concept, Measurement, Definition of poverty

1. Poverty in India: Concept,
Measurement and Trends
Prof. Mahendra Kumar Ghadoliya
www.ghadoliyaseconomics-mahendra.blogspot.in

2. Introduction
Concepts of Poverty and Poverty Line
Measurement of Poverty
Trends in Poverty over Time
Magnitude of Poverty

3. India’s economic structure has changed dramatically over last seven
decades and it is the fastest growing economy in the world.
Benefits of growth have reached only marginally to the low income
groups.
Empirical genesis very old – from Classical economists- subsistence
wage theory, estimated an income level “necessary for the bare wants of
a human being, to keep him in ordinary good health and decency”.
Estimated cost of food, clothing, hut, oil for lamp, barber and domestic
utensils to arrive at ‘subsistence per head’.
Dadabhai naoroji-1901 drew attention towards the mass poverty in
India

4. Meaning of Poverty
Poverty is a multidimensional concept and it has been defined in
many ways:
Deprivation in income, illiteracy, malnutrition, mortality, morbidity,
access to fresh water and sanitation, vulnerability to economic
shocks, less or no assets, etc.
 Poverty is inability to get the minimum consumption requirements
in terms of food, clothing, housing, education and health.
Income deprivation is linked in many cases to other forms of
deprivation, but do not always move together with others.

5. There are three perspectives of poverty:
Income perspectives- A person is poor if the income level is below
the defined poverty line. Poverty line refers to certain minimum
threshold income or consumption level. This concept is widely used
in many countries.
 The basic need perspective defines poverty as deprivation of basic
human needs, including food, besides health, education and essential
services.
The capability perspectives looks at poverty in terms of certain
basic capabilities to function. Cloth and shelter, nourishment,
avoiding preventable morbidity and participation in community life.

6. Income Poverty: Relative and absolute approach
Absolute Poverty- refers to a threshold income
(consumption) level defined in absolute terms. Persons
below a pre-defined threshold income are called poor.
Relative Poverty defined in relative terms as different
conditions of persons living in different regions or
different countries. It is measured with reference to level
of living of another person; or, in relation to an income
distribution parameter. Examples: 50% of mean income
or median, mean minus one standard deviation. Thus, the
relative poverty takes reference to income and
expenditure distribution amongst various income groups.

7. The Biological or Subsistence Approach-
• A minimum level of living necessary for physical and social development
of a person. Estimated as: total consumption expenditure level that
meets energy (calorie) need of an average person.
• Poverty Line comprises of both food and non-food components of
consumption.
• Poverty Line Considers non-food expenditure actually incurred
corresponding to this total expenditure.
• Difficult to consider minimum non-food needs entirely on an objective
basis

8. Indian poverty
The first specific and scientific attempt to identify the poor and to
measure the extent of poverty was made by an expert committee
constituted by the Planning Commission Government of India in
July 1962.
 It has put the nationally desirable minimum level of consumer
expenditure at Rs. 20 per capita per month according to 1960-61
price.
In 1971, Dandekar and Rath introduced the calories concept
explicitly they considered the energy requirement of 2250 calories
as the basic need per day per person According to them this
minimum level of consumption would require an expenditure of
Rs.20/- per head per month for rural areas and Rs. 22.50/- for
urban areas according to 1960-61 prices.
Dantwala, 1973 stated that there cannot be a single universal
norm of poverty.

9. Indian poverty
After reviewing all the earlier studies on poverty the seventh plan
tried to have a fresh look at the problem by using 32nd round (NSS
data) on consumer expenditure (1977-78) and also consumer
expenditure distribution of 38th round (NSS provisional) 1983-84.
Government estimated the population below the poverty line in
1984-85 at 33.9 (222.2 million persons) percent in rural area and
27.3 (50.5 million persons) percent in urban. Taking India as a
whole 36.9 % (272.7 Million persons) of the total population was
living below the poverty line.

