Poverty Line and its estimation methodology
The Planning Commission estimates levels of poverty on the basis of consumer expendituresurveys conducted by the National Sample Survey Office (NSSO).
History:
1. Pre independence poverty estimates:
• First of all done by Dada bhai naroji. His method was based on cost of subsistence diet i.e ‘rice or flour, dhal, mutton, vegetables, ghee, vegetable oil and salt’.
• Next, in 1938, the National Planning Committee Like the earlier method, they also formulated poverty line based on a minimum standard of living.
2. Post independence poverty estimates:
In 1962, the Planning Commission constituted a working group to estimate poverty nationally, and it formulated separate poverty lines for rural and urban areas – of Rs 20 and Rs 25 per capita per year respectively. (numbers not imp)
In 1971 VM Dandekar and N Rath made the first systematic assessment of poverty in India, based on National Sample Survey (NSS) data from 1960-61. First time the concept of poverty on basis of calorie consumption was brought to lime light. Their poverty line was to be derived from the expenditure that was adequate to provide 2250 calories per day in both rural and urban areas.
Shortcoming: The consumption requirement for male female and urban rural labour is completely different from one another.
Alagh Committee (1979): In 1979, seprated both poverty lines and calorie consumption based on rural and urban requirements. For subsequent years Poverty Lines were to be calculated in accordance with inflation.
Rural 2400 cal Rs 49
Urban 2100 cal Rs 56
Lakdawala Committee (1993): Added more features and made above more efficient
(i) consumption expenditure based on calorie consumption as earlier;
(ii) first time state specific poverty lines were constructed and these were to updated using CPI-IW (industrial worker) in urban areas and CPI-AL (agri labour) in rural areas. Meaning : PL for all states separately and for country also.
This assumes that the basket of goods and services used to calculate CPI-IW and CPI-AL reflect the consumption patterns of the poor.
Tendulkar Committee (2009): Most recent and most controversial one.
Shortcomings in previous methods such as:
a) consumption patterns were linked to the 1973-74 poverty line baskets (PLBs) of goods and services but the choice of consumption patter has been completely changed since then.
b) Poverty was estimated according to inflation but we know inflation does not affect the food products uniformly across the nation. E.g. In the season of apples they are available at cheap cost in J&K and are expensive in Tamil Nadu no matter what is the WPI or CPI. So inflation does not reflect the ground reality
c) earlier poverty lines assumed that health and education would be provided by the State. So education and health were not included in the basic requirement basket.
Recommendations:
(i) A shift away from calorie consumption based poverty estimation i.e not on calorie consumed but the money spent for various items including food, clothing etc (details are given below) .
(ii) A uniform poverty line basket (PLB) in both rural and urban India i.e. same items of basic requirement for rural as well as urban population.
(iii) A change in the price adjustment procedure to correct spatial and temporal issues with price adjustment like explained above in point (b).
(iv) Incorporation of expenditure on health and education while estimating poverty.
Mixed Reference Period (MRP): five low-frequency items (clothing, footwear, durables, education and institutional health expenditure) are surveyed over the previous 365 days, and all other items over the previous 30 days.
Uniform Reference Period (URP): detail consumption over the previous 30 days includes all above but this is limited only to one month.
(ii) (v) Also continued with the adjustment of PL on basis of CPI-AL for rural and CPI-IW for urban poor.
(vi) Use Mixed Reference Period (MRP) based estimates, as opposed to Uniform Reference Period (URP) based estimates that were used in earlier methods for estimating poverty.
Estimation of poverty line method:
How much money is spent for the items mentioned above by those who were under PL (Poverty Line) before tendulkar (according to lakadwala’s estimation). On its basis they came to conclusion that poverty line was Rs. 446 per capita and Rs. 578 per capita for rural and urban respectively for 2005-06.
Remember that his estimation was not based on Calorie consumption.
Poverty line basket by Tendulkar:
Cereal, pulses, milk, edible oil, non-vegetarian items, vegetables, fresh fruits, dry fruits, sugar, salt & spices, other food, intoxicants, fuel, clothing, footwear, education, medical (non-institutional and institutional), entertainment, personal & toilet goods, other goods, other services and durables
Controversy:
1. According to planning commission 2100 calorie for urban and 2200 calorie for rural is sufficient to be above the poverty line.
2. Basket suggested by tendulkar is same as 1971 with just minor changes here and there.
3. Like we know almost all basic utilities has been privatised by govt. So electricity, water, education, health care all is becoming expensive. These all are absolutely indispensible. No one can avoid these for only food. This factor was not counted by tendulkar.
4. Even in present day the priority of an individual has been changed. He can cut on his food but has to travel for his daily work. With petrol prices rising to sky limits the fare cost have also risen but it is also not mentioned in any recommendation.
