify beneficiaries for the developmental program like subsidies, PDS food, etc.
Measurement of Poverty in India
- In India poverty is estimated by Niti Aayog (earlier Planning Commission), on the basis of monthly consumption expenditure data collected by NSSO (now CSO).
- It is estimated on the basis of methodology suggested by an expert group.
Y.K. Alagh Committee (1979) - It defined poverty line on the basis of minimum nutrition requirement.
Lakdawala Committee (1993) - It also expressed poverty line in the terms of minimum nutritional requirement as per the norms of Indian Council form medical research.
- Rural → 2400 Cal/person/day
- Urban → 2100 Cal/person/day
Now, it is revised
- Rural → 2100 Cal/person/day
- Urban → 1900 Cal/person/day
Poverty line is estimated on the basis of money needed to buy food items containing minimum required calories.
Poverty Ratio (H)
- 1973-74 → 54.9%
- 1993-94 → 36%
Prof. Suresh Tendulkar Committee (2009) - It expressed poverty line on the basis of expenditure on a basket of commodities (food items + non-food items).
It contains the expenditure on food items and selected essential non-food items like clothing, rent, convenience (transportation), medical and educational expenses, etc.
It estimated separate poverty line for urban and rural areas.
- Urban area → ₹ 32.40/person/day
- Rural area → ₹ 27/person/day
*Prices mentioned here are on the basis of 2011-12 base year.
It should be indexed to CPI (Consumer Price Index) based inflation.
National poverty line is the weighted average of urban and rural poverty line.
Poverty ratio (H)
- 1993-94 → 45.8%
- 2011-12 → 21.9%
Point to be notes - Poverty ratio (H) as per Lakdawala Committee (36%) and as per Tendulkar Committee (45.8%) is different for the same time period because -
- Both used different methodology for calculating poverty line
- Poverty ratio in case of Tendulkar Committee methodology is higher than that of Lakdawala Committee because Tendulkar also includes non-food items along with food items.
Issues related to methodology
- The price fixed is very low.
- As per world bank, Poverty ratio (H) for India in 2011-12 is 212.2% which is slightly low for the reason that poverty line used by world bank ($1.9 PPP) is calculated by taking into account 15 poorest countries. Therefore, PPP $1.9 rather represents Extreme Poverty line.
- Government is criticised for lowering the poverty line so that the beneficiaries decreases and thus developmental expenditure decreases.
Therefore, government stops using this methodology for identification of beneficiaries and left the state to identify beneficiaries or to the ministry concerned.
Therefore, State conduct Socio-economic & caste census to identify beneficiaries.
Rural development ministry → appointed N.C. Saxena Committee to identify beneficiaries → committee gave automatic inclusion and automatic exclusion methodology.
Urban development ministry → appointed Prof. Hashim Committee to identify beneficiaries.
So, the Prof. S. Tendulkar Committee's methodology is not used by the government to identify the beneficiaries under developmental schemes. Government uses this only for assessment purpose, developing plans for the most vulnerable people, etc.
Dr. C. Rangarajan Committee (2013) - It defines poverty line on the basis of expenditure on basket of commodities. It also includes food items as well as non food items.
- Food items → money spend to buy minimum nutrition requirement
- Non-food items → expenditure of median household on selected essential commodities
Rangrajan Committee gave the following threshold (at 2011-12 price level)
- Urban → ₹ 47/person/day
- Rural → ₹ 32/person/day
Working group on elimination of poverty by Niti Aayog (2015) -
- It was headed by the 1st Vice-Chairman of Niti Aayog, Dr. Arvind Panagoriya.
- It did not suggest a new poverty line due to lack of consensus.
- It suggested that till new poverty line is adopted the Niti Aayog will use Suresh Tendulkar's Poverty line.
Justification for using Suresh Tendulkar's methodology
- Government uses this only for identifying the most vulnerable sections.
- It was used only for the assessment purpose and finding how beneficiary programs are affecting/helping the most vulnerable.
- It was mainly focused on finding & focusing the most vulnerable.
International Poverty Line (by World Bank) -
It is PPP $1.9 per person per day (from 2015), earlier it was PPP $1.25 per person per day (2005-15) and before that it was PPP $1 per person per day.
It is based on the national poverty line of 15 selected poor countries.
Poverty ratio (H) of India
- 2011 → 21.2% (i.e., 30 Crore)
- 2018 → 5% (i.e., 7 Crore)
The data shows that there has been a substantial reduction in poverty.
2011 to 2018
- Per capita income growth → 5.6%
- Population growth → 1.2%
Criticism of International Poverty line
- Since it is based on the selected 15 poor countries of the world, so it is not a Poverty line rather an Extreme Poverty Line.