10. • Working Group of planning commission, 1962
• This was first crated by planning commission to determine desirable minimum level of
expenditure required to make a living.
• Recommended ‘national minimum consumption expenditure’ for a household of 5
• Rural – Rs 100/ month (Rs 20/ Person)
• Urban – Rs 125/ month (Rs 25/ Person)
• It excluded Health and educational expenditure on assuming that it is provided by state.
• Used recommendation on ‘Balanced diet’ by Indian council of Medical Research.

11. Task force of 1979, under Y.K. Algah
• ‘Average calorie requirements‘ were estimated, separately for the
all -India rural and urban areas on the recommendation of Nutrition Expert Group.
• The estimated calorie norm was 2400 kcal per capita per day in rural areas and 2100
kcal per capita per day in urban areas.
• National Sample Survey Office (NSSO) data were used to arrive at a monetary value
of this Poverty Line Basket.
• It was estimated that, on an average, consumer expenditure (food and non-food) of
Rs.49.09 per capita per month was associated with a calorie intake of 2400 per
capita per day in rural areas and Rs.56.64 per capita per month with a calorie intake
of 2100 per day in urban areas.
• This ‘Monthly Per Capita Expenditure’ was termed as poverty line. This poverty line
was used for upcoming years after

12. Expert group 1993 (Lakdawala)
• This panel didn’t redefine poverty line and retained mechanism defined by Algah expert
group.
• Instead it disaggregated ‘All India poverty line’ to ‘State specific Poverty Line’ (using
Fisher index) for base year 1973-74.
• For latter periods these ‘Rural and Urban Poverty lines of states’ were updated by taking into
account
• a)’Consumer Price Index- Agricultural Labor’ for ‘Rural state specific poverty line ‘ and
• b)’CPI- Industrial workers’ for ‘Urban state specific poverty line’.
• Then All India poverty Ratio (rural and urban) was derived through ‘population based
weighted average’ of poverty ratios of various states.
• Hence ‘poverty line’ of India is converted in to ‘state poverty lines’ while ‘poverty ratios’ of
states were aggregated to ‘All India poverty ratio’

13. Expert Group 2005 (Tendulkar)
• Largely it adopted same poverty line (Lakdawala) and major departures were:
• It adopted ‘Mixed Reference Period‘ in place of ‘Uniform reference period‘
• During previous methodologies, a ‘uniform reference period’ was used that included 30 days just
before the survey for all food and nonfood items. But Tendulkar group changed ‘reference period’
to past one year for 5 nonfood items viz., clothing, footwear, durable goods, education and
institutional medical expenses. For other items 30 days reference period was retained. This is
called ‘Mixed reference period’
• Further, it recommended a shift away from basing the Poverty Line basket (PLB) in
caloric intake and towards target nutritional outcomes.
• It called for an explicit provision in the Poverty Line Basket to account for private
expenditure in health and education.
• Algah committee adopted a separate PLB for Urban and rural areas. But Tendulkar
committee ended this practice by using a uniform basket (for both rural and
urban) based on previous urban poverty line basket.

14. National poverty lines (in Rs per capita per month) for the years 2004-05, 2009-10 and 2011-12
Year Rural Urban
2004-05 446.7 578.8
2009-10 672.8 859.6
2011-12 816.0 1000.0
These expenditure as per expert group was sufficient to cover food and non-food
expenditure, including that on health and education. This created furore in public
and government was forced to appoint a new expert group under Dr. Rangarajan.

15. Expert group, 2012 (Rangarajan)
• Expert group submitted its report in 2014 giving ‘per capita monthly
expenditure’ as Rs. 972 in rural areas and Rs. 1407 in urban areas as poverty
line. It preferred to use ‘Monthly expenditure of Household of five’ for the
poverty line purpose which came out to be Rs 4860 in rural areas and Rs. 7035
in urban areas. It argued that considering expenditure of household is more
appropriate than that of individuals. Living together brings down expenditure
and as expenses such as house rent, electricity etc. gets divided into 5
members.
• Other major recommendations were –
It reverted to old system of separate poverty line baskets for Rural and urban
areas, which was unified by Tendulkar group.
Instead of ‘Mixed reference Period’ it recommended ‘Modified Mixed reference
period’ in which reference periods for different items were taken as –