5. Estimation of Planning commission is also based on world banks estimation which says that $1.25 is sufficient for daily use by an individual. This one is even more frivolous than others because consumption pattern cannot be same all around the world. Reasons: purchasing power parity and diversity in choice of consumption across the globe. Fluctuations in exchange rate also. Planning Commission's declaration that anyone who spends more than Rs. 33.33 in a day in urban areas and Rs. 27.20 a day in rural areas is above the poverty line is based on World Bank’s $1.25 per capita per day method.
6. Adjustment of poverty line according to inflation is far from reality. IF so then the salary of the Govt employees shall only be increased with Dearness allowances.
But every decade a new Pay commission is constituted to completely change the whole structure of salaries to reflect the actual change in priority and consumption pattern.
E.g. before 1990s the expenditure was only limited to Roti Kapda aur makaan, but now we need laptops and Smart phones too.
7. Such unrealistic Poverty estimations will further exclude the deserving poor out of the ambit of PDS and will further the poverty and worsens the living conditions of poor of our country.
8. As Tendulkar has recommended that there shall be same basket for both rural as well as urban poor is not practical. E.g. a poor lad in village needs to spend lesson on travelling than an urban manual labour that need to travel from slums to construction sites. A village inhabitant spends less on milk or grains but urban poor has to spend more. Rural labour being more intensive needs more calories than urban etc. Same size shoe does not fit all.
Rangarajan Committee: In 2012, the Planning Commission constituted a new expert panel on poverty estimation, chaired by C Rangarajan with the following key objectives:
(i) to provide an alternate method to estimate poverty levels and examine whether poverty lines should be fixed solely in terms of a consumption basket or if other criteria are also relevant;
(ii) to examine divergence between the consumption estimates based on the NSSO methodology and those emerging from the National Accounts aggregates;
(iii) to review international poverty estimation methods and indicate whether based on these, a particular method for empirical poverty estimation can be developed in India, and
(iv) to recommend how these estimates of poverty can be linked to eligibility and entitlements under the various schemes of the Government of India.
The Committee is expected to submit its report by 2014.
Reference:
Prs Blog: http://www.prsindia.org/theprsblog/?p=2848
India Current Affairs: http://indiacurrentaffairs.org/incorrect-method-of-poverty-estimation-gives-false-results-utsa-patnaik/
Youtube: http://www.youtube.com/watch?v=Wsvn6pod1Aw
http://www.youtube.com/watch?v=BqnainbD5nI
From:
Aditya Sangotra
The Planning Commission estimates levels of poverty on the basis of consumer expendituresurveys conducted by the National Sample Survey Office (NSSO).
History:
1. Pre independence poverty estimates:
• First of all done by Dada bhai naroji. His method was based on cost of subsistence diet i.e ‘rice or flour, dhal, mutton, vegetables, ghee, vegetable oil and salt’.
• Next, in 1938, the National Planning Committee Like the earlier method, they also formulated poverty line based on a minimum standard of living.
2. Post independence poverty estimates:
In 1962, the Planning Commission constituted a working group to estimate poverty nationally, and it formulated separate poverty lines for rural and urban areas – of Rs 20 and Rs 25 per capita per year respectively. (numbers not imp)
In 1971 VM Dandekar and N Rath made the first systematic assessment of poverty in India, based on National Sample Survey (NSS) data from 1960-61. First time the concept of poverty on basis of calorie consumption was brought to lime light. Their poverty line was to be derived from the expenditure that was adequate to provide 2250 calories per day in both rural and urban areas.
Shortcoming: The consumption requirement for male female and urban rural labour is completely different from one another.
Alagh Committee (1979): In 1979, seprated both poverty lines and calorie consumption based on rural and urban requirements. For subsequent years Poverty Lines were to be calculated in accordance with inflation.
Rural 2400 cal Rs 49
Urban 2100 cal Rs 56
Lakdawala Committee (1993): Added more features and made above more efficient
(i) consumption expenditure based on calorie consumption as earlier;
(ii) first time state specific poverty lines were constructed and these were to updated using CPI-IW (industrial worker) in urban areas and CPI-AL (agri labour) in rural areas. Meaning : PL for all states separately and for country also.
This assumes that the basket of goods and services used to calculate CPI-IW and CPI-AL reflect the consumption patterns of the poor.
Tendulkar Committee (2009): Most recent and most controversial one.
Shortcomings in previous methods such as:
a) consumption patterns were linked to the 1973-74 poverty line baskets (PLBs) of goods and services but the choice of consumption patter has been completely changed since then.
b) Poverty was estimated according to inflation but we know inflation does not affect the food products uniformly across the nation. E.g. In the season of apples they are available at cheap cost in J&K and are expensive in Tamil Nadu no matter what is the WPI or CPI. So inflation does not reflect the ground reality
c) earlier poverty lines assumed that health and education would be provided by the State. So education and health were not included in the basic requirement basket.