Classification of Countries - in per capita gross national income
- Low income countries (PL - PPP $1.9) - Less than $1045
- Low middle income countries (PL - $3.2) - $1046 to $4095
- Upper middle income countries (PL - $5.5) - $4096 to $12695
- High middle income countries (PL - ) - more than $12695
In 2017, World bank released different Poverty line for different category of countries (given above).
India falls in Lower Middle Income Country ($3.2 PPP) → H = 33%
Multidimensional Poverty Index (MPI)
- It was developed by UNDP & Oxford poverty and human development initiative.
- It was introduced in 2010 by replacing Human poverty index.
- It measures poverty on the basis of deprivation of household in respect of various basic amenities.
Dimensions and indicators of Multidimensional poverty index (MPI)
Dimensions and indicators of MPI (with their deprivation threshold) -
- Health
- Child mortality - (death of child in previous 5 years)
- Nutrition - (atleast 1 member is undernourished)
- Education
- Years of schooling - (number of members getting education for atleast 6 years)
- School attendance - (child upto standard 8 not attending school)
- Standard of living
- Cooking fuel - (using cow dung, coal or wood)
- Access to safe drinking water
- Access to electricity
- Access to sanitation
- Housing (mud/rudimentary floor, wall or roof)
- Asset (any two of these TV, radio, mobile and have a car or truck)
Deprivation Status → 0 (not deprived) or 1 (deprived)
- Depriving Score = Weightage x Deprivation status
If a family is deprived of 1/3rd or more, then the family is considered poor.
Intensity of poverty (A) - It is the weightage average of deprivation score of poor households.
and
★ MPI = H x A (Poverty ratio x Intensity of poverty)
MPI of India
- 2022 - 0.069 (H = 16.4% or 0.164 and A = 42% or 0.42)
Data from NSSO wrt poverty in India
- Average annual reduction in poverty (1980-90) - 2.1%
- Average annual reduction in poverty (1990-2000) - 0.7%
- Average annual reduction in poverty (2000-10) - 2.2%
Difference between MPI and Tendulkar's approach
- MPI
- It is a multidimensional approach (since poverty itself is a multidimensional approach, it should be measured in multidimensional approach)
- It is based on outcome
- Tendulkar's approach
- It is a unidimensional approach
- It is based on assumption
Problems/constraints in adopting MPI
- It is more expensive (as it requires more data to be collected)
- Theoretical problems (like identifying threshold and dimensions)
Andhra Pradesh has used this concept.
Terms related to poverty
- Poverty ratio or Head Count ratio -
- Poverty Gap Index (PGI) - It is the ratio by which the mean income of poor fall below poverty line.
- It shows the intensity or severity of poverty.
- Mathematically, it equals to the ratio of the difference between Poverty line and Average income of poor to the Poverty line.
For example -
- Case I - let the Poverty line be ₹30 and let three people are below the poverty line with income ₹28, ₹22 and ₹10.
And H = 3/10 or 30%
* Average income of poors = (28+22+10)/3 = 20
- Case II - let the Poverty line be the same ₹30 and three people are below the poverty line but their incomes are ₹10, ₹6 and ₹2.
and H = 3/10 or 30%
Here in the above examples, H(Poverty ratio) and Poverty line is same but the PGI is more in Case II, which shows more severe poverty in case II.
- Squared PGI (SPGI) - It is the mean of squared individual poverty gaps. It is also known as Poverty severity.
- It shows intensity/severity taking into account inequality among the poors.
For example -
- Case I - Let Poverty line be ₹20 and two people are below the poverty line with their respective income equals to ₹15 and ₹5.
PGI = (20-10)/20 = 0.5
and SPGI = [{(20-15)/20}^2 + {(20-5)/20}^2]/2 = 6.25
- Case II - Let Poverty line be ₹20 and two people are below the poverty line with their respective income equals to ₹12 and ₹8
So, H = 2/10 or 20%
PGI = (20-10)/20 = 0.5
and SPGI = [{20-12)/2}^2 +{(20-8)/2}^2]/2 = 5.2
Here in both cases, H and PGI is same but Spgi is different showing greater inequality in case I.
So, from the above discussion it is clear that -
- H - represents extent of poverty
- PGI - represents severity of poverty
- SPGI - represents severity of poverty taking into account inequality
Sen Index of Poverty -
- It was given by Prof. Amartya Sen.
- Amartya Sen got Noble prize in 1998 for his work on welfare economics.
- S = HG + I(1-G),
where, H = Poverty ratio
I = PGI
G = Gini Coefficient
It is a composite measure of poverty which takes into account extent and severity of poverty considering inequalities.
Causes of Poverty
- It is same as that of Inequality and unemployment.
- Poor status of Agriculture.
Remedies -
- Same as that for inequality and unemployment.
- Agricultural reforms
- Universal basic income
Universal basic income - It is an initiative/concept in which every adult citizen receives a set amount of monetary regularly which is usually equals to the poverty line. Its goal is to alleviate poverty.
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