16. Expert group, 2012 (Rangarajan) contd..
• 365-days for clothing, footwear, education, institutional medical care, and
durable goods,
7-days for edible oil, egg, fish and meat, vegetables, fruits, spices, beverages,
refreshments, processed food, pan, tobacco and intoxicants, and
30-days for the remaining food items, fuel and light, miscellaneous goods and
services including non-institutional medical; rents and taxes.
• Report says that poverty line should be based on
Certain normative levels of ‘adequate nourishment’ plus clothing, house rent,
conveyance, education And
A behaviourally determined level of other non-food expenses.
Normative means – what is ideal and desirable?
Behavioural Means – What people use or consume as per general behaviour

17. Expert group, 2012 (Rangarajan) contd..
• For normative levels of adequate nutrition – average requirements of
calories, proteins and fats based on ICMR norms, differentiated by age,
gender and activity for all-India rural and urban regions is considered.
• Calories requirement – 2090 kcal in urban areas and 2155 Kcal in rural
areas
• Proteins – for rural areas 48 gm and for urban areas 50 gm
• Fat – for urban areas 28 gm and for rural areas 26 gm
• Normative levels for fat and protein have been introduced for the first
time and those for calories are reduced from earlier standards of 2100
kcal and 2400 kcal for urban and rural areas respectively.
• This was in lines with recommendations of Indian Council of medical
research. It was found by council that due to change in lifestyle, more
automation in industries, growing use of automobiles etc. minimum
calorific consumptions required has fallen.

18. Expert group, 2012 (Rangarajan) contd..
• Poverty line by the group is also based on Independent survey conducted by
‘Center for monitoring Indian Economy’ (CMIE).
• Again National Urban and Rural poverty lines were converted to State specific
poverty lines by using Fisher Index. This gave us poverty ‘ratios’ in states and
state’s poverty ratios was weighted average of rural and urban state poverty
ratios.
• As per these estimates the 30.9% of the rural population and 26.4% of the
urban population was below the poverty line in 2011-12. The all-India ratio
was 29.5%.
• In rural India, 260.5 million individuals were below poverty and in urban
India 102.5 million were under poverty. Totally, 363 million were below
poverty in 2011-12. It also noted that there was substantial drop in poverty
ratio from 2009 levels.

20. n
m
HCR 
Poverty Measures
Head Count Ratio (HCR), Poverty Gap (PG) and Squared
Poverty Gap (SPG)
  )(1
1



m
i
i
z
yz
n
PG
 
2
1
1 





 

m
i
i
z
yz
n
SPG
m= no. of poor population, n = total population,
z= poverty line, yi =income of i-th person

21. • Broadly, two basic issues are involved in the measurement of poverty.
• (i) identification, and aggregation. There are two standard measure of
poverty i.e. head count and gap in economic position of individuals and
groups (termed as ‘poverty gap’)-
• The head count approach entails the following three steps:
• (i) computation of a poverty line,
• (ii) defining in a specific way, the number of poor; and
• (III) expressing the ratio of persons below the poverty line, to the total
number of people in a particular society. This measure has been
extensively used by majority of economists of India.

22. • Poverty gap measure is defined as the ratio of the average income
below the poverty line. In this approach the aggregate shortfall of
income of all the poor from the specified poverty line is calculated. It
explains the fact how poor the are.
• Squared Poverty Gap index (SPG): Adds the dimension of
inequality among the poor to the poverty gap index. For a given
value of the PGI, population with greater dispersion of income
among poor indicates a higher value for the SPG.
• Vector of poverty: Poverty is not only fulfilling the calorie
requirement. We as a humans have variety of needs and it is the
duty of the society to at least give minimum standard of living so
that poor may live in comfort. The vector is given here under:

23. Vector of Poverty

24. Causes or Factors of poverty:
• Rapid growth of population
• Unemployment
• Indebtedness
• Geographical factors- isolation, low resource base, low rainfall
• Inequality
• Demographic factors- high dependency ratio, poor nutrition
• Low education
• Social factors
• Institutional factors-land reforms
• Low capital
• No skill or assets, poor health, Traditional expenditure on rituals, exploitation in the market,
climatic conditions, corruption, inflation and high prices.
***