Recommendations:
(i) A shift away from calorie consumption based poverty estimation i.e not on calorie consumed but the money spent for various items including food, clothing etc (details are given below) .
(ii) A uniform poverty line basket (PLB) in both rural and urban India i.e. same items of basic requirement for rural as well as urban population.
(iii) A change in the price adjustment procedure to correct spatial and temporal issues with price adjustment like explained above in point (b).
(iv) Incorporation of expenditure on health and education while estimating poverty.
Mixed Reference Period (MRP): five low-frequency items (clothing, footwear, durables, education and institutional health expenditure) are surveyed over the previous 365 days, and all other items over the previous 30 days.
Uniform Reference Period (URP): detail consumption over the previous 30 days includes all above but this is limited only to one month.
(ii) (v) Also continued with the adjustment of PL on basis of CPI-AL for rural and CPI-IW for urban poor.
(vi) Use Mixed Reference Period (MRP) based estimates, as opposed to Uniform Reference Period (URP) based estimates that were used in earlier methods for estimating poverty.
Estimation of poverty line method:
How much money is spent for the items mentioned above by those who were under PL (Poverty Line) before tendulkar (according to lakadwala’s estimation). On its basis they came to conclusion that poverty line was Rs. 446 per capita and Rs. 578 per capita for rural and urban respectively for 2005-06.
Remember that his estimation was not based on Calorie consumption.
Poverty line basket by Tendulkar:
Cereal, pulses, milk, edible oil, non-vegetarian items, vegetables, fresh fruits, dry fruits, sugar, salt & spices, other food, intoxicants, fuel, clothing, footwear, education, medical (non-institutional and institutional), entertainment, personal & toilet goods, other goods, other services and durables
Controversy:
1. According to planning commission 2100 calorie for urban and 2200 calorie for rural is sufficient to be above the poverty line.
2. Basket suggested by tendulkar is same as 1971 with just minor changes here and there.
3. Like we know almost all basic utilities has been privatised by govt. So electricity, water, education, health care all is becoming expensive. These all are absolutely indispensible. No one can avoid these for only food. This factor was not counted by tendulkar.
4. Even in present day the priority of an individual has been changed. He can cut on his food but has to travel for his daily work. With petrol prices rising to sky limits the fare cost have also risen but it is also not mentioned in any recommendation.
5. Estimation of Planning commission is also based on world banks estimation which says that $1.25 is sufficient for daily use by an individual. This one is even more frivolous than others because consumption pattern cannot be same all around the world. Reasons: purchasing power parity and diversity in choice of consumption across the globe. Fluctuations in exchange rate also. Planning Commission's declaration that anyone who spends more than Rs. 33.33 in a day in urban areas and Rs. 27.20 a day in rural areas is above the poverty line is based on World Bank’s $1.25 per capita per day method.
6. Adjustment of poverty line according to inflation is far from reality. IF so then the salary of the Govt employees shall only be increased with Dearness allowances.
But every decade a new Pay commission is constituted to completely change the whole structure of salaries to reflect the actual change in priority and consumption pattern.
E.g. before 1990s the expenditure was only limited to Roti Kapda aur makaan, but now we need laptops and Smart phones too.
7. Such unrealistic Poverty estimations will further exclude the deserving poor out of the ambit of PDS and will further the poverty and worsens the living conditions of poor of our country.
8. As Tendulkar has recommended that there shall be same basket for both rural as well as urban poor is not practical. E.g. a poor lad in village needs to spend lesson on travelling than an urban manual labour that need to travel from slums to construction sites. A village inhabitant spends less on milk or grains but urban poor has to spend more. Rural labour being more intensive needs more calories than urban etc. Same size shoe does not fit all.
Rangarajan Committee: In 2012, the Planning Commission constituted a new expert panel on poverty estimation, chaired by C Rangarajan with the following key objectives:
(i) to provide an alternate method to estimate poverty levels and examine whether poverty lines should be fixed solely in terms of a consumption basket or if other criteria are also relevant;
(ii) to examine divergence between the consumption estimates based on the NSSO methodology and those emerging from the National Accounts aggregates;
(iii) to review international poverty estimation methods and indicate whether based on these, a particular method for empirical poverty estimation can be developed in India, and
(iv) to recommend how these estimates of poverty can be linked to eligibility and entitlements under the various schemes of the Government of India.
The Committee is expected to submit its report by 2014.
Reference:
Prs Blog: http://www.prsindia.org/theprsblog/?p=2848
India Current Affairs: http://indiacurrentaffairs.org/incorrect-method-of-poverty-estimation-gives-false-results-utsa-patnaik/
Youtube: http://www.youtube.com/watch?v=Wsvn6pod1Aw
http://www.youtube.com/watch?v=BqnainbD5nI
From:
Aditya Sangotra
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