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Indian Economy / Macro Social Aggregates

Poverty Estimation in India

Poverty is one of the social evils of a developing economy. Poverty in India is not just an economic phenomenon but also a social menace since poverty is disproportionately high among SC and STs. Poverty estimation in India is done on the basis of income or consumption levels and if it falls below a calculated minimum value, then the person or the household is said to lie Below Poverty Line (BPL).

Estimation of Poverty Line in India

  • In 1979, a Task Force was appointed in the Planning Commission (PC) to examine various issues related to poverty and to define poverty.

    It, in consultation with National Institute of Nutrition, Hyderabad, tried to estimate how much calories will be generated from 100 gm of rice, 50 gm of red gram, etc.

    It estimated that the average rural dweller would require 2400 calories and urban dweller would require 2100 calories per day.

    For estimation of poverty line in India, it determined that the per capita expenditure required to get 2400 calories in the rural areas and 2100 calories in the urban areas is Rs.49.09 per person per month and Rs.56.64 per person per month respectively in terms of 1973–74 prices.

  • In 1989, the Planning Commission constituted an Expert Group under the chairmanship of Prof. D. T. Lakdawala (former Deputy Chairman, PC) to examine the definition of poverty and suggest some recommendations.

    It recommended not to change the definition but to implement state specific Below Poverty Line. The expert group while agreeing to the concept of the poverty line in terms of calories, suggested some methodological changes.

    It said Rural poverty line should be updated with Consumer Price Index (CPI) number of Agriculture Labourers (CPI-AL) and urban poverty line should be updated with the simple average of CPI number for Industrial Workers (CPI-IW) and CPI number for Urban Non Manual Employees (CPI-UNME).

    These recommendations were examined by the PC under chairmanship of Prime Minister, H. D. Deve Gowda. The PC amended to include only CPI-IW and not CPI-UNME for determining urban Poverty Line.

  • In 2009, the Suresh Tendulkar Committee followed a new method while calculating the poverty line. It was based on per capita consumption expenses per day or per month.

    For rural areas, it was calculated at Rs. 27 per day or Rs. 816 per month and for urban areas, it was calculated at Rs 33 per day or Rs 1000 per month.

    In the 2012 annual report, the RBI calculated that the national percentage of population below poverty line stood at 21.92%.

    According to National Sample Survey Office (NSSO) data on poverty in India, the percentage of population below poverty line were 54.9% in 1973-74, 44.5% in 1983, 35.9% in 1993-94 and 27.5% in 2004-05.

  • At present, the poverty estimation in India is done by a task force of NITI Aayog by computing the poverty line based on the data collected by the NSSO.

Absolute Poverty and Relative Poverty

  • Absolute poverty is a situation where a person does not receive the minimum income that is needed for meeting the minimum basic living needs required for an extended period of time. In other words, irrespective of the place of work, if the person is below poverty line he is considered to be in absolute poverty.

    In early 1990s, The World Bank fixed the absolute poverty line at $1 per day in terms of Purchasing Power Parity (PPP). It was increased to $1.08 in 1993, and in 2005, it was further increased to $1.25 per day. In 2015, the World Bank revised this international poverty line to $1.90 per day.

  • Relative poverty is a situation where people do not possess the minimum income that is needed for maintaining the normal standard of living in the society where they reside. In any individual country, the easiest way to calculate the level of poverty is relative poverty. Relative poverty differs from one country to the other.

Measures to Reduce Poverty

  • The Government of India is directly giving importance to poverty alleviation programmes which include self-employment programmes, wage employment programmes and direct cash transfer programmes (like old age pensions, widow pensions, etc.).

    In addition, the Government of India through Targeted Public Distribution System (TPDS), supplies 6 essential commodities at below market prices through nation wide fair price shops.

  • The process of poverty reduction can be accelerated when the economic growth is rapid which in turn can significantly improve the conditions of the poor.

    What is needed is a development strategy which results in an excess supply in the product market and an excess demand in the labour market. The sectors which meet this criteria are agriculture and rural non-farm sector (cottage industries, etc.).